mbozek

Will they be able to return to the DB plan at the same level of accrued benefits that they left with or will their benefits be determined by the amount transferred from the DC plan to the DB plan-- in other words if they make bad investment choices their benefit level will be less after their return then it would have been had they not left? I cant believe that the employees can game the system but the Fla REtirement system did invest 300m in enron stock.

Isn't there a different rule in community property states where each spouse owns 50% of marital assets? The employee would not be taxed if the spouse receives the 50% marital property interest in the 457 plan.

They are easy to find. Met life is a party in all the cases.

Since the IRA owner died prior to April 1 when the RMD is required to be paid he never commenced benefits and the spouse can rollover the IRA to her own IRA without taking an distribution until April 1 of year following the year in which she turns 70 1/2.

Isn't the aggregation rule for tax years beginning 2002 restricted to businesses in which the 403(B) annuity participant controls more than 50% of the stock or profits. For tax years prior to 2002 there was also an aggregation requirement if the employee took special election C.

A QDRO could provide for the designation of an ex spouse as the irrevocable beneficiary of the LI policy in a qualfied plan-- The question is whether the policy premiums will continue to be paid so that the benefits will be available if the employee dies. The spouse needs to get copies of the premium notices to make sure the premium will be paid. There is case law where cts have issued qdros to require that the spouse be designated as the beneficary of group life policies.

Maybe I am missing something but where is the additional cash for the contribution in excess of compeensation coming from? Are you suggesting that the employee contribute out of pocket cash to the plan? Also as an accounting matter I thought the deduction to a DC plan is limited to the amount of compensation paid to the ee for a year.

While 403(B) plans are subject to Gust revisions there is no requirement that the plans be amended because a 403(B) plan are not required to be administered in accordance with its terms. The plan need only comply with the provisions of the IRC applicable to 403(B) plans. Most 403(B) plans are being amended anyway because the sponsors need some advice on the changes.

TOM: According to a post under nonqualified plans- insurance and bankruptcy in non qualified plans, surety insurance is no longer available for payment of non qualified plan benefits. It was never really available to nps since AIG only insured plans of credit worthy public companies (A rating or better) which were unlikely to go bankrupt. Also none of the products offered by the consulting houses that I have reviewed escape the basic requirement that the assets msut be subject to the claims of the employers creditors in order to avoid taxation to employees. Any of the other variations e.g., rabbicular trusts, always come with caveats that the IRS has not reviewed the product and could tax employees under theory that there was no risk that the benefits would be subject to the claims of creditors. The trend now is to do a serp swap to a split dollar policy like Ken Lay did in 1994.

Under IRS proposed reg 1.125-1 Q/A 2, a cafeteria plan is a separate written plan doucment under which each participant has the opportunity to select the benefits that he desires. The plan doucment may reference benefits established under other plans. See Q-3 for information required in the plan. An FSA usually has a provision allowing employees to make pre tax contributions.

According to IRS publication 721, the TSP is a 401(k) type program for federal employees. On P 15, the TSP is defined as a qualified retirement plan. don't see why the 402(g) aggregation rules will not apply to the TSP.

Under Reg. 1.408-7 IRA custodians/trustees (not the IRA owner) are responsible for tax reporting of IRA distributions on 1099R forms of all amounts distributed to both the participant and the IRS. The reporting is used by the IRS to determine any tax laibility. Of course, tax reporting of IRA transactions is subject to random audit by the IRS. A taxpayer who relies on a 1099 form issued by a custodian will not be liable for any penalites for substantial understatement of taxes if the return is audted by the IRS and reputable custodians will reimburse their customers for any interest or tax penalities arising from their own actions as a customer relations matter because they do not want to lose the customer's business. The taxpayer is only responsible for paying the tax assessed by the IRS. As a practical matter random audits of IRAs are extremely rare.

The question is what is permissible from an audit perspective--and it up to the custodian to determine what is acceptable under the tax law.

There are two ways of determining termination costs for a DB plan: on a current basis and a termination basis. Plans can be fully funded on a current basis (e.g., no contributions can be made) because the plan assumes an interest rate of 7.5% is needed to pay all plan benefits and the plan's actual return is in excess of this rate. But If the plan is terminated then the interest rate used to determine the present value used of the benefits drops to the PBGC rate for 30 yr bonds (which has recently been changed) which could be say 5.5%. This requires more assets and could result in the plan being under funded if all benefits are paid in cash. If annuities are purchased the interest rate may increase to 6.0% which will require less assets since the higher the interest rate the lower the present value needed to fund benefits necessary to terminate the plan. If the plan does not have sufficient assets at the time the termination is approved the employer will be required to contribute additional assets to pay out all accrued benefits.

Carol: Dosen't your uncertainty as to what is a correct course of action go to the heart of the question ---what is an employee required to include as taxable income? Since the calculation of excludible amounts under 403(B) plans is extremely complex the govt places the burden of reporting excess contributions as taxable income on the employer under IRC 6051--- not the employee. At no point in this thread has there been any explanation of how the the excess contribution was determined-- without a revised W-2 how does the employee know if an excess amount has been contributed (and cannot even determine if the excess was correctly calculated). It is possible that the employee may eligible for a special election which could reduce or eliminate any excess contribution. The excise tax is only due on an excess contribution. If no w-2 is issued how does a taxpayer know what is the excess amount to pay tax on? Finally I am mystified by your reference to ADP testing in a prior post since 403(B) plans are not subject to such testing.

