mbozek

Thats interesting- I received their brochure for viatical purchase a couple of weeks ago. This point up a second risk of purchasing viatical settlements - many of the viatical companies are privately held and are not financially stable. Some insurers will purchase LI from their policyholders for their own account. The regulation of viatical settlements under state insurance laws is to protect the seller of the LI not the investors since the purchasers are buying a security which may be regulated by state securities law, not the SEC. Also there is no guarantee that the purchaser will ever receive the proceeds- insureds have disappeared after receiving the viatical settlement and some policies are issued by foreign insurers which will not pay proceeds to US investors. Investing in viatical settlements is similar to investing retirement plan assets in options- not something individual investors should do.

See IRC 414(b) and © which require the aggregation of benefits under all plans of employers who are members of the same controlled group. Therefore there is no aggregation of DB or DC benefits of employers who are not in the same controlled group.

In demutualizaton it is impossible to relate the refunds to premiums paid by participants since the dividend paid by the ins co is for the entire period that the employer had a policy. Therfore all participants over an extended period would be eligible for insignificant amounts which is why employers choose a premium holiday or increased benefits for the current participants.

Mutual benefits corp states that purchasers of viatical settlements become direct beneficaries and that settlements may be eligible for IRAs, Keoghs and other pension plans. (800-896-7990). The viatical purchaser pays money up front to the insured to become the owner of the policy and is the beneficary of the proceeds when the insured dies. Under state law a life ins policy is a contract which is assignable by its owner. Of course the risk assumed by the purchaser is that the insured will live longer than expected at the time the contract is purchased which will reduce the investment return because additional premiums will have to paid to the ins. co.

Employees who terminate voluntarily, die or retire are not included in determining whether there has been a partial termination. Also employees terminated involuntarily because of economic necessity, e.g., downturn in business are not included. People who are given the choice between taking a salary cut or having their jobs outsourced if they refuse are still making a voluntary choice to quit.

IRS has approved distributions from qualified plans where employee returns as independent contractor if there is a written agreement specifying the employees duties that conforms to the FICA/ FUTA regs for independent contractors. PLR 8931054. This occurs frequently when senior officers retire from corporations. However, the plan can have its own rules on what is separation from service for commencement of distributions.

FLA has not elected to be subject to ERISA. Why would a public hospital have 404© protection for a 457 plan when the employer provides a 403(b) plan to employees which is exempt from 404© of ERISA.

If the plan is in danger of not meeting the MCR then it would be up to the trustees to make a decision of what course of action to take based upon the documents that govern the plan including the CBA and funding waivers. The trustees cannot increase contributions by employers which are in excess of contractual provisions under the CBA just to prevent the excise tax from applying. The plan trustees need to consult with their counsel as to what their options are.

Both ERISA and IRC rules require written plan document in order for benefits to be provided. NO plan document, no benefits. If employer went into bankruptcy then assets are property of trustee in bankruptcy. Bank should request trustee to make a decision as to whether participants have a claim to assets and if so then draft a plan document. If the plan is a non qualified trust then under IRC 402(b), all participants will have constructive receipt on plan benfits which are vested under the trust.

NO. Section 4(b) of ERISA exempts all govt plans from regulation under ERISA unlike church plans which can elect to be covered by ERISA. I would be interested in the basis for the consultant's theory of electing coverage under ERISA. Check the 5500 instructons.

A: while in general what you say is correct, there are exceptions in the IRC when the interest is transferred to another taxpayer not only in divorce, but also in the event of bankruptcy when the IRA assets are transferred to the bankrupcty estate. See IRC 1398(f). IF a non spouse beneficiary who is receiving IRA payments files for bankrputcy, the IRA assets will be transferred to the bankruptcy estate and the payments made by the trustee to pay creditors claims will be taxed to the estate, not the bene. The trustee will not have to make mrd payments that would have been made by the bene.

Why do you need to provide admin services for a 457 plan? Why cant the plan sponsor permit each participant to direct investments through separate accounts maintained with a discount broker such as schwab or vanguard. Each account would be opened with the employer as owner of the account and the employee would have a power of attorney to make investment decisions but not have authority to make withdrawals. The fees would be paid from the assets. The employee would get a monthly statement of the account from the broker. The investments would include stocks, mutual funds, LI and annuities. The sponsor saves the cost of admin fees.

A: I dont understand how you can say that the non spouse bene. has no ownership rights in the IRA after the death of the IRA owner. Every IRA agreement I have seen provides that the bene succeeds to all ownership rights under the IRA after the death of the IRA owner including investment decisions, title to the assets, right to make withdrawals, ability to name a contingent bene and ability to transfer the IRA assets to another custodian by a trustee to trustee transfer. The term of mrd in the non spousal IRA is not an interest in which the bene has a transferrable right, because it is required by regulation to apply to the beneficary of the owner's IRA. However, it does not apply to separate IRA owned by the bene. To the extent the non spouse bene has ownership rights in an inherited IRA then clearly those ownership rights are an interest in the IRA which can be transfered to an IRA of the spouse under IRC 408(d)(6) which reg 1.408-4(g) states is solely the interest of the spouse, including the MRD based on the spouse age. The IRS regs are applicable to each separate IRA. If an Employee who has attained 70 1/2 can transfer his or her interest to a qualified plan to avoid MRD because the MRD rules are not transferred to the employee's interest in the Qual plan then clearly the MRD rules will not apply to the transfer of the non spouse bene interest in an inherited IRA which is transferred to a spouse in a divorce.

