mbozek

REg 1.501©(9)-2(a)(2)(ii)(D) specificaly permits VEBA benefits to be provided based upon employee contributions, or benefits based upon different levels of contributions provided that comparable benefits are provided for equal contributions. But the employee contributions have to be made to a cafeteria plan in order to be made pre tax. A VEBA can provide sick and accidents to its members either by reimbursement or through the payment of an premium to insurance co or HMO. -3©. An employer may establish its own veba which is exempt from state law. However deduction of employer contributions is limited under IRC 419A. Most small employers join multi employer vebas that offer benefits to 10 or more employers to avoid the limitation on employer deductions for single employer vebas but these multiemployer vebas are subject to state insurance regulation. Most of the VEBA products are offerred through insurance companies and promoters of deferred compensation schemes for small business and some are considered tax shelters required to disclose information to the IRS.

no- An employer is not even required to provide for a lump sum payout at retirement. Some 403(B) annuities only permit periodic payments.

Barry: IRA owners set up trusts because they want to protect the assets from creditors or to prevent the beneficaries from depleting the assets in a single sum payment. Under the custodial accounts, the beneficary of a decased owner acquires all of the rights of the owner including the right to accelerate distributions. The IRA owner could divide the IRA into separate shares and name a trustee for each beneficary as the beneficary of each share. the trustee of some large IRAs hire professional investment managers.

I think that the IRS believes that the right to create separate shares is limited to the IRA document and not to a trust which is a single designated beneficiary.

According to R.butler everyones' contribution will increase by 6.3% as a result of adding participants. If everyone's contribution increases how is there a d 6 violation ?

i have heard the term employee pay all veba used in conjunction with a cafeteria plan as a way to get pre tax contributions into a veba trust.

As a us citizen you can maintain a roth IRA regardless of where you reside because you are still taxed on your global income. As far as Canada is concerned you would be taxed on income that you earn which is subject to Canadian law, e.g., wages. However amounts deferred under a Roth IRA may not be subject to canadian income tax if it is not earned or considered a Canadian asset. You should consult the IRS publication on tax treaties and there may even be an explanation of taxation of us citizens in canada. Otherwise consult a tax advisor familar with candaian law. I dont think that lving in canada makes you ineligible to maintain a Roth IRA. I think the providers are saying that they could not accept futue contributions from u because they cannot transact business in Canada. If they are givng u a problem open a post office box in the US as your address.

While I have not reviewed the final regs, the provison you cite is a formal statement of a rule which had appeared in numerious private letter rulings issued by the IRS that that ability to divide an IRA into separate shares where each share was based on the life expectancy of a single beneficary was permissble only if made in the IRA beneficiary designation form of the IRA, not under ther terms of a trust which was the benericary of a decedent's IRA. See plr 199903050

Harry: could you please provide the cite. I have not reviewed the final a9 regs, but although proposed reg. a9-7 Q/A-3 requires that the transferror plan must determine the mrd amount it also says that the transferror plan may (not must or shall) satisfy the mrd for the year of transfer by segregating the mrd from the employee's benefit and not transferring that amt. Such amt may be retained by the transferror plan and distributed by the mrd. I want to know if this language changed to must in the final regs. The participant can still rollover the mrd to an IRA and defer distribution until 4/1.

MGB: Does the AARP understand that under state laws IRA assets are subject to escheat after a statutory period of between 1-3 years and states vigoriously audit banks, brokerages and ins co to recover such assets (including any IRAs sponsored by AARP affiliates). Once the assets escheat to the state no further earnings are paid on the accounts. I dont know how this provision will benefit the participants.

Why not? retroactive amendments are only prohibited if they will violate the qualification provisions of the IRC. Adding participants for the purpose of making a contribution for them is not prohibited conduct as long as it does not result in discrimination. Under the existing law there is no requirement that allocations in a PS plan accrue as of the end of the plan year. See reg. 1.401(a)(4)-2©(2)(ii) " allocations include all employer contributions that are allocated or treated as allocated to the account of an employee under the plan for the plan year." In a plan which provides discretionary contributions it is not unusual for a board resolution to be adopted after the end of the taxable year which provides for the allocation of the contributions among the participants. The contribution is deducible if made by the date for filing the tax return. If there has been no board action on the amount of the allocation to the plan then the additional participants could be added to the plan for the purpose of an allocation. If allocation has already been made for 2001, employer could pass another bd resoluion appoving contributions for new participants.

Tks- I had forgotten that this piece of ridiculous legislation requires mandatory transfers after regs are issued. I think that the only IRA providers who will take the business are those who will charge high fees to maintain samll accounts and invest the funds in low yielding investments such as T-bills. I do have question as to whether an employer can eliminate the involuntary cashout entirely (since it is not required for qualification) to avoid this nonsense In other words if the plan provides that benefits are not immediatley distributable upon termination then no transfer is required.

The US dept of labor issues opinion letters on whether employers are subject to ERISA. The letters are issued by the Pension Welfare Benefit Administraton and should be available on the Dol's web site.

If the agency becomes a 501©4 will it file 990s (annual returns for txo) with the IRS? My understanding is that public entitlies are exempt from filing tax returns under IRC 111 because their income is not subject to income tax. Question is whether the agency will still receive state funding or other public money to operate as an agency or instrumentality of st./local gov. It is possible for an organizaton to be publicly financed or a municipal entity and still be considered a txo - there are rulings going back 30 years where a public library was deemed to be a 501©(3). You need to retain counsel to research this issue.

