mbozek

If the plan was subject to ERISA and terminated under rules of ERISA I think the claims would have to arise under ERISA since the distribution of plan assets are subject to ERISA 403(d)(3) or 4044. State law would apply if the plan was terminated prior to the effective date of ERISA ( 9/2/74) although I think the claims would have been extinguished by the S/l. I am aware that terminated vested participants of Prudential who received annuity benefits under a contract issued by Prudential in 1992 sued the company in Fla fed court a few years ago for demutualization benefits before the hughes case was decided. Dont know what happened to the case. Also my recollection of the hughes case is that participants in plan A who made after tax contributions to a DB plan claimed that they were entitled to a portion of A's $1B surplus when plan A was merged with Plan B, an noncontributory plan which covered other participants because of the exclusive benefit rule. The Sup ct held that participants were only entitled to recieve the benefits that they had accrued under plan A. I dont remember any other facts.

S: there are several ways the spouse can become the beneficiary of the decedent's IRA but you need to consult with counsel to see if it is possible. One way is for the trustee to disclaim the interest in the IRA under IRC 2518 which requires that the disclaimer be made within 9 months and that the beneficary not recieve any property or interest from the disclaimed property. The new IRS MRD regs allow the disclaimers to be made until Sept 30 of the year following the year of death. After the trustee disclaims then the IRA benefits should be distributed under the terms of the custodial account. Most custodial accounts name the surviving spouse as the default bene if there is no designated bene. If not then each person in sucession before the spouse can disclaim until the spouse is the default bene and can transfer the funds to her own IRA. I am assuming that there will be no problem in securing the proper disclaimers. Another way to rollover the funds is if the spouse is both the sole trustee of the IRA and the sole beneficiary of the trust. Under the merger of interest doctrine if the interest is identical because the same party is both trustee and beneficiary then the trust is dissolved and the spouse can rollover the funds. However this issue depends on state law. The IRS has issued many PLRs approving the above transfers as well as other ways of effectuating a tax free rollover.

State laws are preempted by ERISA so any claims by participants for demutualization proceeds under state law will be rejected. Also, Under the Hughes case, participants in a Defined benefit plan cannot make a claim for the surplus amounts under the plan since they are only entitled to the benefit that accrues under the plan formula. Demutualization shares paid to a DC plan will have to be allocated to partaicipant accounts under some basis devised by the plan fiduciaraies...I dont see how an employer subject to ERISA could retain the shares in a plan that has not terminated because this would be a prohibited transaction.

My understanding is that there are some old IRS rulings that held that the income tax exclusion for death proceeds only applies to the party who is designated as the beneficary under the policy. If the plan administrator/trustee is designated as the beneficiary then the exclusion applies only to the plan admin/trustee and the insurance proceeds are considered a taxable distribution when paid to the plan beneficiary. I have discussed this issue with TPAs who usually disregard these precedents and issue a 1099 to the beneficiary showing the proceeds to be excluded from income as ins. proceeds.

see 457(f) and mutual fund optons under this 457 topic heading for extensive discussions with no definitive answer.

Sounds like a Section 861 scam to me ( IRC 861 is the section that has been cited by tax protesters as the basis for exempting wages from employment by a domestic employer from federal income tax) People have gone to club fed on an all expenses paid vacation for promoting these schemes.

The only way the a17 comp limit can be 180 for 2002 under pre EGTRRA law is if the IRS formally announced an increase from 170 to 180 k. I dont remember any IRS notice increasing this limit to 180K since the a17 limit was increased to 200 by statute but I have not paid attention to this change since clients have adopted the 200k limit. Why not avoid all this uncertainy and the waste of time that goes with it by increasing the comp limit to $180.

Usually this problem is solved by having the beneficary who gets legal title to the IRA to disclaim their interest under IRC 2518 and then follow the inheritance provisions in the custodial agreement to the point where the spouse is the default beneficiary in the event there is no named beneficiary. ( Most custodial accounts name the spouse as default beneficary of a married IRA owner). Sometimes there may be two or more disclaimers before the spouse becomes the default beneficiary. Another way to get the IRA to the spouse is if the spouse is the sole trustee of the trust and sole beneficiary. Under the merger of interest doctrine the trust would be disolved because there is an identical interest between the trustee and the beneficary and the spouse could roll over the distribution to an IRA. Your client needs to review this matter with counsel to determine whether there is a basis for a tax free rollover.

