mbozek

I thought the IRS had opened the determinaton letter process for plans that were not conversions from final average pay plans (although I am not sure whether any determination letters have been issued). Part of the problem for CB plans today results from the failure of the IRS to clarify how the interest component is taken into account under the benfit accrual and backloading rules.

dh003i: NY law does not exempt additions to an IRA account which accrue after a date that is 90 days before the interpositon of a judgement from the claims of creditors. CPLR 5205©(5). Any amounts added to a Roth IRA (e.g. earnings) after that date are subject to the claims of creditors.

While an IRA can own RE, using an IRA asset as collateral for borrowed funds will result in unrelated business taxable income when the asset is sold at a 39% tax rate. See IRS publication 590. Also the use of an IRA to benefit the IRA owner's personal account is a prohibited transacton under IRC 4975 which will result in the entire IRA being taxed to the owner. You need to retain tax counsel to determine if there is any way to have the IRA own the RE. I have a question for you - why do you want to put RE in your IRA? There is no cap gains. Have you checked your agreement with the IRA custodian? Few custodians will allow RE in an IRA because of liability risk for negligence or envoronmental issues.

Could you please explain what is CIP.

As previously noted there are at least 9 cases involving cb plans currently in various stages of litigation. There are two distinct issues: 1. whether the value of a lump sum benefit must be the greater of the participant's account under the plan or the present value as computed under IRC 417(e) (Xerox and Esden) 2. Whether cb benefit accrual formulas discriminate against older employees under ERISA 204(b)(1)(G) -IBM. The articles will only provide contradictory answers of issues that will be decided ultimatey by a majority of the US Supreme Ct (just as claims of age discrimination and sex discrimination in benefit plans were decided- the ct held in favor of participants on sex discrimination and against them on age discrimination). You should discuss the participant's questions with counsel to avoid saying anything that could be used against the plan.

If the SEP and 401(k) are not maintained by employers in the same controlled group or group under IRC 414(m) then there are separate 415 limits for the contributions to each plan. The employee has a $2000 catch up election to the 401(k) plan for a maximum elective contribution of $14,000 since pre tax contributions are not permitted to a SEP. (Only SARSEPS established prior to 1/1/97 are eligible for elective contributions which are aggregated with the elective contributions & catch up to the 401(k) plan. The employee contributions to both plans are aggregated and any amount over the 402(g) limit is allocated to the catch up to a maximum of $2000.)

According to IRS PUb 590, P 9, compensation eligible for an IRA includes any amounts paid in box 1 of the W-2.

There is a case involving an insurance co that held that cafeteria plan exclusions are not available before the plan is adopted. But the statute of limitatons for taxing individual employees is only 3 years. I once had a client with the same problem- salary reduction was allowed for a group of employees who were not eligible for a 125 plan. The client adopted a 125 plan for the group as of the date salary reduction commenced. The client was never audited. (125 plans are only subject to random IRS audits). The regs require a written document but not a signed document- any evidence that a plan exists (e.g., board resolution) would be sufficient for adoption in a prior year.

There are some old cases which state that amounts payable under an employment contract are not deferred compensation payable under a plan subject to ERISA because the amounts are indivdually negotiated. Most employment contracts for executives provide for some payment after termination of employment but are not considered ERISA plans because the payments are made in return for non competition, confidentiality promises or consulting service to be provided by the executive.

You need to consult tax counsel. Non resident aliens with no us source income can be excluded from a qualfied plan. Putting a non resident alien with no us source income in a us pension plan creates us income tax liability for such a person. Benefits are subject to 30% withholding and us taxation unless exempted by a treaty.l Better to put the non resident aliens in a non qualfied plan that pay them in foreign currency. Also some countries may restrict benefits paid to their citizens under foriegn plans.

Contributions to a 457(b) plan are not aggregated with contributions to tax deferred plans.

Wher is the employer stock held? In the employer's 401(k) plan? An IRA? The employer stock will only be eligible for favorable capital gains taxation if it is distributed from the plan sponored by the employer. Stock rolled over to an IRA will be taxed as ordinary income. Also the IRA custodian will not perform an appriasal of the employer stock- check the custodial agreement. Most custodians will not take non publicy traded investments unless the owner provides the custodian with a party who will value the stock as of the end of each calendar year. I am not aware of custodians who will ignore the annual valuation requirement for non publicly traded assets since the IRS could revoke the custodians authority to hold IRA accounts. If a valuation is not performed the custodian will close the account.

