mbozek

Because the brokerage will only issue a check to its customer, the plan trustee, under the terms of its custodial agreement. If the trustee wants to issue checks for distribution payments then it has to open its own checking account or mm fund. For liability reasons the custodian does not want to be the payor of plan distributons liable for income tax withholding and reporting of plan distributions. I was involved in a case where the the estate of a deceased trustee of a retirement plan was subject to a tax lien for tax witholding and penalties because the trustee had endorsed checks for plan distributions issued to the trustee directly to the participants without withholding applicable taxes.

There is something wrong with this story. Employers cannot provide benefits to union employees without negotiating with the union representing the employees. If there has been negotiation then the union emplyees are not included in testing under the emplyer's plan. Providing retirement benefits to union employees without negotiating with the union is a violation of fed labor laws (unless this is a public employer). The only way to provide benefits to union employees without negotiation is if the union has been decertified (in which case the union members would be counted for nondiscriminaton purposes).

I thought the Notice permits payment of taxes due in a 457(f) plan upon the occurance of a vesting event under 409A. Q-15(d) & (f). What I dont understand is when would the amounts deferred under the 457(f) plan be taxed under 409A because of the failure to meet the SRF definition in 409A. For example, if a participant's benefit under a 457f plan is subject to rolling vesting where the benefits become non forefitable on 1/1/07 in the absence of an agreement to extend the risk of forefeiture, will the deferred amounts be included in income tax on 1/1/05 because rolling vesting is not a SRF under 409A or will it occur on 1/1/07 when the rolling vesting expires.

There is no distinction between a mistaken payment and a failure to deduct a 401k contribution from the employee's wages under a binding salary reduction agreement because in both cases the employee does not have a claim of right to the funds received. Both payments are reported as income on the w-2. I thought the requirement is that a binding salary reduction agreement must be in effect before the funds are available to the employee.

H: If an employer mistakenly paid a bonus of $1,000,000 instead of $10,000 which was wired to the employee's checking account on Dec 31 would the employee have 1M in income if the funds were returned on Jan 2? By the way were employees paid by check or wire?

See Rev. rul 80-146 for 5 year period before discontinuance will occur if there are no current or recurring profits. As a practical matter this issue is rarely reviewed by IRS.

Why is the IRS assessing penalities? 403(b) plans are not required to file a 5500 under the IRC, only under Title I.

I doubt that treasury will create an exception from taxation under 409A of amounts deferred under 457(f) plans with abusive provisions. IRS position for at least the last 10 years is that rolling vesting, covenants, etc are not valid methods to avoid taxation under 457(f). But NP still adopt such programs based on opinions from tax advisors.

Since the money was included in income in a prior tax year recission is not available e.g. Rev. Rule 79-311 required that the over payments be returned by year end. You might be able to reverse the transaction under the claim of right doctrine if the employees returns the amounts paid on the theory that they never had a right to the funds which legally were required to be contributed to the plan. You need to research the application of the claim of right doctrine to this kind of situtation.

You are correct. Key ee of NP are not restricted. I dont understand the deferral of the earnings. If the payment is vested why would the earnings not be currently taxed?

It would be beneficial if 409A put an end to the practice of NP execs making salary reduction subject to a substantial risk of forefeiture because the employee has no legal recourse to receive payment if the employer terminates the progam or revokes the benefits due to a change of board members, termination for cause, etc. It is better to pay tax on the comp then to make the distribution subject to some fickle board majority in the future.

The IRS has stated that all plans subject to 409A will be required to have the provisions of 409A in the plan document, e.g., timing of deferrals, restrictions of distributions to key employees, prohibition on investment in off shore trusts, etc. Under 409A a key employee of a non profit will be required to defer distribution for 6 months after separation from service. E.g.,if a key employee' s 457f benefit is payable upon retirement, the distribution would be delayed for 6 months.

