mbozek

why not ? there is no bright line test for "reasonable rate of interest" Fixed rate annuities are a very good rate of of return.

"Thrift PLan" is an obsolete term (like Keogh plan) that in pre 401(k) days described a ps plan that permitted after tax employee contributions that were some times matched by the er. Some IRS rulings used the term. Today a 401(k) plan can permit both pre and after tax contributions and the after tax amts can be distributed at any time with earnings. Some ers may still maintain a thrift plan which only permits after tax employee contributions.

TB: What happens if a particpant terminates after year end but before date for filing the return? Does employer make a special contribution?

If the plan is top heavy then employer will be required to make 3% contribution for non hces in mgt co.

First: How could Plan Ad. distribute statement prior to date contribution is actually made to plan? Second What did statement say? Were there any hedges such as that contribution is contingent on sufficient profits or did the statement make a definite statement. If the latter then there could be an estoppel issue, e.g., employee could sue for contribution on the basis that employee only continued to work because such a contribution was promised but this a long shot because estoppel claims for benefits are difficult to prove. Third: Need to review plan document to see what plan provides as the requirement for making contribution, e.g., board approval, to find a way to state that notice of contribution is invalid because plan terms were not followed.

What were the employees told about the merger?-- A Summary of material modifications must be provided along with a 204(h) notice if the mp contributions are being reduced. There is no problem with keeping the 2/20 vesting for the mp allocations provided it does not confilict with disclosures to participants and is clearly stated in the plan. There will need to be separate accounting because the mp benefits must be offerred as a J & S annuity. Also what happens to forfeitures from the MP accounts? Rev. rule 2002-42 contains the requirements for merging mp plan into another plan.

Look: performance data for mutual funds is public information -- Fund families must make it available. Merely reciting this information for plan participants ( qtr, last 12 months, 3yrs, 5 yrs and 10 yrs) is not restricted to investment professionals and is not proprietary infomation. Under ERISA a fiduciary needs to provide current information to participants and somebody has to do it. Return on private investments is more complicated and should be give only by an investment professional. In many small plans which do not have an outside investment advisor the fiduciary provides the investment performance data on mutual funds so I cant see how this is the provience of RIAs.

Why not amend the plan to provide that all unclaimed funds which are not cashed before the checks become stale under state banking law (usually 6 mos) revert to the plan sponsor for the benefit of the plan. If the participant requests the check at a later date then a new check can be issued. By the way the state does not make much of an effort to find the owner of abandoned property. They merely hold the money indefinitely until it is claimed and do not pay interest.

While I have not reviewed the cites in previous posts I thought that under the Assignment of income doctrine income must be taxed to the person how earns it unless there is a statutory exception. I dont see how an employee can transfer accrued vacation pay to another person without being taxed any more than one employee can transfer accrued wages without taxation. I would be interested in the exception which applies to leave sharing plans.

Whether a plan benefit is considered an asset of the marital estate is determined under state law. In some states the value of non vested benfits can be included in the estate or be subject to continuing jurisdicton of the court grantaing the divorce until the benefits become vested. Counsel will be able to answer the question.

Bob: Since when is the determinaton of the top hat group fall within the jurisdiction of the IRS? The eligibility for a top hat plan is determined under solely the DOL rules - the IRS cannot make such a determinaton ( Only thing the IRS could do is refer the case to the DOL but the DOL does not issue rulings on top hat eligibility.) Maybe your client should question the agent's authority as a first step. Second can you argue that there is a separate plan for each participant? Have you retained counsel? Can fred be terminated from the plan without any accrued benefit? One way defend is to come up with every possible defense counsel can think of and try to wear the agent down. If you let the IRS agent define the rules then your client will lose. Also have you though through the agents theory. If the plan is a not a top hat plan then it is subject to the participation, vesting and trusteeship requirement of Title I of ERISA, not the IRS rules. Dol ( Not IRS) could require that plan assets be held in trust and if the plan is not a qualified plan then all participants would be taxed on their vested interest to the extent the plan is funded-but what if the plan has no assets?-What if the employer asserts that the plan is a top hat plan- What authority is there under the IRC for making a determinaton that it is not since this is a DOL determinaton? IRS agents are required to give a taxpayer who requests it a statement of the authority under the tax law law to enforce a tax. The taxpayer does not have to offer a defense first. I think you have an over eager IRS agent who has crossed the boundary between the IRS and dol regulation on nonqual plans.

I thought the 402(g) max for a taxpayer from all plans: 403(B), Simple, 401(k) was 11,000 + catch ups for over 50 and 403(B) plans.

who would be the trustee? A bank??? an individual? Would they be fids under ERISA? Who will pay the trustee for the duties it assumes? The only type of trust that might work is a grantor trust which is owned by the employer with an independent trustee. But why does the sponsor want to add this complexity? Will the trustee control the investments in the participant's accounts?