Whoever drafted the purchase agreement obviously wasnt aware of the Reg. The plan of the acquired corp should be merged with the purchaser's plan since the employer will continue after the date of acquisition. 401(k) plans are always merged in stock deals to avoid problems.

You need to review the plan document to see who is the default beneficary where there is no designated beneficary for an employee's benefits. In the case of an unmarried participant the estate of the part. is usually the bene. The executor or the admin makes the election to receive the benefits.

Under IRC 408(d)(6), the division of the IRA had to be approved as part of the divorce or separation agreement in order to be a tax free transfer.

Without reviewing the merits of the Xerox and IBM cases which will be decided ultimately by the Sup Ct., it appears that the cost of accrued benefit obligations under defined benefit plans and retiree health care in former monoply industries such as airlines, telephone and auto/rubber companies will result their ultimate bankruptcy because they cannot pass the increasing costs off to their customers. This has already occurred in the steel industry where virtually every steel maker has gone thorugh at least one bankruptcy. There is no way that GM can remain solvent if $1200 of each car sold is allocated to health care benefits of its workers and retirees. (There is a joke in the investment community that that the auto companies are really health care delivery systems that finance themselves by selling cars.) Lucent ($1.70) has 35,000 workers, 126,000 retirees collecting heath care and has had 14 consecutive losing quarters. If employers are prevented from reducing the cost of pension plan obligations by using CB plans and reducing the cost for retiree health care then more jobs will be moved outside the US to pay for the cost of maintaining an inefficient benefit system. In short the regulatory model created under ERISA to insure the financial solvency of pension plans will bring down the companies that sponsor such benefit programs.

You need to review the summary plan description for the retirement plan to see what compensation is taken into account for benefit purposes. If comp is defined as amounts included as W-2 comp then your benefits would not be based upon amounts contributed to the non qualified plan (SERP) because those amounts were not taxed as w-2 income at the time they were contributed to the nq plan. You may get more responses if you were to post the question under the topic of nonqualified plans since 457 plans only applies to non profit and govt employer plans.

Rev rul 185 of 1953 applies to pension plans and permits variable annuity type benefits based upon the performance of the assets as not violating the definitely determinable benefit rule. I have reviewed several DB plans that permitted an election of a varible annuity which received IRS approval.

An employer can require mandatory participation of employees as a condition of employment (like salary or hours of work). However an eligible employee who opts out must be tested under 410(b). There are several valid reasons to allow opting out: In a DB plan or PS plan with deferred vesting, an employee with AGI above the appicable limit can opt out to make a $3000 IRA contribution. (In a PS plan, the owner can require mandatory participation in order to reallocate the forfeitures when the employee leaves.) An older owner can opt out of a DB plan to save the cost of the contributions and plow the savings back into the business which can be sold as a capital asset at retirement avoid avoid overfunding at terminaton of the plan which is subject to a 50% excise tax on reversions.

The plan has to permit an employee to opt out of particpation. Second, I thought that the employee must opt out before becoming eligible to participant in the plan.

As a general rule sep contributions are required if employee performs any service in last three years without regard to age or service requirements. SEp contribution can be made at any time up to the date for filing the return with extensions. In 2002 SEP deduction limit is 25% of comp. which is taken on 1040 return. See IRS pub 590, available on the IRS web site, for further information on SEPs.

According to a NY Times article it appears that the Judge (who is a former NYC police commissoner) held that the CB and pension equity formulas discriminated against older employees because they would have less time for their benefit accruals to increase by retirement age. Under this analysis a retirement plan must provide a larger benefit to older workers because a pension is function of senority. This would seem to ignore the that the increase in benefits for younger employees is due to the time value of money. According to the Times article, converting a plan to a CB type formula discriminates against older employees who will not have as much time to earn a pension benefit before retirement as younger employees. If the cts analysis holds up then all CB benefit formulas that adjust benefit accruals by an interest rate factor would be suspect unless the interest rate increased actuarily as age increased. Q Why wouldn't replacement of a DB plan with a MP plan be discriminatory against the older employees?

If the sponsor is incorporated the answer is no - only the assets of the entity that established the plan are at risk. But under ERISA 4069 the PBGC can see if there was a distress sale of assets and make a claim against the seller.

Its PLR 200204038. The beneficary succeeds to all rights under the plan upon the death of the owner.

Rev. rule 74-385 states that the DDB rule requires that the participant's benefit can be determined under the plan formula without any discretion on the part of the employer. Therefore the fees should be fixed by the plan admin. If a db plan can charge for the cost of a loan applicaton or the cost of providing a benefit distribution then it can assess a reasonable charge for a QDRO.