mbozek

Joel: You answered your own question. If the separate accounts are not Variable Annuities or mutual funds that are regulated investment companies under IRC 851(a) they can not be used to fund a 403b plan.

What do you mean by a separate account? 403b planscan only be funded by mutual funds or annuities. Are the separate accounts variable annuities? Are you saying that the SD wants to use the separate account in the 457 plan to fund the 403b plan? If so who will maintain the account currently in the 403b plan? Will the 403b accounnts be frorzen without allowing for any new contributions? Who is the investment provider? an insurance Co, brokerage, etc? are record keeper and plan administraor related to provider? This seems like a rather complicated exercise which will benefit few employees. If the SD employees are satisfied with the 457b plan then they can contribute 17/22.5k to that plan. Very few SD employees will be able to contribute twice that amounte to both plans.

I understand the argument, but don't necessarily agree with that. A loan offset is, by definition, a taxable distribution. It still boils down to who is the taxable distribution to. It appears to be just as consistent in saying the taxable distribution is to whomever's balance is being offset. So, when the beneficiary inherits the account, the offset will become a taxable distribution to her (or he/she can actually roll it over either to an inherited IRA or traditional IRA if the spouse). They can, however, disclaim the entire account (presumably to the participant's estate), but I just don't see where you could cherry pick different assets to different beneficiaries. I do see the argument, though, and am much appreciative. I would've never found it Good Luck! If the IRS wants to impose a uniform rule that the imputed value of the outstanding loan balance is to be taxed to the beneficiary of the retirement benefit they can do so. It is to be noted the the 72p regs do not define who is taxed on a loan default due to death of a participant. Until the IRS clarifies the rules the plan can elect to declare the imputed value of the loan taxable income to the estate of the deceased taxpayer. While partial disclaimers of property transfers are permitted under IRC 2518 I dont know why a plan would require a beneficiary to excute one since the IRS doesnt care who is taxed on the imputed value of the outstanding loan. The reg cited above is substantial authority that the beneficiary is only taxed on the participant's accrued benefit after the outstanding loan amount is subtracted.

Why not discretion? Whiile plans provide for distribution upon specified events, plans dont define who is the party who will be taxed in every event. For example plans provide that MRDs must be made after death of the participant but do not specify who must recieve the payment (can be estate or beneficiary). I dont think many plans have specific language designating who will be taxed in the event that a participant dies with an outstanding loan. As noted above in one case the beneficiary has asked that the loan be included in the distribution amount.

The following quote is take from assigning and loaning plan benefit funds by Paul Hamburger, Thompson Publishing group, P 101 "Death of the Participant Another common default event is the participant's death. Plan administrators are often unsure how to deal with plan loans that are outstanding on the participant's death. One relateively simple approach is to reduce the participant's benefit on death by the amount outstanding on the loan. The beneficiary then receives the balance of the participant's benefit. This approach appears to be contemplated by IRS regulations [citing Reg. 1.401(a)-20 Q/A 24(d) which provides that the accrued benefit payable to a spouse under the QPSA and QJSA shall be reduced by the security interest outstanding on a loan to the participant at the time of death or payment, if the security interest is treated as payment in satisfaction of the loan under the plan. A plan may offset the participant's loan outstanding at the participant's death which is secured by the participant's interest in the account balance against the spousal benefit required to be paid under IRC 401(a)(11)(b)(iii)]. The tax consequences of this approach appear to be that the participant's estate is taxed on the amount outstanding on the date of death and the beneficiary is taxed on the remaining portion of the account." Other sources cited are PLR 8103063 and Shull v. Stone Machinery Co. PS Plan, 836 Fed 2d 306. It appears that there is no IRS policy on taxation of plan loans at death other than that some party, e.g., estate of participant, beneficiary, etc must be taxed on the amount of imputed income on the outstanding loan balance. It is up to the plan administrator to decide who will be taxed.

I moved this question from plan termination site to see if the actuaries can provide an answer.

Joel: Termination of the 403b plan will create new issues. reg.1.403b-10(a)(1) in certain cases prohibits employer from establishig a 403b plan for 12 months after distribution of all assets from the terminated 403b plan. I dont know what you mean by transition assets to a new 403b plan. 403b plan termination requires benefits to be distributed upon termination either in a lump sum or annuity. Employer cannot transfer assets to new plan. Finally counsel to the school district would need to review whether DC plan has the authority to establish a 403b plan under local and state law.

