mbozek

If the IRS is going to audit evey qualified plan that lost money in 2008 they are going to need a bigger boat for all the additional auditors that will have to be hired along with the 17,000(?) auditors that the DOL is suposed to hire to enforce the plan expense disclosure rules. Where is fiscal austerity when you really need it. I am glad I dont do this stuff.

What is the coverage issue? If there is a coverage issue can it be avoided if the employer sets up a 457b plan for HCE employees and contributes $16,500? Contributions to the 457 plan are not aggregated with the 403b under 415 or 402g. There is no discrimination testing in a 457 plan. Also why isnt the tax exempt hospital with the ERISA plan which is owned by the tax exempt gov. hospital an agency or instrumentality of the Gov entity exempt from ERISA under IRC 414(d)?

The question is how much time/expense do you want to put into paying out such a small amount. If you know the state where she resided see if you can get a copy of her death certificate which will show who her next of kin is. Otherwise the plan should forfeit the funds in the interest of administrative efficiency.

Q1- Who would be the beneficiary in the form found in the employee's desk? Q2-Who would be the beneficiary if the form in the desk is not valid?

Financial institutions have strict requirements that plan documents must be returned in a stipulated amount of time after which the IRA owner will receive a request to submit the documents within X days or the account will be closed and the funds returned to the owner. If the documents are not completed and returned the account will be closed. IRA agreement usually has language somewhere on the responsibility of the IRA owner to return the signed application. Return of funds is treated as a distribution.

I agree but the ERISA 403b plans are not required to report vested deferred benefits of participants who terminated prior to 2009 on the 2009 8955-SSA. As I understand it the 8955-SSA reporting is only required for terminations from 2009 on. Or am I wrong? It still makes no sense for a 403b plan to report to SSA that a participant has a deferred vested benefit under the plan when the participant retains all of the indicia of ownership over the annuity contract and there are no assets payable from the plan. Every time I see one of your posts I remind myself of how lucky I am that I dont have anything to do with 5500 reporting anymore.

Who would ever file such a report for prior years? Most 403b plans are exempt from ERISA because they are sponsored by public schools or hospitals. Also the instructions to the 5500-SSA specfically exempted ERISA 403b plans from having to file any schedules including the SSA. But I sure am glad I dont have to worry about reporting and disclosure.

This may be one of those questions where if a tree falls in the forest and no one hears it is there a sound. Until 1986 T/C only issued individual annuity contracts which were issued to/owned by the individual participant. After a participant left the plan they possessed the annuity contract. Dol. reg 2510.3-3(d)(2)(ii) provides that an individual is not a participant in a plan if the entire rights of an individual are fully guaranteed by an insurance company and are legally enforeceable by the sole choice of the individual against the insurance company and the contract has been distributed to the individual. Since 1986 T/C has issued group annuity contracts which are also covered under the above provision because participants receive certificiates of insurablilty which are the equivalent of an insurance contract. So the answer to your Q is that no SSA reporting was required in an ERISA 403b plan funded by an annuity contract under the DOL rules because the benefits were distributed to the participant in an annuity contract at termination so there was no deferred vested benefit held by the plan for the participant. I dont know if the IRS will continue to apply the DOL interpretation to years after 2008 because SSA reporting is now an exclusive IRS requirement under form 8955-SSA. But it would make little sense to require reporting to SSA where the individual possesses all rights to receive the funds held under the annuity contract and can reqeust a distribution directly from T/C or an insurance company.

Its possible if the IRA funds are invested in a family limited partnership (FLP) with non IRA assets. FLPS are complex estate planning vehicles operated as a partnershp to invest family money that need lots of legal and tax advice. There is a DOL opinion letter about 10 years ago approving a FLP where one of the limited partners was an IRA account. When you find it check out the investment manager to the FLP. Edit: The DOL opinion is 2000-10A

I dont understand the need to distribute the loan before it is paid off if the participant remains in service. Under the regs the loan is an asset of the plan and must remain in the custody of the trustee if loan payments continue to be made to the participant's account. If the loan is distributed the payments are no longer made to a plan asset and cannot be included in the participants account balance to reduce the taxable amount of the outstanding loan. Why not retain the loan as a plan asset and allow the participant to continue to payoff the loan through payroll deduction. Anyway, in a DB plan inservice distributions cannot occur before 62. Also in a DB plan what is the participant's plan interest that is security for the loan since there is no individual account?

