mbozek

Employees are presumed to be cash basis taxpayers so payments will be deemed taxable as 2002 wages unless the funds were available by EFT or checks were dated by 12/31/01. There is a rule that compensation is deemed paid to an employee in the year that the employer deducts it . Need to check with the accountants to see whether pay was deducted for 2001 by employer. If pay is includible in 2001 then it should be reported on employees W-2.

Since IRS allows termination of a DC plan on account of financial hardship of employer, employer contributions can be suspended by board action. Plan will have to be tested under ADP and ACP rules for plan year.

The point you continue to ignore is the the guilds do provide pension and welfare benefits for members who are paid as independent contractors by employers and these employers make contributions to the guild plans on behalf of these independent contractors. In NYC perforamers are hired as independent contractors to avoid the costs associated with employees: FICA tax, unemployment, WC and disability insurance. I have also reviewed documents filed by SAG pension and health plans which represent that both plans are multiemplyer plans under ERISA in that more than one employer is required to contribute to the plans pursuant to cb agreements between SAG and the motion picure and tv producers. The forms filed by participating producers to submit contributions for health and welfare benefits require the names, SS numbers and amount paid to SAG members be listed. The people I represented were always paid on 1099 forms. I cannot find any reference in the SAG documents that limit benefits to service only as an employee of a producer.

KJ: I am not a labor lawyer but I think that the collective bargaining rules have evolved far beyond the 1970's case which you cite precisely to protect union members who the employer would want to classify as independent contractors to avoid having to make pension contributions. Under your logic dues paying union performers who are forced to work as independent contractors would not be eligible for benefits under the SAG plans even though SAG would collect the employer pension contributions attributable to such service. I dont think the SAG membership would support such a ridiculous policy becaues it would nullify the reason to belong to the union. Second I have represented SAG members in NYC who were paid as independent contractors but the producer still made contributions to the SAG health and pension plans on their behalf pursuant to the SAG CB agreement and they were eligible for SAG benefits if their SAG wages exceeded a $ threshold.

The reason for the employment tax inquiry was because there is a practice of paying performers wages off the books to avoid witholding taxes which the performers never report to the IRS. As I said previously all the guilds permit independent contractors to belong to the union and studios and production corporations make payments to the guild for pension and welfare benefits based up the CB agreement with each guild. If the IRS investigated the guilds they would get a record of what was paid by each studio and the IRS could conduct an audit to determine if the performers should be classified as employees and fine the studios for non withhholding of wages. Needless to say this would not play well in the West Wing (although the DOL did investigate Time Warner for classifiying workers as permanent leased employees and independent contractors to avoid paying retirement and heath benefits). KJ: The IRS decided to avoid classifying the guilds as multiemployer plans for tax purposes as a politically correct way to avoid angering the biggest campaign contributors to the White House who wanted to max out on the pension plans of their own production companies.

Because the performer is a member of the union that sponsors the multiemployer plan to which the studio is a signatory to the CB agreement and is eligible to receive benefits under the terms of the guild plan for its members. The studio agrees to pay at least union scale wages to the performers (who can be independent contractors) who are members of the guild and make the necessary contributions to the pension and welfare funds of the guild on their behalf. Benefits are based on the amount of covered earnings of a member due to employment with signatories to the CB agreement. Under the terms of the CB agreement a studio can only use performers who are members of the particular guild in its performances, e.g., SAG members for speaking parts in TV or movies. It is my understanding that this is not an unusual practice. Many trucking co hire independent contractors to drive trucks who are union members. The employer is required to pay union scale and make contributions to the union benefit funds for these drivers. Both ERISA and the IRC permit unions to maintain qualified plans.

Generally all pension benefits tax deferred under US tax law are US source income and are taxed upon withdrawal by a foreign employee. However, there is a US tax treaty with Canada which exempts certain retirement benefits earned by Canadian citizens from us taxation if the benefits are subject to canadian taxation. You should be able to find an IRS publication on tax treaties on the IRS web site. I dont know how the roth IRA will be taxed under US or Canadian tax law.

1. The documents would have to be provided to the IRS in a audit but under a provison forbidding the IRS from disclosing any information in acquires during the audit. 2. world wide pants (letterman) Harpo (oprah) are production companies owned by the performers which create and package a particular show for a TV network or studio which then sydicates/broadcasts/ distributes the show. The studio (CBS/ Fox) underwrites to cost of the show and pays the production company for delivery of the production. The studios are usually signatories to the cb agreement for the wages paid to guild members and contributions to the guild's health and pension funds. There can be many other production and supoort corporations involved in a typical production, each with their own terms regarding payment of pension and health contributions to the various unions and guilds. 3. If the production company is not part of the same controlled group as the signatory to the CB agreement with the guild I don't see how the production company would be subject to the multiemployer plan provision requiring aggregation. Legally the performer is an employee of the production co and not the studio.

you can add " or another officer designated by the board" to the end of your language.

