mbozek

Spouses are automatically the beneficiary of the employee under an ERISA plan. As to the one year requirement you need to review the SPD to see if the plan enforces the one year rule. Some plans automatically cover the spouse upon marriage. Note: the one year applies after participants have been married for one year even if they were not married for one year as of the date retirement benefits commenced.

As a deduction matter, the time for making a deductible contribution ends on the date the tax return is filed if there is no request for extension. Therefore Mike is right, no deduction should be allowable for 2001 if an amended return is filed. However, I dont know what the IRS practice is and I guess the client has nothing to lose by filing an amended return (other than the cost of preparing the amended return)and claiming an additional deduction for 2001. If the IRS denies the deduction the client can claim it as a deduction for 2002. However, the client must make the contribution to the plan before filing the amended return.

Doug:First Q- Who are you-- Are u the TPA, consultant, trustee?? If you are only a hired admin. you cannot be held liable for not informing the owner of the risk of not cashing out because you did not assume the risk of an advisor to the employee-- Employees have to hire their own counsel to advise them on taking a distribution. But you should retain counsel or notify your E & O carrier of a potential claim. Also check to see what the SPD says about valuation of distributions. If the valuation rules are in the SPD distributed to the retiree then he is on notice of the valuation methods. Second: Whether a mid year valuation should be used is a decision for the plan fiduciary. I dont know why you would want to assume that duty its all risk with no reward.

Why not. I though any np could set up a SEP.

Admin costs which are regarded as settlor expenses cannot be passed through to participants or the plan. Mere fact that that the er hires a TPA does not mean that all costs can be passed to participants. DOL has issued opinion letter on which expenses can be passed along to participants. Check DOL website. Second-- Are the costs passed through on a pre tax basis regarded as part of the employee limits under 402(g)? I dont understand the meaning of the term "pre tax". Third: Does the plan permit this pass along of expenses and has it been disclosed to employees in the SPD or other materials? If not ipass along is in violation of ERISA.

While a plan can always restrict distribution to attainment of NRA (if it applies to all participants) it really makes no sense because of the administrative costs involved in keeping the accounts of terminated participants in the plan. Every client I know will encourage withdrawals at termination to reduce admin fees which leads to the question is this client policy for the benefit of the participants or is it to benefit some thrid party who collects a fee base on the value of the plans assets?

Alf: since a qual. plan must be administered in acordance with its terms in order to retain its qualified status and loans are not required to be offerred, the plan cannot permit a rollover of a loan from another plan unless which is not the result of an acquisition unless it obtains an opinion of counsel that the plan can be interpreted in that way which will cost more than an amendment to the plan.

I may be wrong, but my recollection is that the 1978 legislation pertained to the issuance of regulations restricting the ability of employees to make elective deferrals to a nonqualified plan. The IRS can issue regs on whether there is constructive receipt of income under any provision of the IRC as was recently done in the proposed regs under IRC 457 for public and NP non qualified deferred comp. plans. As Kirk noted the IRS has been badly battered in constructive receipt litigation because their position has no basis under the tax law going back to the first Veit case in 1944. Rabbi trust deferrals are supposed to be subject to the claims of the employers creditors, so in an Enron type situation the creditors could claim the assets. I would be interested in knowing what types of rabbi trust deferrals would be taxed. Finally an individual who elects to contine restrictions on stock to prevent taxation may wind up seeing the value of the stock decline in the future. It may be better to include the stock as income in order to get a higher price. An indiviual can use hedges to protect the stock price but hedges are expensive.

Yes. In a 403(B) subject to ERISA the employer is responsible for making sure that all of the required forms are filed and properly executed by the participant and spouse. For example if a spousal consent was not properly obtained, the employer would be liable for paying the spousal benefit, not the payor of the annuity. The payor is performing a minestrial function in paying benefits under ERISA but is responsible for collecting witholding tax.

Why not amend the plan to permit loans by new hires?

Employers have very limited liability for distributions under 403(B) plans (whether subject to ERISA or not) under the IRC because the employer is not payor of the annuity benefits. In an individual annuity contract owned by the employee there is no employer responsibility to require that the employee commence benefits since the annuity contract is owned by the employee and the employer has no control over benefit commencement at 70 1/2. In other types of 403(B) plans where a group annuity is used, the penalty for not commencing benefits is the 50% excise tax but there is no penalty or disqualifiction of the plan if employees do not commence minimum distributions because a 403(B) annuity is not a qualified plan. The employer obligations under a 403(B) under the IRC are limited to tax penalities for excess contributions, loan limits and violations of the nondiscrimination rules for 403(B) plans.

Katherine: I dont understand how payroll tax could apply to distributions from a 403(B) plan. Lump sum benefits paid by an insurer are subject to 20% withholding and periodic payments are subject to 10% voluntary withholding which is the responsbility of the payor, e.g., T/C. The employer has no liability for income tax withholding on distributions. The employer liability that I referred to is to insure that the distributions meets all of the ERISA requirements, e. g., it is permitted under terms of the plan, spousal consents, notice of rollover distribution, etc. An employer can be liable if it allows payment to be made without spousal consent. Also the ability of the IRS to tax amounts deferred under a 403(B) plan is limited to disqualifying deferrals for a particular year in which a violation occurred, such a failure to conform to nondiscrimination requirements, since a 403(B) plan is an annuity under IRC 72 and not a qualified plan.

