mbozek

yup-they will be treated as terminated employees under the plan. The departing parting partners suffer the consequences of not being properly advised. Too often bnefit plan issues are ignored because the advisors are ignorant of the value of the benefit rights being given up or they just don't want to to pay for competent advice.

Yes- plan must be amended for all changes in effect in the year of termination. If the plan is an M or P plan the M & P sponsor shuld have a set of amendments that can be adopted. Presumably the employer will only have to adopt the gust changes. Employer could submit the plan for termination with the gust amendments. The client can terminate the plan without the IRS approval -- but there is a disqualification risk if the plan is audited in a later year. I dont see how the cost of IRS approval is that significant .

One basic rule for spin offs is that the sponsor of the plan from which the assets are to be spun off must agree to the spin off. Vested benefits of the terminated participants can be transferred via a direct rollover to the new plan of these former partners. One rule of corporate breakups is that these issues must be revolved before the partners leave their old firm. By the way were to co B partners advised by counsel before they elected to leave and start their new business???

The plan sponsor needs to retain counsel to sort this out and come to an agreement with the participants who have left. One view is that the participants resigned and they are subject to the forfeiture provisons in the plan. You will not get a satisfactory answer that can be relied on on this web site.

The loan repayments can be continued to a frozen MP plan as long as it is not terminated. If the plan is merged, the loan repayment can be continued to the 401(k) plan. However, there will be restrictions on inservice withdrawals required on MP plan account balances after the merger. See Rev. Rul. 2002-42 (issued this week) for IRS rules on merger of mp plan.

is this a mp, 401(k) or PS plan?

notify the employees that the employer is no longer making a safe harbor contribtion to the plan.

A Plan drafting point: While is preferrable that a plan include a provision disposing of forfeitures at the time it is adopted, there is no requirement that the plan contain such a provision. Many attorneys omit such a provison on the theory that the employer will determine how to dispose of such assets when the plan is terminated.

no rollovers are permitted for 457(B) plans of NP employers.

There is no requirement that the plan be terminated provided the employer has not been dissolved or gone out of business-- the usual rule for a ps plan is that there must be "substantial and recurring contributions" but a plan could go 5 years without making any contribtions from profits or longer if there is a sufficient business reason for not making contributions, e.g., lack of profits. Or the plan can be merged into another qualified plan.

If the plan does not specify what is to be done with forfeitures it should be amended before terminaton. You should also review Reg. 1.415-6(B)(6) which provides for the allocation of suspense accounts to participants before the employer may receive a reversion upon plan termination. (Usually forfeitures are transferred to a suspense account or used to reduce employer contributions) Finally a reversion to the employer is subject to a 50% excise tax under IRC 4980. As a general matter forfeitures should be allocated among the participants since the combination of the reversion tax and ordinary income tax will consume the entire surplus.

As a separate matter why would a plan want to invest in RE and give up all of the tax benefits that accrue to individual owners of RE, e.g., depreciation, deduction of interest costs, property taxes and related expenses plus ability to take capital gains and losses, not to mention that plan cannot use borrowed money to purchase the land since that would creat ubit when the property is sold and result in taxation at ordinary income tax rates for a trust, e.g., 38.5% rate after gain exceeds $9200. Also there are some PT rules that must be observed such as a fiduciary cannot use the asseet of the plan for the benefit of his own account.

According to an IRS lawyer I spoke to today the rules for M & P plans adopting Gust amendments are as follows: 1. If the employer has adopted an existing M & P plan and intends to use the same plan after it is amended for Gust then the employer does not have to do anything by the end of the remedial amendment period. The employer must adopt the Gust amendments by the end of the period prescribed for the M & P plan-- the later of Dec 31, 2002 or 12 months after the IRS approves the Gust amendments. 2. If the employer wanted to adopt another M or P plan, then by the end of of the remedial amendment period, the employer had to either certify that the employer would adopt a Gust amended plan of a new sponsor or adopt an existing M or p plan of the new sponsor. 3. If the employer adopted an existing M or P plan and then wants to switch to another M & P plan after the remedial amendment period expires, the employer must adopt the gust amendments to the plan that it adopted before switching to another M or P plan. 4.If the employer used the certification procedure, then the employer could, after the expiration of the remedial amendment period, adopt an M or P plan of another prototype or master plan sponsor, an individually designed plan or a VS plan. 5. It is my understanding that the IRS no longer requires most employers who adopt nonstandardized plans to submit the plan for a determination letter. The employer can rely on the determinaton letter received by the sponsor in most cases. Also I dont know how an employer can submit a nonstandardized M Or P plan which has not been revised for gust to the IRS to preserve the remedial amendment period.

