mbozek

They should be included as assets on the NPs books and records the same as any other NP assets such as bank accounts, because the NP is the owner of the assets. However, there may be some reporting requirements of the deferred compensation on the NP's 990 form if the NP is required to file with the IRS. Check with the NP's accountants. Also 990 forms are public documents that can be obtained by any person upon request.

Belgrath- well you are right about friday and that we can agree to disagree-- The IRS is required to issue regulations which are consistent with the statute. The G-3 reg is not only inconsistent with the language of 401(a)(9) but treats taxpayers who roll over their distribution in the year they turn 70 1/2 differently from those who do not. As to your reason that the administrator has only to follow the mininimum distribution regs I ask what regs.--- The reason participants want a full rollover is that many plans required higher minimum distributions under the old regs which are not applicable to IRAs. Also some custodians require withholding in sucessive transfers for the very same reasons u used to justify the initial witholding. Finally the whole procedure is a farce because informed participants can avoid distribution by rolloving over the minimunm distribution without any penalty since they are acting in accordance with the law. I would not worry about fighting the IRS on this issue because proposed regs are not enforcable under the law and cannot be used against a taxpayer. but I enjoyed this discussion.

Belgrath I see your point but: 1. the reg u cite is inconsistent with both the statutory language of 401(a)(9) as well as the B-1a reg I cited which only require that the plan distribute the account balance to the participant by year that 70 1/2 is attained, 2. the G-3 reg leads to absurd results if the participant makes more than one transfer in the same tax year because each transfer would be subject to minimum distribution requirements in violation of the 401(a) (9) regs requirement and (3) is totally irrevalent to the purpose of tax administration because the participant can take the mandatory distribution amount (and 20% withholding) and roll it over to an IRA until April 1 of the year following age 70 1/2. It seems that most advisors and the IRS have become too focused on the administration of complex rules to deter legal tax avoidance instead of focusing on the only purpose for statutory compliance: that the mrd be distributed by required distribution date. The taxpayer has a perfectly legal right to defer payment of the MRD until that date under 401(a) (9). The G-3 reg does not prevent this; it just requires an extra step by the taxpayer.

It is more properly a matter of state law --whether a property interest can be assigned by the owner. In most IRAs the beneficiary becomes the IRA owner upon the death of the IRA owner and is entitled to all of the rights of ownership, including the right to designate a beneficiary. Need to review the provisions of IRA custodial agreement to determine the extent of rights. This rule does not apply to payments under an annuity contract which is subject to the payment option selected by the IRA owner. Finally payment under a trust which is the beneficary of an IRA will be made under the terms of the trust.

There is no correct answer to your question. This problem is the result of two contradictory provisions in existing IRS regs. First Reg 1.402c-2(B) states that an eligible rollover distribution cannot include an amount subject to a minimum distribution. Presumably a person terminating employment in the year that age 70 1/2 is attained is required to make a distribution for that year. However, proposed IRS regulations on minimum distributions 1.401(a)(9)-1B-1A states that the mimimum distribution requirement can be satisified by distributing the entire interest of the employee by the required beginning date. The transfer of a participant's interest under a direct rollover is recorded as a distribution for tax purposes under a 1099. This should allow the tax free rollover of the entire lump sum to an IRA. The participant has until 4/1/02 to take the minimum distribution. This issue is significant to the participant who would prefer to earn tax deferred interest on the minimum distribution as long as possible. Plan administrators are concerned because of the risk that the plan could be disqualified if it allows the participant to rollover a minimum distribution. Plans avoid the problem by paying the minimum distribution to the participant directly, less 20% withholding and rolling over the balance of the account to an IRA. The participant then takes the minimum distribution check and rolls it over to the IRA and waits until 4/1 to take the minimum distribution and everyone is satisified, sort of.

Concern # 1- Not a problem since IRS rules allow a PS plan to defer contributions for 5 consecutive years before discontinuance for failure to make contributions. See IRS guidlines on plan terminations. Concern #2- Maybe a partial termination but only consequence is that affected participants must be 100% vested. Since participants have up to 5 years of service (97-01) this should be no big deal.

Tom: deductible contributions are permitted to an IRA after age 70 1/2 is reached if the IRA is used to fund a SEP or simple plan. Qualified plans cannot restrict participation by employees after the minimum age for participation in IRC 410(a) is attained. All 403(B) plans must permit participation for salary reduction for all employees (except certain students) who contribute $200 or more without any age or service requirement.

