mbozek

Since the brother in law is not a member of family as defined in IRC 4975(e)(6) or under ERISA 3(15) I dont see how any of the pt provisons can apply because of the family relationship. However, the owner could not receive any consideration from the brother in law for making him the broker of record. ERISA 406(B)(1) is not applicable if the commissions are paid to the brother in law because owneris not benefiting from the transaction.

Was this loan issued by the DB plan or was this a loan by a DC plan. What was the collateral for the loan if the loan was made from a DB plan? I dont know how you can collaterize a loan by a DB plan against a participant's benefits because there is no account allocated to the participant to use as security. Also I though that the DB plan could reduce benefits because of overpayments but I never heard of reducing benefits because of an outstanding loan. The plan should sue the employee to collect the balance of the loan as a creditor.

Your client needs to retain tax counsel to review options/issues: 1. Qualfied plans must be state in a writtten document and be adopted by employer. Failure to adopt a written plan means that the employer contributions will considered made to a nonqualified plan and the employees will be taxed when the benefits are vested. However, the statute of limitations for taxing the employees on contributions made to the nonqualfied plan is 3 years after the date the tax return is due (6 years if the understatement of income exceeds 25% of AGI). Thus the IRS cannot assess back income tax against the employees for years prior to 1996 if the benefits were vested in that year and the S/l for 1996 runs out on 4/15/03. ( I am assuming that the employees filed income tax returns). If vesting on the contributions occurred at a later date the s/l begins in the year of the vesting. 2. The employer penalty for a disqualfied plan is the loss of all tax deductions taken in the years the plan was disqualfied. But the s/l is no more than 6 years so 1996 contributions are at risk until 4/15/03. If the plan is nonqualfied then the employer takes a deduction in the year the employee is taxed on the contribution, i.e. when made available. 3. There is a separate issue of where are the plan assets held. Assets in qualified plan are required to be held in a separate trust not subject to the claims of the employer's creditors. Was susch a trust established by the employer? 4. How will the funds in the employees accounts be reported for tax purposes??? 5. Will the plan be terminated and a final 5500 filing be made?

Your client needs to retain tax counsel to review options/issues: 1. Qualfied plans must be state in a writtten document and be adopted by employer. Failure to adopt a written plan means that the employer contributions will considered made to a nonqualified plan and the employees will be taxed when the benefits are vested. However, the statute of limitations for taxing the employees on contributions made to the nonqualfied plan is 3 years after the date the tax return is due (6 years if the understatement of income exceeds 25% of AGI). Thus the IRS cannot assess back income tax against the employees for years prior to 1996 if the benefits were vested in that year and the S/l for 1996 runs out on 4/15/03. ( I am assuming that the employees filed income tax returns). If vesting on the contributions occured at a later date the s/l begins in the year of the vesting. 2. The employer penalty for a disqualfied plan is the loss of all tax deductions taken in the years the plan was disqualfied. But the s/l is no more than 6 years so 1996 contributions are at risk until 4/15/03. If the plan is nonqualfied then the emplyer takes a deduction in the year the employee is taxed on the contribution, i.e. when made available. 3. There is a separate issue of where are the plan assets held. Assets in qualified plan are required to be held in a separate trust not subject to the claims of the employer's creditors. Was susch a trust established by the employer? 4. How will the funds in the employees accounts be reported for tax purposes??? 5. Will the plan be terminated and a final 5500 filing be made?

I dont know of any way to include the day the event occurs. I have always understood that the birthday (6/5) is not included because that is the day the employee attains 59. Is an person 59 years and 1 day on his 59th birthday??? Therefore, the 6 mo period begins on the next day. However why not take an audit position based on the accountant's position. -- after all worst case is that the IRS would fine the plan for an incorrect 1099 form and may not if there is no authority for determining how the 6 mo is determined.

I have always advised clients to take the distribution on the day after they are age 59 and 6 months to avoid any problems. E.g employee turns Age 59 on January 2 then age 59 1/2 is attained on July 2 so a distribution can be taken on July 3. I dont know of any plrs that calculate how the 6 mos is calculated. But 182 days could be less than 1/2 of a 365 day year.