I thought that nothing was going to happen until the appropriate agency ( DOL) issues regs specificying how this provision will be implimented. Also I think the IRA custodial agreements would have be amended and approved by the IRS to allow an account to be opened by someone other than an employee. Frankly I dont know why the custodians would want the business because what would be a prudent investment for the assets, does plan have fid liability for anything that happens after transfers, who will pay annual admin charges for maintaining account and will funds be escheated to state after statutory period? Will the provision benefit the state coffers though escheat? Also what about minimum distribution if the participant never claims the assets. Yuck-- who would want to administer this business. Also why would plan sponsors want to voluntarily give up assets that can contribute toward payment of admin charges?

It really should not matter which option you choose-- If the plan withholds the MRD then the participant can rollover the balance to the IRA without having to make a MRD. If the plan allows a rollover of the entire account balance then the part. must make a mrd by 4/1/03. The problem is that the regs under 401(a) (31)-1 require that the mrd amount be withheld from any rollover payment and paid to the participant (less 20% withholding) who can then rollover the mrd to an IRA until 4/1/03. Makes sense, right?

If A only bought selected assets of B, it did not agree to acquire B's plan which remains with B as plan sponsor (This is M & A 101 for asset purchases because the buyer does not purchase liabilities of the seller and qualified plans are looked upon as liabilities of the seller because of potential ERISA claims, qualification issues etc. and because the account balances of those emplyees who are not transferred to B must remain in A's plan). Qualified plan assets of transferred employees are transferred from sellers plan to buyers plan as a rollover or trustee to trustee transfer only if purchase agreement expressly permits a transfer. It is B's obligation to either continue or terminate B's 401(k) plan. If B has been liquidated then its 401(k) plan is an orphan plan without a sponsor. Biq question is who do B plan participants file request with to recieve benefits under B's plan if B has been liquidated? Presumably B plan participants can elect to receive a distribution from B's plan because they have severed from service of B and elect to rollover amounts to A's Plan.

In order to be included for ADP purposes, Reg 1.401(k)-1(B)(4) requires that a deferral be allocated to a participant's account under the plan as of a date within the plan year.l

The only revalent category is officer but governments have few if any persons who are appointed to act as an officer of the govt. An elected or appointed official is not automatically an officer. See reg 1.416-1, T-13- Officer must have authority as well as title of officer. Since there are very few officers who make over $130k in government there will be few persons who will be classified as HCEs.

In what year was Gatt change adopted? SMM is due 210 days after the close of the plan year in which the amendment was adopted regardless of retroactive application. SMM is not required if employer issues revised SPD.

It seems that all you are doing is adding participants who are entitled to a contribution for 2001 which is not a problem as long as the plan is amended. Issue is whether a tax deduction can be claimed for 2001- if tax return for 2001 has not been filed, allocation should be deductible but check with your accountant to see if allocation had to accrue as of end of 2001 for it to be deductible. 412© is not applicable to ps plans.

There is no audit because 403(B) assets are not held in trust.

Just saw this thread because I am in the process of updating my 457(B) plans for 2001 tax reform. Under recently issued IRS proposed regs vacation pay and sick pay can be contributed to a 457(B) plan provided that it is not otherwise made available to employee. I guess that an employer could provide that any vacation or sick pay accrued as of the date of termination will be contributed to a 457(B) Plan. Amounts deferred under a public employer 457 (B) plan can be rolled over to an IRA. But there is an alternative for employers to contribute the vacation and sick pay to a qualified plan upon terminaton to avoid FICA tax. The employees can withdraw the funds after severance from service. See Thread under govt plans ('is this legal') for Fla county that has established such a plan. Another question: can public school employees contribiute the vacation pay/sick pay to a 403(B) plan (max deferral of $15,000 in 2002)

yukon: the contributions are deemed made when the compensaton is deemed paid to the employee because the contributions are made from the employees's wages. If the comp is paid on the employers records on 12/29/01 the deferrals should be deemed made for 2001 because they were withheld from the participant's wages on that date and the wages would be deducted by the employer for 2001. The question is when the wages for the period ending 12/29/01 were paid by the employer for deduction purposes. If the amounts will be deducted as an expense on 1/3/02 then the contributions are deemed made in 2002.

There are two possible answers: One is that since amounts were included in employees gross income in 2001 and 2002 the amounts are not excludible from taxable income since the amounts were deemed paid to the employee regardless of an agreement to defer the compensation. The other option is to treat the contributions as pre tax under the theory that the employee never had a legal right to the funds since there was a binding agreement to make a deferral to the 401(k) plan. The inclusion was administrative error for which a revised W-2 can be issued. The precedent is Rev. rul 79-311 where employees who received salary advances from an employer for commissions that were never earned were permitted to return the advances and exclude them from gross income. The employees had a written agreement with the employer that only allowed them to be paid for commissions that were earned.The limitation on this ruling is that it applied to amounts that were returned in the same accounting period for which they were paid although the principle is still applicable -- if the employee has no legal right to the funds that were contributed to the plan because of the binding agreement exclusion was required for 2001 as well for 2002. The questions is whether your tax advisor believes that 79-311 is substantial authority for retroactively changing the after tax to pre tax deferrals.