mbozek

I thought after tax contributions cannot be rolled from an IRA to a qualified plan. IRC 408(d)(3)(A)(ii). Why would anyone want to put 45K in AT money in a qualified plan where the earnings are taxed at marginal rates instead of a regular account with a tax on dividends and capital gains of 5/15%?

How about a trustee to trustee transfer because of a spinoff of assets if the union will allow the spinoff of assets from its plan? Need to check with labor counsel to see if this is doable.

In those states where there is a law regulating the fiduciary aspects of investment of public plan assets the adoption an ERISA standard of prudence under a local govt plan would be void under the doctrine of state preempton since local govts are instrumentalities of the state govt and cannot adopt plan provisions that are contrary to state legislation. Adoption of an ERISA standard by a state pension plan would require appropriate state legislation. Incorporating the a4 rules in a plan adopted by a public employer will not effect plan operation because very few public employees in local govts make over 90k.

Under IRS rules all prototype plans must contain ERISA requirements for qualified plans. Only available option is a volume submitter plan but few providers are willing to offer the product because there are few potential customers.

No. Most states have laws that govern how public pension assets are to be invested by fiducaries, e.g., 40% stock/ 60% bonds and prohibit certain types of investments which are permited under ERISA. Some states require the appointment of a registered investment advisor by the plan and limit fees and commissions in ways that would conflict with ERISA. Since state plans are not subject ERISA the state courts woull apply state law where the rules conflict. Unlike churches, state employers cannot elect to be subject to ERISA so it is doubtful that even where there is no conflict that a plan would be subject to the ERISA fiduciary provisions if state law does not permit the use of the fiduciary provisions of ERISA. Since an employer who adopts a prototpype plan cannot make any changes to the terms which are not permitted under the adoption agreement, the ERISA language cannot be removed from the plan document without requiring submisson as an individual plan document. Also I would not be too concerned by leaving nondiscriminaton language in the plan because public employers have few employees who make over 90 k a year and secondly the (a)4 rules cannot be enforced by the IRS against a public er. There is no private right of action to enforce the a4 rules under the IRC.

??- the 10% penalty in 72(t) is an additional income tax, not an excise tax, which is reported on the 1040. See instructions to form 5329. Therefore the s/l for the penalty begins when the income tax is filed. I dont know what you mean by an incomplete return.

While ERISA will not apply to a governmental plan, a govt employer that adopts an IRS prototype plan will be subject to the IRS qualification provisons in form that apply to private employers under ERISA, e.g., vesting, non alienation, J & S, participation,etc. However, govt employers will be exempt from the operational provisions of IRC 401(a) such as nondiscriminaton. Other provisons such as top heavy rules will be irrevalent to a Govt employer. The question I have is whether the adoption agreement for the prototype plan has a check off box for a govt employer.

Unlike the 50% mrd excise tax, the IRS has no authority to excuse the 10% penalty under IRC 72(t). See Pub 590 p 51-52. There is nothing the taxpayer can do except wait for the statute of limitations to expire which will be 3 yrs from the date each return is due or until 4/15/07 for the 2003 return.

? Employee contributions to a 457 plan are made from compensation- if an employee has retired how can contributions be required?

I dont understand why the client wants to limit the sale of stock so as to not increase taxable income by more than 10k a year since long term capital gains are taxed at either a rate of 5% or 15% of the gain. If the gain is 40k the max captial gains tax will be 6k. Delaying the stock sale to limit taxes could backfire if the price of the stock takes a significant hit. Also the capital gains tax can be reduced by selling oyther stock for which there is a tax loss. What the client needs to do is reconstruct the tax basis for the stock remembering that the donee of a gift of stock takes the donor's basis and the recipient of stick inherited at death has a basis in stock at the fmv on the date of death. You also need to review the conditions of the change in ownership. Usually an exchange of stock of one co for another co is not a taxable event.

For retention purposes many employers provide employees with sabbiticals or allow them to work at research institutions at employer expense as part of a paid leave program. Employees can be assigned to work for another entity who will reiburse the employer for the cost of the employees services. If these programs are provided as part of the employer-employee relationship then the amount paid will be compensation to the employee includible for contribution to the 401(k) plan.

Every TPA agreement I have reviewed includes one sided provisions that limit the TPAs liability for its own negligence and some require that the employer pay the TPAs legal fees if the TPA is sued for its mistake. Using incentives could lead the TPA to deny valid claims in order to meet the target set for the incentive.

