mbozek

Under that logic every SE person who establishes any retirement plan would be deemed to establish a cash or deferred 401k plan, because establishing a PS plan reduces taxable income.

In order to deduct contributions to the LLC plan he needs to have US compensation, not dividend income from the LLC.

There is no prohibition on excluding an HCE from a Q plan under the plan terms or by waiver of eligibility to participate in the plan.

The DOL delinquent filer program has a procedure for fiing notices for TH plans.

Why not amend the plan to eliminate the annuity options since they are a pain to administer and limit distributions to lum sums?

See IRS pub 590 P 57 at www.irs.gov.

Why not leave A as sponsor and add B as a participating employer? There is no termination of the plan and vendor contract can be assigned if necessary to B.

I dont think the IRS has authority to audit a closed yr after the s/l for auditing a return has expired. E.g., a taxpayer can agree to an extension of an open yr before the s/l for auditing that yr has expired, but the IRS has no authority to extend the s/l for auditing a return after the s/l has expired. Also there is a separate s/l for the plan sponsor's tax return if the IRS disallows the deduction taken for contributions.

There were proposals to limit a participant's 401k investments in er securities to some arbitrary limit, e,g. 50% of the account balance but they never got any traction because of the opposition of various industry groups. Only change was the blackout legislation in Sox. Limiting investment in er securites is difficult to administer because of the complexity of application. If ee account reaches 50% threshold on day 1 does plan stop investment in er securities or does it sell securities in account? What happens if the stock price drops on day 2 and the ee is now below 50%. Can ee buy back stock to 50%? What if the stock increases on day 3 to be more than 50% of the account? Limiting ee holdings in er stock to some arbitrary% of the account balance will cause unecessary churning of participants accounts and increase admin costs to the plan and could force down the price of the stock if sales by the plan exceed the daily average. It would be impossible to administer if a 4PM EDT hard closing time for trades is imposed by the SEC. It will also invite law suits by participants whose investments have been curtailed on the grounds that the arbitrary limits prevented them from carrying out a recognized investment strategy called dollar cost averaging in which stock is purchased at regular intervals regardless of the price to average out the costs. Removing er stock from the 401k plan of a publicly held co is probably the worst thing a co could do because the selling pressure would cause an immediate decline in the co stock and invite stock holder lawsuits against the plan fids and second it sends the wrong message to investors, e,g, if the co thinks the stock is too risky for its employees why should investors hold it.

I read 404(h)(1)(A) and (B) to require that contributions be deducted in the yr for which they are contributed unless claimed as a deduction the prior tax yr. There is no requirement that a contribution made by the date due for filing the prior yrs tax return be credited as a contribution for the prior yr. Therefore the contribution is deductable for the year in which it is made avoiding any excess contribution for the prior yr.

Why is it necessary to remove the excess contribution instead of amending the 04 return and carrying the excess contribution forward as a deduction for 05 as permitted under IRC 404(h)(1)© if the 3k SEP catchup was deposited in 05? IRS allows excess contributions to PS plans which are not deductibe for prior yr to be deducted as a contribution for yr in which it is made without imposition of penalty.

SEP plan contribution can only be aggregated with qualified plans plans that the IC controls and 403(b) plans.

The disparate impact arises due to marital status, not because of gender, e.g., married employees whose spouses decline coveage under their own HI are not permitted to include them for HI coverage. Marital status is not protected under Title VII although it is protected under some state laws. Second the disparity is impossible to determine since comparing the cost of coverage under two different plans is similar to comparing apples to oranges because the coverage/ risk group will never be identical. Third, the dispartiy exists because of the exclusion of the spouse from HI coverage and spouses of employees are not protected persons under Title VII.

Kirk: I agree that there is no way to avoid having the LI proceeds paid from a qualified plan included in the gross estate because of the non alienation requirement (other than by paying the proceeds to the spouse). However estate taxation of LI proceeds has less impact today than 15 years ago because of the 1.5M exemption for non spousal transfers (2M in 2006). The future estate tax I referred to was meant to apply to estate taxation of the LI in the estates of the heirs of the participant, not the plan participant's estate (assuming that the estate tax will never be completely repealed). 1.5M of LI paid to a trust for the benefit of a participants family will not be be subject to income or estate tax. The income from the trust can be paid to future generations without incurring estate tax.

