mbozek

Two Ideas here: 1. Can the 2002 contribution be considered made for the 2001 tax year. Remember sep contributions can be made up to the date for filing the 2001 tax return with extensions ( Oct 15). 2. Can the SEP contribution be rolled over to the DB plan and used to fund the DB benefit accrual and included as part of the the 25% of comp limit. Check with an actuary to see if it can be done.

Under Reg. 1. 457-1© the proceeds of life insurance are considered part of the deferred compensation in the account. If the plan is maintained by a govt employer the spouse can roll over the account balance to an IRA. IRC 457(d)(1)©. The surviving spouse of benefits mainatined by a NP emplloyer can only make a tax free transfer to another 457(B) plan.

You are going to need counsel to advise you on how the straighten this mess out. One way is to apply a recission theory to remove the funds that the employee was never entititled to receive from the plan on the grounds that it is an excess benefit. See Reg. 1.401(a)-13©. Under Rev. Rule 79-311 the employee should not be taxed on the receipt of funds that he was never contractually entitled to if the funds are refunded to the employer. However, in RR 79-311 the funds were retruned in the same year they were paid to the employee.

V: Your client needs to hire counsel and pay for an opinion- no one can give a competent opinion on this web site. I once had a private non profit client that participated in a state retirement plan. The ee made salary reduction contributions to a 403(B) plan and the state made the employer contributions to the qualified state retirement plan on the employer's behalf. There are a number of DOL opinion letters on the application of ERISA to govt plans.

Your comments have put into context the absurd IRS position that a qualified plan must be administered in accordance with all of its provisions even those that do not have any relationship to qualification under the IRC. Maybe the kindler, gentler IRS will deep six such a position.

I agree with Carol: Before I saw this post on the message board I had never heard of a plan with such a provision and think it should be removed even from M & P plans because of the liability risk to the M & P sponsor. However, my comments were directed at various statements by IRS officials over the years as to global authority of the IRS to require that plans be operated in accordance with all provisions. Last time I looked, an M & P plan can only be amended by its sponsor, not an adopting employer.

Reg. 1.410(a)-3(d) permits a plan to establish other conditions which must be satisfied by by plan participants in addition to age and service. Dol reg 2530.200a-2 provides that except for those rules for which authority to prescribe regs is expressly delegated to the the Secretary of Labor (e.g., definition of an hour of service or year of service) Treasruy regs shall apply under ERISA. While the plan can exclude such persons from participation it must take them into account to determine if the 410(B) requirement is met.

Kirk:Remember under IRS regs a qualifed plan can be disqualfied if it is not administered in accordance with its terms, and according to IRS speakers, this includes provisions which have nothing to do with qualification of the plan. So the failure to stop loans after retirement age could disqualfiy the plan. This is one good reason why the IRS should not be allowed to apply its regulations beyond the IRC provisions.

Bel: Have you ever read a favorable determinaton letter?. Paragraph 4 of the letter for individual plans states " This letter relates only to the status of your plan under the IRC. It is not a determination regading the effect of other federal or local statutes." I believe there is similar language in the m & p plan letters. It is the duty of counsel for the plan to make sure that the plan terms do not vioate other federal laws and to question the authority for such a provision by the IRS. I dont believe the IRS has any authority to require such a provision in any plan since it has never been required in an indiviually designed plan.

2 issues are involved here: 1. Under ERISA 202(a)(4) an employer can restrict participation in a plan to members of an eligible class as long as the restrictions are not violations of the age or service requirements of ERISA. Legally an employer could restrict participation in the plan to employees who have completed an enrollment form although there is a question of whether participation would be retroactive to the date that the partcipation requirements where satisfied. I am assuming that the enrollment procedure requirement is described in the SPD that was distributed to the employees and that ee were furnished with enrollment forms upon completion of age/service requirements. The failure to notify the employees of the requirement to enroll could result in a claim for benefits by the employees on the grounds of breach of fiduciary duty to administer the plan in accordance with its terms. 2. Treating a failure to complete an enrollment form as a waiver of participation could result in the failure of the plan to meet the minimum participation requirement of IRC 410(B) since the employees who waive count as eligible employees ( e.g., they are included in the denominator). See Rev. rul 80-351. If the plan flunks the 410(B) test then the excluded participants should be added to the plan retroactively.

I think the way rules work is that the employer can discontinue participation in the plan but the plan is not terminated. See Reg. 1.413-2(a)(3)(iii). Also check instructions to 5310 form.

See FSA 1999-524 for IRS ruling that subscription by IRA custodian to purchase stock of company in which IRA owner was the director and president and board resoultion to pay dividends to shareholders including the IRA is not a PT. Swanson case is at 106 TC 76 (1996).

Yes- a sale of the stock between the IRA owner and his IRA is a PT under IRC 4975© even if it is at arms length for FMV. But under the precedents an IRA owner can direct the IRA custodian to subscribe to an initial offering of stock from the issuing corporation without a sale occurring under the PT rules.

No reasonable expectation of repayment??? Where is that permitted in the ADEA? Under the equal cost/equal benefit rule an employer can provide a lower level of benefits to employees 40 and older based upon additonal costs. In other words the plan sponsor must justify loans on less favorable terms to older employees by showing a higher cost than the cost/default rate for loans to younger employees. Highly unlikely if the repayments are by salary deduction. Also payoff can be effected without default by paying off the loan at termination of employment.

