mbozek

I dont know how you came up with the taxes but your father needs to consult with a estate planning attorney to review his estate plan. Second The estate tax unified credit increases to 1.5 million on January 1, 2004 which would eliminate any estate taxes on his property (if no lifetime gifts have been made). I think he needs to review whether it would be better for him to pay the 275k taxes by converting the IRA in 2003 and reduce reduce his estate tax by $115,000 or wait for the estate tax unified credit to rise to 1.5m in 2004 and eliminate the estate tax liability.

Although exempt from most requirements of ERISA, top hat plans are still considered employee pension plans under ERISA and claims are brought in federal ct under Section 502. Why?

ERISA 514(a) preempts state laws that apply to noninsured plans.

An IRA cannot be maintained in joint names. IRC 408(a). Also the transfer of IRA account from one person to another is a taxable distribution. Finally who should pay for the cost of revoking the QDRO? The plan or the participant?

Even if it could be done, what advantage is there to transfering after tax money which can be distributed at any time to a 401(k) plan? Earnings on the roth funds will not be subject to income tax while earnings on after tax contributions in a qualified plan will be taxed at ordinary income tax rates. I dont know of any advantage for an employer to add deemed IRA accounts to the existing 401(k) plan.

Do these people provide a legal opinion to support the claims they make about how easy it is to transfer plan asets to a corporation? As I understand it, all that happens is that the IRA assets are rolled into the plan and the plan become the sole owner of the co. While the plan is not subject to the fiducary provisions of ERISA if there are no employees, any scheme to use plan assets for the benefit of the owner of the business in his personal account would violate the PT rules of IRC 4975 and result in a 15% excise tax.

An IRA's custodian's purchase of an initial offering of the stock in a newly incorporated business in which the IRA owner is the director of the corporation is not the sale of a security under the PT rules. See Swanson v. Comm, 106 TC 76.

An ESop is a leveraged financial vehicle- the employer or the owners transfer stock to the ESOP which procures a loan from a bank in order to pay the owner for the transfer of the stock. The bank gets the stock as collateral for the loan and also has a personal guarantee of the owner for payment of the loan. The corporation makes dedcutible contributions to the plan each year to pay off the loan and the trustee releases stock to the participants as the payments are made. At the end of the loan the participants own 200k in stock held in the esop. The Esop cannot go to the bank and use the 200k to purchase a new business because of 1. the unrelated business income tax and 2. an esop can violate the diversification requirements for investing plan assets only for the purchase of employer stock or RE. Otherwise the plan cannot invest more than 10% of the assets in employer property. Your friend should contact a tax attorney to advise on the only way the deal can be structured- Have an IRA purchase the initial offering of stock when the busines is incorporated so that the dividends will be paid tax free to the IRA. If the business will not pay dividends then the purchase is not viable. If your friend wants to purchase the business why not just have the IRA buy it- even though that would not be a sound investment decision.

The Field Assistance bulletin references only DC plans because ERISA 3(34) permits adjustment of an individual account for expenses. No such adjustment is permitted for DB plans because the employer is obligated to pay the accrued benefits to the particpant. The Bulletin does note that ERISA places few constraints on how expenses are allocated among plan participants. " In this regard the same principles applicable to determining the method of allocating expenses among all participants, as discussed above, apply to determining the permissibility of allocating specific expenses to the account of an individual participant, rather than among all participants. " If a plan can bill for the cost of processing a loan or the cost of a benefit distribution, then the plan could bill a participant for the reasonable cost of preparing a QDRO providing the SPD discloses the charges. The problem will be collecting.

Q: Yes as long as my retainer fee is paid up front. PA- Yes if the plan has the funds to spend on a lawyer. See above response.

Did the plan admin have knowledge of the divorce decree and pending dro which was to be submitted to the ct at the time the distribution was paid out?

And the alternate payee could file a motion to have the plan administrator held in contempt of court for not complying with the QDRO and violating ERISA.

John: I would be interested in knowing what states exempt employment of minors who work in a family business. NY has strict rules on employment of minors even in family businesses to prevent their exploitation (See sect 130-144 of NY labor law) and provides that employment of minors is only permitted when such employment does not violate the requirements for attendance under the state education law. While it is an audit issue I dont think the IRS will consider employment of a 5 year old as custodian to be anything more than a no show job.

