mbozek

Any sole prop can a SEP by the due date for filing a tax return. ( HR-10 plan has to be established by 12/31/04). However a minor may need a guardian to sign the legal documents necessary to establish the plan. Given the low tax rates and the lock up period for retirement assets it might be better for the client to pay taxes and invest in capital assets which have a max tax rate of 15%.

It is customary for corporate officers to have authority to adopt plan documents on behalf of the corp. In any event the document can be adopted by having a corp officer sign it subject to ratification by the board at at later date. Also the 125 regs only require a written document. I dont know what the problem is where the officer has authority to sign on behalf of the corp. In my experience most corporate boards do not want to to be involved in the adoption of welfare plans and delegate authority to corp officers.

WDIK: I didnt intend to accuse you of taking someone else's suggestion- Your response triggered my recollection that someone had asked this Q in a previous post for which an answer was provided.

WDIK. I thought this question on HCEs in 401k plans was posted last year and a similar solution was proposed.

Find a way to make the 1100 non contributing nhces ineligible to participate. 401k plans were never intended to be used in industries with mostly low wage employees who arent paid enough to afford contributions. Why not a serp? Or maybe he could incorporate as a S corp and have the employer pay the S corp for his personal services and the S corp could sponsor its own plan for him. Or he could become an IC and be paid on a 1099 for which he could have his own keogh plan.

See IRS pub 575 P 10.

Are you sure that this plan meets the requirements of 412(i) in that it must be funded exclusively with LI or annuity contracts? Seems to me that requiring diversified investments would take the plan out of 412(i).

See Notice 98-24 for LTCG on NUA. Atty is thinking of LTCG holding period for capital assets. Additonal appreciation after the date of distribution is treated as LTCG if the shares are held for more than 1 yr after the date of the distribution. 20k is taxed as ordinary income +10% penalty. 80k is taxed as LTCG at max rate of 15%. Dont understand your rollover Q. Pro rata amount rolled over is exempt from taxation. Eg. 20 k rollover leaves 80K distribution w/16k basis. 20k will be taxed as ordinary income from IRA.

Jevd: Where is the authority for SEP plan contributions being subject to Title I? There is one case where SEP accounts where deemed exempt from the J & S requirements. The legislative history of the SEPs indicates that SEP contributions are subject to the rules for IRAs.

On Feb 1, a federal judge granted summary judgment dismissing the fiduciary claims against Merrill Lynch, the directed trustee of the WorldCom 401k plan which invested in world com stock. The ct held that ML was not the fiduciary who made investment decisions regarding company stock. The ct's dismissal relied on the recent DOL bulletin on directed trustees obligations under ERISA. The World Com case was the first case to be decided in which employees tried to hold a directed trustee liable for investing in employer stock.

Most companies that accept automatic rollovers will charge a setup fee to the plan sponsor and then will charge for each account opened.

See question posted by moosegirl on this board for taxation of Esop stock. 10% penalty tax applies only on taxable portion of basis that is not rolled over. Your client needs to see a tax advisor to determine whether the stock should be distributed or rolled over if you are not aware that all NUA as of the date of distribution is taxed at LTCG rates.

will you please explain how it would not be a cutback? Your initial post stated that correcting allocations for years in question will result in a reducton in benefits which is a cutback to me. I thought the plan was revised to include all bonues in the definiton of comp which were excluded in the prior document. An example will be helpful.

The reg that you are referring to could only be issued if the Section 401k limitations on when distributions can be made prior to age 59 1/2 were amended to permit such transfers. Since IRC 401k has not been amended there is no reg.

Doesnt the plan administrator have a copy of the correspondence sent to the attorney? As a general rule the s/l begin when the benefit claim is denied in accordance with ERISA 503 and the dol regs. The denial must include notice of the right to appeal the denial and give an explanation in clear language of the reason for the denial with citations to the plan provisons. A plan participant who does not appeal the denial of the claim with 60 days can be deemed to waive the right to sue in ct. Merely stating that the participant is not eligible for benefits may not be a sufficient basis for a denial of benefits under the regs. The employer needs to retain counsel to review the issues to see if there was a repudiation by the fidicuary. Worst case may be that the emplyee can submit a benefit claim to the PA which can be denied under the regs in ERISA 503.

Are you asking when the election to defer must be made by the partner (12/31) or when the deferred amount must be contributed to the plan by the p'ship (which can be as late as the date the p'ship tax return is filed)?

I have used RR 82-66 to correct plan docs in cases that go beyond the facts of the ruling. Its a matter of how the solution to the issue is presented to the IRS. You dont have to elect my solution- You can tell the client to file for VCP and pay the fines.

When was the distribution rolled over to the IRA? Prior to 2002 after tax money could not be rolled over to an IRA.

Under the cutback rule a plan amendment cannot reduce account balances of participants. You can only change the definiton for 2005

There is no prohibition against requiring employees to contribute to a Qual plan as a condition of employment- the contributions are made on an after tax basis unless the employer is a state or local gov and the contributions are picked up under IRC 414(h). The amount of the employee's benefit attributable to employee contributions is 100% vested under the rules of IRC 411©(2).

The employer accepted deferrals from the HCEs in violation of plan terms (i.e.plan not administered accordance with its terms). Therefore correction after end of plan year is permitted to cure defect.

The PLR relies on reg. 1.401(a)(9)-7 Q 2 which provides that if an amount distributed from one plan is rolled over to another plan "the benefit under the receiving plan is increased by the amount rolled over for the purpose of determining the MRD". This reg applies if an IRA account balance is transferred to a Q plan or 403b annuity.

See RR 82-66 for retroactive correction after close of plan yr.

I dont know what the are the ramifications in amending the plan that you are thinking of since there is no cutback of benefits or discriminatory effect.

I would just amend the adoption agreement as of 1/1/04 to conform to operation of the plan because the change does discriminate in favor of the HCE since the NHCEs are already covered. The timing of the amendment does not discriminate in favor of HCEs since the NHCEs are not excluded. Its no different than increasing a plan contribution after the end of the plan yr but before the date for filing the tax return. If you are risk adverse then apply for VCP