mbozek

K: Under the 404© regs a self directed plan cannot be 404© complaint if the participant does not have the opportunity to give investment instructions to an identified fiduciary (instead of the mutual fund provider or broker). As you stated each requirement of 404© must be met. There are very few plans that require the participant give the investment instructions to the fiduciary. (It is up to counsel to decide whether providing a copy of the investment instructions to the fiduciary for the plan is compliance with the requirements of the regulations.) Also the 404© defense is limited to losses which are caused by the exercise of investment control by the participant, e.g., the fid is still liable for the selection of individual investment options. By the way there are no jury trials in ERISA because it is a court of equity. All claims are heard by a judge without a jury.

K: I dont understand what you mean by " Participants get summary judgment if the plan does not declare that is 404© compliant". I thought a plan is 404© compliant if it meets the requirements of the 404© reg. See 2550.404c-1 (b). Most plans do not provide the participant with the opportunity to give investment instructions to an identified plan fiduciary (instead of the fund sponsor or broker) and therefore are not 404© compliant regardless of the label that is put on the plan. Only those plans that provide for the fiduciary to receive investment instructions from the participant can meet the 404© requirements.

A loan program which limits loans to those participants who can make repayments by salary deduction would not be inconsistent with Dol Opinon 89-30A because former employees would be eligible for loans if they were receiving any other form of compensation from the employer, e.g., nonqualfied deferred compensation or self employment income. Former employees who are parties in interest will be either directors or 50% owners who will be most likely to recieve compensation from the employer after terminaton from service.

See Rev. rul 2002-32.

Yes See reg 1.401(a)-13(b)(2).

There are financial intermedaries who buy surplus pension plan assets as part of the sale of the corporation that sponsors the plan. The assets are sold to underfunded plans. The sale must have a business reason which requires that other corporate assets be included along with the sale of the surplus pension assets. The IRS dosent like it but there is no formal prohibition against an asset sale. The PBGC is in favor of such sales because it reduces underfunding of DB plans. Some non profit hospitals will buy assets directly from the owners of smal medical practices.

Your client has three problems on the $3 M excess: income tax, 50% excise tax on a reversion of plan assets and estate tax at 49% since the business is an asset of his estate (State tax may also apply). Total taxes could exceed 100% of surplus. If your client dies, the plan surplus will be taxed in his estate unless his spouse inherits the ownership interest in the business. Upon her death the estate tax will apply (assuming there is an estate tax). Your client should consider selling the business to another person. There are entites that will purchase surplus assets at a discount as part of the sale of his business. He could also sell the surplus assets to a relative for installment payments. But counsel will be needed to advise him on the tax issues.

Self directed account plans are not in compliance with the 404© regs if they do not provide the participant with a reasonable opportunity to give investment instructions to a plan fiduciary. Since most plans provide for the participant to give instructions directly to the fund provider or broker by phone or electronically there is no compliance with with 404© regs. Financial providers and mutual funds usually refuse to be designated as an agent of the fid for 404© because of the attendent liability risk under ERISA. The best case for compliance is for copies of the instructions and confirmations to be sent to the Plan fid. There is no advantage to declaring that a plan is in compliance with 404©.

ERISA section 514(a) generally preempts all state laws. Section 3(10) defines state to include Puerto Rico.

Withdrawal occurs when an employer permanently ceases to have an obligation to contribute under the plan, e.g., when the CBA expires. ERISA 4203(a)(1). Employer includes all trades or business that are under common contarol within the meaning of PBGC reg. 4001.3

ERISA 408(b)(1) provides that a PT will not apply to loans offerred to parties in interest who are participants or beneficaries if they available on a reasonably equivalent basis to all participants and beneficiaries. A provision that the plan must offer/continue loans to parties in interest with conditions that are more favorable then loans to other participants, e.g., allow a party in interest to continue to pay back a loan after termination of employment could result in the loan be considered to be a PT. The reasonably equivalent basis requirement is authority to restrict loans to participants who will pay the loans back by payroll deduction and avoids having to make loans available to beneficaries who are not employees.

Of course. An employer who withdraws from a multiemployer plan is liable to the plan for the amount of its share of the unfunded liabilities as determined under ERISA 4211. See ERISA 4201.

Most plan documents do not allow allow a terminated employee to apply for a loan. If the plan document/loan agreement requires that loans be paid back by salary deduction then a terminated participant cannot take out a loan.

IF this is a DC plan why not just forfeit the benefits subject to reinstatement if the participant shows up at a later date. See. Reg. 1.411(a)-4((b)(6). Just amend the plan to provide for forfeiture. Or you could just make a distribution of 100% as withholding to the IRS but why give up the funds?. DB benefits are to be turned in to the PBGC.

