mbozek

The default is contingent on the existance of a valid contractual loan before default. The advance of the funds to the employee does not mean that a loan existed if the terms of the loan were not complied with because of the failure to initiate payroll withholding. Hence the employee had no legal right to recieve the funds. Employees are not taxed on an advance of money that they have no legal right to recieve if the funds are returned to the party who advanced the funds before year end. See Rev. Rul. 79-311.

Sometimes the obvious is hard to find. Govt employers can establish a qualfied plan under IRC 401(a) the same as any other employer. Under the IRC an employer is not required to have profits in order to make contributions to a ps plan. The difference between a ps plan and MP plan is that an employer can elect to make discretionary contributions under a ps plan. The reason for the silence is that the IRC only states what is not permitted, not what is permitted. The problem is that many people look for citiations of authority for provisions which are not impermissable rather than conclude that what is not impermissible is permitted. You should review the instructions for a 5300 form which a govt employer can file to obtain a determination letter for a qualified plan.

The IRS requirement under Rev rul 81-114 is that the plan be adopted by the end of the employer's tax year (In fact there are rulings that permit adoption less of than a complete plan) and that contributions be remitted by the date for filing the tax return with extensions. Many plans are adopted on Dec 31 without the time to make any contribution. I have never had the IRS review a newly adopted plan to see if a minimum contribution has been made by year end. Rev. Rul 81-114 was issued to create a consistent requirement for adoption of a qualified plan without regard to whether state law requires that a trust have a minimum corpus.

H-What spousal consent are you talking about ? You dont need spousal consent to add a spouse as a beneficiary. Also govt plans are not subject to spousal consent requirement under the IRC if employee wants to elect a single life benefit instead of a J & S.

lack of interest or too many govt rules is ok. Plans in existance more than 10 years do not need a reason for terminaton-- I would ignore the question.

The queston is who is going to challenge the er? The plan is not subject to ERISA. There is no tax deduction so the IRS has no interest. The employees can object but they would have to sue the employer based upon the terms of the plan. Under IRS Rev rule 76-250 employers are not required to give benefit accrual for participants in a DC plan merely because 1000 hrs of svc has been completed if the ee does not meet other requirements of the plan.

is this a non profit employer or govt plan? NP 403(B) plans must non discriminate in favor of HCE above 90k. Flat contributions where er makes same $ contribution for all eligible emplyees will not discriminate in favor of HCEs because HCEs will receive lower contribution as a % of pay than HCEs. eg. 3000 contribution for ee making 30 k is 10% but 3000 k contribution for ee making 100k is 3% of comp. Govt plans are not subject to non discrimination rules. ER can elect to make contributions on a discretionary basis.

Without knowing more facts and getting the testimony of all sides it is impossible to know what happened and what the employee was told. Feel free to ask and answer those questions.

This provision is now in prop. reg 1.457-8(a)(2)(ii). What is a resaonable period? Is it determined under state or fed law? Also there is no downside to not complying with the reg since all govt 457 plans have at least 6 months to correct provisions which are not in compliance with the IRS requirements. Reg. 1.457-9

I think you need to step back and think about the type of plan you are discussing. In a 457 plan there is no separate fund (unless there is a govt entity). Compensation withheld from the employee's pay is retained in a general account of the employer. Whether or not you have seen provisions specifying when the deferrals will be credited to an employee's account is not important-- a well drafted plan will provide that the deferred comp will be credited to the participant's account when the deferrals are deducted from from the particpant's compensation to avoid the questions you raised. Once the amount is in the account it is entitiled to the earnings. In some dc plans the Def comp begins accruing interest as of the date of deferral without regard to when it is placed in a notional account.

correct but the plan can purchase an annuity contract for the participant if a lump sum is not elected.

try (B)(2).

17th

yes since a plan cannot be terminated untill all assets have been distributed. See reg 1.411(d)-4 A-2(B)(vi)- if employer maintains no other dc plan, PS plan account can be distributed without consent in a lump sum.

Under ERISA spouse is beneficiary of at least 50% of account balance payable as an annuity. Need to review plan to see of spouse is designated beneficiary of 100% of account balance. Non ERISA plan is subject contractual provisions of the plan.

The proper question is what does the plan or salary reduction agreement provide- Why would an employee agree to make salary reduction if contributions are remitted only once a year? The terms of most salary reduction agreements require the remittance of the employee's contributions within a short period of time after being withheld from the employee's compensation.

457 plans are non qualified plans exempt from the DOL rules which require remittence by the employer within 15 days after the end of the month. Contributions could be remitted as infrequently as once a year.

If the participant agreed to have payments withheld by salary deduction as a condition of the loan it is not a convenience but a term of the loan. Most notes require witholding by payroll deduction to prevent default. The failure to withhold makes the loan invalid from inception and permits recission. If you want to hold the loan in default then who will pay the taxes - the participant, the plan admin or the employer? Recission offers an option to clean up an inequitable result because of an oversight by the employer.

The authority for recinding the loan is mutual mistake- the participant never intended to recieve a distribution instead of a loan and the plan admin never intended that withholding not be made since the note required withholding. Therefore the loan can be rescinded and a new loan issued to the participant.

no- other than it is egregious to tax the plan participant for the amount of the loan because of the employer's failure to commence withholding. I think the employee has a claim for the taxes due because of the negligence of the employer. Therefore it is in the interest of the Plan admin and employer to recind the note under the theory that the loan needs to be reformed. The employee should repay the loan amount and the plan admin should reissue the loan.

yes see IRC 457(B)(3).

The plan admin has a problem if no payroll deduction is made by the employer as required by the plan/note. One solution is to recind the note and commence the loan as of Dec 2002 with a new note since the participant cannot make up the deductions for 10 months at this time. However, the new loan and note must be executed before the end of 2002 to keep the recission in the same tax year. There is no official correct answer but the participant should not be taxed on the loan because the er failed to make the withholding.

You need to find out the facts. Dec 31, 2001 was a Monday. Did the participant actually work that day and formally retire as of the end of business or did the participant not work that day and Dec 31st was the date he retired? In my opinion an employee cannot be both employed and retire on the same day. One further question-why do you want to know more-- why not see if the ee was paid for work through 12/31/01. If so assume that the ee retired 1/1/02. Otherwise the ee is liable for 50% tax for failure to take mrd.

I think the employee would have to find someone to make a claim to-- If the employer is out of business and liquidated the only possible party is the fiduciary - assuming such person can be located. But if the forfeiture of the assets is made by plan amendment then there is no fid liabilility because reallocating the assets is a settlor (employer) decision. If the ee cannot be located now through the SS system what is the possiblity that he/she will turn up in the future? I though the benefit could be forfeited if it was payable.

Under reg. 1.411(d)-4 if the plan is being terminated the plan can either purchase annuities if that is the normal form and distribute to employees or, if no annity payment is required, make a lump sum payment even if it is over 5k. If the employer is out of business and the participants cannot be located why bother setting up an IRA account for them-- since they will never know about their funds-- just reallocate their assets among the remaining participants. Also I assume that the participants could not be located through Social Security.