mbozek

The plan is required to pay RMDs to a participant who has attained age 70 1/2 as calculated under the plan in order to remain a qualified plan. The fact the the participant does not want to receive benefits does not change that requirement. Under IRC 402(a) the participant will be taxed on amounts actually distributed by the plan regardless of whether she cashes the checks.

The fee doesnt have any effect on withholding. If the fee is taken from the participant's account then it will not affect the amount of the mrd that is subject to 20% withholding. However participant could assign the fee to the custodian after distribution, eg. mrd of $5,000 and assign $75 to the pay for the cost of the distribution so as to receive a net amt of 4925 with a withholding of $1000.

IRC 402(a) provides that employee is taxed on the amount actually distributed to the employee by the trust. If the fee is taken out before the amount is distributed to the employee then the amount actually distributed will be the net amount after the fee is taken out. If the fee is some how taken out after the distribution to the employee then the employee is taxed on the gross amount even athough the fee is paid to the TPA.

Could someone explain the advantage of a Non Q DC plan to the business owner. A Non Q DC plan is nothing more than an iou of the employer. Here the employee will defer part of his salary in return for the employer (who is the alter ego of the employee) paying the deferred amount in the future when the business is sold. The buyer may or may not agree to include the DC benefit in the purchase price. In any event the non Q Def.comp will be taxed as ordinary income when paid instead of being taxed as capital gains if it is included as the purchase price of the business.

See IRC 408(d)(6)- IRA is divided in accordance with divorce decree or property settlement order. If there are no instructions on how to divide the assets the custodian must wait for a court order because the custodian has no discretion to select the division of the assets. By the way who drafted the divorce decree without specifying how the IRA assets are to be divided? The lawyer should have read the IRA custodial account agreement. How can the wife sign the instructions when she is not the IRA account owner?

If this is pro bono it will be a black hole for billable hours. If the spouse is a paying client I hope she owns a ketchup company to pay for the time.

Toro: This looks like an assignment that has been inflicted by a feindish partner or senior associate as part of your initiation to law firm life (been there done that) and therefore you should know by now that it is higlhy unlikely that there is an answer to your question. Benefits under a plan covered by ERISA are the benefits provided under the plan since the plan formula is a settlor decision. ERISA only requires a 50% survivor annuity as the minimum benefit. The plan sponsor can provide a larger benefit but is not required to do so. While ERISA is a law of equity, the benefit options in excess of those required under ERISA are at the discretion of the plan sponsor. From the facts you have presented it does not appear that the participant completed the necessary steps to elect the 100% survivor annuuity, e.g. complete the requirement for requesting the 100% survivor annuity. Places to look for precedents: IRC 401(a) (11) for pre 84 cases on election of life annuity instead of 50% J & S and state law cases on changing LI beneficiary designation where insured dies before completing application to change LI beneficiary. My question is who do you represent- the spouse or the plan sponsor who is concerned about being sued?

?? IRC 414© states that the regulations for unincorporated entities shall be similar to the principles for controlled groups of corporations under IRC 414(b). The regulations are based on rules in the House committee report for ERISA (93-807). The reference in the 403(b) examination guidelines refers to the situation where a NP organization owns a profit making entity under the principles of the 414(b) or © regs, e.g. NP owns 80% of the stock of a profit making corporation or 80% of the profits of a partnership. It does not provide authority to exceed the scope of the regulations to aggregate plans. If the agent goes beyond the scope of the regulations the client needs to retain a tax advisor who will explain the rules to the agent including the penalities for mis representing the application of the regulations (up to and including fines and dismissal of the agent as well as personal liability). Under the 1998 IRS reform Act agents and other IRS reprentatives can not ignore the rules. And the regs are not ambigious - they clearly define the entities that are subject to aggregation under the CG rules. The IRS has not issued any special rules for aggregation of retirement plans of NP entities because of the limitation of aggregation to the rules under IRC 414(b) and ©.

Kathrine: IRC 414(b) and © are specificaly limited to controlled groups under IRC 1563 which is defined as interests in stock (b) or equity© (e.g., share pf profits or capital) by related parties. The regulations which were written by lawyers in the Treasury department (not the IRS) follow both the statute and the legislative history of ERISA in rejecting any non stock/equity realtionship as the basis for a controlled group of NP organizations. While the IRS has issued PLRs extending the controlled group rules to NPs which have common board interest, PLRs are statutorily limited to the taxpayer who requests it and cannot be applied by the IRS to any other taxpayer. The IRS has no authority for extending the holding in the PLRs to benefit plans of NP organziations who have not requested such a ruling regardless of what authority it has under other sections of the code to require aggregation. A taxpayer does not need to go to ct - just demand that the agent provide the statutory basis for aggregating the retirement plans in writing which the IRS is required to provide under the taxpayer's bill of rights.

The plan admin should not be put into the position of having to determine whether the loan is uncollectible at inception or because it would not provide for repayment on a periodic basis which would invalidate the the loan as a permissible exception to the non alienation rules as well as require the plan to have different procedures for enforcing payment of loans depending on state law. The recent 9-0 US Supreme Ct decision on preemption of state liability laws on HMOs providing health benefits under ERISA plans confirms that state laws which affect the operation of ERISA plans are preempted.

Because of liability issues mentioned in the previous post (including environmental liability issues) which accrue to the trustee as the named owner of the RE (not the IRA owner) very few custodians will accept RE as an asset in an IRA and those that do charge high fees to cover the insurance for such laibility. The custoidan will not perform any tasks such as eviction, paying property taxes, etc unless it is paid a separate fee for managment of the the property. Legal fees will be assessed against the IRA assets.

