mbozek

There will not be much left to revert to the er since a 50% excise tax will be imposed on the reversion (IRC4980) plus ordinary income tax. Better to use the excess to pay plan expenses or vest all participants in their accounts than give it to the IRS. Besides it not worth the time to determine if the benefits of the terminated participants can be forfeited. Excise tax can be avoided if er merges terminating plan with another plan.

Sorry if I offended you GB. I think you and Haywood misunderstand my post. I am not in disagreement that there is a benefit payable to the participant under ERISA, illegal alien though he may be. However I see nothing in the applicable laws that permits a plan admin to pay a distribution to somone who has not provided correct identification which verifies that the applicant is the same participant who used stolen idenification to illegally work in this country and accrue benefits. The Plan admin has the responsibility get proof of identity to avoid having to pay again in the event the applicant turns out to be another identity thief. I am assuming that the particpant will not be applying for benefits in person given that he has been deported and will be jailed if he shows up to collect his benefits. Second, and this you seem to ignore, the plan admin is required to get a correct tax id no. from the participant before making payment under the IRC. This means the participant who is a non resident alien will will be required to apply to the IRS for a tax ID no. before any payment can be made. No tax ID, no payment. The plan admin has no liability for not paying benefits to a person who the admin knows is using a false tax id no. You should talk to the IRS about your novel concept that two people can have income taxed to the same ss no. without there being a problem under tax laws. Its called tax fraud. I am interested in any arguments based in law that would require payment of benefits to a person who presents false ID and SS no.

GB: What planet are you from? An employee who misrepresents his identity by presenting a fake green card and SS card has clearly not identified himself as a person known to the employer/plan since he has misrepresented his identity in violation of the immigration laws and the USA Patriot Act. An employer is who does not take steps to correct a SS no and identification is subject to penalites under the SS Law, 1986 Immigration law and sections 6721-23 of the IRC. The plan administrator is subject to fines if he/ she fails to correct false taxpayer information required to be reported. See IRC 6721. The penalty is doubled for intentional disregard of the law. IRC 6721(e). There is a separate penalty for providing an incorrect statement to the payee, which is also doubled for intentional disregard by the payor. IRC 6722. In addition, the income generated by this fake employee will be taxed to another person, who may have to retain a tax advisor at his own expense to straighten the mess out. (do you really believe that the employee was properly paying taxes under some one else's id?) Funds due a non resident alien cannot be transferred outside the US without compliance with the provisions of IRC 1441 which will require presentation of proper identification, the procurement of a tax id no. from the IRS and 30% withholding. A rollover is not possible if there is no tax id no.

I dont think that FICA is a major reason for the audits since salary reduction is subject to FICA. Only er contributions in excess of the 415 limits would be subject to FICA tax. There is more revenue from collecting income tax from violations of the univeral availability rule.

B: Given that the participant used some else's identity how will the plan know the participant's true identity if a claim is made to pay the benefits? Even if the deported individual provides evidence satisfactory to the plan admin of his real identity he would have to obtain a tax id # from the IRS before payout could be made. Finally withholding would be at a 30% rate.

No but if the plan provides, a benefit which is payable can be forfeited on account of the inability to find the participant subject to reinstatment of the benefit if a claim is made at a later dete. Reg 1.411(a)-4(b)(6). It is assumed that the participant did not leave a forwarding address.

The TH provisons including aggregation rules are required to be stated in the plan document and are reviewed by the IRS. An advisor should always review the plan document first to see how the plan defines the TH rules since some drafters are better at stating the rules (although most plans regurgitate the LRM language).

The preamble to the 404© regs notes that examples 8,9,10 and 11 in the 404c regs illustrate that: 1. the individual participant can designate an investment manager to manage the participant's account, 2. the investment manager is a fiduciary to the participant but not to the plan, 3. the fiduciary is is not liable as a co-fiduciary for decisions made by the investment manager which result from the exercise of control by the participant and 4. the fiduciary is responsible for the designation of the investment manager and would be required to review any imprudent acts in determining whether to continue the designation of the investment manager. It appears that the investment manager is a fiduciary managing plan assets and the manager's fee can be paid from the participiant's account in the plan.

When is aggregation of two plans for TH purposes required under the terms of the plan documents?

Loan interest on an amount borrowed from a qualified plan is only deductible when the loan is secured by a mortgage on the taxpayers home and the loan amount is not attributable to elective contributions. A rollover can be used for a loan if the plan permits such amounts to be used for a loan. Also prototype sponsors now permit loans for owners as an EGTRRA amendment.

