mbozek

Acording to a memo from the law firm of Icemiller, the exemption of retirement plan assets from bankruptcy creditors will apply uniformly regardless of whether the debtor lives in a opt out state or non opt out state or elects fed or state exemptions.

Sending a letter will be meaningless because P's plan cannot force X to add her children to her ins. (which will cost her money out of her pocket).

Making your plan a secondary payor in the absence of other ins coverage for the children will violate the terms of your plan and expose the plan/employer to a claim for benefits and possible violation under 510 of ERISA.

Your lawyers need to check state laws relating to withholding payments without a DRO and procedures for correcting the mistakes because ERISA does not preempt state laws which may require that payments withheld until a QDRO has been issued. State law may be different that the federal laws govering ERISA plans. The problem may be that the AP is no longer represented by counsel and cant submit the QDRO to the court.

Is your employer a governmental entity exempt from ERISA?

The Act exempts retirement funds to the extent those funds are in a fund or account exempt from taxation under 401, 403, 408, 408A, 414, 457 or 501(a) of the IRC subject to a $1M cap for IRAs that are not derived from a SEP or SIMPLE or rollover from a retirement plan.

A payroll deduction authorization may not be requied if the employees are transferred pursuant to an asset sale and the purchase agreement contains recitals that all previous contracts and agreements with the prior employer will remain in effect. Check with counsel.

The act will provide a unform exemption for all retirement plans including IRAs and 457 plans from creditors of the employee in both opt out states as well as those states that have not opted out of federal bankruptcy exemption scheme. The aggregate IRA exemption will generally be limited to $1M but will not include rollovers from employer sponsored plans, SEPS and SIMPLEs.

the loan note is a plan asset which is transferred via a direct rollover to the new plan like any other asset.

The IRS has accepted requests for abatement of the 50% tax without the payment where the fault was the result of a third party e.g., custodian, who failed to distribute the check by year end and provides the taxpayer with a letter taking full responsibility for the missed MRD to attach to the 5329. The custodian is not going to pay the penalty for the taxpayer up front because the refund would be made to the taxpayer and not the custodian and the custodian will never know if the IRS abated the tax.

Mojo: I dont understand how positive compounding as it relates to a plan investment will produce a greater cash reward than negative compounding for interest in a cc loan which makes the cc loan better than a plan loan. If I borrow $10,000 from a plan at 5% for 5 years, the total payments will be $11,276 (187.93 x60). If each payment earns 5% after it is paid to the plan, at the end of 5 years I will have $12,834 in the retirement account. If I borrow 10,000 @5% for 5 years with a CC loan I will pay $11,276 (187 x60) to the CC Co., for a negative payment of $1276 as compared to the positive $2834 earned in the retirement plan account at the end of the period. Under new bankruptcy law CC debt will not be automatically dischargeable for many employees and will have to be paid back in installments.

If there are no hces in the plan then you can exclude the visa workers by category because discrimination is only prohibited in favor of HCEs. Other is any category not listed in prior groups.

If they are HCEs they can be excluded as an ineligible class.

the location of the investment is is not important- the indicia of the ownership interest of the assets , e.g. shares of stock, must be held in a bank or trust located within the jurisdiction of the US cts.

See RR 76-28- Contribution is deductible in the employer tax year in which it is made or in the prior tax yr if contributed no later than the date for filing the er's tax return with extension. Plan yr is immaterial for PS plan.

Why cant a plan loan be viewed as part of the diversified investments in retirement portfolio, e.g., a fixed income investment in debt. It pays more than a MM and has a 5 year term (similar to preferred stock). Default risk is limited to job loss.

This is a question of whether there is a sound if a tree falls in the forest and no one hears it fall. The employer has liability risk to employees for 03 & 04 if the employees discover the terms, which could be corrected by making the contributions. The risk for having the deductions for the owner denied by the IRS is generally 3 years from the date the return is due (4/15/08 for the 04 return). It is also a good example of why employers should pay for a review of plan documents by a tax professional before adoption.

The IRS can kick out the tax return upon review after filing because the SEP deduction on line 32 of the 1040 exceeds 20% of the net earnings from SE on line 12. If net earnings from SE are 50, the max deductible contribution is 10, so the 13k deduction will be flagged when the return is processed and the 3k deduction will be denied. Its no different than exceeding the deduction for any other threshold (7.5% of AGI for deductible med expenses)

An employee who negotiates a lower salary with health ins coverage under an employment contract in which only the written terms control does not exercise choice because the contract requires that the employer provide the health benefits. An employee can elect not to participate in a POP 125 plan which requires that the ee pay a portion of the health ins premium in return for employer contributing 100% of the premium because the 125 non discrimination rules only apply to participants. The 94 PLR includes the health care premiums under the assignment of income concept which applies only if the employee has an ownership right to income. If the employee declines additional salary during negotiation before the ee has the right to such salary, there is no assignment of income of the health insurance premium after the contract is signed because there is no assignment of rights to property under the contract.

FMLA is not unlimited - the ee has to return at the end of the leave. I dont understand your reference to disability.

A 401k loan can be used to pay for college with a guaranteed return that is 100 basis points over the return for investment grade preferred stock for 5 years. Very few individual investors will get a average 10% return on equities over any 5 year period (which requires a return of 11.5% before management fees).

Why is this Q an IRS issue and not an employer decision? If the employee receives no comp for services in a plan yr, the employer can treat the employee as terminated, the same as an ee who walks off the job and never comes back. If the ee pertforms services in a later year then the ee will be rehired.

Borrowing from a retirement plan has its advanges-the interest paid is credited to the participant's account which provides a safe, steady rate of return without volitility. A 7% return for 5 years is better than a negative return. Second for taxpayers in the 25% or greater tax brackets, interest on HE loans which are not used for improvements to the home is included as income for AMT.

For professionals an S Corp does not provide an advantage over self employment since there is no protection from malpractice judgments and states impose additional taxes. Self employed professionals establish retirement plans to lower income tax and AMT and protect assets from creditors. It may be different in the entertainment industry where the line between self employment and common law employee is not clearly defined which necessitates the creation of corporate entities which can provide liability protection.

C: It is not uncommon for an employer to pay comp to people who perform no services, e.g., employees who stay at home or are on paid leave. There is no requirement that the employee perform any duties in order to be paid. I have drafted termination agreements for executives who agreed to stay home for years until they reached retirement age while their pay checks were mailed or wired to them.