mbozek

I am not familiar with the IRS memo that you refer to and I would question its authority if it is not a formal position of the service. I thought the IRS is required to publish all of its applicable rulings in order to apply them to taxpayer situations. Is this memo part of the IRS guidelines on plan terminations? I would question the IRS logic of stating that GATT rates are some how different from other rates that give rise to erronious actuarial computations. Also I question the statement that adopting an amendment that increases a reversion is prohibited by 401(a)(2) since this would prevent any amendment to cease or reduce benefit accruals which would not violate the cutback rule.

22 k deferral is permitted. If employer maintains 403(B) plan salary deferral is 15K (11+1 over 50 catch up +3 402(g) catch up). Also special catch up under 457 allows deferral of up to 22k for last three years before retirement. Max deferral under 403(B)/457 is 37k.

Spousal consent applies to a 403(B) plan which is subject to ERISA, i.e., the employer is a 501©(3) tax exempt organization to which the employer makes contributions and the plan is a money purchase type plan, e.g., employer promises to make periodic contributions. Some 403(B) plans provide for discretionary employer contributions, e.g., the employer may decide on an annual basis to make contributions to participants accounts. Discretionary plans are regarded as profit shaing plans and the only requirement is that the participant's account balance must be paid to the spouse upon death unless the spouse consents in writing to another beneficiary. Spousal consent is not required for loans. Non ERISA plans with employer contributions are not subject to spousal consent requirements unless required under state law. Spousal consent is required under ERISA section 205©(4) not under 406. Spousal consent to a 403(B) plan of a tax exempt employer which provides for only employee contributions is required if the plan is subject to ERISA. Ask the employer or plan admin. if the plan files a 5500.

If the church run school is operated under the authority of a religious organization that is recognized as a church under the IRC then it is exempt from ERISA. Church run includes separate organizations/corporations which are associated with a church if the organizatoin shares common religious bonds and convictions with the church. IRC 414(e)(3)(D).

rcline: You are assuming that the employer sent the application/ acct info back to the broker.

Self directed brokerage account is just another name for permitting participants to trade on investments which are not offerred as part of the regular investment choices under the plan, eg., plan can offer 10 mutual funds and a directed brokerage account. Under ERISA 404© regs, specific investments in directed brokerage accounts can be restricted by employer to prevent violations of prohibited transactions/ IRC requirements, (e.g., no leveraged investments) or invesments in non publicly held securities.

Under IRC 83 the transfer of property from an employer to an employee on acount of the performance of services is a taxable event to the employee. Therefore the employee would be taxed on the value of the annuity on the date of transfer and reported as W-2 income. The only way there would not be taxation is if the employee had previously included the annuity in income tax on account of constructive receipt.

RS: There are many ways to pay for services rendered-- such as retainer pay, provide unspecified consulting services, to advise the corporation on uncompleted/in process matters-- but this begs the issue of what is the difference between severance pay and payments for service rendered after termination which is included for benefit purposes.

I dont know what you mean by no trust document. Most brokerages sponsor qualified prototype plans which include a trust. The employer adopts the plan by signing the document. Most prototype plans are adopted as standardized plans which means they are automatically qualified by the IRS. I think the question is whether the employer ever adopted a quaified plan. I dont know why the broker would be responsible for adopting the plan. The broker usually provides the plan documents to the employer for adoption. I think the problem is that the employer did not know that it was his responsibility to adopt the plan.

The prohibited transaction tax under IRC 4975© only applies to qualfied plans and IRAs. I dont know if the prohibited transaction provisons of ERISA 406 would prohibit the furnishing of goods, services and facilities between the plan and an employer which is a hospital. There is a exemption for health insurance contracts issued by an insurer to cover its own employees under ERISA 408(B)(5).

Free: How is this hierarchy expressed in the plan document and to the plan participants? As some form of net maximum? It appears that your client seems to be using some form of hierarchy for its payroll system but is this incorporated in the plan document?

FREE: this is fine as long as the language is in the plan doc--but the plan is written that way?

Isnt labeling severance paymentsfor "services rendered "an oxmoronic concept-- if some one is being paid on account of termination how can this be for performance of services? Unless the payment is for services to be rendered after leaving the job but before termination from the employer? Why not just pay the employee to perform service at home as an employee without any duties?

