mbozek

Kirk: If state laws are preempted what law would govern the terms of the loan since there is no federal contract law? There are cases where fed courts have enforced state contract law to enforce promises employers made under Top Hat plans under the theory that otherwise there would be no way for an employee to enforce the terms of the contract. However, I dont see a need to reissue the loan because states are required to give validity to contracts issued in other states under the full faith and credit clause of the U.S. constitution.

It is a prohibited transaction for a 10% or more owner or a fidcuiary to use plan assets for benefit of his own account. There may be a way for the plan to purchase the nursing home if an independent fiduciary makes a written determination that the asset would be acceptable for the plan. Of course the owner would have to pay for such a deterimination or have a fidicuary manage all the assets of the plan. If he owns 100% of both his practice and the nursing home there would be a controlled group for benefit purposes for all non union employees.

There have been numerous threads on how to dispose of account balances of missing participants. Several methods are available once it is determined that the part. cannot be located through SS or a private locator service including forfeiting the balance and distributing it among remaining participants and 100% withholding to the IRS. DB plans are required to transfer the benefits to the PBGC.

Front running is a regulatory problem for large brokerages and investment banks because of the large amounts of contributions by publicly traded companies and confidential information that brokers have access to. The type of firm described in the thread does not seem to be a candidate for front running unless it is trading in thinly held companies with low daily tarading volume and unusual volitality in the stock price.

A taxpayer is deemed taxed in the year a payment is sent by the payor, regardless of whether it is returned or declared void by the taxpayer since the taxapyer is in actual receipt of the payment. Under case law a taxpayer who receives a payment at the end of 2002 cannot prevent taxation in 2002 by returning the check to the payor in 2003.

IRS position is that plan must be established by last day of employer's tax year in order to claim a tax deduction for that year. See Rev rul 80-114. Also a plan with an effective date of 1/1/03 could to grant benefit accrual for service prior to the effective date of the plan ,e.g., 1/1/02.

If the dro has not been issued then the parties should confirm whether the spouse's interest in the 401(k) plan will include part of the loan balance which will entail the spouse paying back the loan.

A-2- Yes A-2 only refers to collection of loan payments, not salary reduction contributions.

If the plan is not amended for the EGTRRA limits then the existing limits in the plan apply, e.g. 170 K comp limit instead of 200k, max contribution is lesser of 25% of comp or 35K , etc.

The surplus of the DB plan belongs to whoever inherits the stock of the PC because the surplus are assets of the PC. There are ways to avoid the excise tax. How much is the surplus above the liabilities of the plan? If the wife inherits the stock of the PC there is no estate tax on the value of the surplus. If the stock is inherited by another person then the estate tax kicks in at 41% once the gross estate exceeds $1 million. If the plan is terminated and the surplus reverts to the PC then the income taxes and 50% excise tax could eat up to 90-95% of the surplus. Total federal taxes could be 135% of surplus (50% + 35%+ 50%)+ state income and estate tax. The owner of the PC stock needs to retain tax counsel to review the options. I dont know how the benefits are calculated.

Any other course of action would be opening a can of worms, e.g, amending the 5500 and continuing the 5500 filings until 2003. It sort of like the question of if a tree falls in the forest and no one hears it is there a sound?

I dont think that retirement benefits can be deducted as alimony on a pre tax basis because retirement benefits are subject to the assignment of interest rule which taxes the employee who earned the retirement benefit not the recipient. The employee could only deduct the after tax portion of the retirement benefits he receives as alimony. Retirement benefits paid under a QDRO are taxed to the former spouse and not the employee. Until a recent change in IRS rules, nonqualified deferred comp was taxed to the employee even if the benefits were paid to the spouse under a divorce decree.

Ask The spouse what state the common law marriage existed (E.g. Texas) and see if the state recognizes cl marriage. Most states abolished common law marriage many years ago. In order to prove cl marriage the spouse will have to demonstrate by proof that the parties held themselves out to be h & W for for a period of time required by state law, e.g., 3 years, and kept a common home. By the way ask the spouse for joint tax returns filed with the employee and a copy of any probate decree or other ct determination that the parties were married at the time of th employee's death. Also the death certificate will indicate the marital status of a decedent on the date of death.

Obviously the policy must be distributed to the participant. The only question is whether the taxation can be avoided by having the insured borrow on the cash value before the distribution so as to zero out the cash value and avoid any taxation in 2003.