I am at a loss in figuring out what is the actual detriment that occurs under Title VII because of this requirement. If the effect is to make the working spouse's HI primary and the employee's HI for the spouse secondary what discrimination occurs if the health benefits provided under both plans is the same as having the working spouse's HI be secondary and the employee's HI coverage for the spouse be primary coverage. In other words if the total benefits for the spouse paid under both plans is the same, regardless which plan is primary, what is the economic discrimination that occurs?

The estate tax only applies to transfer of assets over 1.5M to a non spouse which will increase to 2M on 1/1/06.(Less than 2% of all taxpayers are subject to the estate tax.) My illustration was intended to demonstrate that there are legitimate estate planning reasons to have LI in a retirement plan and that the IRS permits a separate bene designation for the LI proceeds. Its not a question of ownership of the LI, it is a question of how the proceeds can be transferred out of an employee's estate to avoid future estate tax.

LI in pension plans is commonly used as an estate planning device because the proceeds are income tax free when paid to the bene under the policy, e.g, a trust, unlike cash benefits that will be taxed if paid to a non spouse. The beneficary designation can be different from other benefits paid under the plan because the policy provides for a separate beneficary designated by the participant, see RR 79-202, and there will be no conflict as long the bene designation for the rest of the participant's account notes that there is a separate beneficiary for the LI proceeds. It is not unusual for a plan to designate two separate sets of beneficaries, e.g., MP plan can provide that 50% of account balance will be paid to spouse unless right is waived and permit participant to designate bene of remaining 50% w/out spousal consent.

The participant can a designate the beneficiary of the LI proceeds the same as any other assets held under the plan since the LI policy is part of the participants account balance. There is no requirement that the plan as owner be named as bene. Naming the plan as the bene creates a question of whether the payment of the proceeds from the plan to the bene would be exempt from income taxation as death benefits from LI because the LI proceeds were paid to the plan and the bene receives a taxable distribution from the plan. Also payment from the Ins co will be quicker than payment from the plan because the bene only needs to provide the death certificate to be paid.

I guess that would make them orphan assets without a fidiciary who would be responsible for them. I know sponsors who have refused to accept demutualization proceeds to avoid ERISA issues. There are plans to which the DOL position is absurd such as pre erisa plans and DB plans that terminated and paid out all plan obligations to plan participants prior to demutualization.

There are at least 5 cases where fed cts have enforced QDROS involving life ins benefits, e.g. Met Life v. Marsh, 119 F3d 415, which are exempt from non alienation rules, because the QDRO provisions are an exemption from the preemption provisions of ERISA for all plans subject to ERISA, not just pension plans.

Perhaps you should define the situation more clearly e,g. is the owner alive or deceased, are the instructions referred to in the will or a separate document? If the IRA owner is alive, payments transferred to the spouse will be a taxable distribution to the owner. Why dont you ask the attorney for the owner or the estate what is meant by pecuniary bequest under IRC 1040 which was never intended for IRA distributions?

IRS cannot change statutory requirement that penalty does not apply to a distribution only if employee separates from service after attaining age 55. See Pub 575, P 28.

Was the stock issued before or after the plan was terminated? If the stock was issued after termination there is no plan to receive the assets, although the plan sponsor could divide the proceeds in a non discriminatory manner among all of the participants on the date of termination as a additonal distribution. If the FMV of the stock is small enough the er could just ignore the stock certificates existance on the grounds that it would cost more to allocate the distribution that the value of the shares.

Was the tribe listed as a government in the 5300 request for a determination letter? Plans sponsored by governments are exempt from 5500 filings- see instructions to 5500 form P 3.

How can the FLA tax authority enforce this law on a plan loan if the plan is exempt from tax and does not require that the participant pay the tax, e.g., out of state plan with no FLA contacts. Since notes are not filed in FLA under UCC there is no way the FLA tax authorities would know of its existance.