mbozek

If the charter school is a public school then it is not subject to ERISA regardless of whether it filed 5500, etc because ERISA only applies to non profit and profit making employers. Since there is no statutory authority under ERISA to regulate a governmental entity, a public entity cannot voluntarily consent to be regulated under ERISA. Whether the charter school is a government instrumentality is another question. Also it is possible for a governmental entity to be a 501©(3) organization.

Carole: Its an interesting idea but I have no clue as to whether the IRS thinks 401(a)(27) would apply to 403b plans. I don't know if the IRS would have an opinion because the requirement of providing an annuity in a money purchase plan as the normal form is a Title I requirement which is enforced by the DOL under Title I.

Its complicated. The requirement to offer an annuity as the normal form of benefit in an ERISA 403b plan depends on whether the plan is administered as a money purchase plan or a PS plan. Under ERISA money purchase plans are considered to be retirement plans subject to the funding standards of ERISA which requires that the normal form of benefit be a life annuity with a 50% survivor benefit for the spouse. However the requirement of the annuity as a normal form of benefit in a 403b plan does not apply to a PS plan where the normal form is a lump sum, e.g., 401k plans with an employer match. According to an old IRS ruling a money purchase plan provides for a fixed contribution of the employees' comp (e.g., 5%) annually without any further action by the plan sponsor. A PS plan provides for discretionary employer contributions which are formally approved each year. So if an employer must annually declare what is the employer contribution to be deposited in the employees' 403b accounts, it is considered to be a PS plan exempt from the requirement to offer an annuity as the normal form if the spouse receives a death benefit of 100% of the account balance unless spouse signed a waiver under ERISA.. However a 403b PS plan with discretionary employer contributions can make a J & S annuity the normal form of benefit with a lump sum available only if there is spousal consent.. These rules are contained in some IRS pronouncements issued years ago when there was concern that offering an annuity as an optional form of benefit in a 401k plan would trigger the requirement that the annuity would be the normal form of benefit instead of a lump sum and that spousal consent would be required if the employee applied for a loan. With regard to ERISA 403b plans where the employer make annual contributions the rules appear to be 1. If the plan funding is an annuity contract the normal benefit must be a life annuity with a 50% spousal survivor benefit 2. If the plan is funded solely with mutual funds and the employer makes discretionary annual contributions the normal benefit can be a lump sum without spousal consent if the spouse is automatically vested in 100% of the benefit upon employee's death. 3. If the 403b plan investment options includes both annuities and mutual funds the answer will depend on whether contributions are fixed or discretionary and whether the normal form of benefit is a lump sum or or annuity. Note- Most 403b plans with both funding options will provide that annuity is the normal form of benefit to avoid having to do an analysis.

Stupid Q- How can plan terminate if it does not distribute all of its assets?

If the employer anticipates that plan will not be maintained in accordance with the rules of the IRS then plan should be terminated while it meets the requirement for qualification to prevent taxation to the plan participants if the plan is DQed. Employer should not continue to maintain a plan that cannot meet the requirements for Qualification because fiduciaries/employer could be sued by the employees for adverse tax consequences resulting from the failure to keep plan tax qualified. Best advice is to inform client that plan should not be allowed to fail qualification requirements because of risk to plan sponsor/fiduciaries if plan is DQed.

Its a no brainer to anyone with the intellectual capacity to read the IRC/ERISA because 1. Since QDRO procedures do not apply to govt 403b plans, public plans do not need to follow QDRO procedures to transfer benefits tax free, and 2. IRC 1041 allows tax free transfers of all tangible and intangible personal property which includes 403b annuities. ERISA plans must follow the QDRO rules because QDROs are the only way to transfer assets of an ERISA plan on a tax free basis between spouses under a divorce decree without violating the ERISA non alienation rules. Also ERISA plans must conform to QDRO provisions because ERISA preempts application of state divorce law to divide benefits unless the court order conforms to QDRO provisions. Public plans are not subject to any of these rules.

I recollect that the 1041 procedure was the way TIAA-CREF divided up the 403b contracts of public employees. They had forms drafted to make it easy. Don't know why a custodian would have a problem since 1041 meets the requirements for a tax free transfer and only applies to non ERISA plans which are exempt from the QDRO requirements. As it is the parties will use IRC 1041 to transfer all non pension assets without incurring taxation. What's the risk to the custodian if the parties attorneys agree to a 1041 transfer?

QDRO procedure is not necessary/desireable to achieve a non taxable transfer of non ERISA 403b benefits pursuant to a divorce. Under IRC 1041(a) annuity benefits can be transferred tax free to a former spouse if the transfer is incident to a divorce which includes a separation instrument. Under reg. 1.1041-1T(a) q/a-4 transfers of property includes all property whether real or personal, tangible or intangible. Transfers of services are not permitted under IRC 1041. Simplest way to transfer 403b benefits is to include the transfer in property settlement. See regs 1.1041-1T(b) q/a-7. No reason to waste money and time on preparing a DRO. Transfer can occur up to 6 years after the date marriage ceases.

