mbozek

Non discrimination for employer contributions to non profit 403b plans became effective in 1989 but only prohibits discrimination in favor of HCEs, i.e., in 2009 employees who earned over $110k in 2008. If the plan had no HCEs beginning in 1993 there is no discrimination. There is no ADP testing for employee contributions to the 403b plan. Since a 403b plan is not subject to IRS filing requirements the 5500s for prior years can be submitted under a DOL remedial program that used to cost only $1500 regardless of the number of years missed. I once had a client file 5500s back to 1975 and pay only $1500. You cant reverse the contributions for 09 if they are 100% vested and it doesnt change the plans ERISA status for prior years. The client needs to find a good lawyer.

The answers to your questions will be in the agreement with the current investment advisor. Are you substituting one advisor to the plan with another while the Plan assets will remain in the trust? One question is whether the new advisor has obtained all of the necessary licenses for the assets held in the plan.

There are legislative exceptions for inservice from annuity contracts attributable to employer contributions as well as all contributions prior to 1987. Prior to 1987 there were no restrictions on inservice distributions from a 403b annuity contract. There is also a grandfather provison that exempts the accumulation value prior to 1/1/87 from the MRD rules. The exemptions for pre 87 annuity benefits are in the effective date provisions for the 403b annuity changes in the 1986 tax reform act, PL 99-514 sections 1122(d)(2), 1123©(1) and ©(2). You need to look at the effective date provisions to see if there is an exemption from the penalty tax.

Is this a government 401k plan or a private 401k plan? If the plan is subject to ERISA funds never should have been escheated to the state. The solution is for a plan repesentative to request payment of the funds from the state agency holding the money and allocate it to the owner/participant. the procedures will be in the newpaper advertisement or chekc the internet listing for the state agency.

not allowed. See Rev Rul 87-77. Only the property distributed can be rolled over to an IRA.

Where did you get the idea that commercial banks can declare bankruptcy? Insolvent banks are seized by the FDIC (e.g., WAMU) which administers the liquidation of the banks assets and absorbs the bank's liabilities. Only investment banks (Lehman) must declare bankruptcy under chapter 7.

How can he trade any commodity or security without using a licensed representative for the trade? All commodities must be sold by a licensed trader. As far as risk, under dol rules if he self directs the account he is not a fiduciary and neither is the plan fiduciary. See examples 5 and 9 in reg 1.404c-1(f) especially 9 where the participant hires his own investment manager to manage his plan investments. Why not have the plan require that the doctor hire his own investment manager to preclude any fiduciary liability on the part of the plan fiduciary under example 9?

No, what matters is what the IRS and the Tax Courts determine to be a "sham transaction". To get a better idea of what we're talking about, try a Google search on the three words: tax sham transaction How about giving us a example where the IRS held a termination, distribution and rehire to be a sham transaction where there is no avoidance of taxation that would otherwise occur. If a distribution permitted under the IRC such as 401(k)(2)(B) is rolled over as permitted under IRC 402©(4) then the deferral continues as it would if the benefits had remained in the plan. If the distribution is not rolled over then the employee is incurring tax rather than avoiding the taxation that would occur in a sham transaction. Thousands of employees terminate and are rehired each year by their employer for varying reasons. Is it ok for a laid off employee who has taken a distribution to be rehired because of an increase in work without there being a sham? What about an employee who quits, takes a distribution and then returns to work for an increase in pay? What about rehiring an employee who elected to retire and take a lump sum as permitted under the plan? There is problem in defining what constitutes a sham transaction for rehiring an emplmlyee who receives a distribution upon an event permitted under the IRC when employment is legally in the US as at will where either the employer or employee can terminate employment and both subsequently agree to reemployment.

Since the reg specifically states that the exemption applies to LI proceeds in excess of the cash value paid to the beneficary of the LI contract, why isnt the exemption limited to the trust who is the designated beneficary under the LI policy, not the beneficary under the plan who receives the proceeds from the trust, the same way that that a distribution of an IRA to paid to the owner's estate as the designated beneficiary which then pays the funds to a spouse is not eligible for a tax free rollover, unless the facts meet an exception which permits a spousal rollover. Which brings up the interesting question of whether the IRS has ever issued a PLR allowing LI death proceeds that are paid tax free to the plan trustee as the beneficiary of the LI are deemed to be tax free proceeds under reg 1.72-16©(2)(ii) when paid to the deceased employee's designated beneficiary under the plan.

