mbozek

All of the features except #3 are available if the funds are kept in a qualified plan since all pre tax money can be rolled into a qualified plan and would also be available for loans. There is not enough money in Roth IRAs for HCEs to make a deemed IRA program a worthwhile proposition for most employers.

Yes- but the plan sponsor can avoid the mandatory rollover requirement by limiting involuntary cashouts to $1000 and charging a admin fee to terminated participants. Also the admin fee charged in a mandatory rollover IRA cannot exceed the risk free rate of return earned on the funds- which will deter most providers from wanting these funds.

Can anyone explain the advantage in adding a benefit that does not increase the amount of tax deferrals for an employee and will increase the cost of plan admin (which must be passsed on to either the employee or employer)? What featue does a deemed IRA provide (other than protection from creditors) which is not available in a regular IRA? Many states protect IRA assets from creditors anyway. The disadvantage of funds in a deemed IRA is that they are not available for plan loans.

Preventing former employees from self directing investments would be considered a significant detriment imposed on a participant who does not consent to a distribution in violation of IRC 411(a)(11). Reg. 1.411(a)(11)-11©(2). The failure to provide equal investment opportunties to former participants would result in not obtaining a valid consent to a distribution as required under the IRC. Rev. Rul 96-47.

The reason the IRS did not give you any citations is because neither of the provisions cited above apply to public employer plans. So the letter is worthless from a legal standpoint. Also the IRS does not audit many public plans and the auditor would not have the ERISA/ IRC provisions on his checklist. In any event if the IRS attempts to enforce the additonal benefits the plan sponsor has the right to ask for a letter explaining how the IRC requires a public employer to provide benefits which are required only under private employer plans under ERISA.

Why not charge all terminated ees a fees for the cost of maintaining their account- at least the plan would break even and if they dont like it they can withdraw their funds.

Are you sure that there is no copy of the adoption agreement with the signature of a corporate officer? Adoption agreements are frequently signed in counterparts when the parties sign the document at different times or locations and all the signature pages are attached to the end of the agreement.

If the stock of the company in which the esop holds is sold and shares are exchanged for cash then the Plan will no longer be able to make a distributon in shares. Obviously the plan will have to be amended to take into account the fact that participants will will not be able to receive a distributon in employer shares after they are exchanged for cash.

How can the prior service with A be counted as prior vesting service under the merged plan if employee had a break in svc from A greater than his years of prior Svc before the merger of the two plans? See reg. 1.411(a)-6©(1)(iii). Under the vesting rules, the prior svc with A would not be taken into account if the employee returns to work with A or its sucessor.

The only reason to have this discussion is if participants are claiming benefits based on failure to comply with ERISA. Otherwise the employer can pay benefits under the plan because that is all the plan formula provides. It is highly unlikly that a state court would impose liability on a govt entity for benefits imposed under a law that does not apply to a govt employer.

The predcessor plan provisions of ERISA/IRC 414(a) only apply to an employer who maintains the plan of a predecessor employer. A multiemployer plan is a plan maintained pursuant to a collective bargaining agreement between a union and one or more employers under IRC 413(a) and is subject to separate rules for crediting service. Since the employer does not maintain the CB plan the predecessor plan provisions do not apply to a merger of CB plans. The reason for this distinction is that crediting service under another CB plan after a merger would result in the merged plan having financial liabilites which were not negotiated for by the participating employers.

If the stock is redeemed for cash the participants will receive a distribution of cash upon termination of the plan. The cash can be rolled over to another plan or to an IRA. I am assuming that all plan terms willl be complied with, including an appraisal of the stock

If the benefit which triggers the TH contributon is salary reduction contributions why not have the CFO make contributions to a NQDC plan or provide for a SERP with an employer contribution ?

As been discussed in previous posts, a public employer cannot elect to be covered by ERISA. Therefore a public employer cannot be sued for a violation of a benefit accrual required under ERISA in federal court. Under state law the Govt sponsor would only be obligated to provide the benefits provided under the plan. The govt sponsor would not be obligated to provide benefits that would have been required under ERISA to be credited under the predecessor plan unless the govt entity assumed such a liability under the terms of the acquisition.