Same sex couples will not be eligible for tax benefits in all circumstances. For example, tax exemption for health insurance benefit may only apply to same sex married couples living in 13 states & DC that recognize same sex marriage because IRS has relied on law of state where couple resides to determine if they are married under IRC since there is no statutory definition or regulation of spouse under tax law. See NYT article list of Known unknowns under federal laws. In other words same sex couple married in MD who reside in VA may not be married couple under IRC. http://www.nytimes.com/2013/06/27/your-money/how-the-supreme-court-ruling-will-affect-same-sex-spouses.html?pagewanted=all

We have had this discusson before and the question is whether the minmum asset requirement is a plan requirement or whehter it is a requirement of the investment fund. Some funds available in a directed brokerage are onhy available to accredied investors or require a minimum amount. I consider an eligibliilty rule set by the fund to be outside of the plan because the plan has no control over the eligibility requirement for the fund.

Not exactly. 403b or any employer retirement plans are more expensive to maintain than IRAs because of the compliance requirements, IRC, Sec rules that apply. All plans need TPAs , tax advisors and some ERISA plans need accountants to prepare annual repoorts. Minimum admin cost are about .50%. Problem is that low cost providers such as VG and TIAA/CREF are only interested in plans that have minimum assets of more than $1M because they need to generate enough fees to pay for the cost of compliance and TPA. Ins co will take plans with smaller amounts of assets because they charge higher fees which are passed along to participants. You may be able to get some leads by going to 403bwise.com and asking your question there.

I am not following your reasoning. The TIAA contract is the plan because the plan's assets are held in the annuity contract in lieu of a trust. Therefore tha plan assets are being used for the loan. The annuity assets are also considered to be eligible for plan loans under reg. 1.401(a)-13(d)(2) because the participant's loan is secured (by whatever means) through the annuity contract which holds the participant's accrued benefits (instead of a trust.) If the promissory note secures the loan against the participant's interest in the annuity contract then the loan is secured under the anti-alienation reg and is not a violation of the PT rules.

Just noticed that my response to post #12 was never entered as a reply. The box designating a check mark if a MRD is required is meaingless because there is no requirement that an MRD be taken from that IRA. Just because the IRS collects information doesnt mean that it acutally processes it and audits taxpayers. I know of many instances were MRDs were not taken without the IRS auditing the taxpayer which is why I asked the question of whether anyone know of a taxpayer who had been audited for failure to take an MRD. It appears that the IRS is not reviewing tax returns to determine if MRDs are being paid. I know of one instance where a taxpayer failed to note a distribution from a qualified plan and IRA rollover on the 1040 without the IRS auditing the return.

i would be very wary of valuations of any david lerner financial products that do not have an independent appraisal. See link to valuation issues of Apple Reits sold by lerner. http://www.whitesecuritieslaw.com/2012/01/31/david-lerner-in-more-trouble-over-apple-reits/ Some Reits may have valuations based on recent trades.

Plan cannot attach participant's assets in a pension plan except if the particpant is a fiduciary who has committed a breach of fiduciary duty involving the plan. But there are other ways to recover plan benefits. A NJ resident embezzled several hundred thousand dollars from her NY employer. Employer got a judgment against the employee in NY but could not seize assets in Plan because of ERISA. After the employee rolled the plan benefits over to an IRA in NJ, a NJ court held that the retirement benefits could be seized by the NY judgement creditor as a fraudlent convenience because the IRA transfer violated the NJ frauldent transfers act. Gilchinsky v. National westminster Bank, 732 A2d 482 ( NJ 1999). Retirement benefits can also be attached pursuant to an order for restitution under a generally applicable state criminal law which is not preempted by ERISA. State v. Pulasty, 612 A2d 952 (NJ 1992). There is also an MA case that reached the same result.

Yes, but no harm no foul doesn't mean it's "right" and doesn't inspire confidence in their ability to perhaps do other things that may appear "ministerial" but nonetheless *DO* have an impact. Sorry to be a stickler, but the PLAN is the CLIENT and the investment house isn't trating the client very well when they make stupid mistakes and then refuse to correct them. I dont know why you are getting excited over an admin glitch that has no adverse consequences to the plan. I have seen this error before and plans do not think anything of it. If you had read the OP you would have noticed that problem was caused by failure of the plan to check the right box on the w-9. It was not a mistake of the financial institution which must rely on the client to correctly code the forms they fle with IRS because financial institutions cannot provide tax advice. Client should have had tax advisor review w-9. Problem will go away in future years since w-9 has been revised.