Unless you're paying a flat fee for advice, remember that this person has a financial incentive (namely commissions and fees) to push you to take this action. You're consultant won't be the one who's hurt if the 403 gets in trouble w/ the IRS. But be very aware that if the IRS says the rollover was a sham, then the entire amount will be immediately taxable to you (plus penalties and interest). Actually, there is not distribution with termination of employment....only an IRA rollever, which remains in a tax sheltered situation, unavailable until retirement without penalties. My retirement consultant is simply restating a profit sharing plan I also have. She has no vested interests in this, does not invest and has nothing to gain in to opinion she ventures here. This morning I consulted directly with the IRS and was routed through to an agent specializing in 403b's. She went through all the regs and advised that there was nothing prohibiting a termination of employment, rollover and then rehiring. This occurs all the time and there in nothing in the regs that relates to intent. She agreed that whether or not there is an intent to rehire, when there is a formal termination and I leave my employment for any peroid of time, this is indeed a triggering event. She agreed that while it may sound like a sham, it is indeed a legal sham. My problem now is getting the powers that be to not try and second guess the IRS, as they still believe that they would be jeopardizing the plan. It seems that the question about all this has to do with intent. If I really want to quit employment I could to this and rollover my 403b. Then if I decided soon after that I changed my mind and the agency agreed to rehire, all is well. The problem seems to be that others assume illegality if the intent of ending employment is simply to get the rollover. However, the IRS advisd me the the reasons for termination are not relevant or limiting in terms of making a triggering event. I would welcome comments from other who have prehaps gotten a different read for the IRS and had a different experiece on this. Despite what has been posted on this board, as noted by the IRS agent there is no IRS rule that prohibits rehiring an employee who has terminated and received a distribution. In some businesss with high turnover it is a common practice to rehire employees who have terminated to save on the cost of training new employees. In some cases the employer allows rehiring after a specific period has elapsed. In other cases the employee comes back as an independent contractor, or after retirement. There is really no way to distinguish between a sham situation and legitimate case where the employer rehires a employee whose skills cannot be replaced in the market place, i.e., the employee quits in order to be rehired at a higher salary. The difference between your sitution and the situaton cited in the ID case is that in the ID case the payment to the employee violated the IRS rules for inservice distributions whereas payment of your distribution is expressly permitted under the tax law. However, there is nothing that would require that your employer agree to participate in the scheme you propose.

I thought the outstanding loan balance is taxed to the deceased employee's estate and the beneficaries get the benefits. There is no penalty tax because any benefits are paid on account of the employee's death.

Steve: Thank you for coming to the party two years after it ended. It must be a slow season for 'judgment enforcement professionals' for you to spend so much time discussing a debt collection procedure for a loan made by an IRA that would be subject to UBIT tax (See IRC 512) ahead of any creditor's claims. The loan discussed in the prior posts was a generic unsecured loan that the IRA owner would enter into, e.g., to buy a car, not a loan taken out by the IRA as a separate entity and secured by IRA assets. Whether a general creditor can enforce a judgment against the IRA account of a judgement debtor depends solely on state law. For example, NJ law (NJSA 25:2-1(b)) protects IRA assets from all creditors except for fraudulent transfers or a QDRO. NY has a similar provision. see CPLR 5205©.

To be held to be a fiduciary the plan administrator has to prove that a person has exercised discretionary authority or control over plan asset management. Signing checks to pay benefits is not enough to be a fiduciary if party does not have discretion over which creditors to pay. Finkel v. Romanowicz, 2nd circuit 2009

Check the fund rules for redemptions. Many RE funds have frozen redemptions because they dont want to sell properties at depressed prices so they are restricting distributions to conserve cash. This is no different than the investors who purchased auction rate securities where the markets are now frozen and no one will buy the notes from the investors to provide liquidity.

What about the most common sense answer- You will provide copies any any document requested after the client pays the amount owed or the copying cost in advance.