I dont know if it really matters. All the regs require is a written document-- no signature/bd resolution is needed. Since there is no remedial amendment period for cafeteria plans as there is for qual plans under IRC 401(B) there is no deadline for making amendments. I assume that a 125 plan is like a 403(B) plan-- it is required to be administered in accordance with the law regardless of whether it is administered in accordance with its terms.

NJ also taxes employee contributions to SEPS, SIMPLE IRAs, 457, 403(B) plans and the federal thrift plan since only 401(k) elections are exempt from taxation. (According to the IRS the Federal thrift plan is the 401(k) plan for federal employees.) I presume employee contributions to a nonqualified dc plan of a profit making employer would also be taxable. See NJ 1040 instructions, P 19. I am not sure if there is a definitive statement of taxation in the NJ tax law-- its just an interpretation.

There is no formal procedure for terminating a 403(B) plan because there are no assets held in trust which need to be distributed-- all assets are allocated to the participant's accounts. (I dont know how forfeitures in a 403(B) plan are treated.) Generaly a 403(B) plan is terminated by passing a board resoluton, filing a final 5500 for the plan, distributing a smm and, if subject to ERISA, a 204(h) notice.

What kind of plan? There is no specific date for making th contributions to a ps plan under IRC. Don't need to file VCS with IRS for one time failure. Just make contributions.

I have advised my clients to limit 401(k) elective contributions to 60% because of other possible withholdings such as plan loans, FSAs, FICA tax, united way contributions, etc. There is no reason to push the envelope since there are few employees who can contribute the max any way. There is also an economic issue for ers if the employer matches employee sr contributions. I think 75% may be too high if employee is making FSA and loan repayments since only 18.3% of comp would be available after FICA tax. Remember the 401(k) limit is an annual limit and even with the catch up it is a maximum of $1,000 a month.

I am curious as to the grounds that the IRS used to find a violation of ERISA which is enforced under DOL rules for fiduciaries. Did the IRS deem the failure to pay interest a loan between the plan and participant in violation of the PT rules of 4975© which requires interest to be paid? Also what was type of investment that required paying interest? Normally mutual funds invested in equities do not pay interest and are valued dialy.

Need to review the termination/severance agreement to determine the terms for the payment. Sometime the payments will be designated as w-2 wages by the employer without any specifically designated job title for the employee. Also it is not uncommon for employers to settle discrimination claims by agreeing to pay back wages to an employee for a period of time to maximize benefits under qualified plans. Therefore you should consult with counsel as to whether the terms of the settlement would require contributions to be made.

The non alienation provisions of ERISA do not apply to the enforcement of a federal tax levy under IRC 6331 or collection on a judgment resulting from a unpaid tax assessment. Reg. 1.401(a)-13(B)(2). There are numerous ct cases where IRS has seized plan assets to recover back taxes.

change second sentence to read: "Wash st law that automatically removed an ex-spouse as beneficiary from an ERISA covered plan after divorce was preempted." sorry

I dont get your point about st. POA law not being preempted. ERISA preempts all state laws that relate to an employee benefit plan and one could say that the statutory requirements for distributions under ERISA 205/206 are the exclusive requirements for electing a distribution of benefits. Note: Last year the US supreme ct held that a Wash St. law that automatically removed a spouse as a beneficary from an ERISA covered plan was preempted. I dont know how the holder of a POA can have a valid claim if ERISA does not authorize such a distribution. The plan can act in its own discretion but it could not be forced to make such a distribution.

Any distributions prior to RBD by deceased participant are considered taxable withdrawals by participant not minimum distributions. Remaining balance in Q plan at death can be rolled over to spouse's IRA.

There are two issues present here: 1. Whether POA is valid and can be used for purpose of transferring benefits. Some states, e.g., NY specifically permit a holder of a power to make decisions regarding retirement benefits. But there is no requirement that another person accept the power. What state does participant live in? 2. Should plan accept POA? there is nothing in ERISA that permits or prohibits the use of a poa by a participant. However, one could infer from certain language regarding distributions that only a participant/spouse can give consent to distributions. I guess the question is whether the POA is valid and where are the funds going. I would be very wary if funds were to be transferred to an account/ Tax ID in the name of any other person but the participant. Also the transfer of funds to another person is a taxable event to a living participant. Some financial institutions accept POAs for IRAs but require that the IRA owner indemnify the custodian for any liability/ taxes which result. I think the question is what is in it for plan sponsor to accept the POA? It seems that there are only risks and no rewards.