mbozek

You need to read the actual language of the warranty to see how limited it is. Generally the warranty provides an indemnity for legal fees and damages if an investment option offerred by the insurance company to a plan sponsor as part of a preselected list of investments available for an ERISA 401k plan is determined to be imprudent by a court and the plan fiducaries are liable. The plan is required to have an IPS and follow all of the ERISA procedures for selecting investments in order for the warranty to apply, e.g. periodic fiducciary review required under IPS. Also the plan must remove an investment option promptly if notified by the investment advisor of its unsuitability. Warranty does not apply if there is a law suit by participants because of steep decline in investment performance due to an economic event (2008 market meltdown) or operational failure of the plan such as not processing participant's request to change investment to less risky choice which results in investment loss. It is unlikely that the warranty would be available in event of a law suit over excessive fees.

If the funding vechilce for the plan is an annuity contract issued by an insurance company there will be no trustee who holds title to the assets because the assets are not held in a trust. However the plan will still have fiduciaries who make decisions on investments and plan administration.

The only objective analysis that can be made about this scenario is that the maximum amount of loans permitted to a participant secured by plan assets is $50,000 and the loans are sublect to plan rules. Any loan in excess of the 50k max would result in the loan being immediately taxable to the CFO and could result in disqualification of the plan. The plan sponsor/fiduciaries need to retain ERISA counsel to determine what rules have been violated and how the violations need to be corrected. This will be expensive and the plan sponsor will have to pay the costs to clean up this mess. I dont know if you will be able to find a lawyer who would take this case based on a contingency that the legal fee will be determined by a federal judge after a sucessful recovery. Q are the plan fiduciaries covered by an insurance policy? A determination that the prior trustees were negligent in administration of this plan doesnt mean much for recovery purposes if they declare bankruptcy because they do not have sufficient assets to pay the judgment. You may be better off going the US Department of Labor and have the plan loans and operation reviewed for violations of ERISA by the Employee Benefits Secuirty Administration (EBSA) which can take action against the plan and trustees. You can google the EBSA website to get further information. As for as the reps/warranties of the prior owners, you need to see when they expire. Many buy-sell agreements have a limited time period for recovery of monetary damages based on a violation of the reps such as providing notice of violation within 1 year of sale or have limitations on the amount that can be recovered. In some cases a small portion of the sales proceeds would be held in escrow for a limited period after the sales closes.

MJB, Are you referring to brokerage firms on the IRS approved non-bank trustees and custodians list? Or, something else? I'm hoping that what you are referring to might help us with an issue in a client's IRS audit. I am referring to the transfer of a participant's 403b mutuul fund investments to a custodial account with a brokerage firm authorized to hold the participant's directed investment in a 403b plan even though the brokerage firm was not an authorized option under a 403b plan. The custodial agreement was between the participant and the broker dealer. The employer was not involved. These arrangements were permitted for participants who had terminated employment under the 403b plan but wanted their funds to remain under a 403b7 arrangement. This arrangement may have been authorized under Rev Rul 90-24 until it was curtailed under the IRS regs.

In order for an employee to have a 403b7 account there must be a custodian who holds title to the mutual funds for the participant. When the custodian withdrew as a custodian of the 403b7 account in 2009 the participant would have received a notice of withdrawal and what he or she had to do, e.g., rollover the funds in the custodial account to an IRA or another 403b annuity. I cant tell you what needs to be done. You need to contact the brokerage firms to find out how the 403b7 accounts were to be distributed under the terms of the custodial agreement when the custodians discontinued their services on behalf of the 403b plan.

This is a tricky situation because the plan is not subject to the ERISA rules for reviewing DROs under DOL op./ 99-13A and the plan administrator and participant are the same person. I think having the consultant request the accrued benefit used in the calculation of the PVAB is the correct approach to review the amount. You need to have the attorney confirm what your responsibilities are in reviewing the QDRO, e.g., reviewing to see if the DRO conforms to 414p, or are you also being asked to determine if the calculation that the Alternate payee is receiving 50% of the PVAB is correct. Make sure you get the response in writing. Given the facts I think the attorney will want you to determine the accuracy of the assumptions.

