mbozek

A-penalty may be waived by IRS for reasonable cause.

One other option to consider if the client is agreeable and will pay for the cost is to request a conference with the IRS. Its a gutsy move in the absence of a written response from the IRS but it may be the only way to move them off the dime. If they refuse a conference then you are creating a record that they are being unreasonable which is one of the 10 deadly sins in the new IRS- by the way what does counsel think about this?

Try Rev. Rul 91-4. See also PLR 9107033 for deduction of excess as contribution for current year. Also see tax facts Q 365.

Under ERISA 403©(2) a mistake of fact also includes excess contributions which exceed the deductible amount and contributions to a plan which fails to qualifiy under IRC 401(a) provided that the contributions are refunded within one year of deduction.

After watching last night's episode of the West Wing I think it is time for me (Josh) to sign off on this thread.

No it is not an employer provided benefit exempt from taxation. Welfare benefit plans under ERISA are not automatically exempt from income taxation unless the benefit is statutorily exempt from taxation under IRC.

Under ERISA 403©(2) plan can refund excess contribution within 1 year of deduction under mistake of fact rule. Plan should be amended to permit refund. All well drafted plans contain a mistake of fact clause.

Shelton: Must reverse the stock trades and convert proceeds to money market fund. Question is tax liability. Trades made in 2002 can be reversed as a recission in same tax year- Prior years stock purchases may result in all contributions for such year being considered taxable income subject to income tax but employer will have to issue revised w-2 for such year. Gain in excess of contribuion will be considered part of an annuity contract under IRC 72. s/l will prevent income tax to employee for contributions more than 3 or 6yrs old. Employer could be liable for failure to withhold tax although there may not be any penalty for understatement. Amounts treated as ineligible contributions will be after tax amount in 403(B) plan. Need to get tax advisor to review proper course of action/options for each of the parties, eg., employer, custodian, etc.

When were the trades made into stock? 2002, 2001, earlier?

What is the new office? Is it just another IRS office in another part of the country or is it in Washington? Your best shot at getting a resoluton of this matter is to get the agent to commit to resolving the case. See if you can get a letter from the Agent stating that he/she will get back to you in 90 days. The IRS is now required to repond to taxpayer inquiries. It may be the people you have been dealing with don't have the expertise to deal with your plan's technical question and keep throwing the file on the bottom of the plie.

What does the plan document say? Why not refund the money as a mistake of fact?

In order to avoid constructive receipt under IRS rules, the employee's selection of investments would have to be subject to approval by a plan representative/admin. If employee had sole control of the investments then employee had gross income in year that the contribution was made to plan.

IRA cannot invest in S-Corp Stock. Rev. Rul 93-73.

Elayne: Was the 403(B) annuity benefit divided into separate shares for each participant by the owner?

The trust requirement applies only to public employer plans. Assets of NP plans must be subject to the claims of the employers creditors.

STL: My reference to W-2 was based on the facts which indicated that the 2000 contribution could not be distributed. Therefore there is taxable income for the excess salary reduction contribution. I agree that there would be a need to file an amended return once the appropriate revised reporting statement is filed with the IRS if there is an excess contributon. I think my point is that until the revised W-2 is filed there is no obligation by a taxpayer to file an amended return because there is no additonal income to report. It is only after the revised form is filed that that tax payer has notice of the additional income and can decide whether it is correct or can be contested. It is possible that the employee can exclude the excess contribution under a special election.

I think the employee is reinstated immediately into the plan as 100% vested in a 0 account balance. The forfeiture under rule of parity is only applicable to the account banlance before a bis-- not the vesting %. I would read the vesting provisions of the plan to confirm this but I would be surpised by any other answer. I

Floor offset plans still exist only now they use ESOP or MP benefits converted to an annuity as the offset to the DB plan benefit.

By the govt obviously--- Since the Gov is going into a deficit condition due to the events of the last year (and drawing down on SS trust funds) there is no way Congress will approve additional incentives to reduce income taxes for high income persons who got their just rewards in last years tax law. Second under Congressional Budget rules all proposed tax legislation is "scored" by the Joint Committe on Taxation to determine its revenue gain /loss over the current year and the next 9 years. Any revenue gain beyond ten years is ignored as too speculative to be calculated ( Remember 1 year ago the govt was going to have a $5.5T surplus over the next 10 years).