I have always understood that the person who has the final authority to pay or deny the claim is the fiduciary. Anything that is not binding is not reliable.

Plans with assets are subjec to ERISA. Some VEBAs are set up specificialy to preempt state laws, e.g. in Cal employers are required to pay accrued vacation pay if the plan is paid from general assets so employers set up Vebas to forfeit vacation pay if employee leaves mid year. Back to the basic question- Why would the er want the veba not to invest plan assets in stable value or mm fund since the VEBAs income is not subject to taxation?

why not call t/c at 212-490-9000?

IRS Rev. rule 80-155 requires dc plans to obtain a valuation of all assets held by the trust at least once a year on a specified inventory date in accordance with a consistent method that is uniformly applied. Eg., if the plan owned Real estate, a valuation would be required. For publicly held securites, the valuation on a particular date is sufficient. The question is whether the issuer would be required to obtain a valuation even if the stock was not held in the plan. If so, then the cost of the appraisal would not be required to fulfill the IRS requirement of Rev. Rule 80-155 but would be a settlor expense. If the appraisal is a plan expense then it should only be apportioned among the participants who own the stock -- there is no basis to charge other participants if they do not own the asset. This is similar to expense charges for owning a particular mutual fund-- the persons who invest in the fund pay for the cost of maintaining the fund.

Plan loans are debts owed by the participant to the plan which is evidenced by the promissory note signed by the employee. Therefore it is an unsecured loan subject to fed bankruptcy law which is not preempted by ERISA. When a participant files for bankruptcy the plan loan is listed on the schedule of unsecured creditors and the plan admin. gets a notice of the filing and a statement that payments by the participant are stayed by bkcy ct order. If the participant files for straight bkcy ( ch 7) then the participant's assets will be liquidated and the unsecured creditors will receive very little, of any, of the part. assets. When the payments are stayed the part. should be notified that the loan will go into default and the outstanding balance will be taxed if no further payments are made. The part. usually doesnt care because the payments from payroll are stopped. Part. can elect to go into ch 13 wage repayment whereby some debts are continued at a reduced amount but the Bkcy ct must approve the repayment schedule. A part can not elect to go into Ch 13 and repay only the plan loan and cancel all other debts.

I dont know what you mean by a required format. The disclosure requirements for merging a mp plan into a ps plan are dependent on the terms of the merger and the decisions made by the MP sponsor. See IRS Rev. Rule 2002-42 for details of what is required for continued qualification of the merger of an MP plan. Also there are proposed regs on the requirements for issuing a 204(h) notice if the MP contributions are to be substantially reduced after the merger.

Gary: IRS has routinely approved qualified plans for non trade or business employees -- all applicable taxes are withheld by the employer.... I dont think deduction of contributions is a big issue.

the employee whould have to become a participant in the govt 457 plan.

Joel--the rules are the same for ERISA plans-- employers are not required to offer Life ins in any pension plan.

I dont agree since it is the employer's liability to send out the COBRA notice and and has liability if such notice has not been properly delivered. The employer cannot be at risk for failing to offer cobra coverage because the insurer doesnt want to issue the coverage. Also dening insurance to person who did not recieve the COBRA notice in accordance with the applicable regs on the basis of medical risk copuld violate state fair insurance practices act. Also if the ex spouse is denied coverage by the insurer and later develops a serious illness then then insurer becomes a defendant to litigation brought by the employer. Most Insurers dont care where the health plan is experienced rated.

Looking at this on a risk/ reward basis (with the risk including any potential legal costs to the employer in defending the denial of cobra coverage) the safer bet is to offer Cobra coverage to the ex-spouse. She may even decline the coverage when she discovers the cost. I dont know why cleints or ther advisors even wish to debate this liability on such vague guidance-- just offer the COBRA coverge in uncertain cases to avoid the risk of being wrong.

