mbozek

IRS Rev. rul 96-47 prohibits limiting investment alternatives available to terminated participants because the limitation on investment alternatives imposes a significant detriment on the participant which prevent the employee from giving valid consent to a distribution over 5,000.

Because Gov. plans are statutorily exempt from ERISA no filiing requirement/or penalties can be enforced against the plan, even if 5500 were filed in prior years. Best thing is to notify the DOL that 5500s were filed in error and that no further 5500s will be submitted in future years. I dont know if DOL will acknowledge and remove plan from list. You may get penalty notices from the IRS in the future and have to deal with a complicated process to remove plan from list of 5500 filers.

mjb - I would have loved to have you to help argue this w/ Fidelity a number of years ago when it came up. As I stated above, I disagree w/ the notion that an MRD is an annuitized stream of payments (despite the methodology used to calculate it). My main point for bringing it up was so Tom and others (yourself included) could see that some have taken that position (or at least did as of a few years ago). I personally think MRDs should follow the source heirarchy. Been there. Done that. An MRD is an annuity payment stream only when the the funds are paid from an annuity.

Tom, I'd agree w/ that vesting would still trump so if you only had 2 sources then you might pay out solely from the vested one. -- Looking back thru my CCH Master Pension Guide... my best recollection is that Sec 402(a) points you to Sec 72 and that Fidelity argued that if it looked like an annuity and smelt like an annuity (and how can you argue that MRD's are not based on life expectancy) then you had to do prorata as an annuity in order to acheive return on investment in the contract. I'll note that prior to Roth accounts, the only other place it truly mattered was a) after-tax contributions and b) legacy sources solely invested in specific investments (e.g. a stock only permitted to be held in one particular legacy source, such as prior plan match invested in prior company stock). (or at least those are the two places it made my life miserable.) I dont understand the rationale for this answer because it is inconsistent with the regs under 401(a)(9). Reg. 1.409(a)(5)-5 A-1(e) provides: "Instead of satisfying this A-1 (the MRD requirements) the MRD requirement can be satisfied by the purchase of an annuity contract in accordance with A-4 of 1.401(a)(9)-6. A-4 of the-6 reg specifically applies to an annuity contract purchased from an insurance co which is used to provide distributions. In otherwords unless the participant's benefits are paid from an annuity contract (see Q-4 of the -6 reg) or a DB plan the MRD is paid under the rules of IRC 401(a)(9), not IRC 72. In addition Reg. 1.401(a)(9)-1 Q-2 provides: " In general. The distribution rules of section 401(a)(9) apply to all account balances in existance on or after January 1,1985." I do not seen any reference to the application of IRC 72.

My understanding is that the IRS requires safe harbor contributions to be a contractual obligation of the employer. However the bankruptcy law allows the Bk court to suspend contractual commitments after the filing of bankruptcy and superceeds other laws. One reason not to do ADP testing is if the Bk ct will not approve payment to perform a test that the plan will obviously fail.

While institutional funds are cheaper than retail funds sold to individuals, they are cheaper because they provide less services to the plan than retail funds which means that the plan must pay other providers for these services. For example inst. funds do not perform due dilligence for compliance with securities laws, don't provide recordkeeping, don't offer call centers or investment education or tax reporting, all which are necessary for a qualified plan but are not required by other institutional investors such as tax exempt organizations, banks, insurance companies or hedge funds. In other words the employer, plan or the participants are paying some else for administration costs which are not performed by the institutional funds. If the participant moves his funds to an IRA he will not be assessed any cost other the management fee. As for allowing participants who will not do a roll over to access their money at 59 1/2, does it really matter how long the plan delays allowing participants the opportunity to spend their retirement funds instead of using it for retirement? If they havent learned that they need to save their 401k funds for retirement by 59 1/2 they will never learn. Have a Happy turkey day. I will spend it watching a lot of football.