Kirk: Discrimination is in the eye of the beholder. Isn't the 510 issue just another way of expressing the DOL allegation of imprudence as stated in Medusa's post? One could argue that a fee of $100 on a 500 dollar balance (20%) is discriminatory when compared to a distribution of $5,000 (2%). Isnt "disproportionate harm" just another way of saying discrimination? If there is no discrimination can an employer impose any fee on employees so as to avoid having to incure any cost of plan administration, e.g $200, 500 even if it consumes the entire account balance? Until confirmed by a decision of the Sup ct, only Potter Stewart thought that a fiduciary/employer could be held liable to participants under section 501 (a) of ERISA for making false statements regarding a plan. As a movie character used to ask criminals "Do you feel lucky today?" I know this position opens up a can of worms to fiduciaries and their counsel but this isuse will evolve to litigation as employers continue to shift the costs of plan administraton/ operation to employees without regard to ERISA.

Pax: If the participant's interest in the plan was not addressed in the divorce I dont see how the spouse can have any claim now because the divorce decree is a final judgment of all property rights unless the court reserved jurisdiction over a division of the pension rights at a future date. There may also be a S/l which bars the spouse from seeing to enforce any claim 30 years after the divorce decree. We still do not know who the claim has been made to or its basis.

There are collateral considertions which need to be reviewed: 1. ERISA section 510 provides for participant claims against any person ( e.g., employer, plan admin, etc) who discriminates against a participant/bene for exercising any right to which the participant is entitled to under the plan (distributions). This could include disproportionate charges assessed on participants. 2. Even legitimate charges permitted under ERISA can be a breach of fiduciary duty if not disclosed to participants. See Corely v. Hetcht Co.

Q1- What contributions are u talking about? Q2- have u or counsel for the plan read the order of the bankruptcy ct that was served on the plan admin?

The TH regs 1.416-1 at V-1 state that TH vesting must be either 100 % after 3 yrs or at least 20% after the first year, 40% the second etc. There is nothing that prohibits the use of 100% vesting for TH contributions. I have reviewed several plans that provided for faster vesting than the TH minimums without IRS objection.

Before reviewing the issues you raise what are the rights of the teacher to transfer /withdraw funds from the annuity under the terms of the plan or agreement with the employer or fund provider/ custodian. Some 403(B) plans do not permit a transfer of funds to another contract while the employee is working. The ability to transfer funds while working is a condition of employment which can be restricted by the employer under the plan (e.g. by closing out the account).

I thought the statute of limitations for disqualfiying a deduction is generally 3 years from the date the return is filed. If so the s/l for 1999 could expire as early as 3/15/03 and the s/l for prior years has expired unless the deduction was more than 25% of the er's gross income. As Earl said who cares?

DDD: Who is the spouse requesting the distribution from? The employer, plan, employee? Was the benefit issue addressed in divorce decree? How is the spouse attempting to enforce the right to the benefit? If the plan is subject to ERISA then Qdro is right -Plan does not have to honor any order or decree regarding benefit rights. Spouse must reopen divorce to get order which can be enforce as QDRO which may not be possible since S/l may have expired or ct did not retain jursidiction over benefits after divorce became final. Does H reside in same state as when divorce was issued? Has H remarried since divorce? If so the spouse may be out of luck. Finally Kirk is correct. 401(k) plans were first made available under the Tax act of 1978 and employers did not become aware of pre tax employee contribution provision until 1980.

Under IRC 7805(B), in the absence of congressional authorization IRS regs generally cannot be effective earlier than the the date the proposed regs appear in the fed register.

Non ERISA plans are not required to be in writing, provide SPD or file 5500. Since T/C does not provide legal advice as to whether plan is subject to ERISA it is up to legal counsel for the employer to make a decision. Some employers provide a description of the terms of a non ERISA 403(B) plan for participants. Some Gust /EGTRRA provisions of the IRC apply to non ERISA 403(B) plans eg., comp limitations of up to 200k. Non ERISA plan does not become an ERISA plan because employer revises plan or providesa description of plan. Plan is subject to ERISA only if is subject to statutory requirements, e.g, non govt or non religious employer who makes employer contributions to plan.

It is also in IRC 408(p)(5)(A)(ii).