I dont know about CA state laws but there is nothing in the IRS regs for 403(B) plans that require that LI be made available under a 403(B) plan. I think the LI agent is preying on the ignorance of School disctircts to sell the product. Why not ask him for the basis for such an opinion in writing with the appropriate citations ???

Q : I dont know if that is good advice to give a plan admin who could be faced with contempt of ct for failing to follow a DRO (regardless of whether you believe that such an order is legal). I think if you were to read the terms of the gp annuity k the insurance co will defer/avoid any responsibility regarding division on account of divorce to the plan admin--. Before giving such advice counsel should review all of the pertinent documents to confirm that there is no potential liability to the Plan admin.

If the 1099 -R is revised to indicate the reduction for ineligible contributions then the participant will be deemed to have made excess contributions to the IRA which will be subject to the 6% excise tax. The amount will be taxed each year until the excess is removed. The w-2 would indicate the amount of the severance payments mistakenly put into the plan as additional wages for which withholding is required. I dont know how the fica tax will be paid. Presumably the employer will pay the employee's share.

An annuity distributed to a married participant would be required to provide the J & S benefit under IRC 401(a)(11). ( Have your read the annuity certificate provided to the participant?). Since the spouse's rights arose under an ERISA plan the court could award ex spouse a right to the 50% survivor benefit under a QDRO as an alternate payee since the benefit arose under a plan subject to ERISA. See IRC 414(p)(1)(A)(i). You can bet that the Ins co that issued the annuity will send any ct order regarding a change in the spousal benefits to the DB plan administrator for a determination that the order does not violate ERISA because the ins. co is not paid to interpret the terms of the QDRO/ plan. There is also a separate issue of whether the spouse's has a vested right to the survivor annuity upon the issue of the annuity contract. The dol reg that you cite was written before QDROS were permitted.

I dont know who you asked but mandatory 20% witholding only applies if the distribution is eligible for a rollover. Otherwise only the 10% voluntary withholding is applicable and the church can waive that witholding.

Using a net approach puts a tremendous burden on the PA to constantly check the outstanding allotments of each employee-- The PA must monitor every change in the withholding allowances for adjustments down or up-- e.g., employee takes out a loan then the k contribtion must be reduced, if the employee changes income tax withholding, charitable contribitions, 125 contaributions, etc and PA runs the risk of having to pay penalities if a change in other withholdings is not reflected in the 401(k) contributions. The only way a 100% net 401(k) contribution system would work is if the payroll system is programmmed to kick out the 401(k) contribution every time there is a change in other withholding to prevent over/under contributions and the PA reviews such changes.

The employer can adopt an amendment to the plan or pass a board resolution ceasing contributions to the 403(B) plan. The employer can avoid the 204(h) notice if the er contribution is made on a discretionary basis. But your post raises other issues: Why is the er terminating the 403(B) plan and adopting a k plan??? A 403(B) plan does not require approval by the IRS, has simplified annual reporting, has no testing of employee salary reduction contributions, e.g., every employee can put away up to $11,000 and provides and extra $3,000 catch up for employees with 15 years of service. The only advantage of a 401(k) plan is that employee can invest in individual investments such as stocks, bonds or limited partnerships while a 403(B) plan can only invest in mutal funds or annuities. Remember that the total employee contribution to the 401(k)/403(B) plan must be aggregated under 402(g). I dont know if the employee could contribute $11,000 under the 401(k) plan and the $3000 catch up under the 403(B) plan and comply with 402(g). But an HCE could contrib utue the maximum allowed udner the adp to the 401(k) and fill outa the remaining salray reduction under the 403(B) -plan The over 50 catch up coul be available under either plan.

Please define what you mean by disqualfied.... A top hat plan is a unfunded non qualified plan under the IRC. Benefits are taxed under the rules for constructive receipt. It is exempt from ERISA provided that it is limited to a selct group of mgt or Highly comp. employees. If other employees are covered then the plan must hold assets in trust and and employees will be taxed on vested benefits held in the trust. The employer can terminate a non qulfied plan at any time and either pay out the deferred amt to the employees or freeze the plan and make payments as temployees terminate or die.