The House report to HR3 which was enacted as EGTRRA contains a statement on sections 641-3 of the bill that capital gains and income averaging treatment from a qualified plan distribution could be preserved if the distribution was rolled into a conduit IRA and then rolled back to another qualified plan. There may also be a PLR on this question.

What you need to do is contact a US bank which is a a subsidiary of an Israeli Bank such as Israel Discount Bank or Bank Hapoalim in NY and ask them if this can be done.

An employer can contribute to both a SEP and 401k plan in the same year but the plans are subject to a single DC limit. However some IRS model SEP plans do not allow the employer to maintain another plan. You need to read the IRS model document.

I dont see any issue here. Under US Supreme court precedents beginning with Boggs v. Boggs, the surviving spouse of a participant is automatically the beneficary of the participant's death benefits with priority over all other beneficaries unless that spouse waives the benefits in accordance with the provisions of ERISA, e.g., in writing. The only other exception is if the ex spouse has a valid QDRO before the employee remarries. All you need is the birth certificate and marriage license of the surviving spouse to the deceased participant. I would pay the benefits to the surviving spouse and not bother with the first wife for the obvious reason of why get her involved which will delay payment to the current spouse and the absence of any basis for her to receive benefits under ERISA. If the ex files a request for benefits treat it as a claim for benefits and then deny in accordance with the plan's procedures. Ex cannot bring a lawsuit before filing a claim with the plan administrator. The plan should not file a claim in interpleader unless there are facts demonstrating that the ex has a viable claim under a QDRO or because of a spousal waiver because a court would dismiss the action and then assess legal fees and court costs against the plan for bringing a frivilious lawsuit. The idea that the plan can merely file an interpleader and then sit back is not correct in some districts where judges award fines for fines for filing frivilious suits under rule 12b. A few years ago a large pension fund brought an interpleader on the grounds that the surviving spouse had abandoned the deceased employee and the benefits could be paid to the family members. The judge awarded the benefits to the spouse on the grounds that there was no facts to support abandonment and then ordered the pension fund to pay the legal fees and costs of the surviving spouse.

I thought that medicare premiums cannot increase in years where there is no SS COLA increase. However, about 25% of medicare beneficaries are not protected by this provision because they do not receive SS benefits. In addition the medicare Part D drug premium which is paid from social security benefits will increase in 2010. Also IRC 415(d)(1)(A) and (B) provide that the 160,000 limit for DB plans and the 40,000 limit for DC plan shall be adjusted annualty for cost of living increases. What is the authority that authorizes a reduction for a decrease?

Why would it be necessary to have a citation or a PLR to provide proof that the DB UP conversion is perfectly acceptable since the regs are deemed to be the law the same as the IRC? Are you saying that unless a taxpayer pays for a PLR to validate something that is expressly permitted unded the Regs then an IRS agent can deny the tax benefit? If so then why bother having a reg which states what is permitted? I think what the client needs to do retain counsel with the requisite advocacy skills who will ask the agent for a letter stating what are the reasons why the conversion fails and the citations to the appropriate authority under the code and regulations which form the basis for the answer.

Maybe I dont understand what is being discussed but Dol Reg 2550.404b-1 lists many exceptions in which the indicia of ownership of plan assets may be maintained outside the jurisdiction of the US courts. Why wouldn't one of these exceptions apply?

I thought the IRS regs answered the q as no reversing notice 89-23.

Its public law 98-397 signed 8/23/84. Have you checked the benefitslink library?

But if the spouse or kids will be in a lower bracket after the owner dies then the roth conversion will cost more in taxes paid. If there are separate shares paid to the kids they will each be taxed in their own tax bracket so that two kids will each receive 50% of each MRD. The owner can divide the IRA among the spouse and the kids to minimize taxes. Or the spouse could get the income from the IRA and the kids could get up to $3.5M in capital assets with stepped up basis and no estate tax. Also the owner can make lifetime gifts to the spouse or kids to reduce any estate taxes in excess of 3.5M. The spouse will have a 3.5M exemption from estate tax. You need to talk to an estate planning attorney because this is an estate tax problem not an income tax problem.