mbozek

There are ct cases involving Enron and McKesson-HBO where the issue of a 401k lan fids reponsibility to act upon material non public information under ERISA is discussed. I dont know if the Fed cts have ruled that a fid cannot act because of the securities law prohibition against using material non public information to make investment decisions without disclosing the information to all investors. The liability of a fid in a DB plan is more limited than in a 401k plan since co stock cant comprise more than 10% of plan assets and secondly the plan sponsor must make up investment losses by increasing contributions to the plan. Other than bankruptcy of the plan sponsor which results in a loss of accrued benfits I don't know what the claim of a participant would be if the plan has sufficient assets to pay benefits.

The cite in Pub 535 mirrors the language in the 1040 instructions for deducting the health insurance premium for 2% owners of an S corp. I dont understand the rest of your post.

Tax advisors occasionally mischaractize IRA trusts as a form of taxable trust which does pass through income to a beneficary with the same characteristics as the income the trustee receives, eg. cap gain, tax exempt income, etc). However, under IRC 408 all distributions from an IRA trust or custodial account with no after tax contributions are taxable income because the funds in the account have 0 basis. See pub 590, P37.

limitation of after tax contributions to retirement plans is a democratic concept - not a republican principle. 402A doesnt not have any provision for testing contributions - The statute specifically permits all or any portion of an elective contribution to be designated as a roth contribution. For non HCEs this means 15k plus catch up. For HCES it is the amount permitted by the ADP. The reason is obvious- all roth contributions are subject to income taxation which increases revenue.

There is no over 50 catch up for 457(b) plans of NP employers which limits deferrals to 14k.

Why would there be any discrimination issue since the contributions are made with after tax dollars? IRS cant impose rules that are not imposed by the statute. IRC 402A allows an employee to designate any amount of elective deferrals up to the maximum amount of elective deferrals permitted for the tax year as Roth 401k contributions.

The Surviving spouse's right to a spousal annuity vested when benefits commenced to the employee. AP has no right to portion of survivor annuity since DRO was not approved as a QDRO before benefits commenced. Court cant issue DRO awarding portion of surviving spouses benefit to AP because surviving spouse annuity is vested property of surviving spouse, not employee and divorce court has no jurisdicton over vested benefits payable to surviving spouse. Only option for plan would be to pay the AP a separate benefit without reducing payment to the surviving spouse if plan permits such a payment.

The instructions to line 31 notes that the health insurance deduction for self employed persons is available to S corp owners.

IRC 1372 includes the cost of fringe benefits for 2% owners as taxable income for purposes of subtitle A (income tax). Wages subject to FICA tax are defined under Subtitle C which excludes amounts paid by the employer for accident or health ins. of an employee. The sub S owner deducts the health ins premium from their income on line 31 of the 1040 and can claim exempton from withholing for amount of health ins. So in the end the cost of employer provided health ins results in 0 tax to an S corp owner.

Forms: Why arent state lending laws preempted by ERISA because they conflict with the rules for investing plan assets? ERISA does not preempt other federal laws such as the truth in lending law. Plan can secure loan by mortgage on residence to allow the borrower to take a tax deduction on the interest (as long as the funds used for the loan do not come from salary reduction contributions).

NY courts have accepted the premise that ERISA preempts any claims by a creditor to a return of plan assets that were fradulently transferred to a pension plan by a debtor corporation because Supreme Ct cases do not permit implicit exceptions to the non alienation requirement. Majteles v. AVL corp. 192 Misc 2d 140. Creditors can seize distributions after they are paid to a participant.

NQDC are top hat plans exempt from ERISA rules regarding cutback of benefits, vesting etc. You need to review plan documents regarding right to reduce accrued benefits as well as employment contracts or other agreements. Many TH plans have a provision that prevents employer from reducing accrued benefits but can only reduce future accruals. Some plans limit liability to assets reserved to pay benefits under the plan. There is no general rule because it depends on how the plan drafter decided to handle the issue. Poorly drafted plans are silent on the reduction issue which creates ambiguities over the right to reduce benefits. Employers have been sucessfully sued because they reduced benefits or terminated TH plans without appropriate language. There is no alternative to retaining counsel.

See IRS publicaton 560 (deduction of contributions) and Rev. rul 76-28 for the timing rules for deducting contributions. Under IRC 404(a)(6) contributions are deductible in the employer's tax year in which they are contributed to the plan, or for the prior tax year under certain conditions described in Pub 560.

