mbozek

If requested how would you demonstrate that whatever fee you charge a client for a particular service is reasonable? Or are you going to tell the client it is reasonable because you assume it is? Do you know what your competitors charge? You seem to have a problem with understanding that reasonableness of fees is relative to what others charge with the caveat that a higher fee is reasonable if it provides more benefit to the client, e.g., additional services.

Austin: You are missing the point. A fee is unreasonable when is compared to a much lower fee for comparable services. If the per participant fee is $250 b/c the plan must conduct a DOL audit then the plan would need to get RFPs from other CPA firms to confirm that the fees are reasonable. How else is the plan going to know if their current costs are reasonable other than by comparison shopping just as consumers do on line? If the RFPs confirm that the fees are reasonable then the plan has conducted the necessary due dilligence which would demonstrate to the DOL that the fees are reasonable if the plan is audited. The by product all of these new regulatory initatives to reduce plan costs is that plans will incur additional costs to confirm that the costs for plan admin are reasonable. We all know who will pay for that. There are rumors going around that plan providers will now include an additional fee for the cost of preparing the disclosure of plan fees.

How about a SEP?

Austin: Isnt the purpose of the ERISA 408(b)(2) regs to make the fiducaries look at all fees being paid to determine whether they are reasonable for the services provided by comparing them to benchmarks. If the fees are not reasonable then the plan has to find lower cost providers. I dont know if a CPA audit is considered an admin expense or is a settlor expense. Most plan admin fees I have seen are in the range of $20-36 per participant and some are under $20. I have never been able to figure out why some TPAs charge $50 while other advertise admin fees of half that amount anymore than why some lawyers charge $500 per hour and others $200. What is the benchmark for CPA audits? Years ago clients were quoted 8-10k minimum. What is the cost today? I think the DOL regs are going to result in a reduction in the cost of all services being provided to plans the way the SEC's elimination of fixed fees for stock trades in 1975 resulted in the reduction of commissions and the rise of discount brokers who charge $10 to execute a trade of 10,000 shares. Another race to the bottom. Plan fids should reduce unnecessary costs such as audits by reducing the number of participants below 100 by paying out benefits below $5000. I dont see how notifying a participant that fee will be imposed if the account balance is not removed would be coercive when a DOL FAB expressly permits a plan to charge only terminated participants the pro rata share of the plan admin fees. Plans could also eliminate the accounts of missing participants who cannot be located by using the forfeiture rule permitted under the IRS regs subject to reinstating the account balance if the participant returns to claim it.

I agree. And if you do get the participant to agree to tell the custodian to return the funds, be aware that their system will want to issue a 1099-R. (I think) it washes out if the original distributing plan issues a 1099-R indicating it is not eligible for rollover, and the IRA issues a 1099-R for a refund of an excess contribution. Question is whether the participant can instruct the custodian to rollover the excess back to the q plan so that it can be deducted on his 1040 to avoid the reporting mess of inconsistent 1099-R reporting. no harm, no foul.

I think that plan participants will see more "bag fees" to pay for costs of requesting plan documents, requesting more than one annual statement, costs of QDRO review, etc, similar to what some airlines charge for pillows or aisle seats. Maybe even fees to distribute benefits. The myth of disclosing plan expenses is that it will reduce participant costs while the reality is that plans will simply shift plan expenses to participants or reduce other benefits such as vacation or sick leave. There is no free lunch for reducing plan expenses except in the minds of the financial media.

This is the second OP on imposing fees on accounts of terminated participants in 2 hours. Under a DOL field bulletin a plan administrator can charge the costs of administering the plan only to former participants provided that the costs are a pro rata share of the costs of the plan. For example, if the adm costs are $10,000 and there are 600 active participants and 400 terminated participants the plan can charge each terminated participant $10. The admin charges should be in the SPD or a SMM. Maybe I am cynical but its seems to me that imposing admin fees on terminated participants' accounts is the DC plan equivalent of airlines charging bag fee to raise revenue without increasing ticket cost. Maybe plans are imposing new fees to replace revenue from third parties that is being eliminated because the plan wants to show lower costs when the fee disclosure regs take effect later this year.

IRA provider is a custodian who must follow the instructions of the IRA owner who is the owner/fiduciary of the IRA. Plan attorney cannot order the custodian to repay funds to the plan. Custodian will not return any funds to IRA owner without receiving explicit instructions from owner since custodian would be exposed to suit by IRA owner because custodian does not know if plan has the right to recover the funds. Most the plan can do is issue revised 1009-R listing the excess as non rolloverable distribution. I dont see how the plan can sue the custodian to recover property that is legally owned by the participant. Plan must sue the participant who is the owner and fiduciary of the property. How did this mistake occur? Is this a DB plan?

