mbozek

I have never head of a reduction for 179 expenses which are a reduction from taxable income. There is a reduction of net earnings from SE for 1/2 of the SECA tax. The 179 deduction is limited to taxable income derived from from the trade or business of a taxpayer. See IRC 179(B)(3). Bu that is not the same as reducing the NESE.

The idea is to reduce contributions to DC plans by requiring that ers make the same % contributions for non HCEs as owners and HCEs. Employers will not want to increase pension plan costs by contributing the same % of comp for all ee. Elimination of intergration could require doubling of er contributions for comp under FICA limit to make same % contribution for comp above the limit. The ers will either contribute less for HCEs or abandon such plans and employees will contribute $7500 to roth IRAs on an after tax basis with no revenue loss up front. The admin has to support DB plans in order shore up the PBGC which will continue to take big hits from the bankruptcy of airlines (UAL, USAIR) and steel cos (National, Bethelham, etc) not to mention Enron. PBGC added $8B in pension liabilities in 2002 which wiped out its surplus.

The hidden agenda is to reduce revenue loss by limiting er contributions to DC plans. Another part of the agenda is to eliminate deductible IRAs and permit all taxpayers to make contributions to Roth IRAs of up to $7500. The thinking is that taxpayers will be willing to trade current income tax deductions in return for elimination of taxation on all distributions to the owner, spouse and heirs which will create parity with non retirement investments in which dividends are tax free.

No- Its due the inability of the IRS to administer all of the crazy provisions for Q plans with a reduced staff- In other words there are few resources available for regulation of an area that yields no revenue.

but when does the right to the benefit accrue under the terms of the merged plan? as of 1/31/02 or 12/31/02? What happened to the lpast day provison in the MPP? If no one thought this issue through then give the benefit to all part. as of 1/31/02.

Since the trustees are the fids and the participants accounts are plan assets the trustees have control over all investment activity. The trustees are only out of the loop if they choose to be there. My question is still where is counsel on this issue. Even plans with 30-50 ee need to be properly advised. The problem is that small plans dont usually have competent ERISA counsel- The fids can limit their liability by retaining counsel to prepare the necessary agreement for the brokers to sign. These agreements are proprietary and result of hours of review and negotiation. Why would an attorney give one away- Besides each arrangement is different and must be drafted in accordance with the plan terms and the amount of risk the fids want to assume. The client cant just adopt an agreement prepared for another plan. Also the plan has to negotiate the terms of the agreements required by each brokerage. As a result there are usually two sets of agreements. The PT issues are dealt with by requiring that the trading instructions be sent to the fids and having the broker/part. hold the plan harmless for PT violations- Some brokers will balk at this provision. Plan fids who dont protect themselves from the participants and the brokers by drafting proper documents are putting themselves in danger of fid liability.

What does the plan document provide? Was the mp plan merged into the PS plan without any reqirement to make futrue contributions?

see DOL reg 2510.3-2(B) for requirements of a severance plan. Also there are separate tax issues- Waiver of tenure rights may not be taxable but severance payments are. You need to consult with tax and ERISA counsel to review these issues and for preparation of waivers.

The brokers are doing their best to limit their liability for any actions that result in losses to the participants accounts or violations of law. Where is counsel for the plan in reviewing these agreements to prevent such limitations? The obvious solution is for the plan fiduciary to have counsel prepare an agreement for all the brokers to sign which spells out their responsibilities and liabilities to the plan and the participants under ERISA. If a broker refuses to sign then the broker will be terminated as an option under the plan. Also there are some formalities that must be observed; for example under the 404© regs the trading instructions must be to be sent to the fids who then notify the brokers. I have represented financial providers and plan trustees in preparing these agreements and it is always a negotiated process. What amazes me is that there has been no involvement by counsel for the plan in advising the fids in this critical area of fiduciary liability. The plan fids could be liable to the participant for trading losses in the participant's account because of the participants instructions to the broker.

You can contact me by email for the names of consultants who do cash balance conversions. How many employees are in the plan ?

How is this pooled account invested? 403(B) plans can only be invested in annuity contracts or mutual funds. (A plan maintined by a church can be invested in a retirement income account.) If the funds are not maintained in a fund permitted under 403(B) the deferrals are taxed to the participants.

Forece them out of what? The particpants already own the assets in the annuity since the plan does not have any assets (eg. there is no trust). The participants have the right to keep the amounts in their annuity contract or account. The er should just terminate the plan, file a final 5500 and provide the ee with a smm informing them that the plan has been terminated and that they have a 100% interest in the annuities. Under current law there can be no rollover upon the termination of a 403(B) plan.

