mbozek

yeah- thats the statutory requirement under 402(g). The excess payment is taxed in the year of deferral and again at distribution as provided under the plan.

In many corp, the officers resign when the company is closed without waiting for it to be wound up because of issues pertaining to officers liability if there is no D & O insurance. After the company ceases operation it is very difficult to get documents signed by a responsible party.

UBIT is imposed only if the tax exceeds $1000.

A: See ERISA 408(B) and PTE 77-9.

This arrangement is no different that the arrangement that I described for 403(B) annuity plans. The insurance co offers the loan because there is no trust and the payments are made to the Insurer' general account. In some 403(B) plans the provider requires that there the loans be approved by a individual trustee inorder to fulfill the fiduciary provisions on the use of plan assets.

Terminated when it is terminated sounds like a Yogism. My suggestion to rely on IRS precedents for the plan continuing for IRS purposes until all assets are distributed (it goes back to 1969) was to provide for substantial authority to take the 20k deduction in the 02 tax year. It is up to the accountant for the employer to determine if such a deduction is possible. While I am not an accountant it my understanding that deductions for db plan contributions can be carried over to future years under Reg. 1.404(a)-5 and 7 after the year of termination and the accountants for the employer should explore this possibility.

Austin: What it the 401(k) arrangement? Is there a trustee and are annuity options offerred to participants under 404©? Or is this an annuity plan which is administered without a trust? Is the plan accepting new contributions or is it frozen for new money? Are the loans arranged theough the plan or does the participant apply for the loan directly from the insurer and use the amount in the annuity contract as collateral against the loan (and the payments are made to the insurance co.) ?

If you are not intending to continue the plan for 12 years you should not be setting up a DB plan because of the additonal costs to start up the plan and the additional annual expenses for maintaining/ terminating the DB plan will eat up a substantial portion of the contributions that you make to the plan. If you earn 200 k and pay your spouse 50 k your maximum contributions to a 401(k)/ps plan will be 40K(you) + 22.5k (spouse) to the ps plan + 11K each to a 401(k) plan for a max contribution 84.5K in 2002. After deduction of about $3400 in fica tax contributions the net amount of the 401(k)/ps contribution will be about 81 k. The max 401(k) contribution will increase to 12k each in 2003 for a max contribution of 86.5k. The max contribution to the PS plan is limited to 25% of comp because that is the maximum amt that can be deducted under the IRC. The expenses of setting up a 401(k)/ps plan are minimal compared to a DB plan and it can be terminated at any time and the aco**** balances can be rolled over to an IRA or the plan can be frozen and replaced with a DB plan.

Under IRS rulings a plan is not deemed terminated until all assets are distributed from the trust. If the 20k contribution would have been deductible had it been made by 10/31/01 because it was necessary to provide an accrued benefit under the plan why would it not be deductible for the plan yr ending in 02? Alternatively why would the er want to make a contribution if there is no benefit that will be derived from the contribution?

Bud: What is your authority for plan disqualification where the participant exceeds the 402(g) limit by contributing to plans of two unrelated employers? As I understand IRC 401(a)(30), the employee's contributions to all plans maintined by an emplyer cannot exceed 11,000. However if the employee exceeds the 402(g) limit by contributing to the plans of two separate employers then the employee gets a w-2 showing the amount of the contributions and can request a refund from one plan to prevent double taxation by electing the refund procedure under IRC 402)g)(2). There is no disqualfication to the plan because there are no excess contributions.

Since the contribution was made on 8/1/02 it should be deductible for the employer year ending 10/31/02 under IRC 404(a). There is no requirement that the contribution be made for the same tax year in which the plan is terminated. The late contribution will be subject to any penalities for underfunding under IRC 412. This is really an accounting issue since the employer will have to claim the deduction on its tax retrun.

Do you have a cite to that statement? I thought that the 941 was not considered a tax form that starts the 3 yr s/l for back taxes but was similar to a 1099.

Is 10/31 the end of the plan year or the end of the er's tax year. I thought that under IRC 404(a) the contribution is deductible for the tax year if made not later than the date for filing the er's tax return with extensions. The 8 1/2 month deadline is for imposition of the 10% penaly for underfunding the plan, not claiming the deduction.

Employee salary reduction is subject to FICA tax the same as a contribution to a 401(k) plan. Employer contributions are exempt from FICA tax. The employee is subject to a 3 yr statute of limitations for the failure to pay FICA tax. The employer has liability for both the employee and employer FICA contribution if the employee fails to pay the tax and the S/l expires. There is no s/l for collecting back FICA tax from the er because the er does not file a tax return for remitting FICA tax with the IRS. I dont know if the IRS has a correction program for collecting back FICA tax because this is not part of a qualified plan requirments. You should consult with a tax specialist.