Joel: Unfortunately I was doing something else and did not post my response before your email arrived. You need to ask the IRS as to whether a public sector deferred compensation plan is considered a PERS under RR 82-102 since the IRS administers the tax law.

I think the question took a detour when the old IRS rev rulings were introduced which caused a digresson of their historical relevance which is nada. While posters agree that any party other than a plan participant can be the administrator of a 403b plan the OPs question was could a 457 plan be the administrator which is a rather vague term. Reg 1.457-2(k) defines a plan as any agreement between an eligible employer and participants under which payment is deferred. A gov. 457b plan operates through various entities such as the custodian or trustee, mutual funds, insurance co, TPAs, etc who would have to agree to be the administrator of the 403b plan.

Outstanding loan balance is taxed to the deceased's participants estate b/c he had legal obligation to pay off the plan loan. Beneficaries can only be taxed on the benefits they receive from the plan.

IRC 414(p)(12) allows the tax free transfer of NP 457b accounts pursuant to a QDRO. However, ERISA 514(b)(7) authorizes the transfer of the employees interest to the ex spouse under state divorce laws that would otherwise be preempted.

reg 1.403b-3(b)(3)(ii) provides that a plan may allocate responsibility for performing administrative functions including the functions to comply with the requirements of 403b and other tax requirements. Any such allocation must identify responsibility for compliance with the requirements of the IRC that apply on the basis of the aggregated contracts issued to a participant under the plan. A plan is permitted to assign such responsbilities to someone other than the employer but not to participants (other than employees of the employer a substantial portion of whose duties include administration of the plan). Plan may incorporate by reference other documents which become part of the plan. Thats all there is on who can be a plan administrator. A 403b administrator is anyone who agrees to perform some or all of the duties of the administrator other than the plan participants themselves. There is no reason to go back to IRS rulings that have been revoked.

So, where does that leave us since the Top Hat Plans are exempt from ERISA? Where did you get the idea that top hat plans are exempt from all provisions of ERISA? As noted above top hat plans are only exempt from parts II, III and IV of ERISA. They are subject to the Reporting and disclosure requirements of Part I and the claims provisions of part V. Top hat plans are subject to QDROs because most courts have decided that the QDRO provisions apply to all ERISA plans, not just pension plan subject to non alienation provision of ERISA 206.

Funding under a trust is not required in order to be subject to QDRO. 457b plans are considered to be exec comp plans and exec comp plans have been held to be subject to the QDRO rules (even though they are pension plans exempt from parts II, III and IV of ERISA) because they are subject to ERISA 514(b)(7) which provides that QDROs are not exempt form ERISA preemption. see Bass v. Mid-America 1995 WL 622397 (Exec comp plan subject to QDRO) and Met life v. Wheaton 42 F3d 1080, which held that the QDRO provision applies to all ERISA plans (eg., LI) not just pension plans. Need to check the law of the Federal appeals circuit to determine if Exec comp plans are subject to QDRO rules or if LI benefits are subject to QDRO rules. Only top hat plans are exempt under ERISA from QDRO rules.

Escheat may not be in option because many states will not accept assets from a plan subject to ERISA because of the preemption issue. There are many reasons why the participant cannot be located such as death, departure from US, change of identity, etc. Does plan permit forfeiture of benefits if participant cannot be located? Under PPA there was suposed to be an option for terminating DC plans to transfer assets of missing particpants to the PBGC but I dont know if there has been any implimentaton of this law.

CO is one the few states that recgnizes commmon law marriage as a legal marriage under state law. See link to artilce. No formal commitment ceremony is required. The rules are fuzzy and subject to interpretation. Note that CL marriage is subject to DOMA. http://www.colorado-family-law.com/colorad...aw-marriage.htm CO Common Law marriage is valid for all purposes including divorce which means that the parties are eligible for benefits of married persons under the employer's plan unless common law marriage is expressly excluded which would make for an interesting question of whether such exclusion is discriminatory under federal law.