Financial institutions ususally threaten an interpleader action to get the parties to settle the case by dividing the amount in dispute. But commencing an interpleader action costs money for a lawyer and some companies will wait until they are sued by one of the claimants before commencing an interpleader. I also dont know if an interpleader is a proper course of action for the company since there may have been malpractice by the agent or improper conduct by the company in giving an incorrrect change of ownership form to your husband. If there is any potential culpibality on the part of the financial institution then they will become a defendant in the action. You need to discuss these issues with your attorney.

I presume that you are thinking of the 419A plans for 10 or more employers which permit deductions in excess of the general 419A limits. There are a number of products on the market and every one comes with an opinion letter from counsel which no one reads for the caveats. One big restriction is that the sponsor/ marketer of the product does not guarantee that contributions will be deductible because it depends on the types of benefit provided, etc. These things are usually sold as a form of LI tax shelter to provide severance benefits ( which is actually deferred compensation which is not permitted) on a discriminatory basis. some products offer cash value LI to the owners and term life for the rank and file employees . There have been several cases where employers have had deductions disqualified. Also some of these programs are regarded as tax shelters which must be registered with the IRS who can ask for the list of employers who adopt the plans. There is no substitute for retaining knowledgeable counsel to review the program. The opinion letter merely says that the firm will defend the employer before the IRS but does not render an opinion as to whether the contributions will be deductible as a business expense( Check the fine print for the cost of representation). If the IRS prevails the employer will owe the tax plus interest and penalities. I would not wait for IRS prop. regs-- they have been coming since 1986.

IRS proposed regulations have allowed one rollover every 12 months from each IRA owned by an individual. prop. reg 1.408-4(B)(4)(ii). Rollover from regular IRA to Roth IRA is not counted.

The net amount of the LI proceeds are not subject to income taxation when paid to the beneficary and therefor should not be rolled over. Q- is the spouse the beneficary of the LI proceeds or are the proceeds paid to the plan trustee as beneficiary and then distributed to the spouse. If the latter is the answer then LI proceeds are taxable to spouse and can be rolled over to an IRA. The amt of the cash surrender value is reduced by the amt of the PS 58 cost or amt of any employee contributions to the LI.

KIrk_ I agree that the plan can restrict the employees timing of a change but I my comment was directed the previous post which was not sure that a participant could revoke an election if the plan does not expressly state. It is my understanding that elective contributions must offer the employee a choice between cash and making a contribution. I dont believe that a plan could prevent an employee from revoking or changing an election after it is made although it could restrict the timing to reasonable limits. I have never heard of a plan that did not permit a participant to change a salary reduction contribution after its was made.

I have always understood that deferral of compensation in a 401(k) plan was elective at the option of the employee. Otherwise the employer could force high contribution levels as % of comp by nhce to increase the ADP % for the hces. Also state laws are preempted by ERISA.

Under ERISA 206(d(3)(k) a QDRO can be enforced against both employees and retirees to provide income for children who are alternate payees. A QDRO can provide for payment to the custodial parent as the guardian of a dependent child. The plan may permit payment to an alternate payee before the employee is elgible to receive benefits. Under IRC 414(p) a qdro can be enforced against state employers who consent to such orders. Also, retirement benefits in pay status can be garnished under state laws enacted under Section 466 of the Social Security Act to enforce child support orders. States are required to enact such legislation to avoid losing federal aid for dependent children. Under Dol opinion 2001-06A, notices of withholding issued by a state agency that administers the child support enforcement program are enforceable as QDROS provided that the notice of withholding meets all of the requirements for a QDRO under ERISA other than the requirement for a court order.

for employees with 15 years of service, 403(B) tax deferral is $3000 more than 457 limit under IRC 402(g)(8). 457 plan deferrals are not eligible for loans while a participant can borrow up to $50,000 from a 403(B) plan. 457 plan can accept deferral of vacation or sick pay. 403(B) investaments are limited to mutual funds and annuity contracts while 457 plan can invest in virtually any assets.

I guess the question is what evidence is there that an account was ever opened in the name of the plan at the brokerage. Every retirement plan account at a brokerage that I have reviewed has an account number and receives a monthly statement. I have been involved in several situations where because of mergers, frequent moves, etc, the brokerage co was unable to provide a copy of the application, adoption agreement or other documents which are required under compliance rules.

