mbozek

All NPs are subject to IRC 457 which permits two types of plans. An eligible plan under IRC 457(b) allows a tax deferral of up to 13k on a vested basis for members of the top hat group. This amt will increase by 1k a year for the next 2 yrs. The contributions may be made by either the employee or employer. Amts in excess of 13k can be deferred under an ineligible plan of IRC 457(f) in which the benefits are subject to a substantial risk of forfeiture as long as the employee performs substantial service for the employer. I dont understand your reference to a DB plan since any deferred comp benefit would be subject to the above limits, e.g. limited to 13k in 2004 or be forfeitable until termination when it would be taxed as a lump sum.

Why not just buy individual policies for the employees or reimburse them for policies they own on a non taxable basis?

At the minimum the client must amend its 2002 income tax return to eliminate the deduction for the 2002 pension contributoins and pay any penalities. The client needs to retain counsel to determine if there is any liability to the participants which would require that the contributions be made along with attributable earnings in 2004 or whether the 2002 resolution can be rescinded.

If the funds were held in a pre tax account the answer is no, because you will not be taxed on the funds which will never be distributed to you. See IRS Pub. 590, P 38. You can recognize a loss in Roth IRA if the total distributions from all your Roth accounts are less than the amounts contributed to the Roth. See IRS pub 590, P. 62.

Why not have the HCE contribute an amount equal to the refund to a NQDC plan to 0 out the taxable income? eg. employee receives 3k refund in 2004 and defers an equal amt in a NQDC plan.

I dont think this a preemption issue but is an issue of whether there are limits to board action permitted under state law. While there are ct cases stating that a NQDC plan cannot refuse to pay vested benefits which are contractually payable under the plan, I am not aware of any case which holds that employee salary reduction contributions to a NQDC plan must be vested and paid when the employee terminates. In some states an executive's non vested right to his contributions to a NQDC can be forfeited by action of the board or sr management. My point is that an executive who elects to defer comp without having a vested right to payment under the plan could have the benefits revoked by later board action if such action is permitted under state law. There is a major issue in the 140M payment to Dick Grasso, the former chairman of the NYSE as to whether he had a right to receive payment of 60M in NQDC which was paid early after Grasso made a request for the payment. The NYSE is a non profit corp under NY law and is exploring having the NY atty general bring an action to recover the payments as permitted under NY law even though they were approved by the NYSE Board. The NYSE may bring a law suit against against former board members who approved Grasso's NQDC payments and employment contract.

The clients should have the RE purchase reviewed by a tax advisor to see if makes sense. Investment of plan assets in RE results in loss of cap gains tax rate of 25%, and loss of deductions for depreciation, expenses of maintaining property, e.g., ins., property taxes, utilities, legal fees, interest, etc.

Employer provided health ins to retirees and surviving spouses is excluded from gross income. See Rev. Rul 82-196. I dont understand why retiree health ins is taxed as FICA wages.

Who is going to write an opinion or advise the client that this arrangement to make tax deferred contributions would meet the requirements for a severance plan under IRC 457? I assume that the employer would want assurance that such a plan would be permitted under the tax law before adopting the plan.

In additon to a QDRO, there are two types of enforceable orders for child support: Under Section 609(a) of ERISA, a state ct. can order that the employer's group health plan add childern of the employee and make the employee pay for the coverage from his salary. Under Section 466(a) of the Social Security Act, a state child support agency can garnish retirement benefit distributions to pay for back child support. Under DOL Opinion 2001-06 the notice issued by the State agency can be enforced if it meets the requirements for a QDRO other than the requirement that it be a ct order. You should have counsel review the letter to determine if it is valid under one of the above laws.

He can defer any amount he wants on an annual basis as long as the deferral agremeent is signed prior to the time the comp is earned. However, in some states, (NY), the amount he defers from his salary can be forfeited by board or employer action prior to retirement, not just from the claims of the employer creditors. Why not establish a 457(b) plan?

Prospectus distribution is governed by SEC rules not DOL or IRS. You should check with the SEC or counsel. My understanding is that the investors must be allowed to chose how to receive the documents and a paper document must be provided upon request. I dont think that the plan can require that participants with computer access must down load the documents.

MK: Under IRC 6501(e) the statute of limitations for collection of tax for 1997 expires on April 15, 2004. If the funds have been stolen by the advisor it makes no sense for the taxpayer to ask for an extension of the rollover period. This is why the taxpayer should consult a tax advisor.