Merlin: The questions you raise require detailed reading of various confidential documents such as the agreement between the studio and production company and the contracts between the actor/writer/director and the studio and production co., none of which are going to be made available just to answer the pension questions. Entertainment/movie contracts are drafted by skillful tax lawyers to maximize the ways to deduct income and avoid taxation. It is higly unlikely that the studio would employ the performer who can maximize tax benefits by being employed by a separate unrelated company that he/she controls. It is also likey that the pension contributions would be an obligation of the studio if the studio was employing guild members to produce a movie /tv show since the studio is a signatory to the cb agreement and there would be a separate contract between the studio and the performers production co for personal services of the performer. The cost of the pension contributions would be allocated to the studio. The production co would not sign the CB agreement.

First of all there is a beneficial result to employees because otherwise taxable wages are converted into pension contributions with the following impact : no 7.65 % fica withholding and the opportunity to accumulate interest on the funds tax free. The funds should be available to employees at any time after severance of employment from the county and employees over 55 have no 10% penalty tax to pay on withdrawals. I guess the question is whether it is better to have 100% deferral or pay withholding tax of 21.65% on the payments. As far as legality it is matter of state law as to whether your employer can transfer the vacation/sick pay to a retirement plan without the consent of the employees as well as any collective bargaining agreement between the county and a union representing the employees. The real question is who is going to pay for the cost of establishing and operating this plan? the county or the employees.

Need to review authority of officers to act on behalf of corp with counsel for corp. Most pension plans must be adopted, amended or terminated by Board action. In some cases officers can adopt a plan/ act as trustees subject to ratificaton by Board at a later date.

There is no procedure for terminating a 403b annuity plan because the plan has no assets to distribute. I dont know what you mean by distributions since the funds are held either in a custodial account or an annuity contract both of which are established in the name of the employee. Thus there is nothing to transfer to the employee. The annuity contracts/certificates are in the possession of the employee. I dont know if a custodian holding 403(B) mutual funds will distribute the assets to the employee. My understanding is that the custodial account will continue to hold the assets for the employee after the plan terminates. Check the custodial account agreement. Termination is more a procedure to cease employer contributions than to transfer assets. I am curious how forfeitures will be applied when a 403(B) plan terminates since there is no requirement that the participants be 100% vested upon termination. The only action required should be a resolution terminating the plan and a resolution stating what will become of forfeitures or provide for 100% vesting in all accounts.

Interersted in seeing the cites which require the aggregation of the multi employer plans with the employer plans since this is one area I have never had to explore representing employers. It has been my understanding that employers do not sponsor multiemployer plans but merely make contributions to them under the terms of the cb agreement. Also why cant writer/director/actor maintain separate plans for compensation paid by studio as an independent contractor or emplyee of service corporation not related to the union or studio and have separate 415 limits if production co is not part of the same controlled group with employer and is not a signatory to cb agreement with union?

Tara--- see prior thread on this topic by actuarysmith which appeared in Feb under church plans

I thought the starting point for determining 415 limits was the controlled group test which required aggregation of all plans by employers in the same controlled group. An employee could get maximum contributions in as many separate plans for as many employers who are not members of the same controlled group. E.g., an emplyee could be a corporate employee and still have a separate 415 limit as an independent contractor or employee of his own corporation for outside work. Each of the guilds you mention is a separate union and pension contributions are made under the terms of a vaild Collective bargaining agreement between the studios and each union for each stream of income paid to a member. Guild members may be compensated as independent contractors for their work as as writers, directors, or actors or they may be employees of their own corp. Need to review the applicable cb agreements and contracts between studio and writer/director/actor to determine employment status assuming that you will be give access to such agreements which is not likely. I am not aware of any rule that requires aggregation of benefits under a multiemployer plan with other employer sponsored benefits but I do not represent unions

Why not recharacterize the deferrals as made to a nonqualified plan and amend the tax returns for the open years since there is only an aggregate of $50,000. It seems that this will be the result if the IRS refuses to retroactively approve the adoption of the plan (as is likely since it violates all existing precedents) and the client will not have to incur extensive legal fees to prepare the case for the IRS. Maybe the investment bank has some liability to hold the client harmless if it can be proven that the bank was going to take care of providing the plan document but failed to do so. Your client needs to cousult counsel to review the options and liability issues. Also penalities for failiure to file 5500 may exceed the taxes due so there is no reason to file as qualified plan now since it would be cheaper to pay back taxes and interest. Other option is to freeze plan and adopt a qualified plan effective for 2002 (client could adopt a SEP plan for 2001 if tax return has not yet been filed) and take audit risk for future years which will be quite slim considering that IRS does not know that plan exists. However, tax reporting problem would arise when participant requests distribution from old plan.