Zoom: who are you asking this question on behalf of?? the plan administrator or one of the spouses? The PA for Plan B cant do anything until a domestic relations order is presented then it must follow plan procedures to determine whether the dro is a QDRO. My experience is that most dros drafted by divorce lawyers fail to meet the requirements for a QDRO and the atty for the plan has to revise it. As far as what the the rights are, the PA is required to follow the terms of the order -- if the terms are not clear or violate the plan's terms then the dro can be rejected by the PA and the parties can revise it. If the terms are clear and the dro meets the requrements fro a QDRO then the PA divides up the pension in accordance with the ct order. The argument that Plan B was not marital property is a matter to be determined in the state divorce action since ERISA does not preempt state divorce law. The Plan is not a party to such actions and the PA has no discretion to review the cts findings of the division of marital property and must adminster distributions in accordance with the QDRO. There are several dol opinion letters(92-17A, 94-32A, 99-13A) that describe the PAs duties in reviewing dros.

Long long ago in a galaxy far far away the IRS would not permit a retirement age less than 55 because distributions were supposed to be on account of retirement and employees did not retire before 55. Then the IRS relented and said that they would accept plans with retirement ages of less than 55 if it could be justified by the business of the sponsor (e.g., plans for tennis players whose careers end before 35). I dont know what the current policy is now since most people roll over funds upon termination. Check the alert guidelines for plan retirement age?? The only reason for the IRS to restrict low retiement ages may be to prevent an increase in deductible contributions in DB plans because the period for funding is reduced. But u need to check with an actuary.

yup

I agree except that if the agent wont understand reason the client may not understand why it should pay for the time spent trying to convince the agent of the error of his/her ways if the plan is not affected by superfulious additions. Its a judgment call to be made after consultation with the client.

There are only three ways to handle this problem: 1. argue with the agent and try to get him him/her to understand why the requested provision does not apply- usually this is fruitless because the agent has a checklist which must be filled in and cannot check off n/a because his supervisor must review it. 2. ask to speak to the agent's supervisor which will not make the agent very happy and may not get you anywhere- at the best you have now wasted double the amount of time in 1 above, nothing has changed and two IRS agents are annoyed. 3. give the agent what he/she wants as along as there is no harm to the plan's operation. Make a note of the fact that these provisions were required by the agent in case another agent questions you in the future. This usually works best because it involves the least amount of time and energy. The extra time can be spent having a drink while contemplating how ridiculous this entire process is (if u dare to think about it).

Why not US taxation? 401(k) distributions to a Canadian are US source income subject to US income taxation. Under US- Canada tax treaty, distributions payable to Candaian citizens from US plans may subject to 15% withholding. I dont believe the payments are exempt from US taxation. Need to check IRS publication on US tax treaties to determine taxation of benefits. Its on IRS web site.

To Jarhead: as a former squid I can affirm that the Navy is no different.

As you note, the duty of consistency only applies to same taxpayer who causes the act to occur and subsequently tries to benefit from it. Duty of consistency does not apply where the act causing the omission of income by taxpayer A is the result of taxapyer's B's independent actions. See King Estate v. Comm, T.C. Memo 1984-343. (Failure of partnership to allocate accrued income to partner in prior tax year did not prevent partner from treating income as non taxable after s/l had run.) The failure to include 457 benefits as income was not due to employee's "error or omission" since employee relied upon incorrect advice by plan representative that by not setting the date the distribution could be deferred. Under IRC 6051 employer has legal duty to deliver W-2/1099 to employee -- employee has no obligation to request 1099 or determine whether it should be issued. The failure of the payor to report the income in year it was constructively received is not attributable to the employee any more than the employee would be liable if the employer incorrectly understated wages or income on the employees W-2.

On review of your question what is the the cross testing applicable to? Employer matching contributions are subject to ACP testing under 401(m). Also new x testing rules will reduce the ability to vary employer contributions. Some 403(B) annuity providers will provide the necessary services for their clients. Try TIAA-CREF.

There is another alternative available for aggressive taxpayers. Under case law the income is taxable in the year the amount was includible as income, regardless of whether it was reported as taxable to the employee. If the statute of limitations for collecting taxes in the year the amount was includible as income has expired then the IRS cannot levy taxes on the amount. The taxable distribution is treated as after tax monies. If you want to pursue this option then you should consult a tax advisor because the taxpayer has the burden of proving that the amount was includible as income in a year for which the s/l has expired. Otherwise you can treat the distribution as taxable in the year you receive it.

Cross testing is an appropriate way of complying with the non discrimination rules applicable to 403(B) plans since employer contributions are subject to the nondiscrimination rules of IRC 401(a). There is no such thing as a protoype 403(B) plan because the IRS does not issue determination letters for 403(B) plans. Client needs to hire cousel or use 403(B) plan provider that will design formula for crosss testing.