You need to find out who is the actual custodian for the participant's accounts. Under prior IRS regs a participant could have maintained an account with a stock brokerage that acted as the legal custodian for the 403b7 account. However most full service firms discontinued this practice after the IRS regs went into effect in 2009. It may be possible that the accounts are still held by a broker/dealer for the participant which is information only the participant will have. It is also possible that the accounts were transferred to an IRA whcih would have a custodian.

I am not sure at what Q you are asking. In DB plans DROs are submitted to the plan's actuary before the plan administrator approves the QDRO to confirm that the amount awarded to the AP will not exceed the participant's accrued benefit and that the benefits can be paid under the terms of the plan. If your Q is different, e.g., the attorney's assumption as written in the DRO that 300k was 50% of the accrued benefit is inccorrect, I dont know why you have any responsibility to correct it because under a DOL opinion letter the plan administrator is not supposed to look beyond the terms of the DRO as it was approved by the court but only focus on whether the DRO complies with the requirements of IRC 414p, such as the benefits are permitted under the terms of the plan. In other words I dont think the plan admin would have any liability to the participant if under the plan's actuarial factors 300k was more or less than 50% of participant's accrued benefit because you were not asked to make such a determination but were given that amount as approved by the court in a DRO and according to the DOL the plan can rely on such a determination. I dont think the participant would have any claim against the plan or you if the 300k amount is incorrect but it would be wise if the plan administrator in approving the QDRO states in a letter to the participant and AP that the plan did not review whether 300k comprises 50% of the accrued benefit but is accepting the representation in the DRO that it is 50% of the accrued benefit.

See IRS pub 590 P 68. If the amount contributed to the Roth is less than the amount of all your Roth IRAs you can claim a loss as a miscellaneous deduction. You dont need to be 59 1/2 to withdraw contributions.

Under what circumstances would the employer be involved with plan loans other than to collect loan payments to remit to the provider since a 403b can only be funded by an annuity or mutual fund. If the loan is made available by the MF aren't the terms including interest rates set by the trustee of the fund? Loans under an annuity contract are made available by the insurance company.

No.

If the pre tax funda are rolled over to the 401k plan by 12/31/10 the AT funds can be rolled over to a Roth IRA in 2011 w/o the pre tax runds being aggregated with the AT funds under the pro rata rule.

Lou: You must be thinking of a SIMPLE IRA. If you had taken the time to review the rules you would have discovered that that only DC plan contributions are aggregated with a SEP if they are part of a controlled group. See IRS pub 560, P 6 col 3. A SEP is not aggregated with 1)any Qualified DB plan or 2) a Qualified DC plan in which the employee does not own more than 50% of the employer who sponsors the DC plan.

If you are stating that the 50k payment to the ex spouse from the plan was specifically required under the divorce decree then it would be taxable to the ex as a distribution event if a valid QDRO was in effect. In every situation I have reviewed the QDRO was approved before the payment was made to the ex because holding up payment is the only leverage the plan has to to make sure that the parties submit a DRO that meets the requirements of 414p. Retroactive QDROs are usually issued to change the provisions of a valid QDRO that was previously approved by the plan. I dont know whether a payment would be taxable to the ex if it is made before the plan approved a QDRO even if the QDRO is retroactively approved. One way this could work is if the divorce decree contained all of the necessary elements for a QDRO under 414p. There are court case which have upheld the terms of divorce decree as a QDRO although a formal QDRO document was never approved by the plan administrator. You need to discuss this issue with counsel.

You have not provided enough information to answer the question. 1. For example why are the funds being transferred? e.g., is the IRA being terminated? 2. If yes under what authority? e.g., will, trust. 3. Who are the beneficaries of the trust? Are they individuals? 4. What is the bank's authority for making the decision to transfer the IRA proceeds? Is the bank the IRA trustee/custodian or the executor of the decedent's estate? 5. Have you contacted whoever drafted Article v.C to ask what the intent of the provision was? In any event you should consult a tax advisor or estate planning attorney who will provide an authoritative answer. Just because a tax free transfer of an inherited IRA is permitted under PLRs from the IRS doesnt mean that it is allowed under the document that controls distributions from the IRA.

