mbozek

rb: Employee has no responsibility for payroll withholding and many payroll services do not make it easy for emplyees to figure out the withholdings.

Yes, the contributions are not aggregated because the employee is considered to be the employer of the 403(B) plan. The regs reflect this aggregation rules so the employee can have separate contributions to both plans. In fact the employee could have an additional $1000 over 50 catch up+ $3000 402(g) catch up under the 403(B) plan if eligibility requirements are met so as to defer a total of $16,000.

Application of recession is a judical doctrine not IRS procedure. It is not limited to compensation matters but can apply in any tax situation. Problem is that counsel has to be able to construct argument as to why it applies-- e.g, must be able show substantial authority where there is no precedent. It is not for the risk adverse or faint of heart. It is also expensive. Recesssion theory is the only way to avoid the taxation of the loan proceeds as a deemed distribution for failure to make loan payments under IRS regs. Otherwise loan is treated as a taxable distribution. If loan is not bona fide then distribution occurs when participant receives funds. I am open to any other ways to avoid taxation of participant for failure to remit loan payments.

Janet M: what is being distributed after default? Only thing left is the loan note which has been defaulted on. RTK: even if the loan is not considered debt and not discharged the result is the same- participant stops making payments by salary deduction and loan is in default. Failure to get bkcy discharge is significant only if plan will require employee to continue to make repayments after default on loan. I do not understand why plan admin would oppose filing of plan loan as debt under bkcy law since it provides legal basis for PA to cease withholding via salary deduction and opposing filing of bkcy petition requries filing of legal documents. If PA prevents inclusion of plan loan as debt for bkcy purposes then participant must continue to make repayments every pay period in accordance with note and there will be no default. IRS prop reg 1.72(p)-1 Q/A-19(B) considers defaulted loan to be outstanding loan for purposes of applying the maximum amount of any subsequent laon.

see IRC 3121(a)(1). Successor employer who acquires substantially all property of a trade or business of a predecessor employer or used in separate unit can aggregate SS wages of predecessor with wages paid by successor employer.

Why not? Employees have been permitted to recind and repay compensation previously paid duing the tax year without incurring taxation. See Clark v. Comm. 11 TC 672.; rev rule 79-311.The loan can be rescinded on the grounds that the plan admin failed to provide for witholding of the loan as required by the terms of the note.

Contributions to a PS plan are always deductible for the tax year in which they are actually made or can be carried over and deducted in a following year if they exceed the maximum deduction amt -15% of covered comp in 2001 (25% in 2002)

I beleive that Egelhoff v. Egelhoff held the death benefits were determined under the terms of the plan not state law. An ex spouse is entitled death benefits only if the plan terms would continue the designation of the ex spouse as beneficiary after the divorce from the employee. If there is no beneficary designation then benefits are distributed under default provision of plan.

Well since the loan is in default under Reg. 1.72p-1 Q-10 because the first installment should have been made not later than 6/30/02, your only option is to consider recession of the loan agreement on the grounds that it was never legally put into effect because of the failure to commence withholding as required under the terms of the loan agreement. Then reissue the loan with a new effective date or old effective date and higher mo. payments. You will need to get an opinion of counsel as to why the contract can be rescinded under the tax law and the participant may have to repay the loan proceeds but it is better than a default on inception of the loan.

Bankruptcy is a voluntary procedure which is initiated by the employee by filing a petition under Ch 7 to be discharged from all debts which are dischargeable (e.g. student loans are not discharged). An employee is not required to list the plan loan on the schedule of creditors and may continue to make payament on the loan. If the plan is listed as a creditor then it will recieve a copy of the bkcy ct order notifiying all creditors of the filing of the bkcy petition and ordering the creditor (plan) to cease collecting the debt. Plan Admin notifies the employee of the receipt of the order and that all witholding of repayment will stop unless the employee agrees to continue repayment. If repayments stop the loan goes into default under the IRS rules. The sole purpose of filing the Bkcy petition is to allow the plan admin. to cease mandatory withholding of loan payments. While several people have advocated that the plan admin can oppose the filing of the petition on the grounds that it is not a valid loan under bkcy law there is no reason for the PA to incur such legal costs just to force the part. to continue payments. I really dont know what the significance of a discharge is to the participant other than that the outstanding loan is no longer owed to the plan- but the outstanding balance is still a deemed distribution.

M: u need to do a lot of homework. 1. How are these statutory ee treated for other benefit plans covering employees? 2. do they have written contrectswith the employer or a third party? How did they hold themselves out to customers, other employees. What does the SPD say about eligible employees? Microsoft is not dispositive of all other cases involving independent contractors because the courts interpreted a provision in the ms plan which covered persons on " the ms payroll" as including independent contractors instead of limiting particpation to common law employees who had taxes witheld by MS.

Ex spouses generally have no claim to benefits after divorce except through QDRO because divorce decree usually terminates spousal rights to all property. If participant was not married at death and there is no designated beneficiary, the distribution is to be made under default provisions in plan document. For unmarried participant, defaut bene is usually the estate or the children in equal shares. Deat cert should indiciate marital status at death.