Where is the authority to take the back contributions out of the employees's salary? Some states limit the amount of a deduction that can be taken out of an employee's salary. What does the plan say about enrollment? Why should the employee pay for the enrollment failure? Why not just make the contributions from the date the employee is enrolled and forget about prior contributions?

Kirk: according to case law, a participant is paid for tax purposes in the year for which the check is mailed by the payor, not when the employee cashes the check... Otherwise the employee could avoid taxation on the distribution by holding the check. Employee cannot avoid taxation by returning the check to the payor. Kicking out the account balance creates a taxable distribution to the employee. A participant can elect to withhold more than 20%, but I don't think there is authority for a plan adminstrator to authorize it without the employees consent unless the p/a has a power of attorney from the employee. Distribution of 100% of benefit to IRS upon termination is done because it is the only way to satisfy IRS requirement that all assets have been distributed.

Stella: I am confused as to why u think there is a need for a conference. It has been a while since I last looked at the issue but I thought that determination requests must be filed with the IRS determination letter branch ( now in KY) before a conference could be requested. If the plan did not have a current determination letter the plan would be audited back to inception for review of whether it complied each year for qualification purposes. Also has the plan been filing 5500 forms for all of these years?? If not there will be separate penalities. Also filing for a determination letter is not required under the tax law- the plan must have all of the required provisions and be operated in accordance with the rules each year. The determination letter is only evidence that the plan has been amended as to form for the year it is issued but not operation. All advisors recommend it because it avoids having to prove to the IRS on an audit basis that the plan met the IRC requirements for form for every year. As far as the gust amendments deadline, I think the client must either submit by 2/28, be able to extend under the exceptions (e.g., located below canal st in NYC) or adopt a prototype or practioner plan by 2/28.

MGB: could you explain what is a mutual fund option? My understanding is that the rules against trading based upon material non public information only apply to stocks- not mutual funds... The CFO could have been fired any number of other reasons, e,g., for violating the company's code of conduct, for bringing on bad publicity in the post Enron world or because the company had one too many negative earnings announcements. By the way employees sometime sell company stock in a qualified plan before quarterly reports based upon rumors they overhear - this is the traditional reason to restrict employee sales of stock. It is preferred to selling stock owned outside of the plan because no captial gains tax is imposed on the sale.

The IRS used to have a position that a PS plan would be deemed terminated if no contributions had been made for five consecutive tax years unless there was a substantial business reason, (e.g., lack of profits). Its a rather arcane concept and it appears only in the IRS audit guidles for plan terminations. The only consequence may be that the account balances must be 100% vested in the year there is a discontinuance of contributions which is no big deal for active participants. Since it is only an audit issue counsel should be retained to determine if the exception applies. But why is the employer maintaining a PS plan and paying for the cost of plan administration and 5500 forms if no contributions have been made for 3 years. Why not terminate the PS plan and adopt a sep plan with 100% vesting which does not require employer contributions or annual reports for any year or convert the PS plan to a 401(k) plan so employees can make pre tax contributions and allow for discretionary employer contributions which never have to made? The k plan only works if the plan is not top heavy- Otherwise the non hce will have to get a 3% contribution. The employee contributions will meet the substantial and recurring contribution requirement. The third option is to conver the PS plan to a 0% money purchase plan with after tax employee contributions.

I have to go back to a research project but I agree with your comments up to a point. The fact that Vt law may take away some benefits available to divorcing spouses in other states because of the enactment of the civil union statute is a consequence that VT legislators should have thought about before they passed such legislation- and it will be thought about by legislators in other states (CT) that are contemplating civil union laws. My comment about REA benefits was intended to make a point that there is a common misconception that equal protection laws must always result in an increase in the rights available to members of excluded groups to the level of rights of the members of the included groups. Allowing spouses to share on an equal basis in pension benefits earned by the employee (by making pension benefits a form of federal community property under ERISA) requires the reduction of the benefits payable to members of existing groups (e.g., married women with pensions) in order to level the playing field. Both methods of extending equal protection are valid.

Isn't this issue of revoking early retirement benefit commencement rights a matter to be decided under the equal protection clause of the VT consitituion not ERISA. If the Vt. cts refuse to allow early commencement of retirement benefits by a VT ex- spouse unless the same right is available under a civil union then the ct order would not violate the terms of a plan which permits early commencement of benefits to an ex spouse but does not require it. By the way the defense of marriage act does not require a state that permits civil unions to treat members of such unions to the same rights as married couples. Finally your comments about the impact of the Act to married couples is similar to the outrage I heard from divorced women after REA was enacted because their ex husbands would be entitled to their pension benefits. They were of the opinion that only the husband's pensions should have been subject to division. Equal protection goes both ways.