Why does he want to eliminate the provision? Having AP as a beneficary is an administrative problem that is best eliminated.

Q: In a direct rollover there should be no receipt of the loan by the participant which constitutes a distribution. The note is an asset which is transferred directly from the the trustee of the current plan to the trustee of the receiving plan, not the participant. The only change in the terms of the note is the name of the owner of the note. This is no different than a direct rollover of cash by distributing a check payable to the receiving plan ( "the Trustee of the XYZ pension plan for the benefit of John Jones") which is permitted under the direct rollover regs. Prior to enactment of direct rollovers, plan loans were permitted as a trustee to trustee transfer of assets. PLR 8910034.

See Rev. rul 76-28 for rules for claiming a deduction for contribution made to plan. Only restriction is that employer cannot revoke a deduction after it has been claimed on tax return. Client has nothing to lose by filing amended return and claiming the deduction.

H: The DOL has issued opinions preempting NY and Puerto Rico statutes requiring written employee consent to salary reduction or limiting the plans to which employee contributions can be made (Opinions 94-27 (NY), 93-05) because the state law limits, prohibits or regulates the funding of ERISA plans, including payroll deductions. The logical reason why state payroll deducton laws are preempted is that they prevent the plan from recovering plan assets from a debtor who has agreed to make payments under the terms of the plan and impair the ability of the plan to operate simultaneously in all states. If the CA law is not preempted then employers who offer loans to CA participants risk disqualfication because there is no enforceable obligation to repay the amount borrowed as required by IRS regulation 1.72(p)-1 Q-3 (b) including the requirement of making repayments at least quarterly.

Under ERISA the non resident alien spouse is automatically the beneficiary of the death benefits under the ESOP or 401(k) plan unless the spouse waives the benefits. Reg. 1.401(a)-20 Q/A-3. The children of the former marriage are at best contingent beneficaries. For non ERISA plans such as an IRA the death beneficary is determined by state law. In some states such as WA and CA the former spouse is automatically removed as IRA beneficiary upon divorce. In other states the bene designated the date of death receives the IRA benefits unless a divorce decree provides otherwise.

See Tools and Techniques of Estate Planning, Leimberg, et al, National Underwriter Co, Cincinnati Oh., Ch 27

If the plan sponsor is a corporation, benefits are payable to an employee upon severance of employment which occurs when the employee ceases to be an employee of the employer maintaining the plan. If the owner is off the payroll and not actively working in the business he has a factual basis for claiming a severance of employment. In PLR 8705076 a 100% owner who went off payroll was deemed to have incurred a "severance from service" for purpose of receiving a distribution from a qualified plan even though the owner continued to perform services as an independent contractor for the sponsor.

IRS regulations and rulings require that vested benefits be paid to participants except where the benefits can be suspended because of a return to service. The only thing you can do is offer a cash bonus or incentive to participants to sign up for direct deposit- which they already use for their SS benfits.

There is nothing to prevent a plan from being amended to allow the spouse to elect a lump sum instead of the J & S annuity after the death of the ee since the spouse is the only party in interest after the death of the employee. see Reg. 1.401(a)-11©(5). The J & S is only required to be the normal form of benefit, not the only form of benefit for the spouse. This election is a lot simplier than having the spouse execute a disclaimer. ( See IRC 2518 for requirements)

The IRS is not waiting for your offer. After the examination is completed and reviewed by a supervisor your client will get a notice from the IRS demanding payment of the excise taxes for the failure to make the required contributions. The notice will provide a right to object to the tax imposed- but this will require the assistance of a tax advisor for which the client will pay by the hour. If the reasons have no merit the IRS will deny the objection and enforce the collection of the tax unless the client wishes to file an appeal. But while the appeal is pending interest is accruing on the tax. Yes the client can apply for an offer to compromise the claim if there is doubt about the liability of the claim, doubt as to collectibility, economic hardship or promotion of effective tax administration which is permitted under form 656. But there needs to be substantial justification in order to comprimise a claim for promoting effective tax adminsitration- see Form 433B.

In case you havent noticed the IRS's middle name is revenue. The only way to negotiate a tax assessed by an agent is to have a legal argument as to why the tax does not apply. I dont think no harm no foul is a legal argument against assessment of the tax.

IRS rule requiring distribution election to be made prior to deferral has never been enforced by the courts. Courts permit the election to be changed at any time prior to the date the distribution becomes available to the participant, e.g., at termination. Safe rule is to have the employee make the election before end of year which preceeds year of terminaton. However, current rules may be changed by the provisons of the tax legislation currently being considered by Congress.

Illegal workers do not use their real names and false SS numbers because it is not sufficient for legal employment. They purchase a package of documents including a birth certificate issued in the name of a us citizen, phony drivers license and ss card in order to satisfy the information required on the I-9. The discovery of the phony ss number leads to the discovery that all identity documents are false.

H: if an employee has used an incorrect SS no. there are procedures to correect the ssn since w-2 income will be credited to the person with the wrong SS no. Employees are terminated for using a false identity because they are not legally permitted to work or be in the US, not because of using an incorrect ss no. I dont see any significance to have multiple signatures attesting to a false identity (some of which were submitted under a penalty of perjury) since any other identity documents preporting to show the correct identity presented to the plan admin will probably be false.