While an employer can set up a plan to provide for pre tax contributions for retiree health care ( VEBA), 401(h), etc ) there is no vesting requirement. So what would the assurances be to the employees that they would actually get the benefits. If the amounts are vested then the employees will be taxed on amount deferred unless a 401(h) plan is used.

A; Borrowing directly from the insurer is a common practice in 403(B) plans where there is no trust and the employee uses the assets under the annuity contract as collateral. The insurer continues to pay the fixed rate of interest guaranteed under the annuity contract while the employee pays 1 or 2 % over the credited rate of interest to the insurer. The loan provision is permitted under state insurance law.

I have a problem with determining what kindergarten expenses would be considered educational in nature.

I am confused as to what is being asked by the employee-- There is no requirement that an employer match employee contributions as they are made. See Dol reg 2530.200b-1(B). Many er match employee contributions every quarter or even more infrequently. The reg clearly covers DC plans which includes 401(k) plans. Also see reg. 1.401(m)-1(B)(1)(ii)- Matching contributions are taken into account for ACP purposes if the contribution is allocated to the ees account under the terms of the plan as of any date within the plan year, is actually paid to the trust no later than 12 months after the end of the plan year and is made on account of an employee's contribution for the plan year. As for suing the employer, the employee is going to have to find a lawyer who is ignorant of the law enough to file such a claim. The employee is going to have to find precedent to support this position in order to file a complaint. Hopefully the federal ct will impose monetary sanctions under rule 11 on the employee for bringing a frivolious claim

Bud: I though the IRS issued regs that permit a ps plan to eliminate all optional forms of benefits except a lump sum by amending the plan and providing notice to the employees. The issue with preserving benefit forms exists when a money purchase plan is merged with a 401(k)/ps plan. Proper review of the plan to be merged during the due dilligence process will usually uncover any disqualification issues and in any event the IRS policy is to avoid disqualfication of plans. I have never seen the IRS audit a plan after it had recieved a favorable determinaton letter upon termination.

Many states will not accept plan assets because of ct decisions stating ERISA preempts state escheat laws. Why not forfeit the benefits and distribute among the other participants if it is not likely that the participants will not return or if the employer is going out of business.

IRA distributions are subject 10% voluntary withholding-- if the retiree elects withholding can be waived. The retiree can elect 0% withholding and make an estimated tax payment of $2,000 on Jan 15th. The retire can also elect 5% withholding.

Before we get into the tax issues, does anybody know an insurance co that will accept contributions for health ins to be paid at some unknown date in the future? I dont know of any insurer who will guarantee health benefits to be paid out in the future. What benefit is this insurer willing to pay?

DB plans are best suited for established businesses which will have a steady stream of revenue in order to make the required contribions each year. It is not good policy to adopt a plan solely to maximize deductions. A self employed person can adopt a 401k)/PS plan and contribute up to 40k each year or a lesser amt if revenue declines. In a DB plan the employer is required to make annual contributions to fund the plan regardless of whether there is sufficient income and the only options are to terminate the plan or reduce expected benefits. Also A DB plan is high maintence because it has more variables than a PS plan and the employer will spend more on admin and legal services than a profit sharing plan. The amounts spent on admin could be contributed to the PS plan. In a DB plan the sponsor never knows if the plan will be over or underfunded when he/she retires because of the volitility of interest rates and investment returns. If the plan is over funded there is a problem of how to extract the surplus without paying penalty and income taxes. At a minimum the employer will take a haircut of at least 25-35% of the surplus. If the plan is underfunded then the employer must either make additional contributions or take a lower benefit than expected. At your age you could establish a SEP plan which has the lowest cost of all plans because the contributions are held in an IRA so there will be only a minimal admin charge from the custodian. Contributions can be as much as 40K. I am assuming that you do not have any employees if you establish a SEP.

IRS regs permit withdrawal of employer contributions after a fixed number of years (at least 2) or a the attainment of a stated age or the occurrance of a specific event such as termination, death, etc. Reg. 1.401-1(B)(1(ii), RR 71-295. However employee contributions can be withdrawn immediately after contribution but if there is an employer matching contributions the employee's right to withdraw his own contributions must be subject to substantial limitations to pervent manipulation of the allocation. Rev. Ruls 72-275, 74-55 & 74-56

There was thread under govt plans about 6 months ago on this issue under the topic of Qualified severance plans where the employer would transfer an employees accumulated vacation or disability leave as an employer contribution to a qualified plan to avoid FICA taxes and the employee would be able to rollover or leave the money in the Plan. I seem to remember it was a program initiated by govts in Florida- some employee complained about it. I think the provider obtained a determinaton letter from the IRS. The plan in question was a discretionary ps plan.