It is not a problem for experienced tax counsel since the IRS cannot require that there be an employer- employee relationship. The IRS can only review the agreement to see if an independent contractor relationship exists under the applicable law. Given the low level of audits it is not likely that there would be a review. Also I think that a determination letter in which the plan excludes the father as an independent contractor would qualify for a statutory exemption from classification as an employee under an audit at a future time.

First what is the probability of an audit by the IRS- Last time I looked it was less than 1% for qual plans/ employers. Obviously the client would have to be aware that there is a certain level of risk. Second counsel should review the 20 factors test and Section 530 rules to qualify the father as an independent contractor. Independent contractors are subject to SECA tax which is the same as FICA tax. In the microsoft case the independent contractors sued Micro. for benefits provided to employees. Why would the father sue his company to determine his status as an employee for benefits if he does not want to participate in the plan? Third : Getting answers to your questions is the job of the tax advisor for the company. Fourth: the client could choose other options, e.g., floor offset plan but with a higher cost. It all depends on client's risk tolerance.

Putting RE into an IRA or Qual plan results in the loss of several tax benefits that accrue to individual owners, e.g., depreciaton for developed RE and the deduction for property taxes and expenses. If the Roth owns the RE how will prop taxes be paid? Roth IRA owner cannot deduct the property taxes that owner pays because IRA is owner of the property. As BPicker noted there are few IRA custodians who will accept RE as an asset because of the liability and environmental issues and those that do charge steep fees. Also who will pay for the legal fees asociated with buying and selling the property? Also I am not sure that a custoidan would accept a Land trust contract as an asset instead of an outright fee ownership in RE.

Sect 457(B) plans permit a deferral of up to $11,000 on a non forfeitable basis.

Why does father have to be an employee? Make him an independent contractor not eligible to particpate in plan.

If the VEBA is subject to ERISA fid rules then the fids have a duty to invest the funds in some income producing investment e.g, mm fund unless it would be imprudent to do so.--- I guess if they did not invest assets then the participants could sue for breach of fid duty... But how complex can the investment/accounting issues be in these days of software, spreadsheets and PCs???.

Gary: I stated that the employer is a non profit corp under state law (e.g., NY Not for profit Corp. law, sect 201) but is not a TXO under the IRC. It is a taxable entity for IRC purposes. Employees work for non profit er which has contracts to perform services for family members and non related parties. It is no different than hiring a service to clean your home, or cut your lawn, etc., except that no profits inure to the directors or officers of the corp. and there are no shareholders.

I guess the issue is whether the DC plan account balance is a benefit that can be considered an overpayment by the DB plan because it is part of the flooor offset formula. You need to review the plan documents.

Q- Some db plan sponsors that converted to cb plans in late 80's /early 90's purchased participating annuities in separate accounts of Ins cos. for benefits accrued prior to CB plan effective date to reduce iplan liabilities. The plan trustee owns the annuity contract and the participants receive certificates stating their benefits which are guaranteed by the ins. co. However, the certificate is generally considered a benefit under an ERISA plan and is subject to all of the requirements for QDROS.

My reason for citing Swanson was to note that regulatory agencies can't enlarge the boundaries of the laws that they enforce without a statutory basis. In Swanson the IRA owner directed the custodian of his IRA to subscribe to 100% of a new issue of stock of a company in which he was the sole director and an officer. The IRS disqualifed the IRA on the grounds that the stock subscription by the IRA was a prohibited sale or exchange under 4975©(1)(A) among other PT violations. Before trial the IRS agreed that the subscription to an original issue is not a sale or exchange. I see a similar analogy in this case because a brother in law is not a family member who is a disqualified person / party in interest. The scope of my comments is limited to the opinion that a b -in-law can execute trades on behalf of the plan without violating the pt rules- but with the caveat that the fiduciary cannot violate any other rules under ERISA 406,eg. broker cant take owner and spouse on all expense paid vacation to Hawaii, trading costs must be reasonable, etc. There is one other issue lurking which needs to be addressed . If the b - in law is the broker for the owner's personal accounts is there a potential confilict of interest under ERISA or can broker give impartial advice to both types of accounts??. What if the b in - law is the broker for his sister's accounts?

Gary: Could you provide any written information regarding the IRS position on this issue. Also can this problem be avoided by using a non profit corporation organized under state law that is not a TXO under the IRC as the employer?

Kirk: Example 6 pertains to a person who is a statutory party in interest under the Dol regs. A brother in law is not a statutory party in interest under ERISA 3(15), therefore there is no basis for a PT. I dont know of any authority for the DOL or IRS to assert a PT based solely on the brother in law relationship. By the way have your read Swanson v. IRS, 106 TC 76. IRS paid $50,000 to Swanson for legal fees incurred after IRS unjustifably assessed PT tax on a transaction that was not a statutory PT under IRC 4975. I am interested in the statutory basis to assert a PT under ERISA/ IRS in this fact pattern (other than the recept of compensation by the owner from b- in law). Jpod: What is the interest that a fiduciary has in the b in law that would make this arrangement a PT?