Is there a written IC contract between the corp and band members?

P: With "All Due Respect" the client has already rolled the dice by underpaying the distribution by $900. Unless the client can reduce the mrd under RR 2002-62 there is a penalty tax due. The client has to weigh the risk of paying the IRS 22k vs the remoteness of an audit by the IRS which will discover the shortfall.

Closings arent delayed for benefits issues. The normal solution is for a portion of the purchase price owed to the sellers to be held in escrow until the EPCRS matter is resolved with the IRS. Any penalty or taxes will be taken out of the escrow account and the balance paid to the sellers. The lawyers for the parties can provide the necessary language.

Fund managers close funds for reasons that have nothing to do with discrimination in retirement plans, usually because the manager runs out of good investments. It should not have any effect on discrimination because the limitation on investments is not a decision made by the plan. Applying the BRF rules to closed funds puts qualified plans at a disadvantage with SEPS and other employer plans that hold assets IRAs which are not subject to the BRF rules.

What is the risk that the IRS will ever discover that the 2003 payment was $900 short? Why ask the IRS anything given the remotness of the IRS discovering that the payment is short? Maybe the client needs another tax advisor.

The client could also ignore the underpayments for prior years and comply with the mrd requirements prospectively since the IRS has no way of knowing what is a taxpayers MRD and does not audit retirement plan distributions. The only risk is if the IRS audits the taxpayers return and checks for prior year mrds which is highly unlikely. Taxpayers who have missed MRDs in one year and double up in the next year are not audited by the IRS. You could also check the statue of limitations for penalty taxes and waiver of the penalty for reasonable cause.

There is a tax treaty between the US and Canada that describes how payments to canadian citizen are taxed from US plans. Generally periodic payments are subject to 15% witholding. Check the IRS publications list for the number of the pub on tax treaties.

It takes more than losses for three years to have a claim for imprudence given the performance of the financial markets over the same period. By the way what is the return for the last 2 years? The one reported case of a participants lawsuit against a fund for imprudent investment in the 1987 crash was dismissed without a trial because the plaintiff could not provide any evidence that the fund performed worse than other similar types of funds.

There is a tax ct case under 1398(f) where the ct held that the 10% penalty tax did not apply a taxpayer whose IRA was transferred to a bankruptcy trustee because the IRA was the property of the trustee. The Bankruptcy estate was liable for the income and penalty tax on the withdrawals. The taxpayers name was Johnson. If the penalty tax doesnt apply to the IRA owner then neither should the mrd, because the IRA is the property of another person.

It appears to me (without knowledge of the specifics of the Qual com case) that the participant has two choices: One- file a claim for benefits which would permit payment after satisfying all conditions including executing a subrogation agreement. Two- sue the third party in state court and take his chances on recovery from the third party or his insurer. Under the principal of unjust enrichment which applies to ERISA a participant could not recover from both the plan and the third party for the same expenses. Even f the plan is a party to a state ct acton for the failure to pay benefits the state ct would have to rule according to ERISA, because state laws are preempted from applying to benefit claims.

Does any one have any knowledge of a state suing an employer for automatic enrollment? There is question of whether state laws are being violated since the employee can opt out of withholding. The failure to opt out can be viewed as giving consent to withholding.

The only reason for the employee to commence a lawsuit would be to recover monetary damages against the employer. So what would be the employees claim for damages under state law if the employee is withholding pay without consent? And who will pay for employee's counsel? The question of venue depends on how a plan is regulated. There are posters on this board who claim that a cafeteria plan is not subject to ERISA in which case there would be no ERISA preemption of state law. However, there are DOL opinions from the 90s which have held that state laws requiring employee consent to salary reduction in NY and Puerto Rico are preempted. If the employee brings a claim in state court for failure to obtain consent for salary reduction, the employer could remove the case to federal court to have the case decided under ERISA. The Fed court would decide if ERISA would preempt state laws on withholding of comp.

If the parties are willing to settle the dispute voluntarily why should the plan admin object. There are two ways to settle : 1- all the parties (including the personal representatives of minor children) agree to receive a share of the benefits and provide the plan admin with waviers, releases and hold harmless agreements. 2 the plan admin can file a complaint in interpleader in fed ct. naming all of the beneficaries as defendants and then the parties can stipulate to the settlement of the benefits. This option is more expensive than the first option because of the cost of retaining a lawyer to draft the complaint and the filing fees but it is a decree entered by the ct. Your should consult with counsel to determine the best option.