As I understand it, under federal law a custodial parent who does not receive child support due under a divorce decree has the right to obtain the overdue funds from the local state child support agency. I think your client's should go to the local state child support agency and request the back child support payments. The child support agency will issue an order to the plan administrator to pay over the retirement benefits currently being paid to the AP to reimburse the child support agency for the funds paid to the participant. See 42 USC 666(b).

Under 414(p) a QDRO cannot have a benefit which is not provided under a plan. I think you need to ask the plan administrator if it would continue to pay the 50% share of benefits to the estate of the AP for the remainder of the employee's life after the AP's death. You would need to set up a trust to receive payments and then pay beneficaries of the trust which would require keeping the estate open and paying admin expenses.

I dont see how that is possible since plan uses information in employment applicaton for identity purposes which can be different from name in SS records. I have several different variations of my legal name: birth certificate, SS card ID which I never use, different name for CC and mortgage app. My drivers license name is the same as my birth certificate but I dont use it anywhere else. Marriage and divorce result in frequent name changes which are never recorded by SS. SS no. is only common ID. I have a client who use three different names including her current married name, her prior married name and her business name, none of which are on her SS card.

I have alredy dealt with a similar anomaly. Solo PS plan teminated 12/31/10 and distributed final assets 3/20/11. Short plan year ends 3/31/11. Final 5500-ez due 10/31/11. No 2011 5500-ez available. Client filed 2011 5500-ez July 1, 2011 by certified mail. 5500-ez is marked up 2010 form.

Do you work for a non profit or a public employer? if you work for a public employer you can rollover the funds to an IRA and not pay any tax. If you work for a NP there is no rollover option and your benefits will be taxed as w-2 income and subect to wage witholding, not 20% tax withholding. This assumes that you participate in a 457(b) plan.

Even Gang of 6 members doent like the Gang of 6 plan. Tom Coburn derided it today because the supposed $1T in budget cuts will not be made in the present fiscal year but will suposedly begin 5 to 10 years out. He believes that Congress will never cut the budget. The only one who likes the gang of 6 plan is Obama because its the plan with least amount of budget cuts, $1T to the House 5.5T. Now that the 2 minute warning has been reached it looks like Congress will approve the Mitch McConnell proposal to reject raising the debt limit by 2.5T over the next 18 months which will be vetoed by Obama without an override by Congress which will allow Obama raise the Debt limit by $2.5T (a 16% increase). After this farce is completed Congress will hold hearings to approve the budget for the next fiscal year which begins Oct 1 giving the political class the opportunity to participate in the next production of the DC Kabuki theatre. Then on to the presidential election year production.

Plan can only pay the amount of the participant's accrued benefit under the plan formula. Interest is not part of the formula. Secondly reason for the delay is that the participant failed to cash the check.

Quick fix to raise revenue would be to suspend all COLA provisions for retirement plans effective Dec 31, 2011. The legislation would take about 2 sentences.

What do you mean by bailing out SS? SS has separate funding source from FICA taxes and the first tier income tax on SS benefits for 33% of SS beneficaries which are the dedicated sources for paying benefits. Despite what ignorant commentators want you to believe, because SS is an on budget item has nothing to do with with the current deficit because SS is not allowed to borrow and has no debt. SS has about 2.6T in assets invested in treasury securites which will provide for payment of 100% of SS benefits until 2037. After 37 the FICA tax/income tax will pay for 77% of all benefits. The most inexpensive way to raise revenue as boomers retire is to gradually raise the ceiling on FICA wages to about 160k over 10 years so that 90% of all wages will be taxed. This would only affect the top 7% of all workers. The real Q is why is SS even in the federal budget? Before 68 or 69 SS was off budget like the PBGC. When the cost of fighting the Vietnam war got out of control LBJ didnt want to raise taxes so he brought SS onto the federal budget because it was running a surplus - more FICA tax was being collected than was being paid out as benefits. SS masked the federal deficit because its surplus assets were considered tax revenue. By the way the govt did a similar financial sleigh of hand to raise revenue with Fanny Mae which was gov owned since 1938. In 1970 the feds spun off Fanny Mae as a public company and collected the revenue from the IPO to pay for the VN war. This worked so well that a few years later the fed gov created freddie mac and did another IPO to raise revenue. As of 2011 US taxpayers have contributed 150B to both companies to prevent them from defaulting on the mortgage securities they have guaranteed. Total loss to be guaranteed by taxpayers is estimated be north of 300B when they are wound down.