This was an issue when Orange Co. Cal went bankrupt a few years ago. The Co maintained a 457 plan with about $170m in assets for all employees. The creditors of the Co wanted the funds. As I recollect the 457 plan took a haircut of about 10% of the assets to pay its share of the obligations due the creditors. This is why 457(B) plans for govt employers are now required to hold the assets in trust for the exclusive benefit of employees exempt from the claims of the employer's creditors. But 457 plans of nps are required to be subject to the NPs creditors. The risk for NP is the same as non qualified plans for profit making employers, as Enron executives are finding out.

Kristen: The tax liability for 2000 is income tax and 6% excise tax on excess contribution plus interest at AFR rate. The excess contribution will be treated as an after tax contribution. However this tax will be imposed only if the employee's w-2 is revised by the employer. Also check to see if employee is eligible for additional 403(B) deferral of $3,000 under IRC 402(g)(8) available to certain employees who can make special elections and have 15 years of service.

Iras are subject to voluntary 10% withholding and quarterly estimated tax payments. Failure to make minimum payments will result in penalty at AFR rate when tax retrun is filed.

The critical question is what do you mean by "failed to deposit"? Was the check placed in the bank's possession to be deposited into the plan's account on March 15 and the bank failed to negotiate the check? If the bank had a duty to deposit the check (which it should since it is the trustee) then the employer had done everything required in order to take the deduction and made a timely contribution. The Bank's obligation to negotiate the check is separate from the employer's obligation to make the contribution by March 15th. For example an employee can make a deductible IRA contribution as long as the contribution is mailed by April 15th to the IRA custodian.The date the custodian receives the funds is irrevalent. This is really an accounting/audit issue. The employer needs to talk to their accountant to see how the contribution will be viewed for deduction purposes.

Dont know whether the executor of the estate would have the power to recharacterize the Roth IRA. As a general rule executors cannot make tax free transfers on behalf of deceased owner- e.g., executor can't open an IRA for a deceased employee who received a lump sum distribution. Only income tax deduction is for amount of estate taxes paid which are attributable to the IRA- the amount is deducted from the amount of the taxable distribution from the IRA. If Roth distribution is not taxable then there is no benefit from estate tax offset.

You may be having a difficult time because there is no correct answer. First who are "they"? the TPA, custodian, employer?? Secondly the only consequence of over contributing to a 403(B) annuity is the payment of additional income tax by the employee (additonal FICA tax is required only if the excess contribution was an employer payment). Also if the 403(B) plan used a mutual fund there is a 6% excise tax. At this point the excess contribution cannot be reversed. Decreasing the 2002 contribution will not correct the additonal tax liability for 2000. But the application of the additional tax will be due only if the employer changes the employee's w-2 for 2000 to show additional taxable income. If no corrected w-2 is issued then there is no adverse tax impact to the employee and after April 15, 2004 there will not be any tax liability owed to the IRS unless the excess amount exceeds 25% of the AGI. If the w-2 is revised then the employee will have to pay the addional tax and can get reimbused from the employer/TPA for any penalities and interest because of the incorrect deferral.

There is one possible way that the transaction can be reversed: If the funds were rolled over to the spouse's IRA within the past 60 days, ask the custodian if the spouse could send the funds back to the deceased's IRA and have the custodian treat the transfer to the spouse as a taxable distribution and an IRA rollover within 60 days. This could take some negotiation with the custodian since spouse took a distribution from her IRA. The funds can be transferred to the daughters from the decedent's IRA without payment of the 10% premature distribution penalty. Payment will not eligible for a disclaimer since the spouse received a benefit from the decedent's IRA (e.g.withdrew funds). However lack of a disclaimer should not cause a gift tax problem-spouse will be viewed as making a taxable gift of $88k (100k- 22 annual exclusion for both donees) for which spouse has a life time exemption of $1m leaving spouse with a remaining gift tax exemption of 912K and no gift tax liability for transfer. If above scenario is not doable spouse could disclaim 100k on other property owned by deceased (assuming that 9 months has not elapsed since death and disclaimer requirments of 2518 are complied with). Real question is why didn't spouse retain counsel to advise her on how to avoid this mess.

My understanding from statements attributed to IRS EP persons a few years ago is that the IRS will not provide standardized language for age weighted plans for m-p sponsors because they did not want to encourage the adoption of such plans. The IRS feels that an er who wants to adopt such a plan should pay for the drafting and approval of such documents. Appearently the IRS feels that such plans facilitate the allocation of assets to HCEs.

Why not either (1) allow employees to waive contributions under the terms of the plan, (2) tell employees that they can make a charity of their choice the beneficiary of their benefits under the plan or (3) create a classificaton that excludes employees whose religious conviction prevents the making of contributions on their behalf- as long as the plan covers a non discriminatory group it should not be required to provide a benefit in violation of an employees religious beliefs.

Under the amendments to IRC 408(d)((3)(D)(A)(ii) there can be direct rollovers from an IRA to a qualified plan, 403(B) annuity or 457 plan except for any after tax amounts in the IRA. Since Congress clearly excluded only after tax amounts in an IRA there is a definite intent to permit all other transfers between IRAs and employer sponsored plans without restriction.