You have raised the interesting queston of whether ther IRS would ever discover this error and if it did what action would it take. While the IRS receved the 5498 forms indicating how much you contributed to your Roth IRA and what years the contributions were to be allocated to we dont know whether the 5498 information was processed into the IRS data base. Second, even if it was in the IRS data base the IRS would have to create a program to extract that data and then audit taxpayers who exceeded the contributon limits and compute the taxes due which would be complex in the case of excess IRA contributions. I dont think the IRS has resources to devote to such a project for the amount of revenue that would be collected. Your situation brings to mind a question that I have not been able to resolve of what happens if an IRA owner fails to take MRDs. Assume an individual who reaches 70 1/2 does not commence IRA distributions. As I understand it the custodian does not notify the IRS or issue a check for the MRD and the IRS does not track whether the IRA owner took a MRD. At the IRA owners death the IRA is inherited by the owner's children who begin taking MRDs based on their life expectancy. Since the Inherited IRAs will be reported using the beneficaries SS numbers, the IRS will not be aware of the failure of the owner to take MRDs. The only thing the IRS knows is that distributions have commenced from an Inherited IRA owned by a beneficiary. The beneficaries have no tax liability for the owner's failure to take MRDs since they are unrelated taxpayers and are only required to take their MRDs from the inherited IRA. How would the IRS collect the 50% excise tax?

In his initial post flyboy stated that he made he made a $3000 contribution in April 2004 and then made his intended Roth contribution for 2004 in the following year which I assume was 2005. So he made one $3000 contribution in 2004 and 1 in 2005. He did not make two 3000 contributions in 2004. What he did was make 1 contribution to his Roth IRA in each calander year from 2003 on but for the contributon made in 2004 he falied to note that it was to be allocated to 2003. Under IRC 6501 S/l to assess taxes is limited to 3 years (with some exceptions) after the return is filed. There is no S/l if a return is never filed which is why taxpayers are prosecuted for failure to pay taxes going back 10 or more years. Whether the IRS could discover all taxpayers errors in their data base and what would be the cost to recover the information it is beyond my pay grade which maybe why minor infractions of the tax law are just not discovered or enforced by audits. Or are being swept up in safe harbors. For example, the IRS announced that they are granting a safe harbor for home office deduction which does not exceed $1500. Taxpayers electing the safe harbor will not have to provide detailed information to justify the deduction. Reason: IRS doesnt have the resources /data to check/audit each taxpayer who claims HO deduction.

Looks like a case of no harm, no foul.

I get letters from 2 fortune 500 co that includes information on several different reporting provisions of a qualfied plan well as information on welfare plans that I do not participate in. Disclosure information that is subject to a time sensitive deadline should not be delayed.

There are two possible options that flyboy 73 needs to discuss with a tax advisor as I cannot provide legal or tax adivce. 1. withdraw the $3000 and attributable earnings and treat it as an excess contribution for 2003 by filing a 5329 form paying all applicable taxes. He would need to complete Part IV of the 5329 form for 2003. My understanding is the 6% tax is cumulative for each year back to 2003. Penalty would be thousands of $. 2. not file the 5329 form which would continue to accumulate the 6% excise tax. Risk is that IRS could impose the tax whenever it discovers the error since a 5329 form has not been filed. IRS position is that statute of limitation for excise tax liability begins only when the 5329 form is filed. However it appears that excess contributions to Roth IRAs fall into the black hole of reporting for many complex retirement plans provisions. I know several taxpayers who failed to take MRDs without adverse consequences and when advised of the requirement to file a 5329 responded that they would double up on the MRD for the current year or they would wait until notified by the IRS. None filed the 5329 and I am unaware that they were audited. And of course there is no way to enforce the wash sale rule as it applies to IRAs. Q-anyone know of a taxpayer who was notified by the IRS that an MRD was not taken? What is interesting is that IRS software may only review Roth contributions made during the calendar year to determine if the $ limit for that year was exceeded, i.e, if $ amount contributed in 2004 does not exceed Roth contribution limit for 2004 tax return will not be flagged, without checking to determine what tax year the contribution is allocated to by the taxpayer.

wouldnt converting to MPPP require that plan provide annuity benefit as normal distribution and spousal consent to take lump sum? continuue 401k for employee elective contribution only by non HCE and use 403b for employer contributions and elective contributions by HCE. Partial termination problem goes away.

S corp owners are treated the same as self employed persons for the deduction of Health ins. The premium is included as either W-2 income (Line 7) or self employment income on line 12. The health insurance expense is deducted on line 29 to determine AGI. Plan compensation as w-2 wages includes health insurance for the purpose of determining the maximum contribution. The S corp claims the tax deduction for pension contributions but not for health insurance.

Under ERISA there is no such concept as a ministerial decision to distribute plan assets by the person who has authority to disburse the funds. About 20 years ago there was a case where the wife of the owner who was the company bookkeeper made a decision to distribute plan benefits to participants and wrote the checks. Plan participants complained about the payments and case went to trial. Bookkeeper claimed she was only acting in her capacity as the company bookeeeper and not plan administrtor. Court held her to be the plan fiduciary because she exercised authority to distribute plan assets. See reg 2509.75-5 D-1 ERISA determines fiduciary responsibility by the acts a person performs for the plan, not the label under which that person operates. In addition, ERISA preempts state laws including laws that would prevent personal liability of the executor, to the extent such laws relate to the plan and its operation in distributing benefits. An executor/administrator electing to distribute plan assets under the authority of letters testamentary issued by a state court is a fiduciary under ERISA.

There is an old PLR that allowed an RMD to be taken from AT funds distributed in that year so that the participant could roll all pre tax funds to an IRA.