mbozek

I dont understand the Q. A lump sum payment made to the AP under a QDRO is the AP's property and can be rolled over to an IRA under the IRC. A QDRO cannot control the APs right to roll over the distribution once the payment leaves the Plan because a QDRO by its terms only pertains to payments by the plan to the AP,but cannot limit what the AP can do with the funds after receiving the payment from the plan. Why cant the plan reject the DRO on the grounds that it conflicts with the rights of a spouse beneficiary to rollover a distribution under the IRC and require that the provision preventing rollover be eliminated?

If he is an employee at will he can be terminated for absentism or the faliure to provide proof of of illness to the employer, neither of which reates to a health plan covered under HIPPA.

B: You have a citation for your position or is this a matter of opinion on which reasonable minds can differ? I think the funding, while aggressive, is not expressly prohibited. I dont see the issue if the er can make contributions to the plan anytime during the year. I also dont think this will show up on audit as anything other than a contribution for the plan yr. Its a business decision by the client which will be taken in order to obtain a settlement with the HCE.

Unless the plan prohibits contributions to specific individuals, I dont see a problem with making a contribution at this time because all contributions made during a tax year are deductible for that year. Plans usually provide only that employer will make designated contributions to the plan by the date for filing the tax return with extensons. In severance agreements the parties will frequently agree to provisions that are not contemplated by plan documents, e.g., employee will continue on payroll and accrue benefits for several years although not required to perform any duties or show up for work. I dont see the BRF issue if there is nothing in the plan document that requires this practice. Eliminating the end of yr reqirement is merely an economic decision that will benefit all particpants in future years, no different than reducing the vesting schedule.

You were lucky that the participant incriminated himself and that the amount was significant. In most benefit disputes where the plan claims it made an error in stating the value of the account it is impossible to discern criminal intent from a refusal to return funds since there is an honest dispute over the amount of the benefits.

While the plan can sue the participant for unjust enrichment, the plan can only recover the excess distribution if it identifies the specific funds that were paid to the participant that are still in his possession. If the participant took the 12k to Las Vegas and lost it at the craps table the plan has no way to recover the funds because ERISA is a law of equity for which general damages cannot be recovered. I dont see any criminal intent since the plan overpaid the amount without any fraud or larceny by the participant so this is a civil matter, i.e. a dispute over the amount of the participant's benefit under the plan.

Most small businesses are organzied as S corps which do not pay taxes.

Under state law a check payable to a decedent becomes property of his estate and can be cashed by the representative of the estate, e.g., the executor for distribution under his will. Under IRS rulings, if the spouse is the sole bene of the estate, the pension distribution check can be rolled over to her IRA.

If they are hces why do they need to have fixed hours of svc? An owner can agree to work any amount of hours in return for a fixed salary. If they meet the definition for participants (e.g. 5% owner with comp.) they can be included in the ADP testing. Owners frequently "retire" but continue to perform services for the business. I dont understand the difficulty that some people are having with the concept that owners don't punch time clocks or keep records of their time. Locust could you please explain why the IRS would charaterize these payments as dividends which would not be subject to FICA tax instead of wages declared by the owners? My understanding of the law is that owners try to disguise wages as dividends to avoid paying fica taxes on the income.

The legislative history of Sections 641-3 of EGTRRA indicates that Congress intended to permit portability between IRAs and employer sponsored plans (other than nonqual DC plans of private employers) without distinction in how the funds could be used after transfer to the employer plan. The only reason for transferring Q plan funds to a Conduit IRA would be to retain special tax advantages, e.g., 10 yr averaging and captial gains if the funds were transferred back to a Q plan at a later date.

There are many reasons why the attorney will not respond including the fact that he did not take over her case from the retiring attorney or she refuses to pay an outstanding bill. The AP should contact the bar association in the county where the divorce was rendered to get a referral to counsel who will handle the QDRO.

The 2001 tax act eliminated the difference between conduit and non conduit IRAs. Any IRA funds (other than AT money) can be rolled over to a Q plan from an IRA, where they become assets of the Qual plan for investment purposes. Before the change in the bkcy law it was recommended that IRA funds be rolled into a Q plan to prevent seizure by creditors. Having only the HCE utilize an investment option does not violate the BRF rules if the option is available to all other participants. Otherwise every plan investment in which only HCEs invested would be discriminatory.

If the proceeds are payable to the beneficary, the amount of the death benefits (proceeds minus the cash value) are excluded from income tax under IRC 101(a) if the employee was taxed on the PS 58 cost of the insurance or paid for the premium with a/t dollars. The cash value is a distribution from the plan which can be rolled over. Reg. 1.72-16©.

2 options: Make check payable to estate. If spouse is sole beneficiary of estate then she can roll it over to her own IRA. Check plan procedures to see if there is a default option where participant dies without a designated beneficiary. Most plans have a provision that pays benefits of a deceased married participant to the spouse where there is no designated bene.