Under the US justice system anyone can sue any one else. Prevailing on a claim is another story. A three month delay in payment is hardly unusual. Claims for benefits are brought under ERISA not the IRC and the participant would have to pay an attorney to file a claim in federal court, which will be very expensive. The best solution is to find out what needs to be done to transfer the funds, not to look for legal citations.

I usully leave this to the accountants but I thought that the contributions for a SE owner and the employees are calculated separately on the SE person's tax return- The SE person deducts contributions for pension contributions for employees on line 19 of the Schedule C which reduces the net earnings from SE that is reported on line 12 of the 1040 (and also deducts salary). This contribution is based on covered comp. See IRS pub 560, P 14. So if an employee making 40k gets a 25% contribution, a total of 50 k is subtracted from profit of the SE to determine the NE from Self employment. In your example the SE person now has net earnings of 450k for tax purposes to be reported on line 12 of the 1040. The deduction for the Q plan contribution for the SE person is calculated separately and is reported on line 30 of the 1040. Thus the max deduction for a SE person is .25 x (200- 40) = 40k. See worksheet on P 20 of pub 560. Under my calculation the total contribution is 50 k not 60 k, but then I am not an actuary.

The 415 limit is 40k for both - a SE person needs 200k of NE from self employment (20% x 200) since NE must be reduced by the amount of the contribution under IRC 404(a)(8)(D), whereas an incorporated business owner would need only 160k of income to deduct a 40k contribution. A SE person with 160k in NE can make a deductible contribution of 32k (25% x (160-32= 128)). It really is the same for both- an inc. owner with 200k in profits from business can pay himself a salary of 160k and make a deductible contribution of 40k to a DC plan.

I thought the 125 rules restricted the use of forfeited amounts to either paying plan expenses, reducing premiums or returning the premium to the employees. Prop. regs. 1.125-2 Q-7(b)(7)

Because IRA distributions have always been available at any time subject only to the 10% penalty whereas qualified plan money is usually available only at termination of employment. Prior to 87 distributions from qual plans were not subject to any penalty for distribution prior to 59 1/2. Congress imposed the 10% penalty for distributions from qual plans prior to 59 1/2 to raise revenue but made an exception for payments made after termination after 55.

Why would the contribution for a SE person be any different than the contribution for an employee since the comp in both cases is limited to 200k? The only difference is that the max deduction for a SE person is limited to 20% of net earnings from SE up to 200k while the max deduction for employees is 25% of covered comp.

I dont understand your Q. Money rolled over from a 401(k) plan to an regular IRA is considered pre tax except for any after tax contributions tht your rolled over. The IRA withdrawals in 2001 and 2 were taxed to you because you received the funds. The amounts that were stolen by your advisor are not taxable to you but reduce the value of your IRA. Your withdrawals in 2003 will be deemed a taxable distribution. If any of the rollover was after tax then a pro rata amount of any distribution will be considered an after tax amount. You should consult a tax advisor to review your particular situation.

I dont see any difference- with execs or employment discrimination cases there is a valid binding settlement agreement requiring the employer to keep the employee on the payroll for a speficied period of time but the employee is not assigned any duties. The employee is paid for not showing up for work. In some cases the employee is required to stay at home. Some contracts provide that the payments will be terminated if the employee takes another position or prevent the employee from working for a competitor. The reason for using severance pay is to limit the amount that can be counted for retirement plan purposes and in some states make the employee eligible for unemployment benefits.

I have reviewed many situations where an employer pays an employee for a period of years to perform no duties, e.g, stay home and collect a pay check and accrue benefits. Usually these are execs or people who settle employment discrimination claims. For example Keyshawn Johnson, the Tampa Bay end was suspended from the team in 2003 and told to stay home while receiving his paycheck of $4M +.

In a non qualified plan, the employer claims a deduction only in the tax year that the employee includes the deferred amount in taxable income, as cash or property. The amount accrued or expensed is a not sufficent basis for a deduction. Its called the theory of tax tension. If the employer does not pay the deferred amount to the employee then the employer has to pay income tax on the funds.

Have your read the annuity contract? In most contracts the beneficary becomes the owner of all rights under the contract including the right to direct investments. If the benes are minors then a guardian will have to be appointed to exercise the rights under the contract.

Then the employee is taxed twice on the excess, once in 2003 and again in the year it is distributed. It is the employee's responsibility to know what the maximum deferral is for each year and not just elect maximum salary reduction every time he switches employers.