I thought that 105(h) is only applicable to the extent the employer provides benefits under a self funded plan. Employee contributons are not counted for 105(h).

I am not sure where the IRS gets the authority to make such a statement if the spouse has a separate interest in the pension with the rights of a beneficary under ERISA. See Dol QDRO Answer Book Q 2-16. Second, If the plan accepted the QDRO authorizing the payment to the spouse at 65 the spouse has a legally enforceable right to commence the benefits under ERISA. It would be up to the plan admin to get the QDRO modified by petitioning the state divorce court.

State labor laws may restrict the type of work which may be performed by minors. Some states restrict employment by persons less than 15 or 16 to a certin number of hours and/or occupations. Failure to comply with state laws could lead the IRS to disallow payment to child as a business expense for wages.

Two Questions:1. What does the QDRO provide regarding the spouse's right to commence benefits at the ee's retirement age? If the QDRO provides that the spouse has the right to commence benefits at 65 then the spouse's benefit can be enforced against the plan regardless of the IRS restrictions. 2. How is the pension interest divided? If the plan benefit was divided into separate interests (instead of a shared interest) then the spouse's interest should not be subject to the restrictions of the reg. because the employee has no interest in the ex's-pension rights.

Some attorneys advise the beneficiary not to sign a new adoption agreement because it would consititute a distribution of the IRA into a taxable account in the name of the beneficiary. the Custodian will transfer the funds to a new account entitled IRA of John doe, decedent, Richard Roe, beneficiary and use the ssn of the beneficary to avoid having the beneficary sign a new adoption agreement.

D: Why isnt the beneficary the owner of the IRA after the owner dies with all the rights of ownership? If the bene is not the owner then the owner must either be the custodian (not likely because the custodian does not want to be the fiduciary) or the estate of the owner which passes the IRA through probate. All of the IRA custodial agreements that I have reviewed make the beneficary the owner of the IRA for all purposes to avoid the need to have the beneficary sign a new adoption agreement. ( Another question- what does the custodian do if the beneficary refuses to sign an adoption agreement?)

Purchasing raw land on speculation that it will increase in value is the riskest type of investment because the owner is gambling that the property will increase because of attactiveness to a developer in the future, eg., if the population in the area grows. In the meantime the plan must pay for the cost of maintaining the property,e.g., property tax, ins. from other plan assets which could be invested in income producing assets. It would be better for the plan to invest in several REITS (assuming ther are no UBIT issues) which would have a yield of 7-8%. Also I dont think the plan could get a commercial loan for raw land.

The Fed reg version is 56 pages.

If Employer B adopts a resolution to participate in the qualified plan sponsored by Corporation A why doesnt that become the date that employer A maintains the plan under reg. 1.411(a)-5(b)(3)(ii) which provides that if an employer adopts a plan that has previously been adopted by another employer, the adopting employer is not deemed to maintain the plan prior to the year in which the plan is adopted. Alternatively if A and B are part of a controlled group, the date of vesting service would be the date B became a member of the controlled group with A. see -5(b)(3)(iv)(B).

I dont think the designation of the spouse as a beneficiary is requred for a rollover. What will be required is that the spouse be paid as the beneficiary from the IRA custodian. You need to review the custodial agreement and the beneficary designation form. Some IRA custodians require spousal consent to designate another person as beneficiary of more than 50% of the IRA. Others state that the custodian will pay the designated beneficiry regardless of CP laws.

I thought the revision of IRC 408(d)(3)(a) permits transfers of all pre tax funds in an IRA regardless of origin to a qualified plan without the need to restrict the funds as plan assets. The use of a conduit IRA is no longer requred except if the employee wishes to preserve 10 yr averaging or capital gains treatment.

I would ask the agent for the authority under ERISA for the Dol position that the discretionary contributions become a plan asset when the tax return is due. The PT rules do not apply to the mandatory contribution for non key employees in a top heavy ps plan because there is no fixed date for making the contribution. Under the IRC and ERISA there is no due date for making contributions to a plan not subject to the funding standards of ERISA. The employer is entitled to take a deduction for the year the contributions are made or for a prior taxable year if the contributions are made by the due date for filing the tax return with extensions. Your client should review the plan document to determine if there is a date for making the contributions.