What if the sponsor maintains a terminating 401(k) and a FROZEN MPPP? The 401k plan benefits can be transferred to the MPPP as long as the option to take the 401k benefits in a lump sum is preserved. Reg. 1.411(d)-4 Q-2(a)(3).

It is if the plan permits lump sums to spouses, although the amount will be heavily discounted for age at death. I think the OP wants the plan to pay a pre retirement survivor annuity benefit beginning in the year of death.

To ensure a stream of income to surviving spouses is made up? While the purpose of the REA change you refer to is to provide for a retirement benefit to surviving spouses, the legislative history, the statute and the IRS Regs all provide that the commencement of the benefit can be delayed until the earliest date that the participant could have retired which is consistent with the intent of ERISA/REA that spousal annuities are to be paid as a form of retirement benefit, not as a death benefit on account of premature death of a participant before the earliest date that retirement benefits may commence.

No. At the time the payments were made they were required distributions to participant which were included as taxable income. The repayment does not change the taxable event that ocurred in 2011 because it ocurred in a different tax year. Deceased's estate should be able to claim the payment as either a credit or deduction on its tax return for 2012. Pub 525 P36 discusses repayment for an individual taxpayer. Estate needs to consult tax advisor. Q- who repaid the excess distributions- was it the decedent's estate? Sometimes it is a family member that will refund and sometimes we are able to do a reclaim, debiting the account we credited in the first place. Majority of cases this is done, it falls within the same calendar year, so it is not an issue. So if what you say above is true, then I wouldn't issue a corrected 1099R, right? If I did, then the 945 wouldn't tie out to the 1099R's. From the plans perspective that is correct. However, I dont know what happens if a taxpayer other than the taxpayer who cashes the payment makes the refund b/c the right to reduce taxable income in a later year accrues to the person who received the overpayment. If the decedent's estate cashed the checks after the employee died then the estate should have the right to claim the credit or deduction on its 2012 return if it repaid the funds to the plan. This is why the estate needs a tax advisor. I have never seen a situation that you describe. In all of the cases I am aware of the same taxapayer who received the overpayment returned the funds to the plan.

No. At the time the payments were made they were required distributions to participant which were included as taxable income. The repayment does not change the taxable event that ocurred in 2011 because it ocurred in a different tax year. Deceased's estate should be able to claim the payment as either a credit or deduction on its tax return for 2012. Pub 525 P36 discusses repayment for an individual taxpayer. Estate needs to consult tax advisor. Q- who repaid the excess distributions- was it the decedent's estate?

What does your stock option award/agreement provide with regard to the matters you have raised? These issues are usully spelled out in writing. There are no parameters defined in the plan document, nor was there a documented procedure requiring a conversation with the company's general counsel at the time of issuance & acceptnce, nor was there a policy in place when I left employment. Now I am being told that General Counsel will only approve an excercise window that will last one week...and this approval can not happen until late Monday, after the trading day closes?? Any suggestions? Does this plan have a provision allowing some officer such as the GC or president to administer and interpret the terms of the plan? Most plans do. Also many plans insert vague terms such as reasonable period or subject to applicaple law or regulations which allows the company to use its judgment in how long the exercise window will be. You can ask the GC why the requirements have been imposed but you will have to comply with their rules in order to get your shares.

What does your stock option award/agreement provide with regard to the matters you have raised? These issues are usully spelled out in writing.

There is a flush paragraph at then end of IRC 403(b)(12)(A) which excludes students who are employed by the college from requirements of subparagraph A. See last sentence of paragraph.

Learn better research or reading skill? Just askin' GMK gets my point exactly. If an earliest retirement age requirement was deemed to be inequitable under the ERISA prior to REA, then why is a plan then allowed to impose the same inequitable provision? The QPSA provision of REA changed the onus of an earliest retirement age provision from the law itself to a plan provision. How can requiring that a survivng spouse must wait x number of years after the death of their spouse to collect a pension benefit be considered equitable? please read REA P.L. 98-397 and its explanation of the law Pre and Post Rea. Even the IRS does not have it right. Q–18: What is a qualified preretirement survivor annuity (QPSA) in a defined benefit plan? A–18: A QPSA is an immediate annuity for the life of the surviving spouse of a participant. What is immediate about making a surving spouse wait until earliest retirement age Immediate payment is not required upon death of the participant because Q/A-19 specificially provides that the QPSA can be forfeited if the spouse does not survive until the date prescribed under the plan for commencement of the QPSA (i.e., earliest retirement age.) In the case of a plan that provides for distributions that commence upon separation from service Q/A-17(b)(2) defines the earliest retirement age as the earliest age that a participant could separate and receive a distribution. Also the Senate Finance Committee for REA contains the following statement: "Under the bill [REA] the plan is not to prohibit the commencement of the qualified preretirement annuity to the surviving spouse later than the month in which the participant would have reached the earliest retirement age under the plan." The SFC statement is consistent with IRC 417©(1)(B) and the IRS regs. The reference to the Senate Finance committee report that you have cited is taken from the Hiesler case and is not a statement which appears in the legislative history of REA but is non precedential comment taken from a federal court opinion which cannot be used to construe the QPSA provision in REA which is correctly described in both the Senate Finance Committee report and IRS regs.

