mbozek

My comment was directed precisely toward those issues and others that should be reveiwed with a financial planner or tax advisor. Being an advisor means asking questions that will raise the client's awareness of issues, not just answering the questions asked by the client.

The employer should review the regulations under the Federal ADEA. In Erie County Retirees Association v. County of Erie, Pa, (2002) the Thrid Circuit held that retiree health insurance is subject to the ADEA and offering different health benefits based upon medicare eligibility violates the ADEA unless the employer can demonstrate compliance with the equal benefits or equal cost test of the ADEA at 29 CFR 1625.10(a). Compliance with this test is very difficult since the employer would have to construct a separate actuarial table to prove compliance with the equal cost/equal benefits test.

There are some interesting questions about this client-- Inheriting 200k can make for some tricky planning issues e.g., if the funds are invested and return about 8% a year then Joe will have about 16k more in income. Depending on wife's age and tax bracket it may be better to invest in a tax deductible IRA . Also the wife may be better off establishing a SEP or qualified plan in a future year if she is self employed as her taxable income increases since she can deduct 20% of her net income from self employment. Your client should consult a financial planner to review all of the options

Has this well meaning plan sponsor though this through. First what non mgt employee would want the personal liability that goes with being a fid?? How would the person be chosen? Second: Does the plan sponsor want non mgt employees involved in deliberations of mgt in running the plan. Some fid duties such as plan admin and reviewing plan provisions resolving ambuigities or plan errors can be settlor issues for which the plan will rely on counsel and the fact the all communications with counsel are privleged. The rank and file ee would have to sign a pledge of confidentiality in order to be a member of the committee. Some fid duties such as determining claim requests ae not privleged but why would the sponsor want a rank & file ee involved in such issues? Third: has anyone consulted the members of mgt who will serve on the committee to see how they would view the additon of a non mgt. eemployee?

I agree with Kirk. The employee can have either imputed income or return the money but not both under the claim of right doctrine. If an employee returns a payment that he is not entitled to receive before the end of the tax year then the employee will not include the payment as taxable income. See Rev Rul 79-311. Also the IRS does not test for non discrimination in a 125 plan because there are no standards.

401: There are two separate issues here: 1. For salary reduction purposes all employees who work more than 20 hrs a week must be given the opportunity to make sal. reduction contributions unless they are students exempt from FICA tax or are eligible to participate in another sal reduction program. The IRS has issued rulings treating residents as employees not students becasue they perform the functions of staff doctors. I dont understand who the taxpayers are in your post- Is it the employer or the residents? There is no reason for employer to exclude residents from a sal reduction plan if the FICA tax is payable by the employer whether or not the employee elects to contribute to the plan. What is the cite to the Minn case? I also disagree that residents would have no includible compensation- at most they would have taxable income under IRC 61 but not wages for fica purposes. 2. Employer contributions must be made to a non discriminatory group under the rules of 401(a)(4) which may exclude residents. 3. I also recollect that an employer cannot get a refund of FICA tax of its contribution unless the employee also requests a refund of FICA tax. 4. Regarding refunds of FICA tax: IRS has granted refunds to us employers claiming that IRC 861 excludes wages paid by domestic employers to us citizens from income even though IRS Officials have stated that such refunds are not permitted.

See Reg. 1.401(a)(9)-1 B-2(d)- 5% ownership is determined in the year in which the 5% owner attains age 66 1/2 and is not affected if the interest falls below 5% in a later year.

I dont see why a plan could not provide that an employee is eligible to participate at the earlier of 6 mos and 1000 hrs of service or 1yr and 1000 hrs of svc. and joins the plan on the next following entry date.

Most advisors seem to ignore the need to review the terms of the IRA custodial agreement to find out what happens when the designated bene dies. Most IRA custodians permit the bene to designate a sucessor bene to continue the payments after the death of the bene. Otherwise the IRA custodial agreement provides a default bene. Why not read the document. Also I dont understand the need for keeping the estate open. Being the executrix of the estate only is important if the IRA is probate property. If the only property owned by the decedent is jointly owned or non probate property then there is nothing to probate. IRAs are non probate assets and only become probate property when the IRA benefits are payable to a dececent's estate and the decedent has a valid will. If the IRA permits payment to continue to a person designated by the IRA beneficary then the property will be transferred outside of the estate. The Spouse should retain an estate planning attorney to determine the proper transfer of the IRA assets and the need to probate the IRA.