Under IRC 102 © anything given to an employee by an employer will be taxable income which must be reported to the IRS unless there is a statutory exception, e.g., fringe benefit. The payments to the employees will be deductible by the employer.

What do you mean by ERISA 403(b) arrangement? Also aren't public employers such as school districts exempt from ERISA?

Is the plan sponsor being sold for cash in exchange for all of the outstanding stock held by the KSop? I dont understand the relevance of "as long as stock is sold at the current fair market value, there is no problem..." Distributions of cash will be taxed at ordinary income tax rates instead of 5/15% capitial gains rates if the participants receive a distribution of stock.

There is no need to amend the QDRO. Under DOL rules the AP is a beneficiary. If the AP was vested in the benefit described in the QDRO then the payment must be paid to the AP's beneficaries as designated under the terms of the Plan. The failure to designate a beneficary does not result in the forfeiture of a vested benefit- the benefit will be paid to the benficaries as determined under the plan procedures (e.g., the estate). If the plan does not provide for a default bene the plan can file a complaint in interpleader in fed ct and name all the potential bene as defendants and let the ct decide who is entitled to the funds. Note- the plan can provide that the AP's interest is forfeited if the AP dies prior to commencing benefits which is different than the forfeiture of the benefits for the failure to designate a beneficiary.

The terms of the plan determine whether you will be entitled to the benefit and the plan admin must provide you with the specific section of th plan that is the basis for denying your claim. While you can contact the EBSA, the govt does not usually get involved in matters which involve plan interpretation, e.g., whether the terms of the plan permit denial of the accrual. The employer can charge you 25 cents per page for the plan document you request.

Self employed persons eligible to establish a SEP or simple plan can make contributions based upon net earnings from self emplyment reported on 1099s. Employees receive w-2. Only an employer (self employed person) can establish a qualfied, SEP or Simple plan. An employee who receives a w-2 can establish a qualified plan, SEP or Simple plan for any Sked C income received. See IRS pub 560 P 4 for definition of SE net earnings.

There is a old IRS ruling from the 70s which held that there is no step in basis for employer stock because all amounts attributible to deferred comp are considered IRD under IRC 691©. Ruling might be found under the cites to 691©.

The PLRs that have been issued are merely confirmations of the obvious- a common law employee of a corporation (e.g., IBM, Microsoft) does not engage in a PT under the IRC solely because his IRA purchases stock of the corporation. The one question I have is how is the IRA going to get access to purchase stock since only cash can be contributed to the IRA. Will the terms of the IPO allow you to have your allocated shares purchased by a trustee or custodian under your control?

the rules are in the regs under IRC 2702.

Before notifying the participant that the 1099 will be revised consider the following: 1. The change in the payment on the 1099 will not necessarily prevent favorable taxation of the distribution actually paid to the participant from a qualified plan. The IRS could accept the participant's position that the distribution meets the requirements for a rollover under IRC 402(a) and that the question of whether the employee must return part of it is a civil matter between the plan and the employee which does not affect the eligibliity of the distribution for rollover treatment under the IRC. A response by the participant to the IRS could trigger an audit of the plan (see 3). 2. Revising the 1099 would give the participant a colorable claim for discrimination under ERISA 510 (whether or not he would prevail in ct) which would allow his attorney to get discovery on all documents and correspondence relating to the plan including the calculations used to determine whether there is a restriction on a lump sum payout under the plan and whether participants who received excess payouts in the past have been allowed to to keep them as well as issues affecting the plan's qualfied status. The last thing any employer wants to do is turn over personnel and confidential correspondence to a litigant. 3. It is not in the clients interest to provide information to the IRS that a plan has engaged in a disqualifying action regardless of how remote the actual risk of disqualification is.

The penalites on P 48 apply to excess contributions to a deductible IRA. The penalty for excess contributions to a Roth IRA on P 58 is the 6% excise tax until the payment is removed. There is no income taxation on the contribution which is made on an after tax basis. The IRS can only collect taxes which are permitted under the IRC - so I would appreciate a cite for income taxation of excess Roth contributions.