mbozek

See IRS Notice 89-23 for application of nondiscrimination rules to er contributions to 403(B) plans. I dont see why union employees in a 403b plan should be tested differently under IRC 401(a) (4)/m than union ee in a qualified plan since the same rules are to apply.

I dont see any requirement in IRC 408(k) for a SEP to either be adopted by a board resolution or that it must be a written instrument executed by the employer. The cited regs are, as of last dec., only proposed and cannot be enforced against a taxpayer who fails to follow them. At most the proposed regs are a safe harbor for employers who adopt a SEP. There is also a big difference between a written allocation formula and a written instrument executed by an employer (whatever that means). The IRS has had 25 years to write regs on SEPs (which is the same amount of time as the time for writing regs under FSAs requiring substantiation of claims) and taxpayers should have notice in the form of a final reg if the IRS deems a formal written executed document to be a necessary requirement for establishing a SEP (even though it is not in IRC 408(k)). Maybe the reg has not been finalized because the Treasury Dept cannot support the written executed document requirement.

Since the statute of limitations for collecting back taxes is only 3 years (IRC 6501) there is no loss of tax deduction for years prior to 1999 and the s/l for 99 could expire as early as 4/15/03. So why go to the IRS? Second IRS has no formal program to review SEPS- there is only audit risk. Third reg requiring "executed document" (whatever that means???) is only a proposed reg which cannot be enforced against the taxpayer. I dont know where you get the basis for saying that there is no plan without an executed document since there is no such requirement in the code. In fact a SEP is no different than a 403(B) annuity plan which is not required to be in writing under the IRC. At most the executed document can be interpretated as a safe harbor. Fourth is it possible that the er adopted the plan by some other alternative, e.g., signed a statement adopting the plan and filed it with the sponsor of the SEP or adopted the plan pursuant a board resolution? Fact that a signed adoption agreement cannot be located now does not mean that no document was signed in 95- it may be that the original has been misplaced. Soluton may be for er to adopt a SAR SEP updated for Gust/Egtrra, etc for 2002 and just let the s/l take care of the open years.

D: Benefits provided to union members are negotiated between the union and the employer. If the union did not negotiate the benefits and the members did not approve a collective bargaining agreement that would provide for 403(B) plan contributions there were never any contributions that the employer was obligated to provide. Therefore the plan can be amended to remove the benefits to the union members. Your client needs to retain counsel to review this matter.

You can retoractively exclude the unin members but I dont know how you will remove the contributions from thier accounts if they are 100% vested. I don't know what IRS problems you are worried about. 403(B) plans are not qualfiied plans. It is not illegal for an employer to make contributons on behalf of union members.

IRS reg 1.401(a)-13(d) which applies to ERISA 206, provides that loans which meet the requirements of ERISA are not an assignment of plan benefits.

Whether there can be a transfer depends on the authority of the beneficary to make the transfers. Usually the beneficiary of an IRA receives to the all powers that the IRA owner had including the right to receive or make transfers to the IRA. If the beneficiary has the right to transfer the funds from the qualified plan the only question is whether the beneficiary is permitted to make a trustee to trustee transfer from the Q plan to the IRA in the decedent's name under the IRC. There are many IRS rulings permitting a beneficiary of an IRA in a decedent's name to use a trustee to trustee transfer of the funds to another IRA in the decedent's name.

I am not sure that I understand your first Q- ERISA only preempts state insurance laws which apply to the plan- state ins laws which apply to the contract terms, e.g. right to borrow, are not preeempted. Also PTE 77-9 permits loans from an annuity contract. Q2- since the loan provision is part of the contract the employee can borrow from the annuity after terminating employment. I dont know if the rules under IRC 72p would apply since the annuity contract would not be considered a plan asset and the loan would be subject only to terms of the contract.

The Surviving spouse can take withdrawals from the decedent's IRA indefinitely because the payments are on account of the death of the owner. However, the RMDs must commence in the year the decedent would have attained age 70 1/2.

It is not the particpant's responsibility to review the withholding allowances and as any one would know paryroll depts are not the most cooperative or reliable dept of the employer. I think the employer would have legal liability for the taxes for failure to withhold. But there is a way which can be used the avoid the tax-reform the contract. The PA could treat the loan as never having been made because the employee did not accept the funds under a bona fide claim of right but agreed to pay back the money under the terms of the note. I dont know of any case in which the employee would be taxed on the loan proceeds because the employer who is not a party to the loan failed to initiaite withholding on the loan. ( Of course the IRS will not penalize the plan for treating the loan as a distribution.) The problem is that the employee would have to refund the loan proceeds to the plan before a new note could be issued and most participants cant refund the loan proceeds. Recinding the loan requires retention of expert tax counsel and the attendent cost but there is precedent for rescinding transactons under the IRC. One caveat - rescinding a contract works only if the rescission occurs in the same year as year the loan is issued.

