mbozek

I think there is a difference between the liability of the employer in remitting contributions to a vendor under a salary reduction plan and the employer's responsibility for tax reporting. An employer who permits salary reduction under a 403(B) plan still has to make sure that the employees do not exceed the 403(B)/402(g) limits because excess amounts are subject to income and FICA taxation. Maintaining multiple vendors requires that the employer have adequate controls to monitor the limits including loans even if the employer has no responsibilitay for the investments. If state law imposes fiduciary duty on employers who allow employees to make salary reduction contributions to an outside vendor as a plan sponsor then the employers will discontinue such programs because there is no reason for them to assume fiduciary risk merely to allow employees to reduce their salary on a voluntary basis.

Since the participant did not indicate that the distribution was to be rolled over to an IRA it was permissible fora the PA issue the check. Ask the PA if it will take the check back and allow the part. to elect a rollover properly. I dont see how the part. could expect to have the distribution rolled over if no IRA was designated as the recipient plan.

Not Exactly? If the Roth owner engages in a PT then wouldnt the earnings be taxed as ordinary income and subject to the 10% penalty tax. If the roth includes amounts which were received after a rollover, the 10% penalty tax will apply if the distribution is made within 5 years of the contribution The Roth would be treated as after tax income and would lose the ability to increase tax free without any minimum distribution during the life of the owner and spouse. If someone else engages in a PT involving the Roth then the 15% PT tax applies

Roth IRAs are subject to the same investment rules as regular IRAs. Why not read the custodial agreement issued by the custodian which should tell you what a permissible investment is. Most custodians restrict IRA investments in non publicaly traded securities or privately held interests and prior approval is required before the custodian will take title to the asset.

Because the er is only acting as a conduit for remitting the employees' contribution to the vendor. The employer has not established a plan or is holding the assets in trust since the ee has complete control over the funds. See Dol reg 2510.3-2(f) (TSA) and 3.2(d) (IRA).

Since a participant can rollover a loan to another qualified plan, and a surviving spouse can rollover a distribution of the decedent spouse interest to a qualified plan, why cant the surviving spouse rollover the loan with the rest of the deceased spouse's account balance to his account? Why not just assign the loan to the H and continue the loan repayment? H as assignee could continue to pay it off through his account. Second option- Why cant H take out a loan from his account and use the proceeds to pay off W's loan? H could roll over W's account balance to his own account if necessary to have sufficient assets to use for the loan. Need to check the plan of course and avoid defaulting on repayment.

The laws that you cite are model legislation proposed by various committees but need to be enacted by a state legislature. Also it is questionable that such legislation would apply to a school district or other govt entity (absent specific legislation) which acts only as a conduit for employee contributions to various providers. Even under ERISA an employer is not a fiduciary for the employees choice of provider merely because it permits employees to make salary reduction contributions from a reasonable choice of funds. The school districts believe that there is little risk of being sued because of charges by the funds because it is not making the decision to invest but there would be a fiduciary risk if the school district chose funds which would have poor investment performance. Also if there are 40 providers some of them must be lost cost such as TIAA/CREF or Vanguard which have no load, low cost funds.

Blinky : the failure to treat the ee contributions as after tax for the purpose of tax reporting is the employer/TPAs problem not the employee's problem because the employer is responsible for correctly filing a W-2. If the funds were logged as pre tax for plan purposes then they should not have been included as taxable wages. Therefore if the employee must pay tax on the AT contributions upon distribution the employer will be liable for the taxes (unless the plan admin is tagged for failure to administer the plan). What needs to be answered is how does the employee think the contributions were made- pre or after tax? By the way was ADP testing preformed? or were there no 5% owners. It is not an issue of missing a deduction- it is paying a tax on income twice because of a failure to properly record the contributions. Based upon prior experience if the employer has to choose between audit risk for retroactively amending the plan to permit AT contributions or paying the taxes incurred by the employee for the AT contribution the employer will amend the plan. There is also an elephant in the room: since the plan admin is a fiduciary to the employee I think there is a duty to tell the employee of the problem so that the employee can consult his own tax advisor.

Whether you can correct under the rules of 401(B) is not at issue- The plan has a problem in that it has AT money which has to be paid to the part. Amending the plan is the only way to conform to the treating of the AT contributions as they were remitted. The amendment is subject to audit risk. Not changing the plan means that the amounts must be treated as pre tax contributions which requires that the participant be taxed on the funds again. If the er does not want to take a risk in revising the plan for AT contributions then treat the ee contributions as pre tax and gross up the ee for amount of the tax due on the contributions. But it will cost a lot of money if the HCE made contributions over a long period. If the employer wants to pay, it can ask the IRS for approval of the change to permit AT contributions under a correction progam. The Q is how much risk is the sponsor willing to take. The less risk the more it will cost to fix the problem. Before you select an option, ask who pay to correct the mistake? The employer, the plan advisor, the TPA, the payroll service?

Before following Kirks good advice about retaining counsel, the buyers should talk to an accountant or investment advisor about the pros and cons of RE in a plan. RE is an illiquid asset and selling a minority interest is difficult since buyers dont want some one else to control the property. Usually there will be a discount at the time of sale of a minority interest unless there is a requirement that the other owners purchase the interest. Also a q plan as a tax exempt entity cannot get tax benefits from the ownership of RE- no depreciation, no capital gains, no deduction of payments for taxes and admin expenses. The plan cannot use the RE as collateral for a loan. The plans will have to allocate assets of the trust to pay for the expenses of owning the RE.