Where did the 50k payment come from? The plan or out of the employees pocket? Was the 50k payment ordered to be made from the plan because it was deemed to be the spouse's interest in the plan or was it part of an overall property settlement of the comunity estate of the couple? In order for the transfer of retirement funds to be taxed to the alternatate payee there must be a valid QDRO. See IRS notice 89-25 Q3 (only payments made under a valid QDRO will be taxed to the alternate payee). In Randolph Simpson TC memo 2003-294, a payment of $18k by the employee to the ex which was part of an ESOP distribution paid to the employee that was used to satisfy a divorce judgment was subject to the 10% penalty under IRC 72(t) because the payment to the ex spouse did not qualify as a payment under a QDRO. Under the divorce decree the 18k was specifically intended to be a division of the community estate, not an assignment of the employee's interest in the ESOP which would be taxed to the spouse under a QDRO.

Most states have abolished alimony for life in favor of maintainence payments for a limited periiod. I also dont understand the OP's problem. Court can divide participant's benefit so that participant and ex each get 50% (500) during the participant's life and then give ex the $500 survivor benefit. Plan does not have to provide for separate share to ex after retirement payments have begun. Q- what does the plan QDRO procedure say about how benefits are to be divided.

As I understand it under the recent health care law enacted this year, beginning 2013 the FSA exclusion will be limited to $2500. What I am not clear on is whether the $2500 applies only to the out of pocket portion of employee medical expeses such as co pays and deductible amounts or whether it also includes the employee pre tax payments for health and dental insurance. If the $2500 limit includes health insurance payments then most employees with health insurance who itemize deductions will not be able to deduct the cost of the health care premiums because the threshold for itemized deduction of medical expenses will increase from 7.5% of AGI to 10% inb 2013. Please let me know if the $2500 FSA limit includes health insurance premiums.

Have you considered death, and checked the SSA online list of death records?Have you considered that the EE may have left the country? You also need to consider that the employee may have changed his/her identity and does not want to be located. Or the most logical reason- he is one the 47% of Americans who do not file an income tax return because they dont owe any taxes. Under IRC 408(e) the portion of an IRA that is used as security for a loan is deemed to be distributed. What are the tax consequences?

You need to provide the rest of your comments.

What do you do when the missing participant turns 70 1/2 and cannot be found? I know of plans that have not been able to locate participants who are supposed to start RMDs. Restoring the balance when the particpiant returns to claim the benefit rarely happens because the participant usually dies before commencing social security benefits and was never notified of the vested benefit by Social Security. Or the participant has changed identity and is using a different SS number.

I thought the IRS fiscal year ends Sept 30 which is the the last day of the Federal Budget year.

See IRS Pub 575, P 9 -16 for taxation of periodic payments with after tax amounts.

The citation he bases that on is irrelevant because it speaks to investment alternatives... a Roth account is not an investment alternative. My initial response in response to the OP's inquiry cited a specific RR which gave an example of a significant detriment. However reg. 1.411(a)-11(b)(2) applies to any significant detriment imposed under a plan on any participant who does not consent to a distribution as determined by the IRS after examining the particular facts and circumstances. I will leave it up to the rest of you decide whether limiting terminated participants investment opportunities to pre tax funds where a Roth account is available to active employees is a significiant detriment but I will ask why would a plan admin take such a risk by limiting the choices of terminated participants to pre tax options. Also I have not reviewed whether there are provisions in the roth regs that would prevent such a practice.

A Roth account is not an investment option so RR96-47 wouldn't apply. It is an investment option b/c not not allowing the Roth option to terminated participants limits their investment choices to pre tax funds which will result in a different value than an after tax investment. The significiant detriment to giving valid consent provision of the regs cited in RR 96-47 is applicable to more than just investment alternatives and applies to any restiction imposed on a participant who does not consent to a distribution as determined by the IRS after examining the "the particular facts and circumstances".