mbozek

Saying that NQDC is not subject to QDROs invites a lawsuit from an AP who has the exsiting precedents on LI benefits being considered subject to a QDRO on her side. State cts have also held retiree health benefits to be an aset of the marital estate. Most participants will not trade qualifed plan benefits in order to keep the NQDC because of the restrictions under 409A and the risk of loss in the event of employer bankruptcy or termination for cause. There is no distinction in taxation of Q benefits and vested NQDC paid to the AP other than NQDC cannot be rolled over to an IRA.

Without getting into the investment merits of using LI to fund retirement benefits, The bkcy reform act provides for a 2 year look back for transfers to corporate insiders by a bankrupt corp to be considered a fraudlent transfer. The employee would be required to return the amount of the premium applied to the policy.

There are several very large 403(B)(9) funds run by churches. I think the Baptist church is one. The funds are operated as a trust with professional investment managers. In order to make it work the sponsor will need a large amount of initial capital to invest to pay for the start up expenses and mgt fees.

The client should know that the board of directors are designated under procedures in the corporation's bylaws or under state law. The President of the corp or his assistant knows who they are.

The VP should speak to his advisors, e.g. counsel or accountants about why there is no insurance against default of nqdc plans. Under the IRC NQDC is not taxed to the employee as long as the benefits are subject to a subsantial risk of forefeiture, eg, a creditor can take possesson of the plan assets before they are paid to the employee. This is why the benefits are not taxed even if thy are vested. If the employers buys ins to protect the nqdc against default risk the NQDC would be taxed as income because there is no risk of forfeiture. At one time AIG sold an ins. policy to executives to protect them from default risk on their nqdc. But there was catch- only employees of very credit worthy co.(AA) were eligible for the ins since these co were least likely to default. AIG no longer sells this ins. and based on other messages on this board no other ins sells this product. The use of rabbi trusts to avoid creditors claims has been prohibited under the new bankruptcy act. Under current bankruptcy law transfers of corporate assets to executives in anticipation of bankruptcy are considered voidable preferences subject to reversion to the corp.

If spouse is the executor of his estate, she has the authority, as the decedents personal representative, to exercise all rights that the decedent could exercise, e.g., order a distribution from the plan. Obviously the plan cannot be allowed to remain powerless to act because of the death of the sole trustee. Check with the owner's tax advisor for the plan document.

? Not all benefits from retirement plans are payable immediately under a QDRO, e.g, AP retirement benefits may be deferred 10- 20 yrs until participant reaches early retirement age or commences retirement benefits. Many APs have more pressing expenses to pay for after divorce such as rent, furniture, food, clothing, gas, auto ins. Paying for a QDRO which will not provide income for 10-20 yrs is a luxury they cannot afford. The attorney cant force a client to authorize a QDRO if the client refuses to pay for it and the attorney can protect himself by advising the client in writing that a QDRO should be obtained. I have seen many clients reject sound advice to their detriment because of a reluctance to pay for the cost of document preparation. I have talked to APs who admitted that they did not get a QDRO because they didnt have the money or were so emotionally drained after the divorce that they did not want to deal with other legal issues.

I dont think you can draw that conclusion from the facts. The AP may not have been able to pay counsel to submit the QDRO. Many lawyers treat the QDRO submission as a seperate fee. A client of mine received a DRO 15 years after the divorce was issued because the AP didnt want to pay a lawyer to prepare it. Also the divorce decree may have prohibited the employee from withdrawing funds in which case the ee is subject to sanctions or return of the money which would mitigate liability of the attorney.

If he cant be located then the er can continue to hold the benefit until the participant claims it (unlikely) or forfeit the benefit if the plan permits such action subject to restoring the benfit if the particpant claims it.

I dont see any detriment to a single ee because he is receiving the same amount of er paid coverage (70%) that the married ee receives. The fact that the er pays more $ to the ins co for the family of a married ee does not create any detriment to the single ee.

Sue : What are your trying to accomplish? Do you want to reduce the distributions payable to the plan participants by substituting the Gatt rates? What was the basis for the 4 opinions that the Gatt rates cant be used? When the plan was terminated it was required to state the amounts due to each participant as part of terminaton process. I am not sure that the failure to distribute assets voids the accrued benefits payable on the date of termination because the cut back rule prevents a reduction in the accrued benefit because of a plan amendment.

The AP's only remedy is against the employee for cashing out the account. The Court could hold the employee in contempt of ct for electing a distribution and order him to turn the proceeds over to the AP.