You should relly check this out with T/C pension administration but my understanding of the procedures for 403(B) plans subject to ERISA is that the employer is required to get all of the necessary distribution forms and spousal consents from the employees and then forward the information to T/C so that the distribution is paid- The Employer is still liable for making sure that the documentation is properly completed and notarized before it is returned to T/C because the employer is the plan sponsor under ERISA. T/C processes the information and pays the benefits.

D: You really need to review the IRS rules for 403(B) plans. See IRS pub. 571 for details as well as the cites in my previous post. 1. independent contractors cannot particpate in a 403(B) plan. Only employees are eligible. 2. All 403(B) plans must permit immediate participation for salary reduction with no waiting period. 3. 403(B) plans of 501© (3) employers are subject to the same participation requirements which apply to qualified plans for employer contributions. IRC 410(B) forbids participation restrictions which favor HCEs. PLans for public school or church employees are exempt from this requirement.

If the plan has been terminated how can assets be rolled / transferred back? Can the terminated be amendended to conform to all of the applicalbe tax provisoins effective in 2002?Second -- How will the employees refund the money ?? Third If excess contributions were rolled over there is a 6% excise tax on the exces amt. Fourth is the plan going to file 5500 after the final year of termination?? Suggestion: Amend the terminated plan to include the excess amt as an additional contribution which will eliminate the need to make a refund to a terminated plan. Option two: treat the excess as a contribution to an 403(B) annuity and transfer it to a 403(B) contract for the employees.

403(B) plans are not subject to a RAP. They must only be operated in accordance with the IRC. A 403(B) plan is not required to be operated in accordance with its terms because a 403(B) plan is not a qualified plan.

B: I question if the plan could produce the consent form signed by the spouse. Also I question whether the offset of the DC plan can be properly deemed a benefit under the DB plan. Whose fault is it that the loan repayments stopped in July 00? Thats why suing on the debt is the safer route.

Deferral under IRC 457 is dependent upon the employer being an eligible employer, i.e., either a TXO or govt entity. When an eligible employer become ineligible, its corporate status changes and the successer entity is not eligilbe for deferrals. Usually the 457 deferrals will remain with the 457 employer but if this not possible because the entity is being convered to a for profit er then the 457 deferrals can be distributed to the participants and taxed as ordinary income. If a txo becomes a govt entity then future deferrals will be subject to the rules for govt entities under 457. See prop. reg 1.457-10(a)(2) for change to ineligible employer.

Yes funded nq plans are covered under ERISA and are subject to the reporting, eligibility, vesting, nonalienation, funding and fiduciary requirements of ERISA. By funded I mean plans which have assets in a trust which is not subject to the claims of the employer's creditors under IRC 83. In a funded nq plan the participants are taxed on their benefits to the extent vested in the year the employer makes contributions to the plan, not when the benefits are paid to the participant. In an unfunded plan the employee will not be taxed on the vested benefits until the funds are paid or made available.

Making threats against a clinic or health care personnel should be considered a criminal matter and referred to the police. Any harassement or abuse should be dealt with as a threat to do bodily harm. Some state have specific laws against making threats to clinics or health care providers. Maybe the clinic can get a restraining order preventing the husband from setting foot into or around the clinic.

VEBAs are subject to nondiscrimination rules under IRC 505(B). VEBA can be set up as a nonprofit association under state law or a trust. Aslo VEBA must be approved as a TXO by IRS in order to operate.

Many ps plans, including m & p plans contain a provision requiring board or employer action designating how the allocation of contributions for participants will be made. Mike's response still does not anwer the question of whether the mere allocation of contributions is consistent with ERISA and the SPD requirements. See reg. 2520.102-3(p). If the employer is not required to ratify the amount of the contributions how will a participant ever know whether the amount allocated to his account is the correct amount? The depositing of the contribution by the due date merely permits the employer to take a tax deduction. How would an employer defend against nuisance suits claiming that the allocation was less than what the employee was supposed to get? Making the allocation would be acceptable in a plan for an owner that was exempt from ERISA.

Why not unwind the trust and transfer the funds to a custodian. The trust should be terminable by the plan sponsor.

Reg. 1.401-1(B)(ii) states that a ps plan must provide for a predetermined formula for determining contributions made to the plan among the participants, e.g., in preportion to compensation of the participants. I have always understood this to require some form of action by the employer by the end of the tax year. Otherwise how does a participant know what the terms of the plan are regarding contributions as required by ERISA: plan terms and amount of er contributions must designated in writing. At what point is the employer obligated to notify the employees of a discretionary contribution to a ps plan so as to obligate the employer to make contribution ?

I though that nondiscriminatory coverage was always tested on a controlled group basis (with exceptions for union employees) to prevent employers from segregating non hces into a separate corp with no benefits. See IRC 414(B). therefore, the non union employees of both corporations must be included for 410(B) testing to determine if a nondiscriminatory group is covered. It may be that the exclusion of the C corp employees will not violate 410(B).