Because IRC 414(v)(6)(A)(iii) only permits an over 50 catch up for govt 457 plans. NP 457 plans have a catch up for the last 3 yrs before reaching retirement age under the plan.

While ENRON may yet prove to be another example of how bad facts make bad law, the issue of imprudence based upon the fids failure to halt investing in the co. stock based upon Watkins' allegations of accounting impropriteties may be difficult to prove because ENRON retained counsel to review the allegations and the Law firm issued a report indicating that was no basis to support Watkins' allegations of improprieties by ENRON executives and Arthur Anderson. The real issue is what is the required level of due dilligence for a plan fid when the plan sponsor retains oustide counsel to investigate charges of violations of the securities law and the report turns up no violations. Does the Fid have a duty to conduct its own investigaton which would require that it obtain/report on material non public information from the sponsor? Since Enron engaged in a pattern and practice of deceiving all investors, not just the plan particpants, it would be fair to treat the employees' claims on the same basis of other investors.

The HCE can contribute 12K to a 457 plan in 03 in addition to the max deferral permitted to a 401(K) plan. However, there is no catch up for employees over 50.

forfeiture to the plan or payment to a designated beneficiary of the spouse perhaps.

According to the DOL QDRO book Q2-16, the alternate payee is generaly considered a beneficary under the plan for the purposes of ERISA. In some QDROs the AP will designate the beneficiary in the event of death of the AP. Q3-7 notes that some QDROs issued for a DC plan in which a separate interest is created for the AP will provide that the separate interest will be held in a separate account in which the AP may exercise all of the rights of a participant. If the AP is regarded as a participant then the AP should have the right to designate a beneficary. In a DB plan, the right of an AP to designate a beneficary of the APs interest in the plan would exist in very narrow circumstances, such as a plan which provided a separate annuity benefit directly to the spouse which is not contingent on the spouse surviving the particpant and which would permit the spouse to designate a beneficiary. If the DB plan does not allow a spouse to designate a beneficiary of the spouse's interest I dont believe that a QDRO could require such an option.

KJ: With due respect to the DOL position - What is the alleged breach of fid duty in ENRON? According to published reports the only investment information that was available to the Fids was material non public information which could not be used by a Fid without violating the insider trading laws.

How does the plan sponsor know that the employee will use the money to purchase the residence if he does not have any ownership interest? Maybe he wants to take an expensive vacation. I advise plan administrators to have the employee provide a copy of the contract to purchase the residence in order to make sure that the employee is purchasing a home to comply with the regs. I dont know how the employee will provide proof of purchase if there is no ownership interest but then its not my opinion that is at risk.

The real question is whether any plan sponsor has been subject to sanctions for the failure to provide the prospectus in accordance with the reg. In these days of internet access arent funds making the prospectuses available online? It seems that this requirement is no different that the SEC requirement that an investor receive a prospectus in the mail before being able to purchase a new issue which is ignored by investors and brokers.

The "purchase" of a primary residence requires that the participant have an ownership interest in the residence. I dont see how some one can purchase RE without actually owning it.

Duh: Why does this participant want to take money from his account for the purchase of a residence in which he will not have any ownership rights? The sister could say that the money was a gift, not an investment unless he has a contract (which is worthless without a security interest in the RE).

If the 403(B) plan is terminated the participant's only option is to transfer their account balance to another annuity contract or custodial account as a tax free transfer under Rev. Rul 90-24. There is no provision for a rollover to an IRA or a qualified plan.

There have been previous postings on RE investment. IRA investment in RE are subject to prohibitied transaction rules of IRC, e.g., can't use IRA to by home for owner, can't use borrowed money to purchase home, must find a custodian to hold title to RE which is expensive since few custodians will accept RE and using IRA to own RE eliminates tax advantages of RE including deduction for depreciation, expenses, property taxes, no capital gains, etc. Since IRA is responsible for paying all expenses of RE such as property taxes, lawyers, etc. there must be sufficient cash reserves.

The 2003 MRD for an IRA in the spouse's name is based upon the value of the IRA as of 12/31/02. Since the IRA did not exist as of that date the 2003 MRD for the spouse is 0. When the IRA is transferred to the spouse in 2003 the spouse will have a year end value which will be the basis for the spouse's MRD in 2004. The balance of the MRD from the owners IRA which must be paid to the IRA beneficary by 12/31/03 is 65k.

Money that is in a 403(B) annuity can be transferred to another 403(B) funding vehicle under Rev. Rul 90-24 with the participant's consent provided that restrictions on withdrawal are adhered to. There is no way the accounts can be administered in the same way as a qualified plan because there is no trustee who controls the assets as there is in a qualified plan.

Supplemental is too ambigious a term to use to classify employees. It is not much different than temporary.