The auto rollover rule does not appear to require involuntary rollovers for terminated plans because it applies only if amounts not in excess of 5000 shall be immediately distributed to a participant. Unlike involuntary cashouts there is no requirement that distributions from a terminated plan be distributed at any time- the plan may continue indefinitey after termination and pay benefits upon request of participants. However the IRS could allow a terminated plans to use the invountary cashout for those recaltrant employees whose refusal to take a distribution prevents the plan from winding up its operations.

IRC 408(e)(4) prevents pledging any part of an IRA as security for a loan to the IRA owner. The amount used as security will be deemed distributed.

You have to talk to his accountant to see how the LLC income is reported.

two possible ideas that must be discussed with counsel: If plan was adopted subject to approval of IRS the plan can be terminted back to incepton if no letter is issued, e.g., plan has discriminatory formula. If a disqualfying provisions is adopted then the plan can be terminated for failure to receve a determination letter. Dont know if the employees would have any right to accrued benefits but it would be expensive to sue sponsor. Terminate plan and pay nominal amount to employees with accrued benefit, e.g., $500 in exchange for waiver of rights under ERISA. Of course the er can terminate adoption of the plan and see if the employees ever notice that it was adopted. Q- has the er made any contribution to the plan?

Why would I complain about someone who is smart enough to opt out of a CB plan?

SEPs are covered under ERISA to the same extent as a Top hat plan - eg. subject only to the minimal R & D for SEPS and exempt from Parts 2-4 of ERISA. State laws are preempted. SEPS and SIMPLES are considered qualified plans under the Bankruptcy law revision and amounts in excess of $1M are exempt from creditors claims.

GB: Under Notice 2005-8, Q-3 HSA contributions provided to a 2% S corp owner are imputed in the owners income from the S Corp and claimed as a deduction by the S corp. Under Q-3 the owner claims a deduction for the HSA contributions if eligible under IRC 223. The analogy for HI comes from IRC 1372 which deems an S corp owner to be a partner for fringe benefits purposes which permits a deduction for HI on the owner's 1040. 1040 instructions for line 31 allow a HI deduction for S corp owners.

Under Rev Rul 76-28 the 2004 contribution is deducted in the year it is contributed (05) but it is subject to the 25% of comp and 415 limits for 05 contributions. The irrevocablilty of the payment for the year it is designated or claimed on the tax return only applies if the payment is made no later than the due date for claiming the deuction on the prior year'as tax return. The 04 return must be amended to reflect the lack of a contribution. There is no penalty tax for the failure to make a timely contribution to a PS plan. I dont know if an employer incurs a legal obligation to make a discretionary contribution because a deduction is claimed on the tax return. The obligation may arise if the er told employees about the contribution.

In order to make the employer pay there must be an enforceable obligation entered into by the employer to make a SEP contribution. I dont know whether a SEP adoption agreement can be enforced by an employee against the employer for a SEP contribution if contributions are discretionary--Does employer contributions to the owners account mandate contributions for all eligible employees if the agreement provides for contributions based on the same percentage of pay for all eligible employees?

You cant make a deductible contribution to an IRA if your AGI exceeds 50k. Roth contributions are permitted if your AGI does not exceed 95k. Your taxable comp will be 86k (100k-14k 401k contribution). You need to check with your tax advisor to project your AGI for 05.

The simplest answer based on the info provided is that Co A's 401k plan will continue with either Co A or B as the sponsor, depending on how the purchase agreement is worded, without termination of the plan. What was not articulated is whether A will continue as a sub of B's controlled gp with no ee in which case B can adopt the plan or whether A's stock was swapped for B thereby merging A into B which would make B the sponsor of the plan. B can enter into a contract with the TPA.

I dont understand what is the "double deduction" for the s corp contribution to the HSA. Under IRC 1372 the the S corp deduction for health ins for a 2% shareholder is taxed as imputed income to the shareholder. The shareholder deducts the contribution as an adjustment to gross income on the 1040 if otherwise eligible to claim the deduction for self employed health ins. See Q-3 of the Notice. The deduction by the S corp results in imputed income to the S corp owner which is then deducted under IRC 223(a).

There is no prohibition against the NP employer paying additonal salary to its employee to pay for the cost of HI under her spouse's plan. If the cost of coverage for the spouse is $300 per mo the er can pay an additional 300 to the NP employee.