The legislative history of IRC 223 states that HSAs are subject to rules similar to those applicable to IRAs. There is no reference to SPDS or any other notices outside of w-2 reporting. Any ins purchased by an employer would be subject to the applicable SPD requirement if provided by an employer. I dont know what would be in an SPD for just the HSA since the employee has control over disbursement of the funds and there is no claims procedure, eligibility or other info normally found in an SPD.

A 30 year loan would be reasonable only if it is likely that the employee would remain employed for 30 years which is highly unlikely in todays employment environment outside of public employers. Most employers limit home loans to 10 -12 yrs.

A contractual obligation to pay benefits can only be made under the terms of the plan document and collateral obligations such as employment contracts. Your client needs to retain counsel to determine whether accrued benefits can be reduced without the employee's consent.

ERISA 205(a) requires that the normal form of benefit for money purchase pension pension plans must be a Joint and 50% survivor annuity and a pre retirement survivor annuity. The normal benefit for a single person is a single life annuity. 403(b) plans with fixed contributions are regulated as money purchase plans. In order to fund benefits under a MP plan with mutual funds, the plan must have a provision that the benefits will be automatically paid in the the form of a J & S annuity unless the employee opts out. This means that every time a participant terminates, dies or retires from a MP plan funded with mutual funds, the plan must get quotes from several reputable annuity providers of the rates for an individual single life annuity or J & S annuity of the expected annuity benefit payable to the participant and then determine if the quoted rate is reasonable. Very few employers want to to go through the trouble of getting quotes every time time an employee comes up for a distribution. Most insurance companies will not issue quotes on small account balances or have higher charges. Employers terminate qualified MP plans because the plan is required to get quotes for a J & S annuity even though no employee elects the benefit.

The proposed regs cannot apply to plans until at least 60 days after the Treasury issues final regulations. In order for the regs to be effective for plan years beginning Jan 1, 2007 the final regs would have to adopted not later than Nov 1, 2006.

Plans usually provide that amounts in b7 account will be transferrd to a 403b annuity where participant does not transfer the funds voluntarily in event of termination. Proposed 403b regs would permit tax free rollover to IRA upon plantermination.

There are more admin cost in 401k plan because it is requires a determination letter and periodic amendments as well as filing of full 5500 and ADP testing if HCEs participate. 401k plan permits exclusion of employees with less than 1 yr of service. 403b plans permit HCEs to contribute max salary reduction plus 3k for ees with more than 15 yrs of service w/out ADP testing. 5500 filing is minimal. Matching contributions are subject to ACP test. No formal requirements for termination other than board resolution and filing of final 5500 and SMM. If mutual fund is used for plan funding, assets need to be transferred to another b7 account or annuity. Why does client think that changing to 401k will allow bettter investment options? Outside of allowing investments in individual securities through directed brokerage, the investment choices are not much different for NP.

If not permitted, plan can be amended to provide for distribution upon termination w/out violating any Q plan requirements (although I dont know why a DC plan would not currently permit distribution at termination). You dont need to know all the facts in order to propose a solution. I am not aware of any problems in permitting a distribution at NRA w/out separation under IRS rules.

what is the cut back of an accrued benefit in a DC plan? Since the accrued benefit is the account balance the change of retirement age is meaningless as long as the participant can receive his account balance upon termination. to avoid vesting issues vest all current participants 100% at age 60.

While the funds are competitive with t/c annuities there are additonal costs associated with mutual fund 403(b) plans for administration and record keeping which are not included in the mgt fees. Another problem is that the low cost providers demand high amounts of assets which most NP cannot deliver leaving commission annuity contracts as the source of plan contributions. Finally NP 403(b) plans must be provided through annuity contracts if the employer makes fixed contributions. Only plans exempt from ERISA such as salary reduction only plans can be funded through mutual funds only.

Gary: your client needs to see tax counsel to determine whether there is a taxble gift of 499,999 on the transfer of the property for less than its FMV to the separate party, resulting in the loss of the 1/2 of the client's lifetime gift tax exemption. If the client does not file a gift tax return, the s/l on the transaction never runs out which could cause gift tax to be imposed at death. Separate party may also have a taxable gift but thats another issue. Finally an reversion of surplus plan assets is subject to both income tax and the 50% excise tax on reversion when the plan is terminated which usually eliminates the surplus.

There is no need to have crystal ball accuracy on the unkown value of future medical care as long as the participants execute a waiver of rights in return for the cash payment. Courts have upheld waiver of rights by participants for future claims under ERISA.