Under Dol rules employee salary reduction contributions for an ERISA plan must be made as soon as administratively feasible but no later than the 15th day of the month following the withholding from salary. For non ERISA plans the employer may pay the premium to the carrier on an annual basis even though the amounts are withheld monthy from the employee's pay. Rev. ruling 67-69. For 415 limit purposes the contribution must be made to the plan no later than 5 1/2 months after the end of the employer's taxable year (or fiscal year) in which the particular limitation year ends. reg. 1.415-6(b)(7)(ii) to be counted for that limitation year. I dont understand how contributions could be sent to the investment co. but are not received.

The IRS has not formally articulated a policy toward orphan plans and I have seen many qualified plans in which the owner died years ago continue on with assets for the benefit of the spouse or the children and the plans are amended for changes in the tax law. These plans are under the IRS radar screen because the service has no way of identifying them other than by an individual audit. The beneficaries may elect to take a business risk and have the payouts made under the MRD rules and out run the 3/6 year s/l if the plan is audited.

Under example 9 of the 404© regs an employee may instruct the plan fiduciary to appoint an investment advisor who is not approved as an investment advisor by the plan fiduciary. The plan admin/ fiduciary has no fidiciary liability to the participant for investment decisions of the advisor, is not a co- fid with the advisor and has no duty to determine the suitability of the advisor. Many employees in self directed accounts sign a limited power of attorney giving the advisor the power to direct investments and provide the advisor with their pin to allow telephone/electronic investing by the advisor without the plan admin knowing that an advisor has been appointed. It does not appear under the dol regs that the fid must consent to the appointment of the advisor by the participant.

Deductible medical expenses under IRS Pub 502 includes fees paid to dentists for fillings extractions, dentures, etc. Caps are are deductible expense. A cap which is necessitated by a breakdown in the veneer is not just cosmetic- it is necessary to protect the tooth from further decay.

Since the plan will be terminated when the Sole propreitor dies there are four possible options: 1. Buy immediate annuity for each beneficiary to make payments 2. pay a lump sum to each beneficiary. 3. If decedent established an IRA naming one or both children as beneficaries maybe there could be a trusteee to trustee transfer from the Keogh to the IRA. Dont know of any ruling involving non spouses but there is a ruling allowing a tax free transfer from a qualified plan to an IRA in which the spouse was the beneficary. PLR 9418034. This may not work for non spouses because there can be no tax free rollover. 4. I dont know if the plan can be kept in existance for 5 years after death of the owner and make 5 annual installments. The IRS used to believe that a plan could not continue if the sponsor died or was liquidated.

Cease: A 403(b) plan maintained by a 501©(3) NP must comply with ERISA. The employer can choose the funding program (annuities and/or mutual funds) for the employees to invest in under 404© rules. The employees can transfer the amounts in their salary deferral annuities to the employer sponsored plan via a tax free transfer (see Rev. Rul 90-24) but cannot be forced to do so because the annuities are individually owned. Salary deferral must be offerred to all employees who work at least 20 hrs a week except for students and union employees but the employer match can be offerred only to those employees in the eligible class who have met the age/year of service requirement. The match can be provided under a deferred vesting basis. Loans and hardship distributions are permitted. 5500s are a no brainer because no detailed reporting is required. All employees can defer up to 12k (14k for over 50) because there is no ADP testing and employees of some NP can defer an additional 3 k for 5 years. No IRS approval is needed for a 403(b) plan. The 403(b) plans I draft are simpler to administer than a 401(k) plan because it is not a qualified plan. The NP could also establish a 457(b) plan to permit the top hat employees to defer an additional 12k.

There is an IRS publication on tax treaties, including taxation of retirement benefits. Generally the new tax treaties provide that only the nation of domicile will tax retirement benefits. In the absence of a tax treaty there is 30% withholding of retirement benefits under IRC 1441.

If the payment on the 5th is in the nature of an advance to the employee for work which has not been performed it is not wages for tax purposes and is not includible in income if the employee returns a portion to the employer in the same year it is advanced. See Rev. Rul. 79-311. If the employee's compensation after adjustment is less than the amount to be withheld from the 401(k) amt then the Plan admin can only deposit the amount available after tax withholding to the 401(k) plan. Its no different then if the employee has to pay other obligations such as child support or alimony which result in insufficient funds available to contribute to the 401(k) plan.

reg. 14a-422A-1 Q/A-2©(3) states that the option must be exerciseable by its terms only within 10 years of the date it is granted. It depends on whether you count the day the option is granted as the first day of the 10 year period or begin counting on the following day.

Yes the ex spouse can disclaim the benefits under IRC 2518 within 9 months after death but cannot direct who will receive the benefits. If the ex-spouse disclaims, the benefits will be paid to the estate of the decedent. You will have to consult an attorney to determine if the deceased's mother will inherit his estate if there was no will (or if he left a will whether his mother is the beneficiary).

Under present rules a 403(b) plan is only required to be aggregated with other 403(b) plans maintained by the same employer for discrimination testing. See IRS Notices 89-23, 90-72, 92-36 and 96-64. An employer may elect to aggregate a qualified plan with a 403(b) plan providing for matching contributions if each plan satisfies the general nondiscrimination requirements of IRC 401(a)(4). See Notice 89-23.