Sorry for your loss. You are going to have to take a proactive stance and not let the "company" control the process because the people who you are dealing with now are drones who read from a script. Is the company the employer or an insurance company or mutual fund? You can take this stance because you are the executor of your husband's estate and have certain authority under state law to get information regarding his assets. You should consult an attorney who specializes in wills and probate matters. How you will proceed depends on whether the plan is subject to ERISA or state law. If you husband worked for a governmental entity such as a public school then state law applies. If he worked for a non profit organization the plan may be subject to ERISA which is a different law or may be subject to CA law. The plan adminstrator will know which law applies. In order to protect yourself you need to take immediate action. I would suggest that your attorney send a letter to the provider and the employer notifying them that you are the surviving spouse of the employee and you are reqesting a claim form so that you can submit a claim for benefits. I would include a copy of the marriage certificate. Sending this letter will escalate your claim beyond the drone level to someone who will take your claim seriously, probably an attorney which is why you will need your own counsel. It will also stop any claim filed by the ex from being paid. Dont answer any of their questions. As executor and trustee you can demand information about the account from the provider that can help you identify your ownership rights such as whether the plan is subject to ERISA. 1. If the plan is subject to ERISA the plan administrator has to review your claim and either accept you claim or reject it in writing within 90 days. If it is rejected there must be a reason based on the terms of the plan. You have the right to obtain the SPD and plan document for a nominal charge which will define who is the spouse. General rule is that surviving spouse is the automatic beneficary except in 2 situations- if spouse waives the benefits or if the plan requires that the parties be married for at least a year. Most plans omit the 1 year requirement. If you meet the requirement for a spouse then you will be paid regardless of who your husband designated as beneficiary which means you will probably get 100% of his benefits. (There are complicated rules for cetain types of plans that may limit you to 50% of his benefit.) 2. If your plan is not subject to ERISA then CA law governs which is another reason you need an attorney. I dont think CA revokes the retirement beneficary designation of a spouse after divorce but you need to confirm this. In any event as the surviving spouse in a community property state you are entitled to 50% of the community assets. Your attorney will advise you of your rights and your share of the benefits in the 403b plan. In any event you need to speak to an attorney as the information I have provided cannot be relied on as legal advice. Edit: One other possibility is that the ex spouse/children were designated as the beneficiaries when your husband was divorced. Information on their rights to the 403b benefits, if any, would be in the divorce decree and a document called a QDRO "Qualified domestic relations order".

Assuming that there is a PT (and I am not concluding there is a PT) what do you plan on doing with this information? Telling the IRA owner that his IRA has been DQed and the $100,000 is taxable income as of some prior year? Or informing the client that the arrangement has to be stopped and the paper trail buried?

That's more of a tricky question than most would think. The answer is a "cautious" maybe. If the subpoena is validly issued, was properly served upon your organization (and that includes actually making your organization the reponsible party pursuant to the subpoena (I've seen the "plan" being the entity served with a subpoena, with the TPA expected to comply - which it isn't), and you actually, as a service provider have the data being requested (and not that you can go and get it), then yes, you must comply. BUT, the subpoena can't make you obtain data not within your area of responsibility. For example (and this just came up with a TPA that I work with), a subpoena that requests participant level information over a specified period of time, including transaction details, was not valid with respect to the TPA because they don't deal in participant level information (even though they could get that info from the recordkeeper). That subpoena should have been directed to the recordkeeper, and we (properly, and politely) refused to comply (letting them know where the info could be obtained). I certainly would suggest that it be run by counsel, and the plan sponsor/fiduciary for the plan involved. Regardless of who is resonsible for providing the information requested in the subpoena, the bottom line with child support enforcement orders is that the employer is liable for any payments that are not withheld by the pension plan. Need to consult counsel to find out what happens if the failure to provide information results in the state agency not collecting the funds owed. However child support orders are only enforceable if benefits can be distributed.

While the trust may be able to recover the taxes withheld from the foreign nation's taxing authority, the accountant's fees for preparing the foreign tax return will usually exceed the amount of taxes withheld. This is why it is better to hold foreign securities in a taxable account where the amount of taxes withheld can either be taken as an itemized deduction or a tax credit against US tax.