PJ: You are obviously unwilling to read the cases I cited which dispose of all of your arguments. The courts recognize the difference between a fiduciary who has discretion over plan assets or administration and a non discretionary trustee who has only ministerial responsibility to follow the instruction of the fiduciary. As for the intention of Congress controlling how ERISA applies, 200 years ago John Marshall said " It is the exclusive province of the Judical Branch of Government the determine what the Law is." Marbury v. Madison. The trust documents also contain provisions which allow the trustee to rely on instructions received from a fiduciary as being in accordance with ERISA and the plan and relieve the trustee of the need to get an opinion of counsel when instructions are received. Finally you seeem to be unaware of the financial operations of pension plans. Every day billions and billions of dollars are transferred to and from ERISA and non ERISA plans by computers at the speed of light using account numbers and activity codes withhout any human intevention or oversisght. You may be surprised to know that pension plan funds are tranferred every day though off shore banking entities in legitimate transactions.

Under ERISA section 3(21) a fiduciary must have discretion to act with respect to plan assets. A directed trustee without discretion is not a fiduciary under ERISA. Beddall v. State Street Bank and Trust, 137 F3d 12. Your Sgt Shultz claim was considered and rejected in O'Toole v. Arlington Trust Company, 681 F2d 94 in so far as a directed trustee is concerned. There is no liability under ERISA for a directed trustee who follows instructions of a fiduciary. A directed trustee become liable under ERISA only if the trustee makes discretionary decisions regarding the plan or its assets in violation of its ministerial duties.

I think you are mixing your metaphors. First some of the parties u name as defendants are directed trustees who only followed the directions of the fiducaries. Persons who perform ministerial duties are not liable as fiducaries. AA is broke and anyway participants will have to stand in a long line of general creditors and other investors. It is already known that AA cannot payoff the liabilities of all claimaints even if they can penetrate the LLC veil that AA was organized under. The fiducaries can always declare bankruptcy which as I understand under Texas law is very generious. The individuals who you allege misled the participants will be sued under the securities laws and participants will have to share their meager assets with the other investors after they declare bankruptcy. The liability for the blackout period is still only $4 a share for the stock in the 401(k) plan and the participants will be merelyjudgment creditors in bankruptcy ct. The argument about why employees did not sell is applicable to all investors not just participants since it is a violation of the securities laws to give false or misleading information. Please tell me where the funds are to pay the claims of all the investors. The only possible way to collect would be if Enron was allowed to continue as an ongoing co whose stock would be owned by the investors--- but there are not enough assets to pay off all of the creditors which means that the individual investors will get nothing.

there is no govt regulation of these programs.

The settlement value in the Enron case is nada since the company is bankrupt and the employees are either unsecured creditors or equity investors. The only possible source of settlement funds are fiduciary insurance and the personal assets of the fiducaries which is not much considering the $1B in claims. The potential liability for the lockdown is limited to $4 a share for the 57% of plan assets that were invested in Ene stock. Also the employees did not rush to sell the stock after the blackout was lifed which is a strong indication that they would not have sold even if there was no blackout. This case reminds me of the Unisys litigation of 10 years ago after Executive Life went bankrupt. After 4 decisons it was held that there was no breach of fiduciary duty for putting 20% of the assets of a GIC fund into exec life policies.

I am not sure of what u are saying. Is your point that a fidcuiary is always vicariously at risk for imposing a blackout period in a 401(k) plan if any participant's investments decline? Or are you saing that a fiduciary cannot impose a blackout period if the stock is on a downtick immediately prior to the start of the blackout? The Enron situation is also a securities law issue as well as a Fiduciary issue because the fiduciary could not call off the blackout period based on inside information that the fiduciary may know about Enron's financial situation. I have never heard of a fiduciary being sued because a blackout being imposed and if your theory is true under what circumstances could a fiduciary ever impose a blackout period to improve plan investments, features and lower costs all of which are part of a fiduciary's duties. What would be the standards to determine if there was a breach? I am not sure that a fid would need the 404© defense in imposing a lockdown. Finally if this is such a problem why not have the sponsor amend the plan to impose the change in investments as a settlor decison not subject to the fiduciary rules.