mbozek

I thought under the age discrimination laws that apply to retirement plans a participant who is eligible to retire continues to accrue benefits even if distribution commences.

Its been a while since I last looked deductions under IRC 404(a)(6) but I thought that under Rev rule 76-28 contributions to a qualified plan can always be deducted in the tax year that they are contributed or for the prior tax year if the contribution is made by the date for filing a tax return with extensions. See Pub 560 P 15 for description of 76-28 requirements. So a corp with a calendar tax year can deduct contributions made in January of 2015 for either the 2014 or 2015 tax year. However the contribution can only be deducted if made on account of a taxable year in writing, e.g., reported on SB. I always recommend that the employer make the contributions for a tax year at the beginning of the following tax year because if the contributions exceed the amount that can be deducted for the prior tax year the excess is deemed to be a contribution for year which it is made.

not exactly. If the amount of compensation deferred under a 457b plan during the taxable year is subject to a substantial risk of forfeiture when the contribution is made, then the amount of the contribution that that is taken into account as an annual deferral in the taxable year in which the substantial risk of forfeiture lapses must be adjusted to reflect gain or loss allocable to the compensation deferred until the risk of forfeiture lapses. reg 1.457-2(b)(2). The amount vested cannot exceed the annual limit for the tax year when the risk of forfeiture lapses, e.g., $18,000 in 2015.

This is an interesting question. IRS pub 598 P 10 states that UBTI excludes gains from the sale or exchange of property other than cutting of timber that an organization ( 401(k) plan) has elected to consider as the sale or exchange of the timber. I don't know anything else. Plan needs to consult a tax professional to determine whether to file a form 990-T if more than $1000 in UBTI was received by the plan.

Under the Kennedy decision if a party to the divorce violates a provision that pertains to benefit rights that were agreed to in the divorce order or property settlement the aggrieved party can sue in state court to enforce their rights because ERISA only requires that benefits must be paid to the party designated as beneficiary under the plan regardless of any contrary agreement under the divorce decree or property settlement. In the Kennedy case the ex-spouse waived all rights to the participant's benefits under the Dupont 401k plan under the divorce decree but the employee never removed her as beneficiary under the plan. ( No DRO was prepared waiving the rights to the 401k benefits). When employee died ex spouse applied for the 400k in benefits which were paid to her because ex was the designated beneficiary. Employee's daughter sued the plan on the grounds that the beneficiary designation was invalid because spouse had waived all rights to the benefits in divorce decree. Supremes held that plan could only pay party designated as beneficiary under the plan but the daughter could sue ex spouse in state court for breach of contract under state law because ERISA has no effect on who has rights to benefits under state law once the benefits are paid.

I have always understood that a QDRO must provide for some division of the participants benefits under the plan ( I know the Kennedy case allowed a spousal waiver of benefits to be deemed to be a QDRO. but that is a narrow exception). My position is that the plan can reject the QDRO in its current form or accept it if the spouse waives all right to benefits. Parties can put the IRA rollover into the divorce decree which can be enforced under state law.

reg 1.411(a)-4(b)(6) permits forfeiture of a vested benefit if the participant cannot be found provided that the benefit is reinstated if a claim is made by the participant or beneficiary. There is no further explanation. Reinstatement of the benefit means that the vested benefit must be paid under the terms of the plan which would include all actuarial adjustments provided under the plan.

An unsigned amendment is not evidence that the plan amendment was ever adopted or if it was adopted that the excess amount was not paid out from the plan. Need to do forensic examination of plan records including checks to see what became of the $18,000. I would not assume that 5500s need to be filed without knowing where the 18,000 is. In what bank account is the $18,000? DB plan checking account? What is the last banking record that recorded the $18,000? Was the account closed?

I don't think there is any IRS answer for a problem that is not supposed to happen and I would not want to approach the IRS for a one off answer to this problem because their response would if the plan did not distribute all assets within one year of termination then the plan must continue to operate in accordance with all of the requirements for a qualified plan. What needs to be researched is whether the statute of limitations for paying taxes may cure the tax problem. Question: where/how were these assets held so that they were not known when the plan was terminated? I advised a plan that had received shares of stock in a demutualized insurance Co and HR director didn't know what to do with the shares so the certificate was kept in a safe for several years and the value of the certificates was not reported as a plan asset.

I would file a 1099R for reporting purposes even if no taxable income is reported.

See reg. 1.72(p)-1 questions 11 to 19 for answers.

You have to follow the definition of comp that is in the plan. If plan includes both self employment income and w-2 income as comp then combine them.

Need have appraisal by someone who is qualified to do appraisal in that type of asset. E.g., qualified real estate appraiser must be used for RE. Same standards apply as for an appraisal to value a gift or inheritance reported for tax purposes. Second, need to retain counsel to make sure that investment is not a prohibited transaction. See Flaherty's Arden bowl v. IRS, 271 F3 763 which can be googled to see what happens if there is a PT in a qualified plan.

CA has its own UBIT. In addition a tax exempt organization is supposed to register with the CA franchise board. One possibility is that the plan filed the forms that were applicable to a taxable corp which is why the auditor is looking for taxes. All of the above is conjecture since I have no knowledge of the facts. Isnt it the job of the CPA or tax preparer to deal with the CA Franchise tax board? Client needs to retain a tax advisor to figure out what was done wrong.