MOJO I am limiting my response to the following two statements in your last post. 1. Patterson v. Schumate did not hold that the ERISA nonalienation provision preempts the bankruptcy code provision that allows certain assets of a debtor to be included in the bankruptcy estate. The Court held 9-0 that section 541©(2) of the bankruptcy law which exempts property of a debtor subject to a restriction on transfer enforceable under non bankruptcy law includes property held in a trust which is subject to a non alienation provision of federal law, i.e., ERISA, instead of just state law restrictions. Some lower courts had held that the 541©(2) restriction on alienation only applied to restrictions that were required under state law. The Supremes held that the nonalienation restriction required under ERISA contained in the retirement plan constituted an enforceable restriction on transfer under 541©(2) which excluded the pension benefits from the bankruptcy estate. There was no ruling that ERISA preempted another federal law which is expressly prohibited under ERISA 514(d). 2. While there may be a few exceptions to the rule that a murderer of an insured can not receive the benefits, "state laws prohibititing murderers from receiving death benefits are relatively uniform". Mendez-Bellido v. Board of Trustees of Divison 1181, 709 F.Supp 329 (1989). Footnote 3 of the decision cites a exhaustive list of 48 st. court cases that denied LI benefits to murderers. Only two cases allowed payment to a murderer, and one was before state law was amended. 3 other cases allowed payment in the case of minor or if the conviction was for manslaughter. The Mendez court also noted that federal courts construing the provisions of the servicemens group life insurance law have had consistently held as a matter of federal law that a beneficiary convicted of murdering an insured is precluded form receiving the insurance benefits.

Retirement benefits can be attached pursuant to a St court order of restitution under a generally applicable St. criminal law which is not preempted by ERISA. State v. Pulasty, 612 A2d 952 (NJ App 1992). Also there are numerous federal laws which permit attachment of retirement benefits as seizure or restitution since ERISA does not preempt any other federal law, e.g., income tax IRC 6334; collection by the US as a judgment or fine under Federal Debt Collection Procedures Act, 28 USC 3001 or Mandatory Victims Restitution act, 18 USC 3613(a) and ©, US v. Novak 476 F3d 1041 (2007); property resulting from illegal drug acts 21 USC 853; payment of outstanding child support, 42 USC 666(b)(8). However the Fed gov. right to collect the benefits is no greater than the participant's right to receive benefits under the plan. US v. Novak, 1061. Benefits can be seized when participant requests a distribution. US v. Tenzer, 986 FSupp 361 (1997). Also ERISA benefits can be seized after payment if employee is in prison. Wright v. Rivland, 219 F3d 905.

Simple answer to question of whether participant can be ordered to pay plan benefits to employer as part of a criminal sentence or as a condition for lesser sentence: 1. ERISA does not preempt state criminal laws. Therefore judge can order payment to be made from plan benefits. 2. Employee can request a distribution and assign check to employer. Employee will be taxed on the distribution. Spouses who kill the employee are automatically disinherited from receiving the employee's pension benefits under the equitable principle that a wrongdoer cannot benefit from their own wrong. There are cases under ERISA that apply this principle.

The PA 40 instructions state eligible employer plans can but do not necessarily include employer sponsored deferred comp plans; pension or profit shaing plans, 401k, thrift, thrift saving plans and employee welfare plans. Employees are supposed to ask the employer if their plan is an eligible employer plan which is highly unlikely if the employer does not do business in PA. I dont know how PA could even audit the pension distributions. There is nothing in the instructions that limits the exclusion to PA domiciled employers or state gov plans as NY does (NY exempts all distributions from govt pension plans from state and City income tax and exempts private plan, IRAs/403b/457 plan distributiions up to 20k per taxpayer). I think there are constitutional prohibitions against limiting the exemption for private plans to state domiciled employers as an impediment to interstate commerce under the US constitution, not to mention being politically impossible.

I was not aware of this, but was curious. Can you provide details as to whether age 59 1/2 is the only exception? Or, does it also extend to death or disability? Good info! Thanks Google PA income tax forms and look for PA-40 instructions. See P 12 or so. Actually any payments received after qualifing for retirement or death under a qualifying employer plan are exempt. Its only IRAs that are taxed prior to 59 1/2. Another quirk is that a direct rollover from a Q plan to a roth IRA is taxed but a direct rollover from a Q plan to a traditional IRA is not. Taxpayer can do tax free rollover from TIRA to roth IRA to avoid PA tax. go figure.