Any payment to the spouse would be an assignment of interest by the employee which makes the payment taxable to him. While IRS regulations allow an assignment of the payment to the spouse it does not change his income tax liability.

me. It's a retirement plan for when you retire. In service withdrawals are allowed after 70-1/2. In service withdrawals eat up retirement savings, which I've been told is bad (unless you have a separate pile of money for retirement, I suppose.) But seriously, you seem pretty adamant about this, and I would like to know why allowing post 59-1/2 withdrawals is so important. Thanks. Because inservice withdrawals allow plan participants to roll over to IRAs which provide better investment options at cheaper costs. Vanguard has many mutual funds and ETFs that are available for a fraction of the fees charged by plans (less than 30BP). If inservice withdrawlas are allowed at 70 1/2 in the plan you described in your OP why is there a problem with allowing the owner to roll over the balance of the Roth account to a Roth IRA after the mrd is withdrawn?

We are talking about a rollover to a Roth IRA at 70 1/2 to prevent MRDs. Why would a plan not provide that option to avoid the participant having to take MRDs? I dont know of anything the the IRC which prevents a tax free rollover of a Roth 401k account to a Roth IRA if there is a distribution event. In any event why can't the participant take the entire Roth account balance as the MRD at 70 1/2?

I am nolt following. Every 401k plan I have ever seen allows in service distributions after 59 1/2. If not amend the plan. Who would pick a plan that doesnt allow for inservice withdrawals? Another idea. What prevents the owner from withdrawing more than the MRD for year (e.g. the entire balance) since IRC 401(a)(9) requires that the plan must allow the account balance to be withdrawan at 70 1/2?

why not take MRD for 2010 and before Dec 31, 2010 roll over the rest to a Roth IRA which has no mrds?

Dont rely on the custodian for the answer. The client needs to review the IRA agreement to see who inhertis the IRA if there is no designated beneficiary. Look for the term beneficiary in the Definitions section of the IRA. It is highly unusual for a custodial account to provide that the estate is the default beneficiary. Some custodians have changed the default beneficiary from the estate to the spouse by amendment after the IRA was opened.

There is no requirement that a plan must continue in existance after its scheduled termination date in order to to provide for a distribution under a QDRO. I dont see how a state court could order a delay of distribution of the assets since the plan is not a party to the divorce action and can only act when a DRO is presented. A plan cannot act on a DRO received after the date of termination. I am assuming that the plan wants to distribute all assets by 12/31 to avoid have to file a 5500 for 2011. Also from the facts you do not know when the DRO would be issued by the court. Best thing to do is notify counsel for the participant in writing that the plan will make distributions to the participant by 12/31 under previously approved corporate action to terminate the plan, and that the distribution should be rolled over to an IRA. Once the plan assets are distributed to the participant they are subject to division by the state court. The IRA can be transferred tax free to the ex by court order or property settlement with the same result as a QDRO.

I am a lost on what is the structure of the transactions. If the taxpayer is a non owner employee who is rolling over his assets in a Q plan to an IRA to purchase stock of an LLC established by the taxpayer you need to review the IRS rules for ROBS. I ignored this post because I do not know what is an IRA LLC.

Under Article IV of the Constitution each state must give full faith and credit to judicial proceedings of every other state. Domestication is nothing more than state Y accepting the divorce decree of State X, which is a court order or judgment, as its own as the Constitution requires which is the prerequisite to issuing a DRO.

Bankruptcy courts have broad powers to overide all contractual obligations of a plan. It makes no sense for the IRS to DQ a plan and cause taxation to the participants because the Bkcy court under its federal law powers refuses to allow a contribution to be made to the plan.

Since there has been a distribution to the participant no further action can be taken by the plan. Return the check to the attorney with the comment that it should be deposited in the participant's IRA if less than 60 days has elapsed. Otherwise it is a taxable distribution which should be deposited in the participant's bank account. In any event the distribution is part of the maritial estate subject to division by the state court handling the divorce since the funds are no longer a plan asset. There is no reason for the plan administrator or the employer to waste time or resources on this matter.

