mbozek

An employer can certainly terminate a 403(b) plan but the only consequence is that no further contributions will be made to the plan since the employees own their accounts/annuity contracts. If the plan is subject to ERISA a final 5500 must be filed. Is the client aware of the additional costs of maintaining a 401k plan such as ADP testing, qualification requirements, full 5500 reporting, auditors requirements, etc that do not apply to 403b plans. Also in a 403b plan all HCE are eligible to contribute 13k because there is no adp test.

IRS rulings do not cover correction of mistakes outside the parameters of the qualification requirements which result in the plan receiving property that it has no legal right to possess under state laws governing trusts. Funds which are transferred to the plan in error are not plan assets and must be refunded to the owner because the plan has no legal right to the funds under legal doctrines of unjust enrichment or conversion. If the trustee mistakenly transferred funds into the plan's account that were legally the property of another customer the plan could not rely on the Exclusive benefit rule to prevent the trustee from withdrawing the funds and restoring them to the rightful owner.

Why is this any different than a retirement plan that mistakenly deposits a check that is not payable to the plan and the check is accepted by the bank/trustee? Surely the deposit is not a plan asset just because it is credited to the plan's account. Since the plan has no right to the funds it can only refund the payment to the payee.

Taxpayer can deduct maximum 50% of AGI as a charitable contribution made in cash in any tax year. Contribution of capital gains property is limited to 30% of AGI. IRC 170(b). Remainder of contribution is carried over for 5 succeeding tax years. Also itemized deduction including chartiable contributions will be reduced by 3%. The participant need to consult a tax advisor.

The loan agreement signed by the plan and the particpant is a legal contract stipulating the amount to be paid by the employee under the truth in lending law which the plan is subject to under ERISA. Ovrpayments should be returned to the employer for refund to the em[ployee as a mistake of fact because the plan was never entitled to the funds. The excess contributions cannot be considered employee contributions to the plan if the employee never agreed to make such contributions.

Isnt the question whether the rules of IRC 457 would apply to any employer that wants to establish a deferred comp plan? Since 457(b) is a statutory form of constructive receipt for those non profits subject to section 457 which is more restrictive than the constructive receipt rules of IRC 451, why cant any employer adopt the more restrictive rules of IRC 457(b) for a deferred comp plan? A profit making er could limit deferrals to 13k a year and require that payments be made under the 401(a)(9) rules and claim deductions when the payments are included in the employee's income because these provisons do not violate IRC 451. If 457 does not apply to fed credit unions then what would prohibit a credit union from establishing a non qual plan that permits deferrals in excess of 13k under IRC 451?

Under the assignment of income rule, a participant will be taxed on any retirement benefits assigned to another person unless there is a statutory exception, e.g., QDROs. The participant will not be taxed on a forfeiture which can only be made for specifically enumerated exceptions in IRC 411(a)(3). Real question - how is the payment described in closing documents? Is the employee agreeing to a forfeiture of vested benefits or is the employee consenting to payment of his benefits to the DOL. In the case of a reducton in the vested benefit of a participant because of a violation of the fiduciary provisions of ERISA, the offset amount is included in income on the date of the offset.

Employer only needs to offer salary reduction to all employees in one plan. Second plan can be restricted to ee who meet age and service requirements.

WSP- you have both options- I dont see the need to make any IRS filing since the participant's account balance is not being reduced. If you file an admendment to add an aditional contribution there is no reduction in the original contribution formula. JQ- most incidents of scrivner's error are corrected by substituting the correct version of the document which the client intended to adopt for the incorrect document which was signed without adoption of a retroactive plan admendment. In these days of computerized documents it is very easy to make undetectible changes in the document.

Why? Morningstar does not issues prospectuses subject to the Invesmtnet Co act. I would be interested in any information about a fund co that allows customers to provide their own descriptions of the mutual funds without getting prior approval from the fund. This is not an ERISA issue. It is a contract issue between the plan and the mutual fund provider about what material about the fund can be distributed by the plan to participants.

The trustee of the plan will determine whether investing in a unregistered annuity is a permissible investment. Most trustees will not deal with any investments that are not registered under the Federal Securities laws. Second the funds can be invested in an IRA annuity outside of the plan.

While plan sponsors can provide investment eduction to participants descriptions of the funds will be be subject to review by the fund manager. Check with the fund manager to see what materials about the fund can be given to participants. The fund does not want to be a party to any lawsuits for any mistakes made by a plan in describing the fund.

This may be a stupid question but have you checked with the Mutual fund family to see if they would approve of a plan admin describing their funds for participants. Because of liabiliaty under the disclosure provisons of the securities laws, mutual funds place restrictions on what materials can be distributed to participants. Second why would a plan admin take on the risk of describing a mutual fund with all of the complexities of the laws governing the fund and then pay for review by counsel when the fund will provide the necessary disclosure for free? This isnt a DOL regulatory issue, it is a risk managment issue for the plan fids.