There are three different definitions of employee used to determine eligibilty for benefits: one is income tax (statutory employees), second is fica tax and the third is the definiton of employee under ERISA (Darden case). You need to read the plan document to see how term employee is defined. Some plans incorporate FICa defniniation, some use vague terms such as employed by employer. Some refer to employees defined in IRC 410. Under ERISA employer can limit plan participation to a classification defined in the plan. Many plans exclude statutory employees by definition. Some do not. It depends on how knowledgeable the draftsman was about the above definitions. Many plan documents create classes of accidental employees who become particpants in a plan because incorrect definitions were used.

OneQ: How is the employee currently being treated for tax purposes under the sabbatical. If it is as an employee how can the er justify changing the ee status for benefits after the ee announces resignation. EE could have a claim of discrimination under 510 of ERISA if any benefits are taken away by claiming that er is retaliating for ee decision to resign after sabbatical ends. Without a written policy on sabbiticals the er is at risk.

ooota: Are you referring to the trustess of the union who wish to establish the multiemployer plan or are you referring to the "trustees" of the employer who will sign an agreement to be a participating employer in the ME plan?

IRC 404(a)(6) requires that a contribution must be made by the the date for filing a return including extensions in order to be deductible. In other words, there is no difference between cash or accrual basis taxpayers. Check with the accountants to see how the deduction is credited but it looks like a 2002 deduction. Also beginning 2002 tax year employee salary reduction conributions do not count toward the maximum deduction of 25% of covered compensation. Contributions made after the due date are deductible only if the employer had filed a valid extension, even if the return is filed by the due date.

IRAs can only be established by a participant or the surviving spouse of a participant. A personal representative of a deceased participant cannot open an IRA in the participant's name. A beneficiary of a deceased participant cannot establish an IRA in his or her own name to accept the proceeds of an IRA owned by a deceased participant.

Kate: Participant consent is not required if a PS plan is terminated and the the only option is a Lump sum provided that the plan is amended to provide for distribution without participant's consent. reg. 1.411(d)-4 Q-2(B)(2)(vi).

You really need to review the employer's policy on sabbatical leave and any documents signed by the employee. I thought that the purpose of a sabbatical leave was to give the employee some time off either with or without pay similar to a leave of absence and that the all rights of the employee to employee benefits continued during the sabbatical leave. If the ee is terminating employment when the sabbatical ends then the employee's termination date will be effective on the date of resignation and all benefits rights will cease on the same date. If the sabbitical leave is treated as a leave of absence from a specific position but not employment, e.g., the employment relationship continues but the employee has no specific duties, then the person on sabbatical leave is considered an employee until the leave ends.

IRAs can only be opened by the employee or by another person who has a power of attorney from the employee. You can solve the problem by purchasing an annuitay contract that contains all of the options available under the plan, eg. lump sum and J & S benefit. It will cost more than an J & S only annuity but this is the participants problem if they wont elect a distribution. See reg. 1.411(d)-4 A-2(3)(ii).

Janet-- You need to get the lawyers in one room together to get an answer from them or get them to give you an written opinion This is what lawyers are paid to do-- Partial withdrawals from a multiemployer plan are governed by ERISA 4205. A partial withdrawal occurs when there is either a 70% decline in the employer contributions or there is a partial cessation of the employer's contribution obligation to one or more of the facilities covered under the CB agreement. Section 4205(B) defines both a 70% decline and partial cessation. 70% decline is on an employer wide basis and partial cessation is on a location basis. PBGC reg 4001.2 defines the employer to mean all trades or business under common control. PBGC reg 4001.3 defines all trades or businesses under common control to be those t & b as determined under IRS reg. 414©. The lawyers need to give you an analysis based upon the above regs and the legal precedents/ court decisions to determine how the partial withdrawal regs apply to the employer.

Somewhat short sighted of the employer to not want catch ups. I thought that in the event of acqusition/dispositions the universal catch up is not required for the year of the acqusition and the following plan year under IRC 410(B)(6)©. The Seller can allow the catch up for 2002 plan year and delete it for the 2003 plan year.

SEPS cannot exclude part time employees who work less than 1000 hours in a year. All employees who have service in 3 of last 5 yrs must participate. Also there is no reallocation of forfeitures in a SEP and no loans. SEP can not invest in LI or collectibles. NO annual reporting, SPDs or fiduciary rules apply to SEPs. Why not give the kids the business if he dies? It is a captial asset and if it has value it can be taxed as CG rate of 20%. Also if kids are under 18 guardian must be appointed to own property they inherit.

At the risk of asking the obvious, can any one provide an IRS citation for requiring a doctors note for a breast pump to be a medical expense. IRS pub 502 does not include breast pumps as a non deductible expense (although maternity clothes are excluded). By the way is NOW aware of this position?

RTK: Maybe I am not looking in the right place but my reading of the 417 reg you cite states that a plan cannot just offer a choice only between a lump sum and a deferred annuity but but also must offer an immediate annuity. I think the plan can satisfy this requirement by offerring the participant the option of either an immediate annuity or a deferred annuity in addition to cash.