Under applicable law the plan must provide for repayment which can be required by salary deduction. A participant does not have the right to stop loan repayment if the plan requires repayment by salary deduction and state labor laws requiring the employees permission to withhold salary are preempted. DOL opinion 97-24. The sole purpose in listing the plan as a debt is to permit the plan admin to stop witholding the loan repayments in accordance with a lawful order of the bkcy ct. Otherwise the plan is obligated to continue withholding the repayments. Employees who file for bankruptcy want to stop making repayments and filing for bkcy is the only way to halt witholding. In my prior post I indicated that a participant can elect to continue repayment of a plan loan after filing a bkcy petition if ct. approves.

Residents of Puerto Rico are US citizens and are counted for 410(B) purposes.

It all comes down to how an adivisor views the $100,000 limit for for opening an account as either a plan provision or a limit set by the investment mgr. I have no problem in defending the 100k limit as permissible because it is not a plan provision, and it is an industry standard for certain types of fees, e.g., wrap accounts which are set by investment firms that manage money. If a firm cannot set a minimum amt that it will mange for self directed accounts then it cannot set other restrictions such as a minimum net worth requirement that are permitted under the securities laws.

Only a spouse can make a tax free rollover.

There is a clear distinction between a plan provision which cannot be applied on a discriminatory basis and a provision set by an outside money manager for managing accounts, which can include having a minimum net worth as well as minimum amt to invest. The former is not permitted the latter is permissible.

The BRF regs only require that the plan permit each participant to have the right to direct investments under the plan. Hiring an investment mgr is another way of self directing investments and is specifically permittted under the 404© regs. The fact that a particular mgr has a $100k minimum does not make use of the mgr by an HCE discriminatory because all ee can still elect to self direct accts under the plan. An individual with less that $100k could hire an investment mgr who will manage less than 100k. As long as the 100k minimum is a requirement of the mgr not a requirement of the plan it should not be a problem under the BRF regs.

Participants who declare bankruptcy list the plan loan as a debt because they want to the loan repayment to stop. Bkcy ct order stays repayment of all loans during bkcy proceeding. Participant can elect to continue to pay loan provided that bkcy ct approves. Appreciate any cites you have which support your claims. Promissory note is a legal debt because it is is between two separate parties the plan and the participant which do not have an identity of interet.

VEBA: Why whould the plan sponsor want to transfer the funds to an IRA so that the state benefits from the failure to find the participants instead of forfeiting the funds if the participants cannot be located and allocating the funds among the remaining participants?

One solution is to do 100% withholding to the IRS but this wont work if the SS # is false. Another option is to forefit the funds to the Plan if the participant cannot be located subject reinestatment of the benefit if the participant turns up at a later date. If the plan terminates then the participant would have to make a claim against the Plan administrator but I am not sure the there would be any individual liability especially if the employee did not leave a forwarding address.

IRS pub 590, P 54 col 1, states that a taxpayer can recharacterize by filing an amended return within 6 months of the due date by reporting the recharacterization on the amended return and writing "filed pursuant to section 301.9100-2 "on the return.

See instructions for 5500 form.

Without getting into the nuances of who is right on this issue I suggest that Benefits 8 get a copy of IRS Pub 590 and look at the deadlines for conversions and reconversions (around P 40). I recollect that for years prior to 2001 the IRS had allowed one conversion/reconversion of a Roth IRA per tax year and permitted recharacterization as late as 6 months after the dute date for filing the return ( e.g., 10/15) even if the income tax return had been filed for the tax year. Ann 99-104. Also see instructions for IRS form 8606, P1. The pub and 8606 form should be available on IRS web site. I am not reviewing the issue of whether Benefits 8 can make a conversion or whether the such conversion is feasible. I am just suggesting that he/she review the IRS materials on when conversion is permissible.

Are they not non resident aliens without valid immigration documents permitting them to work in the US? If so they would still be entitled to the employer contributions under the plan the same as any other employees becase all participant benefits are protected by ERISA. If they are using suspect SS # then there is an issue of how to report the benefits, not a question of the participant's rights to the amounts in the account. I think you need to determine whether the SS # are indeed false- If so you should contact the IRS on what to do-- The IRS is not concerned with whether a person is permitted to work in the US -- they are only concerned with collecting taxes.

Pax: TKS for the cite.

The employer can make participation in a retirement plan a condition of employment the same as any other term or condition, e.g., # of hours, amt of pay, etc. If you didnt like mandatory participation you could have rejected the job offer. As far as taxation you can always rollover your distribution to an IRA and not pay tax. It is a great way to save for retirement.

I think under the new tax law there can be a rollover of assets from a municipal 457 plan to another qual plan or IRA as of 1/1/02.