See Life and Death Planning for Retirment benefits, P 174 "There is no statute, regulation or case stating [the above] principle. Nevertheless it is the IRS's most well established longstanding, consistent and logical position in the entire field of employee benefits distributions. Dozens of of private rulings have affirmed this principle consistently since 1993." You need to check the IRA agreement to see who is the default beneficary if no beneficary is designated at death. Most IRAs have eliminated this problem by making the spouse the default beneficiary if there is no designated beneficary at the death of the IRA owner.

The RMDs would be eliminated if the owner went to work as an employee at another company that allowed non owners to defer payments after 70 1/2 and rolled over his account balance to that employer's plan.

What does the RIA's agreeement with the plan say about limitiing his advice to the fiduciaries? I can see that the fiduciaries would be concerned that his relationship to the plan would give him an unfair advantage in soliciting participants and could create a potential conflict with the advice he gives to the plan.

The reason you cant find any rule that a 401k plan participant cannot grant trading authority to another person is because the DOL regs expressly allow a participant to appoint their own fiduciary to manage their investments. See DOL reg 2550.404c-1(f) example (9) which specifically authorizes a plan participant to hire an investment manager as a fiduciary to direct his investments in the plan if the plan permits such delegation. Under the Reg the investment manager is the fiduciary to the plan participant but the plan fidiuciary has no duty to advise the investment manager and the plan fiduciary is not a co-fiduciary with the investment manager. In addition, the plan fiduciary has no duty to determine the suitability of the investment manager because the plan did not designate the investment manager.

I understand, it was my ignoriance of the law and proccess that did me in. Am in the proccess of getting an legal representation. My amazement (though I should'nt be) is about the statute of limitations never runs out for filing a QDRO but the records it's based on has a short "shelf" life. They should be changed to match to prevent this sort of thing. Thanks for the response, Dan. The s/l for enforcement of QDROs under ERISA is subect to the same limitation that applies for benefit claims which is the most appropariate state law that is similar to your claim. For example division of pension benefits in a divorce is usually incorporated in a divorce decree which is a judgment. Most states have a S/l for enforcement of judgments. However, state courts are reluctant to deny the ex spouse's claim because of the passage of time. You may want to assert the doctrine of latches which is anm equitable remedy which denies the claim of a party because of an unreasonabl long delay which results in a detriment to the defendant. In your case your ex's failure to haver her claim for your benefits determined for 19 years has created a detriment to you in that you cannot determine what is your share of the pension. Latches is a complicated doctrine and you may have to bring an action in federal court to enforce it.

it was never on my radar scope that anyone would construe the original post to mean that TIAA would be making loans to plan participants outside of the annuity contracts used to fund the benefits. I can see that your problem was with the phrasing of the original post to imply some kind of loan outside of the annuity contract. As for the fiduciary issue, TIAA sets the interest rate under the provisions of the TIAA annuity contract which currently is 5% and floats with the Moody's corporate rate. TIAA credits 3% on the amount borrowed. As I understand it the loan is between the participant and TIAA, not the plan, and the loan continues after termination of employment. The interesting question is what is the fiduciary responsibility where the loan is made by TIAA with non plan assets. A reasonable rate of interest is is considered an interest rate charged by banks in the business of lending money. Is 5% a reasonable interest rate especially when the net interest rate after deducting the interest earned on the annuity is 2%?

Why is a loan from a TIAA annuity contract any different than a loan from a trusteed plan? Both are permissible loans under ERISA 408(b)(2). I dont understand your garnishment theory. ERISA 401(b)(2) states that in the case of a guaranteed benefit policy issued by an insurer plan assets do not include the assets of an insurance company. Any action taken by the insurance company under the annuity contract to recover the defaulted amount involves assets of the insurer's general account.

What is the basis for a PT? See ERISA 403(b)(2).