The determinaton of what assets of the marital estate may be transferred to a spouse is determined by the divorce laws of each state. You need to consult with a qualified attorney for the answer.

TAG: I dont understand your point. No one is disputing the right of a state to tax wages of employees who work or live in the state which can include amounts contributed to a 401(k) plan. (NJ taxes 403(b) elective contributions but not 401(k)). Withholding of distributions from pension distributions is another story because because it prevents uniform plan adminstration which is the primary reason for preemption. Northwest Airlines v. Roemer 603 Fsupp 7 held that state tax levys on retirment benefits were preempted. Further there is a constitutional principal that prevents state taxation of entities that do not have a presence in a state. A plan that operates out of NY and has no operations in Ca does not have to withhold Cal income tax on distributions sent to a retiree living in CA. I am still waiting for someone to provide a state law penalty to a non resident entity for failing to withhold taxes. There is no benefit for plans to pay for unnecessary services such as withholding of state income tax on retirement benefits on non residents just because the services are available.

A: No one knows what that statement means. When does a resident become a non resident/domicilary for the purpose of taxing a lump sum distribution. States provide for taxation of income earned during the year before a resident leaves the state. But can a resident who moves to his new residence in mid year be a non resident/domiciliary if he has his LSD sent to his new address after quitting his job and moving to his new home but before he sells his residence in the state where he worked. Hasnt he established a new residence/domicile at the time the check is mailed to him. Given the confusion of when someone ceases to be a resident for state income taxes how can a plan withhold state income taxes on pension distrbutions. I have reviewed the income tax residency requirements of 4 states this year and the logic of the rules are of the I know it when I see but I cant explain it variety. Suggest you read the instructions to the NJ 1040 or the PA 40 form. By the way snow birds keep careful records of the days they reside in FLA as evidence that they do not reside in NY for the minimum 183 days a year required to pay NY income tax. Financial institutions provide services such as state tax withholding because they can charge a fee to the plan for doing it. (Some admin people in financial institutions may not be aware that state income tax withholding is not applicable to pension plans. I question why a plan should pay for a service if 1) it is not required under law and 2) the plan administrator has no way of knowing whether the withholding is being done correctly. It doesnt make sense to withhold state taxes from pension distributions which will be refunded when the employee files a tax return.

Hyper: your posting is a good example of why the plan should not withhold state income tax from plan distributions because the payor cannot be sure of what to withhold. (There is no answer to the question you raised. A plausable answer is that the employee has changed his residence to another state now that he is retired.) State income taxation is based on residence not domicile (since a person can only have one domicile but can have more than one residence). Every state e.g., NY, PA, NJ, NC, determines residence differently. States cannot collect income tax from pension distributions of non residents. Secondly residence for income tax purposes is the responsibility of the taxpayer not the payor who cannot know what state the employee will owe taxes to. Employers do not withhold employee's state income taxes for states in which they do not do business because there is no legal obligation to do so. It is a waste of plan assets to pay someone to determine what state income taxes should be withheld from plan distributions since state withholding laws are preempted.

Can you tell me if the distributions have been reported as taxed to her on the 1099 since they were constructively received? If the funds are taxed to her how can you restore them to the plan since they are no longer plan assets? I dont know why there can be no seizure until she cashes the checks. If the funds are payable to her they are as good as cash. The IRS has authority to seize pension distributions which are payable from a plan even if the participant has not requested a distribution. What does the trusts' counsel say about the obligation to turn over the checks to the IRS? As trustee where do you have descretion to stop payments- have you talked to counsel for the plan?

See IR 2005-84 for IRS extensions

There have been previous discussions on withhholding of state income tax by pension plans on the distributions message board. There are two differing opinons. One group beleives that the plan has an obligation to follow state income tax witholding laws for distributions paid to participants. The other opinion is that state income tax withholding laws are preempted by ERISA from applying to plan distributions so it is the employee's responsibility to pay any applicable state income tax. Why does the plan care what address the employee uses as a residence?

Are you going to appeal?

If you want a lower price for the SPDs "Make the lawyer an offer he can't refuse."

I dont understand what you are looking for. An SPD is a legal document which states the rights of plan participants to benefits under ERISA. Why would a non legal document service provide an employer with a document that it will certify meets the legal requirements for an SPD for which it would be laible if the document violates ERISA. There are a lot of providers who issue SPDs but advise employers to have the doucment reviewed by counsel for compliance with ERISA because they do not practice law. The client could combine the 403(b) plans to reduce the cost of the documents instead of having separate plans. Alternatively you could take no names advice and certify that the SPDs meet the legal requirements for an SPD.

How do state labor and civil rights laws affect the plans since state laws are preempted by ERISA (outside of state laws regulating the insurance policy)? Employer provided insurance benefits are not taxed under the IRC.