PLRs are quite expensive to request from the IRS and also you must pay for cost of preparing the request.The standards for requesting a plr are no different that the requirements for any othe ruling under the IRC. What is there about the plan that requires a PLR? 403(B) plans do not require IRS approval and cannot be not disqualified in the sense that qualified plans are because they have no assets held in trust. If the plan permits salary reduction for all employees who work 20 or more hours a week and follows the nondiscrimination rules for employer contributions it will meet the only nondiscriminaton requirements to defer the contributions. Also a 403(B) plan can only invest in annuity contaracts or mutual funds. A prototype plan should have been prepared in acordance with the tax laws and should not need a plr. Qualified counsel should be able to review the plan and determine if the plan meets the requirements of 403(B).

PJ: Prohibited transaction rules do not apply to govt plans so investments by qualified govt plans is much broader than plans subject to ERISA. Also assets in a 403(B)(7) account are not held in trust but are held by a custodian which could make them vulnerable to the claims of the emplyee's creditors depending upon state law. A participant in a 403(B) annuity plan can defer up to $15,000 in pre tax contribitions, in addition to contributions by the employer. Finally there is no irs approval needed for a 403(B) annuity plan.

Robin:Could you give a complete explaination of what happened. Did the participant rollover distribution to an IRA? did the receving institution open an IRA for the participant? If not have more than 60 days go by since the distribution was made. What do you mean by "the institution cashed the check but individual decided against starting the account?". How is the receiving institution going to report the receipt of the IRA distribution? as a rollover (which is not possible if an account was not opened for the emplyee.) How can the receivng institution cash the distribution check and make a check payable to the trustee of the distribtuting plan without opening an IRA? It seems to me that if the receving institution cashed the check but did not open an IRA for the part. then the amounts are in a taxable account. Why is it necessary to sign a 30 day waiver? I dont know why the distributing plan would want to accept this distribution because of all the tax issues, e.g., is the distribution taxed to the employee since it was never accepted by the IRA custodian but the check was cashed.

I have never head of an employer refusing to deposit salary reduction contributions made after the employee terminates employment because no one has ever considered it to be illlegal. Reg. 1.403(B)-1(B)(3) requires that a salary reduction agreement be in effect in order for amounts earned to be excluded from income. Salary is considered earned when the services are perfomed even though payment is deferred until a later date. GCM 39659 ( 9-8-87). Under Rev. rul 67-69 an employer can defer making contributions as infrequently as once a year.

It depends on the state. For example, NJ taxes deferrals under 457 plans but not 401(K) salary reduction. It is up to each state to decide whether to tax such deferrals. Ned to check with a tax advisor to find out st . taxation.

The only rulings I am aware of from the IRS are a plr that held that the stock issued by a demutualized ins. co is not considered an annual addition under 415 and a ruling that allowed stock to issued to 403(B) annuity contracts to be converted to a mutual fund. There are many questions involving terminated plans -including questions on dispositions of stock to plans which terminated pre ERISA. ERISA does not apply to plans which terminated before Sept 2, 1974. There are no definitaive guidelines and each case is a facts and circumstances decision as to how the stock will be treated. Policy holders need to retain counsel and make business decision of whether to take the stock into general account, deposit stock into another DB plan, or revive a terminated plan and increase benefits for surviving participants. Its is not clear whether the stock is reversion or a dividend. By the way Pru was required to give stock to all holders of its ins contracts (including policies issued to terminated plans) under the terms of the demutalization. The terms of the stock distribition were announced in advance and policy holders had the option of receiving cash. Pru cannot act as legal advisor to the employers who must retain their own advisors. Most clients who recieve the stock are pleased to receive the extra cash-- its found money. Under the tax benefit rule the stock will be taxable income to the policy holder with a basis of 0.

I dont understand the economics of such a decision since the amounts distributed will be taxed as ordinary income for st and fed tax purposes. Why not establish a VEBA for retirement health care benefits to maximize 100% of contribitions, accumulate tax free income and not pay income taxes or provide for employer payments to reimburse employees for payment of health insurance on a non taxable basis. Accumulating funds in a retirement acount to pay health care benefits is a very inefficient way to pay for retiree health care.

Q- are the changes to the GATT rates an elective change by the employer to increase a reversion as the regulation implies or are they required because of a statutory change in the law? If the latter I dont see how this is an elective change in benefits to increase the reversion. It seems obviously contradictory to require that a plan change to the GATT rate in order to terminate and then say that such an an amendment is a change in benefits. I would question the IRS authority under a general regulation that was last revised before 417(e) was enacted/amended in 1994 to require a minimum lump sum be paid and retain counsel. Otherwise the client can just increase the benefits to lower the amount of the reversion to meet the IRS demands.