The reason that Congress likes to play with RMD commencement dates for qualified plans is that the amount of revenue loss attributable to the pension plan deduction is the third highest after employer deduction for health insurance and the mortgage interest deduction. The way it works is that the Joint committee on taxation determines the amount of revenue lost due to allowing deductions for plan contributions and subtracts the amount of retirement distributions that are included in income in the same tax year. This net number is the revenue loss for allowing deductions for plan contributions. In 1982 Congress needed more revenue to offset the tax cuts enacted in 1981 and mandating MRDs at 70 1/2 for employees of Q plans was an easy choice because it was already required for IRAs and HR-10 plans. So it was justified as a matter of tax equity. In 1996 mandatroy RMDs at 70 1/2 were repealed along with the 10% penalty tax on taxable distributions above 160k because the Republicans controlled Congress and wanted to reduce Gov spending. The flip side to the revenue loss for plan contributions is the Roth conversion option which provides for an immediate gain in tax revenue because Roth distributions in future years are not included for revenue loss.

The likelihood of Senate initiated proposals on tax reform being enacted at this time is virtually zero because all tax legislation must originate in the House which has a completely diffrerent agenda, e.g., no tax hikes of any substance, only spending reductions. For those of you who were not around the last time Congress attempted tax reform, the attempt on tax reform began in 1982 when the Treasury Dept published a study recommending a reduction in tax deductions in return for lower marginal rates. It took 4 years before Congress approved the tax reform act of 1986 which reduced 14 tax rates to just two -15 and 28% by eliminating personal interest deductions, creating a 7.5% threshold for medical expense deductions, reduced 401k contributions from 30k to 7.5k, capped covered comp for retirement plans at 250k, eliminated universal IRA deductions and reduced deductible contributions to DB plans to make tax reform revenue neutral. Given the current state of retirement savings I dont see why deductions for retirement savings should be reduced unless tax rates for the middle class are reduced by 40% or more, e.g., 25% to 15%, 15% to 9%, etc to encourage contributions to a Roth account because of the small amount of taxes that would be paid in return for tax free income in retirement. The senate proposal mentions reducing the current 6 brackets to 3 with a max rate of 23% but does not have much detail. It would take years to approve a tax reform plan. The elephant in the tax reform room that is being ignored in the congressional debate is how to solve the AMT problem. Under current law the AMT patch which exempts the middle class from AMT expires at the end of this year and higher taxes due to AMT will return in an election year. Extending the patch for one year costs about 70B in lost revenue which jacks up the amount needed to be borrowed. A permanent fix to eliminate the AMT tax on the middle class would cost about 1.5T+ because it involves forgoing 10 years of revenue from the AMT as taxable income increases. Until Congress can agree on a permanent fix to substitute a revenue source for the 1.5T+ in AMT revenue that would not be collected from the middle class over the next 10 years there ain't going to be any serious tax reform, only window dressing. A logical fix to offset the loss of revenue from the AMT is eliminate the deduction for state and local taxes.

See P3-4 of the instructions for filing the 5500 EZ which permit automatic extension for filing 5500-ez until the extended due date of fed income tax return of employer without filing 5558 if certin requirements are met including same plan yr for plan and employer and sole prop employer has been granted extension of time to file income tax return.

P3 col 1 of the 5558 instructions extends the time to file the 5500 until the next business date following 10/15. Edit: I think the due date with extension entered on the 5558 return must remain 10/15 which is 2 1/2 months after the due date for filing the form but the IRS instructions allow the return to be filed/mailed on 10/17 because the due date for the extension falls on a Saturday. File on 10/17 and get a certified receipt from the PO.

At this point there have not been any changes to the tax code for retirement benefits that would take effect next year (other than minor provisions such as elimination of the charitable distributions from IRAs after 2011) although there are a lot of ideas floating around to reduce contributions to DC plans to raise revenue. Of course the quick answer is to call American funds and see if they confirm the story.

You need to see if the beneficiary desigantion is irrevocable under the plan and participant needs spousal consent to terminate the payouts under the plan and rollover to an IRA.