mbozek

In an asset sale the amount of unused FSA contributions are transferred from seller to buyer as part of the purchase price and the buyer establishes a FSA on the day after the sale with opening account balances of the participants as of the sale date. There is no rollover because the seller owns the assets used to pay FSA benefits.

Ther is no need for employer approval or plan provision permitting a transfer funds held in an individually owned annuity since the employee owns the contract. Distribuons form a group annuity are subject to the terms of the contract.

Do the employees have vested rights to retiree health coverage? Most plans do not vest employees in retiree medical for life but provide that the benefits can be reduced or terminated at any time by employer. If employee has vested right to lifetime retiree medical benefits why would he trade it in for a lump sum payment?

I dont know what there is to administer. Even simple arrangments will cost several hundered dollars a year or more or a % of the assets. Once your client hes engaged a vendor it will be difficult to extricate itself from the vendor's investments. If the employees self direct investments there will be no need to call you or charge them for the call as a means of discouraging them.

Why do you need a vendor with all of the attendant costs for a plan with one or two employees? There arent any moving parts in a 457(b) plan other than the amount of the deferral and distribution under the MRD rules. Distributions are taxed as wages on a w-2. There is no annual reporting,vesting or participation requirements, fiduciary rules, spds or testing of contributions. I have prepared plan documents for NP which permit self directed accounts where employee selects a financial institution to invest the contribution. Employer establishes the account as the owner and employee has a limited power of attorney to invest the funds but cannot withdraw funds. Employee gets account statement from financial institution. Employer's only out of pocket cost is for preparation of plan document. Employer gets benefit of letting exec choose where to invest the contributions and saves cost of plan administraton.

Joel: According to the T/C website, TIAA-CREF offers the retirement class of shares of TIAA-CREF institutional mutual funds as an option for retirement plans as a separate retirement product from the CREF VA. The prospectus for the retirement class of mutual funds has different expense ratios.I dont think the SEC would consider the mutual funds to characterized as a VA. In any event I think Demo can speak for himself as to what he really meant and not what he said in his post on annuities being non competative to mutual funds.

The plan assets can be transferred provided that the transfer is permitted under state retirement plan laws, the plan document and any applicable collective bargaining agreements covering the plan participants. PBGC rules do not apply to govt plans. There is a legal question of why the active ees want to terminate participation in the DB plan. Most states have laws that require payment of vested benefits under public retirement plans and since states do not become bankrupt any shortfall will have to be made up by the govt. Converting to a DC plan will result in a loss of this guarantee and result in a lower benefit at retirement.

Joel: CREF offers both variable annuities and mutual funds under 403(b)(7) to fund 403(b) annuities. The mutual funds are a separate product line from the VA. I dont see any reason why CREF no load annuities cant be compared to mutual funds under 403(b) plans.

Dick- No one can give an opinion on a course of action without reviewing the plan documents and applicable law. There is no requirement that a taxpayer file an amended tax return. The client could elect to take a business risk that the s/l will run out before the employer is audited. The client has to retain counsel to get informed advice on the problem which will involve the expenditure of several thousand $. Do you know the amount of the matching contribution that is delinquent?

The question is how much legal advice can the client afford? The easiest answer is that IRS generally cant collect back taxes more than 3yrs after return is due. So tax years prior to 2002 are closed. Client needs to hire counsel to review options including filing under VCR, terminating the plan without making the contributions or making the contributions with interest but not reporting PT. Need to review whether client had obligation to make matching contribution to plan. Client needs to know cost of each option. If client isnt able to make up contributions, interest and penalities there is no reason to go for VCR.

Distributing 10k in excess of the participant's account balance is a breach of fiduciary duty as well as a disqualfication issue.

Plan admin has to collect the 2k from the remaining account balance regardless of whether the participant wants to do a direct rollover in order to comply with law. If you can get the participant to sign a hh agreement for the 10k then get it.

Has any one asked for an opinion of counsel as to the liability of the plan's fiduciaries if the plan does not have sufficient assets available to pay benefits when a distribution is due. This isnt a funding issue- its a fiduciary liability issue. Plan fids have been sued where they failed to make sure that there were sufficient assets available to pay benefits.

I think some people are blowing this problem up out of proportion to the violation. There is no issue in reporting the distribution since the employee will receive the lump sum in one calandar year which can include more than one payment during the year. The trustee can authorize the lump sum distribution to meet the plan requirements for a distribution. I dont think that the plan will be able to recoup the funds from the broker since the amount that was paid is due the participant under the plan, and is not an excess payment. The broker will not give the plan a hold harmless agreement in the very unlikely event the plan is disqualfied and requiring/demanding the participant to sign a hold harmless in order to receive the balance of his distribution would be a violation of Section 510 of ERISA. Atempting to recoup the funds from the participant or broker will require the plan to incur substantial legal fees to recover money that the participant is legally entitled to receive from the plan and will be ultimately be paid back to the participant. There needs to be criminal intent by the participant to steal money, not merely a mistake in paying someone before authorization is received. It is difficult to infer criminal intent to steal money that one is legally entitled to receive from the plan.

Kirk: Under your hypothetical every employer action to reduce future benefit liability for current participants would be suspect under 510, e.g, elimination of retiree health or termination of pension plan.

Demo: CREF Stock Variable annuity 1 yr return 8.17%, 10 yr 9.15%, since 1952 10.39% return. expense ratio 40 bp. morningside rating- 4 stars CREF Equity Index variable annuity 1yr return 6.55%, 10yrs, 9.96%, since 1994 10.43% return. Expense ratio 36bp. morningside rating- 5 stars

410(a) does not have an exception that allows discrimination against HCE in eligibility to participate. It requires participation after age 21 and 1 yr for any one otherwise eligible.

Should be 1.410(a)-3(e). See example 1. Reg-3(a) says that the plan cannot require that an employee complete a period of service in excess of 1 year as a condition for participation.

Amount includible as gross income under 409A in a taxable year is subject to wage withholding rules. - IRC 3401(a) last sentance. See notice 2005-1 Q31-33. The 20% tax will be due when the 1040 is filed so employee should pay estimated taxes to avoid the underwithholding penalty or increase withholding on wages.

yes but I have never heard of an individual filing on fiscal year because he would be required to maintain books and records of his personal accounts in order to file on a fiscal year basis.

Plan cannot exclude employees using a clasification that has the effect of an age or service requirement in excess of 410(a)- age 21/ 1 yrs of svc. see reg. 1.410(b)-3(e). Need to find some other classification method to exclude these people, geographic, work group, etc.

Assuming he meets the requirements for ID under the Patriot Act he should be able to establish an IRA. Need to get a tax id from the IRS. The transfer from the US IRA to the canadian IRA will be a taxable distribution under the IRC. You need to check the IRS publication on tax treaties to find out whether income tax will be withheld.

Why not show the employer how much in taxes will be due if the excess deferral is contributed to the plan at this time instead of being returned to the participant. The er doesnt want to amend the W-2 because the HCE will have to amend his income tax return for additonal income. The employer has to amend the W-2 to remove the contribution or make the contribution with all of the tax consequences.

An employer who adopts a Roth 401k option must notify participants of its availability. Eligible participants will have the opportunity to elect Roth status for their contributions. Default option will be pre tax. It would be imprudent to change all deferals to after tax w/out knowing if an employee will benefit from a roth as a long term investment.

The Employee will be liabile for FICA tax on distributions to the AP to the extent the payments are FICA wages. However, since NQDC is usually taxed when vested, payments to the AP will be subject to FICA tax only if not previously taxed as FICA wages.