mbozek

Having a written plan is not the same as complying with the applicable tax law. A 125 plan that complies with the tax law will not lose its tax benefits if the plan is administered in a way that is inconsistent with the plan docs because it will meet the requirement is that the plan operate in accordance with the applicable tax laws. 403b annuities are an example of this form of compliance because the IRS audit guidelines specifically note that a 403b plan only can only lose its tax deferred status for failure to comply with the tax law and and cannot not lose its tax deferred staus if it is operated in a manner inconsistent with its terms because ther is no IRS requirement that the plan be operated in accordance with its terms.

GB: you have any citation for the statement that any plan not following its own rules will be disallowed (whatever that means)? IRS audit guidelines acknowledge that a 403b plan is only required to be administered in accordance with the law, even if it is inconsistent with terms of the plan document. Administering a plan in accordance with its terms to maintain tax deferred status is only required if IRS regs dictate such performance, e.g., qualified plans.

Kirk: my comment about Corbel related to making the plan liable for a change of beneficary upon divorce without a QDRO. In most divorces the plan assets are not transferred to the spouse under a QDRO but remain with the ee to avoid the cost of preparing a QDRO and the PA never receives the divorce decree. Under the Corbel language the PA would be liable for paying benefits to an ex-spouse under the plans bene designation even if the PA has no knowledge of the revocation of bene desigation upon divorce. Under Egelhoff the plan admin can pay benefits in accordance with the terms of the plan. In McMillian v. Parrott, 913 F2d 310, the 6th circuit held that that in the absence of a QDRO the PA can pay benefits in accordance with the plan docs.

See IRC 4975(e)(6) for definition of family member attribution under the PT rules.

If the employer is a govt entity, mandatory contributions can be excluded from income tax as an employer pick up under IRC 414(h)(2).

It is kind of nutty for a plan admin to be liable for a change of bene upon divorce without being required to receive notice of the divorce. Its called vicarious liability. Why does the plan sponsor care about preemption of state laws since the plan provisons which designate the spouse as bene would apply until changed by the employee without any liability to the PA for the employee's failure to change the bene?

The FSA funds in the employer's possession under the uniform coverage rule are fungible, i.e., they are general assets of the employer and any assets of the employer can be used to pay the benefits provided under the FSA without identification of the source from which they originated.

Assuming that the DRIVE program meets the IRS requirements for backloading, nondiscrimination, cashouts under 417(e), 415 and does not discriminate in benefit accrual on account of age then it is a good idea. How are investment gains treated for the purpose of benefit accrual? Do they increase the accrued benefit at NRA? By the way, what kind of an opinion letter is provided by the sponsor/promoter regarding compliance of the DRIVE program with the qualification requirements of the IRC?

What precludes a church from adopting a NQDC plan which meets the requirements of 457(b) e.g., limits deferrals to 14k and requires distribution under the a9 rules and only upon termination, death or retirement without referring to IRC 457? The products would be the same as any 457 plan-all you need is a recordkeeping system to account for allocations. Any vendor should be able to supply the platform for such a program.

I have always understood that under RR 81-114 a plan was deemed established as of the end of the employer's tax year if the trust was adopted by the end of the year in accordance with local law even though no contribution was made by year end as required by local law. According to the ruling the corpus was deemed furnished by year end and the trust was deemed to be in existance for the year if the contribution was made by the date for filing the tax return.

no. RR 81-114

While I think that an ee could sign a valid waiver under the ADEA where payment was deferred to a future date, the realities of terminating key ees will not allow such a deferral. When senior execs leave the corp wants certain assurances such as confidentiality, non disparagement, non competition, etc. to be in effect immedately and the exec wants $$$$. Delaying the payment will be risky for both sides. It is more likely that key ee will receive a lump sum severance payment upon termination, e.g., exec signs agreement on Dec 23rd and receives payment on Dec 31 to comply with ADEA waiver rather than being foreced to wait 6 months. Alternatively the er could gross up the payment to the exec by 25% to pay the 20% penalty tax so that he could be made whole if he violates the 6 month restriction on receiving the payment (which is how corp. cope with the 280G restrictions).

The applicant/acceptance door swings both way. A few years ago I represented an employer who offerred a position on its equity trading floor to a candidate. After she accepted the offer the candidate revealed that for religious reasons she would have to leave before the close of trading on some days. The supervisor recinded the offer because it was a condition of employment that traders were required to remain on the trading floor every day until the close of trading. The applicant filed a claim of religious discrimination which was denied by the human rights agency that investigated the claim.

Definitely where the plan is subject to ERISA. But IRAs, Simples and SEPS are subject to state law as well as 457 plans of govt employees.