This is ironic since the large consulting companies lobbied the IRS and treasury to create the bright line tests so as to avoid complex, expensive disputes over the plan formulas under the revised non discrimination requirements of the 86 act. The argument was that plan sponsors should not have to continuiously defend the plan formula to different IRS agents who changed their intrepretations of the rules and should be able to rely on a favorable determination letter which would reduce the amount of resources spent by IRS agents on qualfied plans and promote efficient administration. The preamble to the final a4 regs states that the regs allowed the IRS to reduce the frequency of testing qual plans and descriptions of the quality of data that may be used to substantiate compliance with the a4 regs. Dispite what the IRS says, complaince will not depend on what a good plan advisor would do in applying the rules but what a good IRS agent would do in applying vague and inarticulate regs that use terms such reasonable, significant, etc. If you read between the lines lines the IRS is saying that it does not have the resources to write detailed regs because of budget cuts. As an example, the recent proposed regs on 403(b) annuites require a written plan document to state all of the material terms of the plan but does not describe what constitutes material terms.

B: The Question is who will pay for more legal opinions, not whether more lawyers are needed. H: Clients dont want to pay for legal opinions on how to maximize benefits for HCEs under the a4 requirements when they can provide discriminatory benefits under a SERP or stock options. They prefer to pay an investment advisor to increase portfolio gains on plan assets. But if you know of a client who wants an opinion on minimizing compliance under the a4 regs I will be glad to provide one.

Since the deferrals must be vested they are taxed for FICA upon deferral.

What do you mean by when are deferrals held in a rabbi trust due?

I would think the last thing that employers want is is a gotcha regulatory system that operates like the Red Queen's system of Justice ("First the sentence, then the verdict"). From a legal standpoint, the use of subjective terms is unenforceable if it results in arbitrary and capricious application of the law. Very few employers will go to court to fight over these terms because it isnt worth the cost and the court decisions have no consistency. The reason the IRS issued detailed 401(a)(4) regs in 1994 was because of intense criticism that the prior system of reviewing discrimination on a subjective basis (I know it when I see it) created immense discrepancies in plan benefit provisions approved by the IRS and encouraged forum shopping by counsel to find reviewers who would approve plan benefit formulas tilted in favor of HCEs. Prior to the regs, there were instances where different reviewers would take divergent views on the same provision in different plans of the same employer because of their views of vague language in the regs. Employers prefer a regulatory system where they know in advance what is permissible to a system where there is no certainty. The other reason in favor of objective standards is that they can be reviewed easily for abuse and changed in a objective way for all taxpayers, e.g., changes in the cross testing regs.

R & S applies if the er has a profit- if there is no profit then er does not have to make a contribution. Better Q is why er continues to maintain a PS plan if no contribution has been made for 4 years. Why not term plan and save costs?

Abusive tax shelters have to be desiganated as listed transactions by the IRS in accordance with the applicable regulations, e.g, certain 419A programs or acceleration of deductions to a qualfied plan. The problem with using terms such as significant, reasonable and meaningful in irs regs is that they cannot be uniformly enforced and are applied in an arbitrary and capricious manner. There is no way for a plan sponsor to know how to comply with regs that use such terms in operating the plan. The IRS will have to quantify its application of such terms in order to enfore the regs.

Why dont you read the Company B plan and the purchase agreement to see how prior service with A is to be treated under B's plan? The plan document will state what service is counted and the purchase agreement may include service with A under B's plan. Counsel for B should know if this was discussed in negotiations.

Your spouse needs to retain tax counsel or talk to the HR/comp people at the employer to determine what type of deferred comp plan is he particpating in. If he works for a profit making employer then the terms of the plan control when funds are taxable. It is possible that the plan is a form of deferred bonus progam that pays benefits after 3 years. Payments from non qualified deferred comp plans are subject to wage withholding. It is unlikely that he would be eligible for an 457(f) plan which is only available to employees of a Non profit employer because he works for a foreign corp.

You should check the CBOE website for the permissible use of options in an IRA.

Maybe each denomination has created its own documentation for its member churches who wish to participate in the 457 plan similar to 403(b)(9) retirement income trusts witrhout the need to use salesmen.

One problem with reinstating the old plan is that it must be brought into compliance with current tax law in order to make a distribution as well as incur costs for 5500 filing, etc. One possible alternative would be to establish the old plan as some form of standardized plan for one year in order to make the distribution.

To avoid liability,The PA should receive the marriage certificate from the surviving spouse and confirm the spousal relationship from other records such as health ins coverage before paying benefits.