You need enter amounts in each line that applies. As noted different answers will be generated depending on the year in which the contribution was actually made to the IRA.

The law allows plans to set earliest retirement date and it also states distribution must begin by early retirement date. Please research the intent of the legislature regarding REA. My point is that REA was supposed to allow a survivng spouse to receive a stream of income, upon the death of the participant. Allowing a plan to distribute the pension benefit based on the The Earliest Retirement Age provision allows plans not to pay a benefit upon the death of the participant. A spouse should receive a death benefit distribution upon the death of the participant, not upon attaining a date set by the plan. IRC 417©(1)(B) expressly provides that the earliest date that a spouse may receive the QPSA benefit is the not later than the month in which the participant would have earliest retirement age under the plan. Under the rules of construction for interpreting laws federal courts only review the legislative history of a statute if there is an ambiguity as to meaning in the law itself. Where the law is unambiguous as to its application the courts do not review committee reports or legislative history and apply the statute as written. Also under Supreme court precedent, the application/limitation of a tax law to a particular group of taxpayers is considered to be a political question to be determined by the legislative branch which the federal courts decline to review. My question is why are you raising this issue on a matter where the meaning of the law is clear?

There are very obscure regulations which permit plans to defer commencement benefits after 70 1/2 for active employees: reg 1.401(a)-14 permits commencement to be deferred to termination of employment after age 65 reg. 1.401(a)(9)-2 Q-2 states that for non 5% owners the required beginning date is the later of year employee attains 70 1/2 or year employee retires from employment. Plan is permitted to require MRDs for all employees to commence at 70 1/2. If the plan does not allow active participants over 70 1/2 to commence benefits until retirement, then the way to fix the problem is to allow MRDs at 70 1/2. What concerns me is whether the estate or spouse of an active participant in a DB plan who is over 70 1/2 dies and forfeits accrued DB benefits could sue plan or fids for failure to disclose that benefits would be forfeited if not commenced after attaining normal retirement age. Most DB plans permit active participants to commence benefits at 65 but dont explain the consequences if employee dies before commencing benefits b/c employee wanted to accrue larger benefit. Under IRS regs participant can always take distribution in excess of MRD without penalty.

Are you saying that the employer makes two distinct contributions: 1. contributes 12% of comp as an employer contribution exempt from FICA tax. 2. pays the employee an additional 12% of comp which is included for FICA tax and is contributed as a salary reduction contribution to the 403b plan? 1 is permitted as long as it is a nondiscriminatory contribution and comp does not exceed the limit, e.g. 245k in 2011. 2 is permitted if the employer pays it to the employee as w-2 wages and does not exceed the max amount, e.g., $16,500/22,000 in 2011.

I don understand what you mean by treated equally since only hetrosexual married couples can make tax free transfers of property to each other. See Pub 17, P20. I understand that there may be some exceptions as to how income from jointly owned property of same sex couples is taxed by the IRS to them individually under community property laws of states which allow marriage of same sex couples but that is beyond my expertise as I avoid any CP matters. As I noted previously taxpayers routinely ignore the requirement to file a gift tax return because there is no penalty for not reporting the transfer to the IRS if no gift tax is due so I am not aware of any one who has ever field a gift tax return because a non spouse was irrevocably designated as a beneficiary. I am aware that the IRS has issued a subpoena to public officials in CA to turn over information on filing of deeds to real property to determine if real estate is being transferred under the gift tax laws to non spouses by creating a joint tennacy with right of survivorship. Under the gift tax law the creation of such a joint tennancy can result in a gift of the pro rata amount of property interests created- 1 joint tennant = gift of 50% of value. Appearently the IRS believes that there is a failure to file gift tax returns and pay gift tax on these transfers. I dont understand your Q on the interplay between the gift tax and income tax which apply to separate transactions. Any gift tax is paid by the participant on the value of the survivor annuity transferred only if the total gifts exceed $5 Milliion. The beneficiary is taxed on the amount of the taxable benefits received.

