mbozek

I think the participant could raise a defense of accord and satisfaction in that the decision to elect a distribution was based on the amount that the plan admin represented to be the account balance and the part. relied on that amount as being the correct figure. If the plan admin did not reserve the right to revise the distribution I dont think the plan can ask for any refund since the plan represented the account balance as the correct distribution. Also I dont think there is any authority for a plan admin to revise a 1099 so as to reduce the amount of the distribution after paying the distribution to the participant. I think the 1099 requires that the plan admin state the amount paid to the participant which is the amount the participant received. I think a 1099 can be revised to show the actual amount paid to a part. I do not think a plan admin can revise a 1099 to show that part of the amount is not a distribution from the plan. - What form is used to report the excess? It can only be reported as a disqualifying distribution. Also what is the basis for the excess payment. The fid breach could be the cost of retaining an attorney to recover a disqualifying distribution. By the way how much is the excess? Also isnt paying an amount which is not a distribution a PT?

J: I am curious as to how your client would report an error to the IRS? Are your going to revise the 1009-R. How would the excess be reported to the IRS? Would the plan face sanctions for a breach of fiduciary duty? Most plan admin would not want to notify the IRS that they have made an overpayment to a participant. Or is this just a bluff to get the participant to refund the excess.

yes.

Is the transferring plan a 401(k) plan approved under US law in which the taxpayer is a participant? Or is this the British tax law equivalent of a 401(K) plan. If the later then no rollover is permitted to a US qualfied plan. As I understand it US citizens who work in England are not eligible to participate in the 401(K) type plans approved under British law and but may participate in a US plan. There are previous threads on this question. BFree- foreign citizens are subject to US taxation if they have us source income, e.g., wages earned for service in the US or income derived from a qualified plan that they particpated in, unless there is a treaty exemption. A foreigner who works outside the US but participates in a US qualified plan would have US source income on the trust earnings paid as part of the benefits.

I am not an acutary but I have one question: What is the plan paying as expense charges/fees to the ins co for the guarantees in the event the remote contingency of death occurs? In my review of VA products the load charges are usually 2- 2.5% with the guarantee being about 1.0%. I think this is product is a solution in search of a problem. I also understand from investment professionals that DB plans should not invest in VA/mutual fund type products because of the high expenses of the products which reduces the return- Your client should seek a legal opinion that it is not imprudent to invest in this product.

If you are going to pay the IRS before benefits can be distributed make sure you get a written consent from the participant with acknowledgement of the tax consequences of the payment.

no. See IRC 403(B)(12)(A)- all students who are not subject to FICA are excluded as well as ee working less than 20 hours a week

Bud: I dont think you can pay out a benefit if a distributable event (e.g. attainment of age 59 1/2) has not occurred because the IRS has no greater right to a taxpayer's assets than the taxpayer. Otherwise the IRS could levy on vested accrued benefits in a DB plan prior to the date the benefits are payable (without regard to forfeiture if the particpant died prior to retirement). If the benefits are distributable then the levy must be paid to the IRS and the employee has no recource against the plan. Also under the assignment of interest rule the taxpayer who earns a retirement benefit is liable for taxation even if the benefits are paid to another person, Duran v. CIR, 123 F2d 324, unless there is a statutory exemption, e.g., a QDRO. I dont know of any exemption from taxation for retirement benefits collected by the IRS because it would provide a tax benefit for deliquient taxpayers by allowing them to pay the back taxes with pre tax dollars. Congress has provided relief for hardship situations. There is an exemption from taxation of an IRA owner when the IRA assets are used by a trustee in bankruptcy to pay the debts of the IRA owner. IRC 1398(f).

See IRS regs 1.61-2. If the employer provides LI benefits on another person with the employee as the beneficary then the employee is taxed on the value of the premium- Its the ginsberg case. It is no different then if the employer had paid the employee and the employee gave the premium to the ins co.

If the DBA does not require full and immediate vesting why should the plan be required to provide it? Employers make contributions to multiemployer plans as a condition of a contract with the union- its the cost of doing business. About 10 years ago a Fed. appeals ct held that employees who worked on the Alaska Pipeline were not eligible for the pension benefits established under a multi-employer plan funded by the contractors because they did not meet the vesting standards of the plan (e.g., 10 year cliff vesting). As a result 95% of the participants did not receive a vested benefit and the plan was grossly overfunded. The employees made the argument that because they were hired for the duration of the project they would never accumulate the required service. Since the plan was established for their exclusive benefit the vesting provisons should be reduced to give them a benefit. The Ct said since the plan met the vesting requirement of ERISA it was not required to provide faster vesting.

What kind of Plan? Sponsors of underfunded DB plans are subject to liability to the PBGC and employers who participate in multiemployer plans are subject to withdrawal liability by the union. There is extensive case law on the application of the IRC 414© rules to businesses owned by individuals who are plan sponsors under the PBGC provisions of ERISA.