Contribution can be limited to annual 415 limit and payment can be made in installments. There may be IRS authority for transfer- Under IRS reg. 1.457-4(d) an employee can contribute up to $11,000 in accumulated sick or vacation plan to a 457 plan maintained by a govt employer. Funds can be withdrawn before termination of employment. This proposal may have application to 403(B) plans maintained by NP employers where employees accumulate sick pay/vacation pay. Excess vacation pay/sick pay can be contributed to 403(B) plan as employer contribution to 403(B) plan with no fica tax up to 415 limit. Alternatively emplyee could elect to recevie the vacation pay /sick pay as wages and contribute it as a 403(B) SR contribution subject only to FICA tax and separate 402(g) limit .

Granting of a individual loans to an owner is not usually grounds to disqualify a plan since it would adversely affect non owner participants. It is a PT subject to the 15% tax. Since loans are now permitted to S corp owner counsel should review whether plan can make a legitimate loan to owner after owner pays off impermissable loan. Owner could use home equity loan or short term bridge loan to pay off impermissible loan from plan until new plan loan become available. I recall reading some IRS announcement regarding remediation of impermissible loans to S Corp owners and partners-- You should check IRS web site.

Just saw this post....Very interesting... There are two separate tax issues: 1. Can employer establish a qualified plan based on compensation deferred and never included in taxation? 2. Can the there be a tax free transfer of the sick pay and vacation days to the plan? I always thought that the amounts deferred under sick pay and vacation pay had to be included in compensation and there was an IRS ruling that prohibited tax free transfers of accrued compensation to a deferred compensation plan unless statutorily permitted. (e.g., an employee cannot make a tax free transfer of amounts deferred under a qualified plan to a 125 plan to pay retiree health insurance.) I queston how the funds could be transferred without the employees' consent-- my understanding of these plans is that they are subject to collective bargaining or state law and employer cannot take away rights to fufnds since employees are paid in cash for accrued sick and vacation days upon termination of employment. More Interesting question-- could the deal be structured so that employees agreed to forefit their accrued sick and vacation pay in return for receiving an equal amount of contributions to the 401(a) plan. Is this taxable as property payable for services under IRC 61 under an economic benefit doctrine?

yup see irc 72t, as long as you are employed by the employer from whose qualified plan you are receiving the distribution.

Thks. I wasnt aware of the PLR on Rabbi trusts I think the ERISA issue is moot now that the IRS has issued proposed reg 1.457-8(B) permitting employee direction of investments in NP plans. Otherwise there would be a circular result that permitting self direction for NP plans under 457 regs would result in the plans being deemed funded under DOL rules which would require the benefits to be taxed.

DB benefits only work for career service employees if the plan provides a final average benefit. Also most DB plans do not provide cola increases, so that after about 18 years purchasing power of the benefit declines by 50%. Finally the discounts for early retirement, cost of J & S annuity, etc. reduce the value of most DB annuities to ss benefits. In the corporate world DB plans are prized not because of the benefits but because the surplus is considered corporate earnings on the financial statements. Therfore it is in the sponsors interest to maximize return and minimize payouts which is why companies do not provide colas.

part. within 5 yrs of retirement should move most their assets to stable value funds, gvt funds and bond funds, not to other equity investments, to avoid market adjustment when they retire. E.g., people who converted equity account balances to annuities beginning on Nov 1, 1987 from DC plans sufferrred a big drop in monthly benefits because the value of their acount balance declined by 20-25 % as of Oct 31. I know a lot of people in their 50s and 60s who had 80% or more of their ret. funds and other assets invested in equities including er stock at the end of 2000. They refused to diversify their assets because they did not want to miss out on future gains.

DOL regs on SPDs state that participant is entitled to examine all documents governing the plan including cb agreements insurance contracts and 5500s. However, part. is only entitled to copies of documents governing the operation of the plan. Det. letter is issued to employer for tax deduction purposes and only approves form of plan not operation.