mbozek

Article on ruling appears in RIA Pension and Benefits week of July 29, P 4.

2much: I teach retirement planning to CFP candidates and it is very difficult for them to learn the terminology and the artifical distinctions of the many types of retirement plans in the space of a 20 to 30 hour course of instruction. Most professionals do not have the head space or attention span to learn all of the nuances of DB, DC, 403(B) plans, IRAs, simples, etc that Congress keeps changing because they cannot spend their days reviewing every change in the law or regulations. The better advisors know when they should get professional help. The problem is that many clients do not want to pay for professional advice on tax or ERISA issues. They think the advice should be free because they are purchasing an investment product.

There is no cap on reserves because the church is exempt from income tax-- the limits on reserves under IRC 419A only apply to employers who claim a tax deduction for the contributions under IRC 419. Churches are exempt from the rules for 419. There is a limit on contributions to the accounts of key employees under 419 for medical and life insurance benefits. The 419 contributions must be combined with contributions to any dc plan under IRC 415©. See 419(d). Key employees in a np are limited to officers making over $130,000.

I have always assumed that withdrawals of 401(k) amounts are restricted to age 59 1/2, death, disability, hardship and termination. Amounts rolled over from another plan and after tax contributions can be transferred at any time if the plan provides. Employer contributions to a PS plan can withdrawn after 2 years of participation if the plan provides. 2much: Why do you assume that the advisor is a broker?? Maybe he/she only has a series 6 or is an RIA.

SIMPLE plan can not be established for any year in which benefits accrue for participants under another plan ( e.g., forfeitures).

Treat it as a forfeiture and allocate the proceeds among the remaining participants. If the participant reappears then the plan would have to pay his distribution. Otherwise you can pay it to the IRS as 100% withholding but this would be a waste because it is unlikely that the participant is going to pay US taxes and apply for a refund.

Since a SIMPLE IRA is not a qualified plan none of the rules for restoring plan amounts apply. There is also a question of the extent to which the SIMPLE plan is subject to the fiduciary provisions of ERISA since the contributions are not made to a trust but to an IRA owned by the employee. However, the failure to make contributions may be subject to State labor law governing the payment of wages and benefits. At the minimum the employee contributions and match should be restored to the plan along with interest. You need to check with the accountant for the employer to determine what should be done about any deduction claimed in a prior year which was not made. If the employee is a non HCE then restoring the amount should not affect the nondiscrimination rules provided the DC limits are not exceeded for 2002. The biggest risk the client faces is a law suit/ employment action under state labor law.

A state agency can be designated as the party to whom child support payments can made even though it is not an alternate payee for child support under a QDRO, since the agency acts as the agent for the child in collecting and paying child support. See Dol Opinion Letter 2002-03A.

Could some one please give me the citation to the definition of an indirect reversion? Last time I looked at the IRC the sale of an equity interest in a company was regarded as a the sale of a capital asset and taxed as capital gain or loss or a non taxable exchange of stock. If the owner of a company which has a DB plan with surplus assets sells the company to a willing buyer then the owner has sold the company not an interest in the plan. The plan assets continue to be held by the buyer of the company. Under IRC 4980©(2) a reversion occurs when the employer receives cash or property from a qualified plan, not when the employer receives cash or property from the buyer. I dont think there is any doubt about the meaning of that language. If the indirect reverson theory was viable then the IRS should make a claim under 4980 every time a corporation with an over funded DB plan is sold because part of the sales price would be an indirect reversion of plan assets to the seller.

There are a number of questions for which counsel must be sought -- first whether there is jurisdiction in a US court or whether the claim for pension benefits must be filed with the UK court because it retains jurisdicton over the divorce. Second there may be some treaty or international law issues of the enforceability of the UK divorce or the validity of the divorce if procured by fraud. There may also be issues of whether you waived your rights to the pension benefits under UK law under the divorce and your only recourse may be against the lawyer. If you apply for a QDRO in PA there may be question of whether the court can obtain jurisdiction over your ex-husband if he returns to the UK. Finally there is a tax treaty between the US and UK which will govern the taxation of UK nationals in the US.

Did the IRA beneficiary designatation divide each IRA into separate shares for each beneficiary or did the IRA beneficary designation state that payment is to be made to multiple beneficaries? If the IRA beneficiary designation states that each child was to receive a separate share then each beneficiary can recieve the share in a separate IRA payable for the life of that child.

John: I was referring to your post of a teacher with 25K income. Adults who are not dependents are still children of their parents. I dont know too many students who make 25K a year who can be claimed as a dependent. In any event making a gift of $3000 to a dependent child with $3000 in comp to fund a Roth IRA is still a shrewd economic move.

Gross income of 25,000 less standard deduction of 4700, 3000 exemption and 2000 deductible contribution = taxable income of $15,300 and tax of $1995, less credit of 1000 = Net tax of $995. If no IRA contribution is made then fed tax is 25,000-4700 and 3000= 17,300 taxable income and tax is $2295. Making deductible contribution results is a tax savings of $1300 which is equal to 65% of the contribution. (If state income tax is 5% addtional savings is $100). If parent or grandparent gives child $2000 gift to make contribution then child saves $1300 in taxes.