Yes. A 403(b)(7) is a mutual fund invested under a 403b annuity plan. There is universal rollover availability between 403b plans and qualified plans. Benefits under a 403b plan can be rolled to an IRA and then to a qualified plan other than any after tax contributions held in the IRA.

Does the plan have a provision that permits forfeiture of vested benefits if participant whose benefits are payable cannot be located provided that benefits are reinstated if participant requests payment at a later date? If not see if a provision can be added. See if the state abandoned property fund will accept the distribution from the plan. some do, some don't. Also check the county where the participant lived to see if his will was probated or property distributed. Has the client tried a locator service to find relatives?

So what do you think he was looking for? Do you think the spouse wants the funds to be transferred to an IRA trust set up by the decedent?

What does the plan document say about the duties of a fiduciary review investments in the plan for compliance with IRC and ERISA provisions including reporting and disclosure?. Some where in the fid provisions should be language that allows the fiduciary to determine if an investment is permissible under the terms of the plan although I am not sure that it will written in understandable language. Clearly a fid should be able to expunge/sell an investment if it is a PT or could subject the plan admin to a breach of fiduciary duty in allowing an impermissible investment. There is a case called Flahertys arden bowl v. IRS 115 TC 269 (2000) where the tax court held that a self directed investment made by a 401k participant was a PT under the IRS regs even though it was not a PT under the DOL fid rules. Plan should not hold any questionable investments that are suspect under ERISA/IRC without an opinion of counsel. Why not ask the participant to provide a letter from tax counsel stating that this investment does not violate tax or ERISA PT regs and then have plan counsel opine on the letter?

Need to check reg 1.401(a)-13(e) which allows a participant or beneficiary to direct the plan to pay all or any portion of a plan benefit to a third party which will not constitute an assignment of interest under the ERISA non alienation of benefit rules if arrangement is revocable at any time and the third party files a written acknowledgement with the plan administrator in the format required under the regs. Unlike the disclaimer provision of the gift tax Participant or bene can direct who will receive the benefit. If this provision is used in lieu of a disclaimer of interest then the plan beneficiary will be taxed on the distribution since it is an assignment of interest subject to the income tax rules for constructive receipt.

Its complicated. If employer files tax return before March 15 it cannot file an extension on March 15 to extend the time to make the contribution to Sept 15. If the employer files an extension to file the tax return by March 15 the contribution can be made by Sept 15 regardless of when the tax return is filed.

Not all partners are equity partners who receive profits from the firm. Law firms have non equity partners who are paid W-2. There may be self employed persons who receive 1099s from the firm who are not eligible to participate in the plan because they are neither employees or partners. There are many convoluted definitions and rules of employment status created by firms and accountants which only a few key members of the firm are aware of. The managing partner or firm's accountant may need to be consulted to get a correct answer.

One important principle for govt plans is that they are not subject to any rules applicable under ERISA even if the govt adopts a M & P plan which has all of the ERISA provisions because govt plans are statutorily exempt from all ERISA rules including 5500 filing. Failure to comply with ERISA provisions such as protection of benefits from creditors or Vesting of employer contributions does not result in an right of employee to recover benefits from plan sponsor. In addition IRS can not enforce non discrimination requirements applicable to non govt plans against a govt employer because govt plans are exempt from these rules. The question is whether a govt plan that adopts an ERISA plan intended for profit making employers has adopted a plan qualified for a govt entity under the IRC. Some ptype plans may have a disclaimer stating that plan cannot be adopted by a govt employer.

You need to read the state law to see how broad is the application. For example NY has a law that protects the pensions of all public employees from claims of creditors. While it resides in the chapter of NY law that governs state pensions it applies to all municipal plans that provide benefits to government employees including plans established by local govts.

NJ enacted a law in 2007 that forfeits the pension benefit of any public employee convicted of a crime resulting from misuse of his office, e.g., accepting bribes to approve govt contracts. Law was passed because elected and appointed officials who were convicted of accepting bribes were retiring to collect their state pensions. State courts have upheld forfeiture of all benefits earned while a member of public retirement system regardless of when employee joined. What is unclear in above case is whether public employer can forfeit retirement benefits under municipal govt plan if state law does not allow forfeiture. Need to see if state law prohibits any forfeiture of vested benefits. I never heard of a federal court prohibiting forfeiture of a vested benefit allowed under state law because the states have sovereign immunity. Under various federal laws retirement benefits and IRAs can be seized to pay fines and restitution resulting from conviction for violating federal laws such as accepting bribes.

There are many federal laws that require/allow seizure of assets including pensions and IRAs to pay fines or restitution owed to US government. ERISA does not protect the participant's assets because ERISA does not preempt any other federal law. US Justice dept has an entire division devoted to seizing assets of felons.Only restriction is that a participants assets cannot be seized until the funds are payable to him as they are in this case. Since the compliance manager is on actual notice of the participant's conviction and restitution order the manager and TPA would be at risk of being personally liable if the retirement benefits are paid. Compliance manger should notify TPA of this issue and get counsel's advice of how to block any payment to convicted felon. Since the participant's only recourse to get paid would be to sue in federal court the blocking of payment is a no brainer.