Reg. 1.408-4(g)(2) provides that the IRA interest transferred to spouse incident to a divorce shall be treated as the IRA account of such spouse, not the interest of the IRA owner. This would include the date that mrds commence. Under IRC 408(d)(6), the IRA interest transferred to the spouse incident to divorce is to an IRA in the name of the spouse as owner (including the right to name a beneificary), not as a beneficiary of an inherited IRA. This is no different than a spouse under age 70 1/2 who inherits an IRA from a deceased spouse who was receiving mrds at death elects to roll over the IRA to her own account and defer distributions until the year she turns 70 1/2.

Ask your employer how it will be taxed. 457 plan distributions of NP employers are taxed and reported as W-2 income. Public employer 457 plan distributions are reported on a 1099 and are eligible for a tax free rollover.

I think mrd only applies to amounts in the bene's inherited IRA- amounts transferrrd to the spouse would be subject to distribution rules applicable to the spouse's IRA. If 50% of the account balance is transferred to the spouse then the bene's IRA distributions will be 50% less.

As appleby has pointed out IRAs inherited from another person are not marital property for division in divorce. However, the inherited IRA could be divided and transferred tax free to the spouse of the IRA beneficiary as part of the divorce since the ownership interest in IRA passes to the beneficiary upon the death of the owner. For example the IRA owner could transfer the interest in the inherited IRA and retain a capital asset such as a residence.

Counsel in several states (CA) have advised public employers against sponsoring or participating in salary reduction DC plans (other than remitting salary reduction to a fund) because of legal precedents that would make the employer a fiduciary if it performed functions of a sponsor or made decisions such as selecting plan investments. In some states the public retirement system is the plan admin/sponsor and the employer is only obligated to remit the contributions to the system. The employer does not need a plan document to limit employee contributions to the maximum permitted under 402(g). All of the applicable provisions of IRC 403(b) can be contained in the custodial agreements with employees and the salary reduction agreement. The problem with these arrangements for the employee is that there is no accountability to limit employee loans to the limits under 72(p) where there are multiple vendors since each vendor applies the loan limits separately. The employer is not involved in the loan since the employee applies directly to the fund and not the employer.

A principal who grants a Power of attorney can always revoke the power of the agent in accordance with state law provisions. You need check state law to determine how a power of attorney can be revoked, e.g. by letter to the agent, etc.

At the present time plan documents are not required by IRS rules. Some employers refuse to adopt a plan document because of state law liability issues, e.g., they do not want to be deemed a fiduciary so the custodian for the mutual fund family signs an agreement with the participant that has all of the necessary IRS language required for 403(b) plans. Individual custodial agreements for 403(b) plan participants are quite complicated since the fund custodian will perform administrative functions normally performed by the plan admin or sponsor.

1. 401(a) - $41,000 in 2004 2. 457 -$13,000 + $3,000 catch up for employees over 50 total contribution- $57,000 govt plans are not subject to non discrimination or vesting rules. See flush language after last paragraph of IRC 401(a).

MGB: While I dont disagree with you premise I dont think its applies to most persons who receive a distribution of AT money for the following reasons 1. An employee who needs the funds will take it from any available source, including IRAs. People who need cash for current expenses will not be deterred by the 10% penalty tax on withdrawals from tax deferred funds in an IRA. 2. The models on trading stocks in IRAs do not include estate planning issues. There is a trade off between no tax on IRA trades and the stepped up basis on non retirement capital assets at death. Funds invested in capital assets held outside of an IRA get a stepped up basis at death which eliminates capital gains tax on the sale of the assets by heirs. (e.g., $10,000 in AT funds which are invested in stock worth $50,000 at owners death can be sold with no cap gains tax at death. If AT funds are invested in IRA, heir will have to pay income tax on $40,000 at heirs marginal tax rate.) Earnings on AT funds in an IRA are subject to IRD at the marginal rate of the heir. Also unlike you, most employees are better off investing in index funds which have low turnover, low costs and maximum 5%/15% tax on LT capital gains as well as the 15% max rate on dividends in assets held out side an IRA and not at the marginal rate of the IRA owner.

Does this legislation apply to 457 plans?

There is a question of why the employee would want to roll over after tax money into a tax deferred IRA where the compounded earnings will be subject to marginal income taxation at a future date instead of being distributed in a non taxable distribution. The reasons to receive the AT funds include liquidity and the maximum 5%/15% tax rate on dividends. Another reason not to rollover the AT money is to avoid the annual calculation to determine the amount of the AT money that is not taxed in the MRD from IRAs. The only reason to rollover the AT money to the IRA is if the particpant is concerned that creditors may attach his assets and state law protects IRAs from creditors claims.

Thanks for the answers. Now for the big question: How do these provisions compare with the House tax legislation? are they the same, more restrictive, not in the house bill? if there are difference in the legislation passd by both houses then a Confrence committe will have to resolve the differences.