State tax authorities do not give up revenue without a fight (e.g. NY UBIT tax on VEBAS was determined to be preempted by NY Ct of Appeals after about 10 yrs of litigation). While the tax is applicable to the note someone must be responsible for paying the tax, e.g., who is liable under the criminal provisions? I cant see how a state law that requires that the plan admin/trustee remit a tax on plan assets would not be preempted since the loan is not a distribution. By the way how does the state know that the loan has been entered into? I dont see how the purchase of stamps is required to enter into a valid loan. At one time plan admin used to file a UCC-1 to record the loan with the county clerks in the belief that such a document was required in order to enforce the the ms of the loan in state court. No one does that any more.

Q- Who is the tax assessed against? the plan admin / plan or the participant for the amount borrowed. There is ample precedent that state taxes are preempted if they apply to the plan or plan admin. e.g., NY state UBIT tax on VEBAs, CT ins premium tax on self fund health plans.

Participants usually sign the note at the same time as they recieve the loan- The note is the promise to repay the loan. Date of the note is usually the beginning of the 5 year period since that is the date that the ee incures the obligation to repay the loan. Loan period could commence on date note is signed even if procceeds are received at a later date. You really need to read the loan agreement/note.

There are DOL opinion letters going back 15 years which held that early retirement programs for faculty of private universities are subject to ERISA. If the program pays severance benefits for no more than 24 months the plan will be a welfare benfit program and not a pension plan.

The official IRS position as expressed in several plrs is that the loan is invalid at inception if the period for repaying the loan extends beyond 5 years from the date of the loan regardless of the reason. Thus if the last payment is scheduled to be paid 5 yrs and 1 week after the loan is made because of the payroll cycle the entire loan is deemed a distribution. How IRS auditiors discover such glitches unknown (I presume they would review a sample of loan applications and notes) but most employers insure that loans repayments are amortized over 58 or 59 months to avoid problems.

why not just pay 100% of the missing participant's account to the IRS as withholding?

It still comes down to the basic question of whether the client wants to overpay for LI with tax deductible dollars by 200 percent or more. Anyone can guarantee an investment return of 2% net after taking out all the load charges but is this a valid reason to invest in LI? Investment advisors scoff at LI as a form of investment. I see presentations for business owners based on tax deductible LI all the time. Usually only the LI agent profits from the arrangement. There are some clients who are gullible enough to think that they are getting something for nothing (or saving taxes) by putting LI into a retirement plan or VEBA.

The 414(i) plan is still subject to the 415 benefit limits. Also in a 412(i) plan the employer is still buying LI which has to be removed from the plan with a tax on the cash value unless it is paid as a death benefit. Also the premiums must be paid on the policy due date- there is no 8 1/2 month extension. Finally if the investment experience doesnt live up to the assumptions the plan sponsor will be required to make additional contributions to fund the benefits. I thought there was a thread on this topic last year including an outline at the ASPA conf. What drives the 414(i) plan is the large deduction which is used to purchase LI. The downside is that the client is paying excessive tax deductible amounts for the LI benefit and may wind up with a bill for additional pension contributions. I also would be wary of a guaranteed return - Dividends are not guaranteed and any guarantee on an ins product is only as good as the party making the promise - remember GICs- Mutual Benefit and Exec. LIfe both had long term guarantees. Q Does a 2% return meet the interest assumptions to fund projected benefits? 412(i) plans are to retirement plans what Dot coms were to the stock market a few years ago.

The only action will be in arbitration, not court. Check the custodial agreement. The brokerage will not give a letter if the brokerage can disclaim liability by referring to their correspondence which states that brokers cannot give legal or tax advice. Therefore the client should have consulted his/her own tax advisor (which should have been done anyway for the amount involved). If the client borrowed the money for 60 days a few years ago he was on notice that the period was 60 not 90 days.

See reg. 1.401(a)-13(e).

K:While 2 out of 3 aint bad, I think I can go for the hat trick by taking your advice and agreeing that PLRs on qualified plans are determinative- See PLR 200247050- exchange of unused sick leave by ee of np for er contribution to 401(k) plan is a nonelective er contribution and not an elective deferral if ee do not have the right to elect a cash payment for the sick leave.

Q: You obviously prefer to ignore the regulations which do not require that the employer provide multiple fund families to exempt the plan from ERISA. You also obviously do not have experience with small nps who dont have the capability to do wire transfers or send periodic checks to multiple providers ( in the right amounts) because they dont have the staff or expertise or dont qualify for electronic banking services. Many 403(B) plans are administered by the Exec. director or an assistant who has other duties than just administering a plan. Being involved in the accounting and administraton of the contributions is not a plan function since salary reduction amts are subject to FICA tax and in some cases state income and disability tax as wages as well as the limits under 402(g) which can be complex. I dont know of any authority for the statement that limiting the 403(B) providers to one family creates an ERISA plan.

Will the broker stipulate that he/she provided the erroneous advice? If so then the letter can be attached to the request for the waiver. IRS routinely relieves taxpayers of the 50% penalty for not taking RMD if there is a written letter from the custodian stating that that the customer was not at fault. I hope the request is being prepared by a tax advisor who can express the postion of the taxpayer in the most favorable circumstances.