mbozek

What law would apply to the 457 plan? I cant tell if you are referring to a public or non profit 457 plan.

It was the acquisition of A& P in the late 70's that woke up CFOs to the opportunity to take over a company solely to acquire the surplus plan assets and terminate the plan. A & P had a pension plan which had 250M in surplus assets when a foreign Co acquired it, terminated the plan and pocketed the $250M. After that every CFO wanted overfunded DB plans to capture the surplus assets. Congress changed the law to add the 50% excise tax.

Religious entities are exempt from complying with tax laws that violate the tenants of their religion. For example churches are exempt from being required to file for tax exemption under IRC 501©(3) if the Church asserts that filing violates their religious beliefs which are protected under the First amendment. Also supremes exempted closely held corp from complying with provisions of the ACA requiring that certain abortion procedures must be available under an employer provided health plan if the owners of the business claimed the abortion methods violated their religious beliefs.

They must pass legislation. Tibble really does not create new precedent in fiduciary duty. All that was upheld by the 9th circuit was the duty of fiduciaries to inquire whether there was a cheaper investment class (lower ER) in a fund that was available to plan participants. If there was then the fiduciaries had a duty to determine if the cheaper class was suitable/available for the plan. The 9th circuit decision did not mandate that plans must always select an index fund over retail funds.

If a tree falls in the forest and no one hears it, is there a sound?

Austin: You really need to think through the question you have posed and ask is there a problem. When ERISA became law in 1974 90% of 403b assets were managed by TIAA/CREF which had only two funds: TIAA fixed and CREF Stock where the all funds where held in individual contracts. Most of the individual contracts were non cashable. No one thought this was imprudent investing.T/C did not introduce group contracts until 87 or 88 and in any event there is no option to cancel or amend the terms of the individual contracts. In the 40 years since ERISA became law no one has questioned the suitability of investment of 403b assets in individual T/C contracts because there is no investment reason to do so. If there is no reason to question whether these contracts are prudent investments for an ERISA plan why are you asking about whether there is a breach of fiduciary duty to have these contracts in a plan?

just what part of hypothetical don't you understand?

If you really want an answer to a question that exists only as a hypothetical here is the language for the IPS: If the plan eliminates an investment option in an individual annuity contract which is no longer suitable and participants elect to continue to invest in such option for any reason, the plan will pay any and all damages resulting from the inability of the plan fiduciaries to change the investment option and all fiduciaries will be personally liable for the loss to be divided equally among them.

Austin. You keep missing the point which I asked previously in Q1 which is what does the Investment policy statement (IPS) for the 403b plan state are the criteria for removing a fund investment, e.g., bottom quintile in sector for last 3 years. The CFO/HR director needs to review the IPS because the IPS sets the standard for prudent investments in the plan, not their own subjective or uninformed opinions. If you cant answer that question there is nothing more discuss. FYI there is no expenses ratio in TIAA traditional. CREF stock ER Is .46%.

A1 Just which fund stinks? TIAA traditional pays 3- 4.5% fixed rate which is better than most annuities. TIAA has AAA rating. Cref stock has a 5 year average return of 12% and an average annual rate of about 10% since inception in 1952. Neither is an underperformer. A2 see answer to A1 for contracts still under the plan. A3. If there are no underperformers what is the dilemma faced by the client because there is no reason to review that question at this time. Are there other T/C investment that the plan fids are concerned about? Who is asking this question? Must be a lawyer.

I don't see how a 15 day delay in a 4th qtr contribution could meet the requirement that the annual contribution is mandatory for participants employed on the last day of the plan year. Are you saying that as long as quarterly contributions are made they will always meet the requirement for making contributions for participants employed on the last day of the plan year?

Q1. Just what T/C individual contracts are dogs? Only 2 funds that I am aware of that were issued as individual contracts are TIAA fixed and CREF stock which are not underperformers. I don't know if any of the VA funds added after 1986 are underperformers. Before going any further you need to identify specific funds in VAs which do not meet a plan's investment policy specs. Q2 As I have mentioned previously what fid rules would apply in the case of an individual contract that has been distributed to the participant? Q3 is there an actual client question or is this just hypothetical?