John: One of the tax strategies advanced by planners is for parents/grandparents to give the amount of the IRA contributions (3000) to working children who can make the contribution and maybe claim the tax credit. It is a great way to make intergenerational transfers to reduce the gross estate and get a tax credit. In addition, the parents/GP can contribute up to $55,000 to a 529 plan to fund college education.

Dept of Labor Regs ( 29 CFR 2550-408c-2) require that any fes paid by a plan to a service provider be reasonable. There is no definitive answer to what is reasonable but one can look to comparable services provided by other Plan administrators ( TPA). Maybe ASPA can provide comparable fees. Clearly listing the fees as losses and the evasive response to your inquiries creates an inference that the fees may mot be justified under existing law and a plan cannot pay an unreasonable fee just because the plan document does not forbid the payment of fees by the plan. Also the existing case law holds that a plan sponsor who does not disclose the payment of otherwise permissible fees or expenses to plan participants in the SPD has breached a fiduciary duty and can be liable for the amount of the expenses. You have only two possible remedies:1. go to the Dept of Labor in Washington DC with your claim but they do not seem inclined to conduct an investigation. 2. Hire a lawyer and bring an action against the employer and fiduciary if the plan denies you claim for a refund.

Its not really a match, it is a nonrefundable income tax credit of up to lesser of 50% of amount contributed or $1000 for taxpayers with AGIs of less than $50,000 (married) or $25,000 (single) against taxes otherwise owed to the IRS. Non refundable means that the taxpayer will not receive any money back if no income taxes are due. If income tax due is 0 and credit is $1000, taxpayer who contributes $2000 to an IRA will recieve 0 from the government. Credit does not reduce FICA taxes. The credit applies to employee contributions to any type of IRA, 401(k) 403(B), 457 or SIMPLE plan.

Dont these proposed changes signifiy congressinal intent to return to the bright line difference between qualified plans and non qualified plans that was created in 1942; namely that benefits provided under a non qualified plan must be subject to the claims of creditors or a substantial risk of forfeiture in order for the employee to avoid taxation. The risk loss of benefits must be real not nominal or limited to events that are unlikely to occur.

P: MY research in estate planning indicates that no state law equates domestic partners with married couples under state law. The closest thing to marriage is in VT which recognizes civil union for certain property inheritance purposes but stops short of recognizing marriage between same sex couples. Anyway under the Defense of Marriage act, signed by the great liberal Bill Clinton, another state does not have to recognize the civil union. I would be intersted in any state that recognizes same sex couples as married for income tax/inheritance purposes ( HI comes to mind).

yes- done all the time to avoid spousal consent. still have 1 415 limit.

PBGC can only accept funds only if participants can not be located after a search e.g., after trying to contact them through SS. I believe the Plan admin has the current address of these people. As for purchasing a money order, why should the Plan adm go though this expense?

The SPD regs were revised to require a statement of fees in 2000; therefore Opinion 97-03 is not valid. Also to determine the amount recoverable multiple the quaarterly charge by each particpant since inception and add legal fees. Remember the employer will have to pay for its counsel unless they have a Fid insurance policy.

I thought that the amount of the vested benefit and NRA were supposed to be listed on the SSA form for each participant who terminated with a vested benefit that was not distributed.

Given the prior post I guess you could but it would be rather cumbersome and expensive to pay for a trust that is not legally required. I hope that the costs will not be passed on to the participants.

What TPAs and plan sponsors consder to be a very common practice may very be a very illegal practice under ERISA if the participants are deceived or misinformed about the true character of the plan expenses. A fiduciary under ERISA can be liable under ERISA Section 502(a)(3) for appropriate relief, e.g., damages, if there is a breach of fiduciary duty which includes deliberately decieving plan participants. See Varity Corp. v. Howe, 516 US 489. It is no defense to claim that the TPA does not have a "bucket" to separately mark fees. Further making appear fees as losses can be considered an attempt to disguise the fees being charged to mislead the participants. I am not going to waste my time explaining why this practice is a violation of law if in fact the charges are fees and not actual investment expenses, See Curcio v. John Hancock Life Insurance co. , 33 F3d 226, but is curious that the DOL is not interested since the SPD regulations drafted by the DOL expressly require that a summary of any fees or charges that may be imposed on a participant's account be stated in the SPD. see Reg. 2520.102-3(l).

I have alwys understood that the point behind making the loan a legally enforceable agreement to repay was to prevent the loan being treated as a distribution. This requires that the loan agreement provide for a repayment schedule. See reg. 1.72(p)-1 Q-#,4. If there is no enforceable repayment schedule then the loan is a distribution. Plan admin require repayment of the loan by salary deduction a condition of the loan and also as a plan provision to avoid state labor laws which permit employees to terminate withholding at will. If the employee cannot pay the laon he/she can always file for bankruptcy and the plan admin. can stop withholding pursuant to the order of the bkcy ct. If the loan repayments stop the employee will have a taxable distribution at the end of the quarter following the last qtr in which a payment was made.