The only argument for removing the excess contributions is if the extra contributions causes the plan to be disqualified and there is no other remedy to correct the mistake e.g., 415 limits.

NO. Stock programs are not subject to spousal consent.

The issue is not whether the participant has some liability for not notifying the employer because payments were not withheld. The issue is how the plan can retain the payments made by the employee since a loan that has been deemed in default is considered to be distribuated and the employee is taxed on the balance as of inception. Assume that the 5000 ee borrows is deemed in default. Employee makes payments of 1000 to pay off the loan. Since the loan is in default and the 5000 is taxed the 1000 is not a payment under the loan hence the employer has violated state labor laws. The payments cannot be counted as after tax contribution to the plan because the employee never agreed to make such after tax contributons.

How do you reconcile the payments that have been made for the last year with the taxation of the loan as of a date two years previous? Taxing employee will expose employer to claim for tax liability of employee as well as claims under state labor law for back wages and penalities because payments were not made to pay a loan under ERISA. The ct case can be ignored because it is not precedent under tax law. Best case is to continue accepting the loan repayments and take the audit risk. Statute of limitation for taxes on loan may expire as early as 4/14/05.

TAMs are not precedent and cannot be cited. Fed. Appeals ct decisons are precedent as well as the IRS reg that defines accrued benefit in a DC plan as the the participants account balance. Second the facts are different in that in the TAM employer made the contribution before changing the formula. IRS statement in TAM regarding when allocation accrued is a finding of fact which is outside the parameters of IRS rulings procedures. (In Izzarelli the Appeals ct reversed a lower ct finding of fact that allocation occured automatically when the contribution was made to the plan.) A taxpayer on the advice of counsel could take an audit positon that no cutback occured because a contribution had not been made to the plan and Izzarelli is subtantial authority for delaying an accrual until the allocation actually occurs in the participant's accounts. Finally there is no need to worry about a cutback because of a change in formula since WSP states that the contributions will increase because of the change.

Last time I looked Ct decisions applied to all taxpayers except the person who received a PLR. Also the IRS can only issue a ruling on a matter of law, not on the facts which involves examining when the contribution is allocated to participants accounts' under the terms of the plan. The IRS cannot deem amounts determined under a formula to be allocated to participants accounts before the amounts are contributed to the plan because the amounts are not included in the participants' accrued benefit under the reg. In the TAM the employer wanted to change the allocation after it was contributed to the plan which is not the case here.

In the tam the employer wanted to change the allocation after a contribution had been made to the plan but before the due date for filing the return (e.g., after the contribution had been allocated to participant's accounts). WSP said no contribution has been made so there has been no allocation to the particpants' accounts. Even if a contribution has been made to a plan there is no cut back, if under the terms of the plan, the formula is amended before the contribution is allocated to participants' accounts because the change in the allocation formula did not reduce the participants account balance. Izzarelli v. Rexene Products, 24 F2d 1506.

What kind of a plan is this? Are the contributions discretionary to be decided on an annual basis? If the employer has no obligaton to make a contribution for any year and only makes a contribution for a plan year by the dute date for filing a tax return under Rev. rul 76-28 by claiming a deduction there is no benefit accrual until the contribution is made. Amending the plan to provide a specific formula doesnt create a benefit accrual if the employer has no obligation to make a contribution for any year. The cutback rule only prevent a plan amendment which reduces the participant's accrued benefit which in a DC plan is the account balance held under a plan. Reg. 1.411-7(a)(2).

What is an unregistered group annuity contract? Group Annuities are insurance policies which are approved by state insurance departments.

A plan can have participants without making any contributions. Under 408(p)(2)(D) a SIMPLE plan cannot be maintained in any year for which contributions are made or benefits are accrued under a qualified plan. Accrual would include any allocation of forfeitures to participants in the PS plan. Nothing else is relevant.

Under ERISA participants in a contributory plan are entitled to the benefits accrued under IRC 411©. A few years ago the US Supreme Ct held that participants who contributed to a DB plan are not entitled to a portion of the surplus when the plan terminated because the employer takes investment risk. The participants are only entitled to the benefit accrued under the plan.

Under IRC 402(b) employee is taxed on amount of vested benefit in disqualified plan. Surplus amount is not included as part of the vested benefit but would revert to employer under the terms of the trust (although not subject to 50% excise tax of IRC 4980). Under IRC 111 amount of reversion will be subject to income tax in year received to extent employer received a tax benefit (e.g., tax deduction in a prior year) from the reversion. Dont know if waiver of reversion by employer will generate income tax which is why this needs to be reviewed by tax accountant.