mbozek

Before you go any further do you know: 1. if the person who claims to be the former beneficiary is actually that person? Has the plan confirmed the caller's identity. 2. How do you know that the person who called to change the beneficiary designation was not the participant and that the signature is a forgery? 3. If your plan has E and O insurance for fiduciary matters under ERISA?

Just looking at the basics what will be your role in this plan? As a FA you are registered rep which means you can buy/sell securities. RE is not a security. Are you going to be the named or de facto fiduciary. Will your compliance dept approve such a role? If this going to be a cash balance plan the plan sponsor must hire an enrolled actuary who will design the plan benefit formula and determine what the funding requirements will be. In a Cash balance employer must make annual contributions necessary to meet the minimum funding requirements under the tax law. I have no knowledge of what would be the funding requirements but I think the first step is to hire an enrolled actuary assuming you can find one who would accept an assignment to represent a plan funded solely in RE. If the plan is invested only in RE where will it get the cash needed to pay expenses, distributions, etc? RE is not a diversified investment like an index fund so there will be limitations on what % of plan assets can be invested in RE. Another question is what is the exit strategy for the owners? Are they intending to fund the plan for a short period with RE, say 5-10 years, retire, terminate the plan and distribute the benefits. If the FMV of the RE is not sufficient to pay benefits and costs of termination will they contribute more funds? I am going to stop here because I think establishing a retirement plan solely invested in RE is a really bad idea that I would not want to be associated with.

GBurns: Short answer: You are discussing matters governed by the IRS under the tax laws. EBSA does not regulate or have any oversight over IRC provisions regulating qualified plans. EBSA inquiry is focused on whether employee has a vested benefit in the plan under ERISA TITLE I. If the answer is yes then the benefit must be paid. If you think about it, allowing plans to deny benefits to employees whose benefits are documented in plan records but which are not confirmed by employment records would be an invitation to deny benefits to all participants where the records of employment are routinely destroyed as part of the employer's document retention policy. It could also be construed as a violation of Section 510 of ERISA.

Every seminar on small business taxation that I have attended always has CPAs telling business owners to hire their family members to deduct their salaries. Kids as young as 13 can work as janitors or stock persons and spouses can work as the office manager or bookkeeper from home. Back in the day I represented a surviving spouse whose husband gave her and the rest of the family no show jobs and contributions to the company profit sharing plan. Spouse's benefit was more than 6 figures. Plan administrator/executor claimed that she was only entitled to 50% of the vested balance as a death benefit. Spouse sued under ERISA in fed court and the plan agreed to pay her the full 100% of her account balance before the trial commenced because the plan document had been altered to reduce her vested benefit to 50%. What the executor didn't know was that I had obtained the plan document that was adopted and witnessed. No one including the federal judge cared whether the spouse had a no show job, only that she had vested benefits under the plan.

According to IRS Pub 571 chapter 4, the 15 year catch up is available to employees of an education organization such as a public or private school which is a separate eligible category from churches. There is no requirement in Pub 571 for the private school to be affiliated with a church in order to be eligible for the catch up.

403b plan is available to 501c3s which does not have ADP testing. Sponsor could offer 403b plan to HCEs who could contribute up to 23k and have NHCEs participate in 401k plan. 403b plans are not issued favorable determination letters at this time because they are not qualified plans but must operate in accordance with the rules for 403b of the IRC.

All that is needed is the name of the defendant and federal court where case was tried which is public information. US attorneys routinely publish press releases of convictions for tax fraud.

No, they are not contradictory. I am discussing two different legal questions. First why should plan sponsor be approving investments in a NQ plan when there is no fiduciary responsibility? Second, some investments should not be allowed because of risk to the employer, e.g., UBIT which would have to be paid by employer. I always recommend that 401k plans prohibit certain investments such as FX trading, and options which requires margin account, MLPs and mortgage REITs for UBIT because they have risk under IRC. Same for 457b plans.

Under the plan each of the family members have an account showing their benefits under the terms of the plan. Plan provides for payment of benefits upon termination of employment. Under what provision of ERISA would the plan administrator deny payment of vested benefits? As op reminds us the Plan administrator has limited resources to hire counsel to review this matter. If pan denies benefits to plan participants it needs proof that they did not work. If participants have w-2s there is a presumption they worked since they paid taxes. If there is no conviction how can plan deny benefits? Denying benefits to participants can be expensive because plan would have to retain counsel if participants sue and if they prevail plan would also have to pay participants legal fees. If there is no judgment of conviction there is no probative evidence and participants could always claim that they worked even if no hours were reported (e.g., they were victims)

NP 457b plans are unfunded because the assets are subject to the claims of the employer's creditors.