While vested benefits cannot be waived, there is a provision in the the IRS termination guidelines that permits the controlling owner to waive/defer part of the benefit due if the plan assets are not sufficient to pay all benefits. It is in the section on vesting of benefits upon termination. KJ_ I though that ERISA prevents an employer from terminating a plan if assets are insufficient to pay vested benefits. I though the only exception is if the controlling owner agrees to waive (PBGC) or defer (IRS) part of his accrued benefit. Otherwise an employer could walk away from the obligation to fund DB plan benefit accruals whenever the plan assets were less than its laibilities without any consequence (why bother to ask for a waiver of funding standards). For PBGC covered plans termination of an underfunded plan is only permitted as a distress terminaton.

If the benefits are funded through a group annuity contract the loan provision for participants should be in the contract. It may be that the providers lawyers want the side agreement because of some fear that a loan is a plan feature that must be approved by the plan fids. Why dont you ask the provider's rep for the reason for this requirement.

Recharacterizing the AT contributions as pre tax will result in double taxation for the ee because the S/l for refunds is only 3 years so tax returns prior to 99 cant be changed. Employer/ plan admin would be liable for paying extra tax. If the contributions are left as AT then the ee will not pay tax on the distribution. Better to amend the plan to permit AT contributions and recharacterize contributions from 99 as pre tax and have ee file amended tax return based upon revised w-2. Another option is to amend plan and treat all ee contributions as after tax to conform to W-2.

Q: are the contributions invested in mutual funds or annuities? In annuities the loan is between the insurer and the participant. The loan is available as a provision of the annuity contract. Mutual funds cannot make loans to thei investors. In a mutual fund the custodian (a trust co) makes the loan to the participant and secures it with the account as collateral. The loan is not a PT because a 403b plan has no assets and the participant owns the interest in the annuity or custodial account used a collateral. The PT rules do not apply to a 403(B) plan.

Pax:I thought that the auditors for the company have the responsibility for reporting the compnay's financial condition to the SEC. The auditors take the actuaries assumptions into account but are not required to adopt them.

Kirk: Legal separation is used by spouses in some states as a cheap alternative to divorce since alimony/support is permitted under a separation decree, separation orders are easier to draft and the parties do not need to prepare a property settlement or QDRO. The spouses just live apart and avoid the cost of paying to get a final divorce.

Stupid queston: Have you read the loan document? What are the terms of the loan??? Who is the borrower and who is the lender? What are the loan proceeds applied toward? What happens if the employer refuses to sign the loan agreement?

I think you are missing the point-- If the plan admin wants to demonstrate it has a valid right to the excess amount it should be willing to provide the participant with all documentation showing why there was an excess payment- otherwise how does the participant know a mistake was made. Anyway if the plan admin is going to sue the participant then it should be willing to disclose everything before commencing the action- its called good faith effort to resolve a dispute.

Sending a 1099 will cause taxation to the participant for income tax, penalty tax, excess contribution tax to the participant for which the plan admin will be liable since it is the result of a plan fid. mistake. Tax liability could be 40% or more of the amount involved. The participant has the right to see all correspondence and advice involving the issue because all communication involving determination of plan benefits requires disclosure for which there is no privilege. In re Long Island Lighting Co., 129 F3d 268, Washington -Balt. Newspaper Guild Local 35 v. Washington Star co., 543 f. supp. 906.

are there ? I am still waiting for an answer as to how the plan admin would send a corrected 1099 to the IRS showing that a disqualfiying distributions was paid to a participant under a Qual plan. I think the participant has a valid basis for rolling over the entire amount to the IRA since it was paid to the particpant under qualified plan in a event eligible for a rollover and the particpant relied on the information provieded by the plan admin. Also the participant should demand an accounting from the plan administrator showing how the excess was determined and how it occurred. The participant should also ask for all correspondence between the plan admin and the advisors, TPA, attorneys, etc to find out their opinon on the excess payment. Some "excess" payments are the result of plan admin failures, e.g., plan changes trustees after a distribution is paid and there is a discrepancy between the assets in trustee's account and plan account balances for which the participants should not be charged.

purchase additonal benefits

Public schools do not use plan documents because the district does not want the risk associated with being a plan sponsor. It is not unusual for 403(B) plan participants to be victimized by a vendors agent who fails to remit the employees' contributions to the 403(B) provider. There is no reason for the district to be involved in such a mess. The district's position is that it is merely a conduit for the contributions from the employee to the vendor or vendor's agent in accordance with an agreement between the two parties.

The regulation is based on ERISA which specifically required that under 415(e)(5) an employee had to aggregate 403(B) annuity contributions with qualified plan amounts in two situations: if the employee took special election C or if the employee controlled more than 50% of the employer who maintained a qualfied plan. (See ERISA Conf. Report 92-1280, P 346.) 415(e) was repealed by the tax act of 1996. 415(k)(4) was added with identical language formerly contained in 415(e)(5) to confirm that aggregation is required in the case where the 403(B) participant also maintains a qualified plan or sep plan with more than 50% ownership in the employer who maintians such a plan. IRS pub 571 ( P.12) specifically notes the application of the 50% rule in aggregating 403(B) plan contributions with a qualified plan after the changes in EGTRRA.

I thought that an employee is still deemed to be in control of the 403(B) annuity maintained by the employer and and must aggregate the 403(B) annuity with the contributions made to any q plan or sep in which the employee controls more than 50% of the equity or profits of the employer who sponsors such plan. IRC 415(k)(4).

Check the plan document- If the plan provides that the benefits wil be paid from the assets of the trust to the extent funded then vested benefits will be reduced to the amount payable from the trust assets.