The nondiscrimintion rules prevent discrimination in eligibility and benfits in favor of highly compensated employees who are usually owners or officers of the business. I dont know how the the term officer applies to a state agency and state entities do not have owners. Also state employees are usually low paid and it is difficult to catagorize who are the highly compensated ee in the group---In pension plans, HCEs are limited to employees who earned over 90 k in 2001. If all of the ee in the group are below 90 k in comp there should not be a problem as long as no more than 25% of the benefits are provided to "officers". If none of the ee are officers then there will be no problem with the 25% test.

It is not a question of what Congress intended to create, it is what the law says. The IRS cannot interpert the IRC based upon vague policy grounds -- when it does so it gets in trouble with the courts for lack of statutory authority. The IRS has opposed Crummey trusts for 30 years as a loophole which violates tax policy-- and lost in every court. The Clinton administraton proposed legislation to eliminate Crummey trusts which was defeated by Congress. Until the PT rules are amended by Congress the PT rules do not cover the subscription by an IRA to purchase an initial offering of a company owned by the IRA owner. By the way the company in the Swanson case was a DISC which as I understand it was designed to generate millions of $ in tax free dividends to the IRA shareholder.

Kirk is correct. Federal ADEA is not preempted by ERISA and the ADEA prevents discrimination in the terms and conditions of employment and benefits against any employee age 40 or older. Restricting loans to persons near retirement age would be a violation based on age which could subject the employer to damages and legal fees of counsel for the employees.

The same arguments were made when New Jersey enacted its family and medical leave act. When the preemption arguments were dismissed Congress enacted the Federal FMLA. As long as the law only regulates pay and leave it is no different than payroll practices involving the employer's general assets, e.g., vacation benefits.

John: The IRS is no longer permitted to administer the tax law Rambo style to close loopholes unless it has express authority under a specific tax law provision to do so. (Maybe you should read the 1998 IRS Reform Act and its legislative history to understand the limits of IRS authority). As I asked in my previous post what provision of the IRC 4975© pt rules prevents a corporation from paying a dividend to a shareholder which is an IRA. The PT rules prohibit a fiduciary from using the plan assets to benefit the fids personal account but nothing prevents an IRA from benefiting from the action of the IRA owner to declare a dividend which benefits shares owned by the IRA. In the Swanson case the IRS was ordered to pay 50k to a taxpayer for legal fees incurred when the IRS incorrectly applied the PT rules to the subscription to purchase stock by an IRA in which the IRA owner was a director of the newly formed company. If you have a point based upon substantial authority in the tax law please state it.

Who told you that??? See IRS 1.411(d)-4 regs. Upon termination a PS plan can be amended to pay lump sum without consent of participant. A MP plan can distribute an annuity contract which provides a J & S annuity and a lump sum option-- which will result in a lower cash value to the participant than making a distribution of a lump sum to the participant. Tell the participants that they have 30 days to make an election before the plan admin. makes the distributions for them. If the participants cannot be located you could always forefit the benefits and distribute assets among the remaining participants.

John: The custodians only care about someone providing them with the year end valuation-- Usually it is the accountant for the business. The custodians do not want to perform the valuation of the investments. I also do not undertand your self dealing claim in the context of IRC 4975© since the payment of dividends is a perfectly permissible use of corporate assets. Corporations frequently pay an extraordinary dividend. Also in a corporation which is an asset of IRA does it matter whether there is retained earnings of $100 or the corp pays a dividend of $100 from the retained earnings. In either case the Corp has the same designated value. In other words if a share of the stock held in the IRA has a FMV of 101 and the corp pays out a dividend of 100 then the IRA now has the same value- $1 in stock and $100 in cash.

Not all self dealing transactions are prohibited. For example, under the Swanson case, the owner of an unincorporaated business with a steady net profit could act as the incorporator/director of the business as a C corp which will issue 100 shares of stock as its initial subscription. The owner could direct the IRA custodian to purchase the 100 shares for $3000 when the stock is issued after incorporation. The IRA, as owner of 100% of the corporation would receive the net profit tax free as dividends. If the owner is eligible for a Roth IRA there would never be any income tax due on the distributions.

I seem to recall that similar arguments were raised regarding the application of the top heavy rules to non profit employer plans and plans of publicly held co. which would never become top heavy. The IRS did not exempt employers from the statutory requirement on the ground that it did not currently apply. They were concerned that it could apply in a future year- therefore the language had to be in place effective January 1, 1984. It doesn't seem to be to big a deal to require that the plans be retroactively amended without sanctions to add this amendment since its absence is no harm no foul.

Does your trust dept act as custodian for RE in non ERISA trusts? If not then you should check with your risk management people. Acting as custodian for RE opens the custodian up to vicarious liability for negligence/tort and environmental law violations which occur on the property. Also the ownership of RE has certain responsibilities such as payment of property taxes, insurance,etc whcih must be arranged by the custodian. You better have all of the responsibilities which accompany the ownership of RE spelled out in a side agreement and provide for a fee schedule.

Prohibited transaction rules of IRC 4975©(1)(A) prevent the owner of 50% or more of a company's stock from having his IRA purchase the stock. IRAs cannot invest in Sub S corp stock. rev. rule 92-73 IRA can invest in limited partnership which is not controlled by IRA owner.