HI, WA. NY does not.

While I am not going to comment on the the specifics of Q/A-19(d) I do have some general observations: 1. 409A does not provide any general exception for severance plan payments subject to 409A because Congress did not want employers to evade the 409A restrictions by relabeling NQDC as severance. 2. Unless the IRS permits an exception, every plan that provides NQDC as defined by the IRS will be required to add the 409A language, the same as Q plans of a fortune 100 co which must contain TH requirements even though it will never become TH. (only govt plans are exempt from the TH requirements). 3. Periodic severance payments to non key ee will not be affected by 409A since the payments will be made for a fixed period and are unlikely to be paid to an off shore trust. 4. Periodic severance payments to key ee that are NQDC will be subject to a six month delay under 409A which will cause complications under the ADEA provisions for enforcing employee waivers which require that the employee receive some consideration not already promised by the employer in order for the waiver to be valid. The ee could be provided with other benefits to satisfy this requirement such as er paid COBRA or delay the waiver signing for 6 months. It is also possible that the sev. payments will be considered consideration under the ADEA even though they will be delayed for six months.

You cannot use the severance pay as compensation for any plan you establish because only your net earnings from self employment can be contributed to an HR-10 plan or SEP and the severance pay is compensation from your former er. See IRS pub 560. You may be able to contribute to an an IRA for any year in which you receive severance pay and participated in your employers plan if you meet the income threshold, e.g. AGI <50k for a single person. See IRS pub 590, available at irs.gov for details.

I have never seen a Plan doc for a 125 plan that makes any reference to investment of contributions because a 125 plan does not have any assets.

The post was based upon the assumption that there was better creditor protection in a qual plan with ees than an IRA which is not true. In many states (NY, NJ) IRAs and qual plans without ees have the same creditor protection as an ERISA plan. If there is no equivalent creditor protection for the owners assets outside of the current plan then the owner cant have a self directed account in his current plan which does not allow SD for all participants.

Has the client researched whether state law protects IRAs from creditors claims? If his business venture has no common law employees then there is no protection under ERISA from creditor's claims against retirement benefits, only protection afforded under state law. Nothing else is relevant to the question asked.

I dont know how a 401k plan can be drafted to provide that excess 401k contributions will be transferred to a NQDC when the 402g regs explicitly state that the excess is included in the participant's income for the year contributed. I question whether the IRS ever issued a determination letter where this feature was disclosed given the disqualification of the plan if the the excess is excluded from income. The only way this could work would be if the excess 401k contributions were returned to the participant before 12/31 and an equivalent amount contributed to a NQDC from the ee's last pay for the year pursuant to a prior salary reduction agreement. I also dont understand why the treasury reps would need to note that this type of arrangement is not allowed under 409A when it was never allowed under previous law.

Under the NY cases a designation of a beneficiary in a will can override an IRA bene designation if the language in the will unambiguously disposes of a specifically identiified IRA. In re Trigoboff, 669 NYS 2d 185. The override has nothing to do with whether the bene designation in the IRA is a default designation but whether the will provides the best indication of the decedent's intent to dispose of the IRA. In Trigoboff the decedent designated his three children as the bene of the IRA in his will which was held to be unambigious over the default provision in the IRA designating his spouse as the bene where the IRA was opened while the decedent was single and before the will was executed. In Freedman, 116 F.Supp 2d 379, a designation of the spouse as bene in an IRA prevailed over the testators disposition of his residuary estate to his children because there was no unambiguous disposition of the IRA stated in the will. In some states (CA,HI) a spouse is automaticaly removed as a bene from all interests upon divorce including LI and retirement benefits. In any dispute over an IRA the custodian will waive the bene provisions and seek a court resoluton of the conflict.

The purpose of exempting chuches from 457 is not to prevent them from having NQDC but to exempt churches from the limitations imposed on deferrals under IRC 457b, e.g 14k deferrals. Prior to the extension of 457 to NP employers, the IRS allowed NPs to have NQDC on the same terms as profit making ers. See Rev. Rul. 73-126. A church can adopt a program that permits deferrals to the same extent pemitted under 457b or adopt a program that allows vested deferrals of a greater amount w/out being subject to the MRD rules.

I have always understood that salary reduction funds are considered to be the er's assets and which can be invested in any fund the employer chooses since the assets are not held in a trust. Given low investment return for short term money no one has ever got excited about investing 125 salary reduction.

Since a rollover can only be effected for a distributon from a qualified plan the only way for the payment to be eligbile for a rollover would be if the distribution is received from the plan and a 1099R is issued. A payment directly from a defendent would be looked at as a judgement in damages not a payment of retirement benefits.