Not necessarily- there is precedent under the tax law for recinding a contract to avoid adverse tax consequences if the recission takes place in the same year as the taxable event, the parties are placed in the same position after the recission as before the contract and state law permits a recission. (PLR 9829044). In this case the participant intended the distribution to be for the purchase of a residence. The problem is that the employee may have to return the amount of the taxes withheld to the plan. The plan would need to retain tax counsel to determine whether recission is available.

Public employers are subject to state laws governing investments for state & local retirement plans. The Plan sponsor needs to retain counsel to determine how to comply with applicable laws.

Assuming the trustee has no problem, no.

two questions: did the participant cash the check from the plan? Was the hardship withdrawal distributed in 2002 or 03?

The waiver only affects death benefits paid under the plan. It has no effect on the division of benefits in a divorce action which is determined under state law.

Under IRC 414(p)(11) a QDRO can be issued to divide benefits in a non ERISA plan. Annuities are also eligible for a non taxable division of property upon divorce under IRC 1041.

There is case law holding that an employee's interest in a voluntary, contributory plan is not a security, e.g., Cunha v. Ward foods, Inc. 545 F Sup 94 (DB plan) and O'Neill v Marriott Corp, 538 F Supp 1026 DC plan) but I have not read the cases. Kirk should be able to tell us more but I thought that a few years ago the SEC had rejected a Staff proposal to regulate certain interests in nonqualfied plans as securities and decided to allow the corporations on the advice of counsel to determine whether an interest in a nonqualified plan constitutes a security.

While there is no explicit requirement that loans be repaid by payroll deduction, it is a better practice to require that the loans be repid by payroll deduction to avoid the administrative burdens for the plan administrator when the employee misses a payment or defaults. However the plan needs to have a provison requiring witholding by payroll deduction or have the payroll deduction provision in the note, preferably both places. Otherwise the employee can simply cease making payments at will which will create the inference that the loan was not bona fide at inception.

True but isnt unfunded deferred comp regarded as a debt, an IOU, to the employee, not a security interest because it is an unfunded promise to pay money in the future. When does an interest in a nonqualfied deferred comp plan become an interest in a security instead of a debt? Does an employer's promise to pay an employee the value of the funds invested in his account under the plan pursuant to his direction make the plan an investment company? ( An ERISA plan cannot be an investment company under state laws). If state securities laws are not preempted then arent both qualfied and non qualified subject to registration/anti fraud regulation under state securities laws? (Qualifed plans are expressly exempt from regulation under federal securites laws.) I would be interested in any case that has been brought against an employee benefit plan or employer sponsoring a plan under state securities laws. State labor laws are preempted by ERISA from applying to ERISA plans or salary reduction agreements ( e.g., NY state labor law requirement of employee's consent). I understand there is some question about the preemption of the Cal labor law that is under review by the Dol.

Why doesn't ERISA 514(b)(2)(B) preempt the application of state securities laws to 457 plans of non profit employers? State govt employers may be subject to only state laws relating to retirement plans .

Although subject to ERISA, a 457(b) plan is exempt from all reporting and disclosure requirements including filing an SPD if it files a notice with the DOL within 120 days after the plan is adopted. See Reg 2520.104-23. There is no requirement to educate participants about investments because an unfunded 457 plan is exempt from the fiduciary requirements of ERISA.

There are two separate contractual relationships here- one between the employer and the employees ( the plan) and the other between the insurer and the participants. Changing the plan to permit loans does not change the terms of the insurance contract. The insurer does not have to permit loans in the contracts or any other contract provisions because the employer changes the plan terms.

Since 403(b) plan requirements differ from a qualified plan the custodial account must reflect the peculiar requirements of IRC 403(b). A 401(k) plan has requirements that are not compatible with 403(b) requirements e,g., assets are held in a trust, not custodial account. I dont think the 401(k) trustee would accept responsibilities as the custoidan of a 403(b) plan. Also how can a state agency maintain a 401(k) plan unless it was adopted prior to june 86? If the plan is exempt from ERISA then you can restrict the investment options. How does a state economic development agency qualify as a tax exempt charity under IRC 501©(3) eligible for a 403(b) plan? Also state govt plans are not required to file 5500s.

GB: The bankruptcy trustee is not a party to recovery because only a fiduciary can bring an action on behalf of the plan for the salary reduction contributions which are deemed to be plan assets. The trustee represents the estate of the employer who is the debtor who owes the funds to the plan. This is why the DOL attempts recovery for salary reduction from the named fids under ERISA. The matching contributions are only claims of an unsecured creditor.

My comment was intended for ERISA plans which are amended to permit a cashout above 5000 with the employee's consent but was inartfully worded.