Non profit 457b plan are exempt from the fiduciary provisions of ERISA. Why would employer want to take fiduciary risk in creating an approved list of funds? The 457b is analogous to IRA investment selection. Adding a brokerage option will create a different level of risk for the employer since the account will have to be in the employer's name and the employer will be subject to any and all tax and investment/ compliance consequences of employee's investments, e.g., if employee invests in master limited partnership or other pass through investment that generates UBIT tax the NP employer will be responsible for filing 990-T and paying UBIT. I would say no to directed brokerage in 457b.

See Pub 547 for specifics.1099R Income is reported on line 16a of the 1040. Casualty loss is deducted on tax return by filing Schedule A.

If check is cashed by unauthorized person participant claims a casualty loss which offsets taxation reported on 1099R. See IRS pub 547 P 3.

Before getting carried away need to answer the following: 1. was the owner sentenced or was there only a guilty verdict? Legally a conviction only occurs when the defendant is sentenced. 2, After sentencing defendant can appeal sentence and conviction which can be reversed. 3. Evidence of owners conviction is not probative as to whether individual employees performed services because they were not defendants in the owners case. Does plan have any information that they did not perform services independent of the evidence produced at trial. 4. Plan participants have all the rights afforded to them under ERISA including provisions for claiming benefits under Section 503.

If check is stolen and cashed by an embezzler the bank cashing the check is liable to the payor bank. Eventually the plan would be reimbursed for the payment and would issue a new check. If the participant refuses to cash the check she will be taxed on the distribution because she has actual receipt of the check. Plan can issue a new check if the old check is stale, e.g. more than 6 months old.

An annual valuation is required on a specific date using a consistent method uniformly followed. See Rev rule 80-155. Many small plans ignore the annual valuation and use the purchase price. RE is supposed to have an appraisal.

How do you know that is the permanent address of the participant? If the participant will not accept mail that does not sound like an address you want to send retirement checks to indefinitely. I would apply the forfeiture at MRD provision in the plan until the participant requests the benefits to prevent the checks from being forged.

What basis does the plan fiduciary have to conclude the family are not entitled to their benefits? The conviction of the company owner occurred after a trial where neither the participants or the plan were defendants so they are not bound by the court judgment. They could claim that they performed services for the company that entitled them to payment. It is possible that the Justice department will sue the family members for restitution under the Civil Asset Forfeiture Reform Act, PL 106-185, where the family members would forfeit their rights to the benefits contributed to their accounts in return for dismissal of any charges against them for the benefits contributed on their behalf. Also the family members are legally required to pay taxes on the salaries paid to them even they performed no services so why should they not be entitled to the benefits resulting from those wages?

I don't know what the tax consequences are but my question is what can anyone do now? The funds have been contributed to the plan and under ERISA the participants have a vested interest in the benefits. Plan was an innocent bystander and is a stakeholder holding the assets. To me this problem is similar to what happens when plan is notified that a participant is using a false identity and SS #. Here's my question- if one of the family members request their account balance what will the plan administrator do?

Fee is a reduction the account balance not the basis. Its no different than the amount of UBIT tax which reduces the account balance but is not considered to be a taxable distribution.

As I understand it a qualified plan is a plan has adopted all provisions required for compliance with the rules of IRC 401a . It is not required that the plan receive a favorable determination letter from the IRS although tax advisors routinely submitted individually designed plans to obtain the pro forma determination letter to have if the IRS audited the plan. So now individually designed plans will no longer be able to obtain a determination letter. Will IRS now audit individually designed plans to see if there is a ding which can result in a revenue gain to the govt? IRS is eliminating determination process for individual plans to reduce costs because every year congress reduces its budget by 3% as payback for the Lois Lerner fiasco. Attitude of congress is that IRS needs less money each year because more tax returns are filed electronically which requires fewer employees. IRS staff has been reduced by 20% in last 5 years.

Its been a while since I checked but I thought that a grantor trust is considered to be the alter ego of the creator of the trust and for tax purposes all income is taxed to the grantor. There is no separate tax entity in a grantor trust.

Whose tax id # will be used to open the account? Will trustee get a tax id?

I agree with Q. while there is a trustee the Rabbi trust is still a corporate asset of the employer with an independent trustee who follows the terms of the trust. If the employer declares bankruptcy the trustee would be required to turn the assets over to the creditors of the employer.

What are the choices that can be elected? A rabbi trust is considered to be an asset of the employer which is subject to the claims of the employers creditors. So the trustee of the Rabbi trust is administering a corporate asset with the restriction that the assets cannot be used to benefit the plan sponsor. does the Rabbi trust have its own tax ID?