Two choices: 1. Merge the MP plan into the PS plan and use the forfeitures for the benefit of the PS participants or, 2. if #1 is too risky for you, just reallocate the forfeitures among the remaining participants provided the plan can be amended.

Non discrimination/coverage issues only arise if the plan discriminates in favor of HCEs, e.g, 5% owners and employees earning over 90k. There is no prohibition against providing differing levels of benefits among non HCEs under the IRC. All of the distinctions in benefits and coverage under IRS rules are predicated on the distinction between HCEs and non HCEs-- there are no standards for nonhce v. nonhce differences. However, the benefits cannot discriminate on account of age, sex or race under federal law. If the employees are covered by a collective bargaining agreements, the owner will have to negotiate the benefits with the unions representing the employees of each unionized facility.

multiple employer plans are idiosyncratic-- each plan is different because of the employer relationships and the requirements of reg 1.413-2. I have a designed several custom plans for multiple employers.

There may also be an issue of state labor laws which limits how much of an employee's compensation can be reduced for plans not subject to ERISA. E.g., NY labor law regs limit salary reduction to 10% of compensation. If the Cafeteria plan is not an ERISA plan because it pays no benefits subject to ERISA then state labor laws are not preempted. If the Cafeteria plans are subject to ERISA because it is part of an ERISA health plan then state labor laws are preempted. Violation of state labor laws could result in fines and penalties. Also the proposed IRS reg. 1.125-2 A-7(a) state that "a health FSA will not qualify for tax favored treatment under IRC 105 and 106 if the the effect of the reimbursement arrangment eliminates all or substantially all, risk or loss to the employer maintaining the plan or insurer".

Distributions from a Roth IRA are taxable to the extent the distribution exceeds the aggregate contributions to the Roth IRA. 10% premature distribtion tax applies on rollover amounts from regular IRA if a distribution is made within 5 years beginning in the tax year the contribion was made. So if your contribution to the Roth IRA totaled $25,000 in 1998 you can withdraw $13,000 without any income tax because you were taxed on $25,000 beginning 1998. See IRC 408A(d)(1). But you will have to pay a penalty tax of $1300 if you withdraw the funds in 2002 becuse they have deposited less than 5 years.

Instead of withdrawing the funds, why not move the Roth IRA investment into something that will not decline in value such as a money market or stable value fund?

ans: 1. nonqualified plan- no annual reports required 2. no- only can transfer 457(B) account to another 457(B) plan. 3. no- if the employer can keep track of separate accounts. 4. no. If 403(B) plan is maintained employee deferral can be up to $15,000. 5. plan can discriminate in eligibility and benefits. However participation must be restricted to a select group of management or highly compensated employees to avoid having to hold the assets in trust and other ERISA requirements. The determination of who is eligible is a facts and circumstances decision base on compensation and job title. 6. Most investment co will provide 457 plan investments- the questions is how much will they charge and whether they will provide documents and support. Participants can self direct investments or employer can invest 457 funds as part of np endowment. I can provide documents and advice. Also under some state laws assets are protected from creditors of employee. Each state has diferent rules. Also application of securities laws to 457 plans is determined by counsel.

One way would be if state law permits some one to sign on his behalf in his presence-- U need to consult with an attorney to see if there is a procedure which is used for illiterate persons who put a an x on a document and another person signs their name next to the x.

NJ taxes wages, salaries, tips, fees, commissions, bonuses and other payments received for services performed as an employee. The amount is taken from the W-2. NJ 1040 form P. 19. Reimbursement for medical expenses is not wages.

Janet: Reg 1.401(a)-20 A-11 " all benefits provided under a plan including benefits attributable to rollover contribuions are subject to the survivor annuity requirement. "

I disagree with Janet. While some ps plans are not required to obtain spousal consent before a lump sum is paid to a participant, regs 1.401(a)-20 A-3 require spousal consent where the plan is subject to the minimum funding standards. Therefore the terms of the plan govern whether spousal consent is required, since under ERISA 404(a) the plan must be administered in accordance with its terms. The question is whether the plan can be amended to eliminate the annuity provison if there are no employer contributions as permitted under IRC 412(h)(5). You should also read the plan document to see if the spousal consent provisions only applies to the employer provided benefits (but I have never seen such a provision approved by the IRS).

LK: I thought my response also included invoking IRC 412(h)(5) as substantial authority for the omission of spousal consent. I dont think getting spousal consent from the DB plan before the rollover to the MP plan would permit the distribution without spousal consent from the MP plan if the plan requires spousal consent for a distribution. The question is whether the mp plan can be amended now to eliminate spousal consent before the owner takes a distribution and whether the plan would have substantial authority under IRC 412(h)(5) for not getting spousal consent. My view of the risk is that only a small preportion of plans are audited by the IRS after termination and the IRS is reducing the number of audits because of buget constraints.