Fed cts routinely dismiss claims for benefits if the claims appeal has not be completed. The judges are not interested in increasing their case load.

The IRS right to levy on a plan asset is no greater than the right that the participant has, e.g., if the participant does not have the right to withdraw the funds that are levied on by the IRS, then the IRS does not have the right to payment of the funds. Paying funds to the IRS which are not available for distribution (before age 59 1/2) could disqualify the plan. The participant would have a claim against the plan for paying the money on the theory that had the plan not violated the distribution rules the levy could expire before the distribution could be made under the plan terms or that the payment could have been made from other sources. There is no percentage to the plan admin. in paying the funds to the IRS if the participant cannot elect a distribution. A polite letter of denial from counsel will be sufficient.

Q I agree with your analysis but what is the consequence of the failure to provide a claims procedure to a participant in a top hat plan which is exempt from the SPD requirement?

The 125 audit program is extremely limited because of the lack of resources and the IRS has no standards to test for discrimination in 125 plans other than the 25 % test. Also the s/l for recovering back taxes is generally 3 years. The IRS has a policy of starting compliance/audit programs in the benefits area and then stripping it of resources when it iestablishes a new initative (e.g. 403(B) plans). IRS oversight/ compliance programs in the employee benefits area are no better than DOL or EEOC oversight, e.g, it is "symbolic enforcement" of applicable law due to the lack of resources in a declining budgetary environment. IRS resources are being directed toward those areas that will raise the most revenue, e.g., off shore accounts, tax shelters, self employed persons.

Because a top hat plan is exempted from the SPD requirements, top hat plans do not publish an SPD. However, the better drafted plan documents contain a reference to the claims procedure provisions of ERISA which would be provided to a particpant in the event of a dispute over benefits. Well drafted plan documents can minimize or eliminate employer risk by including defensive plan provisions but clients usually prefer canned documents. (How many plans have a mandatory arbitration provision for benefit disputes?)

I dont know if corbel has a prototype plan with the features I have described. Have you tried the custodian? Your problem is that no prototype will contain all of the features that you want or need in the plan. I have drafted PS type 403(B) documents for clients including the SPDs. The document is not a qualified plan and is not submitted to the IRS so it is not that difficult to modify an existing document. There are many provisions that can be included to reduce employer liability in a 403(B) plan that are absent from prototype documents.

Lets make this simple: the c3 can maintain a 403(B) plan which must provide immediate salary reduction availability for all its employees who work more than 20 hrs a week. The profit making entity can establish a 401k plan for its employees. Or employees of both employers can participate in a 401k plan. Only c3 employees can participate in the 403b plan.

I love to see non lawyers act like lawyers- but Rbeck- in order to obtain a remedy an aggreived party must have incurred a wrong. I am at a loss as to the wrong and the the adverse consequences of the wrong to the participant. My understanding of case law is that plan administrators have escaped liability for late distributions made up to a year after a request is made. The only failure seems to be to make a distribution prior to the change of 401(k) provider which can be fixed by making the rollover of the distribution. By the way what does the plan say about distributions or do only lawyers read those documents?

As noted in several ct decisions on 414(a) where participants have sued over the question of whether predecessor service should be counted for benefits under a successor employer's plan, the IRS has never issued regs. Because of the lack of guidance, clients will retain counsel.

CC: Most term policies have premiums which are fixed for 5, 10 or twenty year periods. But Otherwise I agree with your opinion. there is no valid basis to have term ins in a ret plan becuase ther is no inside buildup of cahs value. The rationale that pre tax dollars are used to purchase the ins is defeated by the taxation of the premiums under the PS 58 rates (unless there is a wide disparity beteen the premium paid and the PS 58 taxation).

This is an unclear area- the code does permit non 5% owner employees who work after 70 1/2 to delay commencement of benefits from a qualified plan. However, IRA owners are not eligible for such a deferral. The problem is that you waited until you attained the your mandatory distribution age before doing the rollover. You need to retain tax counsel to determine if you can defer the commencement of the IRA funds in the qualified plan until you terminate employment.

Why isnt this a new business? Its not a predecessor employer because the employer continues in business (presumably with the same Tax ID no and in same corp form)-It seems that owner has set up a new business as sole owner with a new date of incorporation or start of business.

Pardon a dumb question but why is the change of providers an event which allows a distribution from a 401(k) plan. I though distribions could only be made after attianing 59 1/2, death disability, termination or hardship.

I dont see what the "problem" is. The change of provider is not a rollover without consent because the assets are still in the same plan. The new provider can act on the particpant's instructions and roll over the account to the IRA designated by the particpant. While the participants instruction may not have been followed before the change of providers I dont see why the instructions cannot be effecutated now by the new provider. The failure to follow instructions before the change of provider does not create a liability to the participant.