I am not sure of what has been issued. Are you saying that the court approved a DRO which was submitted to the plan administrator who has not approved a QDRO? As for your question, there are court cases that have held that your rights to an ownership interest in your ex husbands plan benefits never became his property subject to the jurisdiction of the bankruptcy court even though a QDRO has not been issued. In re Gendreau, 123 F3d 815, 1997 a Federal appeals court held that the ex spouse's property rights arose from the divorce decree, not a QDRO. Since the debtor employee who filed for bankruptcy could not have a greater interest in the pension benefits by filing for bankruptcy, the court held that the ex spouse had a separate identifiable property interest in the plan that is not subject to a stay which prevent the plan administrator from issuing a QDRO. A bankruptcy court has come to the same conclusion holding that it would be inequitable to issue a stay to the proceeding to issue a QDRO due the filing of the bankruptcy petition. In re Carbaugh, 278 BR 512, 2002. There may more recent cases which I am not aware of. As this is a complex legal matter you need to discuss the cases with your attorney to see if they apply to your case as only he or she can give you legal advice as different provisions of the bankruptcy code that may apply.

Irrevcable is an election by the participant to transfer a property interest to a non spouse which he cann not revoke unilaterally. In DB retirement plans it usually occurs when benefits commence because the participant cannot change his designation of a beneficary of the survivor's interest in the benefit. In a DC plan there is no transfer as long as the participant can change the designation of a non spouse beneficiary without obtaining consent of another party. A transfer to a non spouse occuring at death is subject to the estate tax. Under the IRC no income, gift or estate tax is imposed on transfers between spouses which is why the gift tax is ignored by DB plans because spouses are usually the only beneficaries with an irrevocable right to a benefit. Under current tax law gifts to non spouses are not taxable until the total amount of lifetime gifts to all non spouse beneficaries exceeds $5 milion. However a gift tax return must be filed by the participant with the IRS if the total amount of gifts to a non spouse beneficary in a tax year exceeds $13,000 even if no tax is due. Since few taxpayers are aware of this rule it is widely ignored and most of those who are are aware of it just dont file because transfers are not reported to the IRS. mjb might be a little too aggressive on this tax advice. I do not recall any examples in 40 years where a qualified plan benefit generated a gift tax by a beneficiary designation. Perhaps there are some examples, court cases or PLRs on the subject. This gets way more complex with the PPA changes allowing non-spouse beneficiaries. In short, are you sure about this? If you read my post you would have noted that the gift is created when the transfer is irrevocable, e.g., when benefits commence. Merely designating a non spouse as a beneficiary does not create a taxable gift if the participant can designate a new beneficary. See reg 25.2511-2©. see reg 25.2511-1(a): The gift tax applies to transfers by way of gift whether the transfer is in trust or otherwise. For example, a taxable transfer may be effected by assignment of the benefits of an insurance policy. Under IRC 2523 the gift tax does not apply to transfers to spouses. Reg. 25.2511-1(e) If the donor transfers less than his entire interest in property the gift tax is applicable to the interest transferred. If the taxable estate +lifetime gifts exceeds $5 million, transfers of retirement benefits to non spouse beneficaries under the PPA are subject to the estate tax, not the gift tax, because the transfers occur after death. As noted above the gift tax has little impact on taxation because life time gifts are subject to a $5 million exemption. However gifts of an interest in an annuity to a non spouse which exceed $13,000 in a year trigger a reporting requirement to the IRS even if no tax is due.

Irrevcable is an election by the participant to transfer a property interest to a non spouse which he cann not revoke unilaterally. In DB retirement plans it usually occurs when benefits commence because the participant cannot change his designation of a beneficary of the survivor's interest in the benefit. In a DC plan there is no transfer as long as the participant can change the designation of a non spouse beneficiary without obtaining consent of another party. A transfer to a non spouse occuring at death is subject to the estate tax. Under the IRC no income, gift or estate tax is imposed on transfers between spouses which is why the gift tax is ignored by DB plans because spouses are usually the only beneficaries with an irrevocable right to a benefit. Under current tax law gifts to non spouses are not taxable until the total amount of lifetime gifts to all non spouse beneficaries exceeds $5 milion. However a gift tax return must be filed by the participant with the IRS if the total amount of gifts to a non spouse beneficary in a tax year exceeds $13,000 even if no tax is due. Since few taxpayers are aware of this rule it is widely ignored and most of those who are are aware of it just dont file because transfers are not reported to the IRS.