I am not sure what fiduciary responsibility there would be. If its a contract issued by one of the 50% of 403b plans that are not subject to ERISA then you need to look to state law which doesn't address this issue. If the 403b contract was issued under an ERISA plan then you need to look at what fiduciary duties can be exercised by the plan. If the employee has complete control of the contract including the right to commence benefits there does not seem to be any fiduciary responsibility over the contract. There is a provision in the DOL regs that states that ERISA does not apply to an annuity contract distributed to an employee. If the individual owns the contract then it can be considered distributed to him. Its not perfect but its the only information on this question. I get SPD and SMM information from T/C on my individual contracts but that info is required under part I of ERISA. What fiduciary duties were you thinking of?

I though that was how carry interest is taxed which drives the progressives up a wall because they want it to be taxed as W2 income. Carry interest is where a banker or trader receives part of his fee as a portion of the gain on the investment he is managing. For example 20% of all gains on the investment will be paid to the trader and is taxed as capital gains not wage income. There are some arcane tax rules that govern carry interest.

Informal statement by IRS employees is not a binding interpretation of the IRC. If the IRS wants to define retirement on Dec 31 as being the termination of employment then it can issue a formal ruling on this trivial matter. Then employees will formally retire on Jan 1 to avoid having to pay taxes on the RMD at a higher marginal rate due to working for the entire year. The current appropriations bill being voted on by Congress cuts the IRS budget by $350 million which reduce the resources available for such trivia.

How does the plan assess the fee against an individual annuity contract? I don't think the insurance co would allow the fee without the participant's consent. Why cant the plan just send a letter to the participant stating that the contact has been severed from the plan because of the participants termination of employment or other event as permitted under reg. 1.403(b)-6(b). Does the plan permit distribution of de minimus amounts?

She could have a guardian appointed to manage her affairs. She needs to consult an elder care attorney.

Husband could designate that his beneficiary would be an irrevocable trust which would receive MRDs where his wife would be the designated beneficiary of the MRDs under the trust and children would be the alternate beneficiaries. I don't understand what is meant by no future husband could benefit from wife's account. Proper way to preserve benefits for children would be for future husband to waive rights to survivor's benefit.

If you want to know what % of the contributions are allocated to the employer then just multiply the % of the contributions allocated to the employer/owner's account. E.g., 100,000 deduction for contributions to the plan of which 90,000 is allocated to employer's account. Employer gets 90% of the deduction.

You can purchase 10 year treasury notes that are yielding about 2.2% that have 0 default risk. Or purchase TIPS that guarantee the rate of inflation.

For unemployment the same answer is applicable- what is deemed to be the date of termination. Unlike the date of retirement the last date of employment is defined in state unemployment laws. In most cases it is the last date the employee is paid by the employer. Unemployment begins the next day. But there are exceptions as defined by state law.

The IRS explanation of what year RMDs commence for an employee who continues to work after age 70 1/2 is the calendar year in which the taxpayer retires from the employer maintaining the plan. I have never seen any IRS definition of what is the year of retirement is which leads to the conclusion that the IRS leaves it up to the employer to decide whether an employee who retires on Dec 31 retires in that year or on Jan 1. There is a logical basis to conclude that an employee whose last day of work is Dec 31 retires the following day because you cannot be both employed and retired on the same day. This was the treatment accorded to Chc 93 when he retired in 2013 because no 1099 was issued for 2013 tax year.

If the plan document defines a participant as any employee who has an account balance then the participant is 100% vested at death. If you follow the rules of construction any ambiguity in the document is construed against the drafter of the plan who will be the employer.

Why not? When participant dies spouse become owner of participants interest. Spouse can roll over decedents account balance to her own account in the plan if rollovers to her account are permitted. Spouse would only be required to take RMD for year of participants death if not already taken.

More practical question is why would a plan fiduciary add an annuity product to a 401k plan for active participants because the cost of the annuity benefits can add 1 % or more to fees which simply reduce the account balance that compounds tax free. Don't need a tax deferred wrapper in a tax deferred plan. Its better for participants to invest in low cost funds with long term investment goals and purchase an annuity if it is needed at retirement instead of having a small amount invested in an annuity contract that will pay a minimal monthly benefit.