mbozek

While I leave the financial analysis of insurance policies to advisors who specialize in this area I know that an ins co cannot guarantee the inside buildup or cash surrender in any ins policy for a 10 year period and cannot guarantee dividend payments beyond the current year. Maybe experts are down on SD because of the projections used by Ins co. to market it.

The PT rules preclude acts by a fid who deals with the assets of a plan in his own interest. But If the plan writes a check to the seller for the full purchase price and the seller gives his personal check to the agent for the commisson have plan assets been used to benefit the agent? In other words once the plan funds are deposited in the seller's account they are no longer plan assets so any payment by the seller to the agent would not be a PT. The Question is whether the self dealing occurs when the agent signs the commisson agreement with the seller or when he is paid. In some states an oral agreement to pay a commisson to sell RE is binding.

Are we getting the realm of esoteric distinctions in determining a distribution under 409A? Does distribution occur when funds are moved from the control of a NQDC to a 401k trustee or does a distribution only occur if the NQDC funds are made available to the employee, and not to another person? This question reminds me of the former US President who said that his answer to a question in a deposition depended on "what the meaning of is is." Aggressive interpretations may be the norm under 409A in order to insure that the IRS will collect the $1B in taxes that Congress estimated would be paid from 2005-2014.

I disagree becausse the reg 9001.2(a) specifically permit an employer to establish a 457 plan under one of three options including a separate plan that complies with IRC 457and there are municiipal employers who have annuities in their 457 plan.

Reg. 9003.7 applies to investments under the NYS def comp plan established under Section 5 of the finance Law. The regs do not require municipal employers to adopt the NYS def comp plan. The instructions for the adopting the NYS def comp plan note that the rules apply to an employer who elects to adopt the plan. Reg 9001.2(a)(3) permits a govt employer to adopt another def comp plan that meets the requirements of IRC 457.

There are two separate taxable events governed by two different tax law sections. The deduction by the self employed person from net earings from SE is permitted under IRC 162 to the extent of the limitations in IRC 404(a)(8). The taxation of amounts distributed to any distributee is governed by IRC 402(a) which has no exception for the transaction that you describe. Under a Q plan all amounts contributed by the employer to the plan are pre tax except for after contributions made by participant. How does the excess contributions over net earnings from SE become an after tax contribution of the self employed owner as a participant?

The web site for the NYS def comp plan indicates that it is available for those employers who elect to adopt it. There does not appear to be a requirement that a NYS public employer can only adopt the NYS def. comp. plan under State finnace law Sect 5 which would leave NYS public ers free to adopt another plan that uses annuity products. Reg 9000.1 states that the rules of the Board apply to a 457 plan established by any municipal employer under sect 5 of the NYS finance law.

Joel: Paragraph 8a of Section 5 of the NY State finance Law which authorizes the Deferred Comp board expressly permits insurance cos licensed by the NYS ins dept to be a financial organization which can administer a public employee 457 deferred comp plan and invest funds held under such plan.

The primary advantage of a Roth IRA is that distributions can be deferred after 70 1/2 until the later of the death of the owner or spouse which is beneficial for persons who have other assets for retirement. However converting to a Roth IRA has an opportunity cost in the loss of investment income for the amounts used to pay taxes on the conversion. The investment value of $10,000 in after tax income used to pay taxes at a 6% after tax return for 20 years would be worth 32,071. This amount will reduce the non taxable gains from the roth IRA.

D: You need to consult with a tax advisor regarding the taxation of the stock to determine which of the two options is the best course of action. 1. Capital gains. Under the tax law the portion of your distribution consisting of stock shares which exceeds the employer's cost (e.g. 70- 19= 51) will be taxed as long term capital gain (either 5 or 15%) in the year the shares are sold. This is called NUA.Your NUA will be $7650 (150x 51). You are not are not required to sell the shares in the year they are distributed to you. In the year of distribution you will be taxed on the the employer basis (19x 150 =2850) as ordinary income if you do not roll over the shares to an IRA and will also be subject to the 10% penalty tax on this cost (285). Any further gain above 70 will be taxed as long or short term capital gain depending on how long the shares are held before they are sold. In addition dividends could be eligible for a reduced tax of 5 or 15%. 2. IRA rollover. If you roll the shares to an IRA there will be no income tax or penalty tax in the year the shares are rolled over. However the proceeds from a sale of the shares or a distribution of the shares from the IRA will be taxed as ordinary income at your marginal tax rate which may be more than 15% as well as the 10% penalty tax if distrbution occurs before 59 1/2. In addition dividends paid into the IRA will be taxed as ordinary income when they are distributed from the IRA.

It is not unusual in the financial services industry for sales of customer securites to be recinded after the trade has been executed and profits booked to the customers account. No one ever files 1099 on the sale and reports the profits. I dont know of any IRS ruling or reg that permits the practice.

Where does ERISA make a directed trustee a fiduicary by accepting the appointment to be subject to the direction of a fid? Under the DOL notice if the directed trustee relies on the reps of the fid that the direction is in accordance with plan terms and has no knowlegde that the reps are false then the DT has no fid liability which makes the DT's position no different than a custodian. I dont understand the relevance of the case you refer to since the DOL notice you cite states that a directed trustee has no independent duty to determine the prudence of transactions or duplicate or second guess the work of plan fids who have discretonary authority over plan assets. If the DT gets reps from the fid that the direction is in accordance with plan terms and not contrary to ERISA and has no duty to look behind the transaction how is there fid liability to the DT for following the direction of the fid? If as you claim, the DT is a fid in following the directions of a fiduciary then why be a DT because you have the same liability as the fid even though you are following the direction of a fid under ERISA and relying on their judgment?

Its not what you think- its what can be done. Under the tax law a transaction that is not permitted under one section can be allowed under another section. Few taxpayers will reverse taxable transactions because of the expense of the legal advice.

General principle that any payment can be returned without tax consequences within the year it is made-thats why it is is called recission.

This is not a return within 60 days but a return of funds paid similar to Rev. Rul. 79-311. The determinaton to recind the payment should be made after consultaton with counsel.

Rollovers to a db are not part of the annual benefit. reg. 1-415-3(b).

Yes.

The disadvantages in using split dollar are economic in nature and can only be discerned at the end of the investment period. You need to know how long the funds will be invested, the charges for the death benefit during the investment period, the rate of return and the admin charges in order to determine if it will be good investment after the applicable taxes are paid. These factors cannot be predicted in advance. Also most of the articles were written before recent changes in the tax law limited taxation of capital gains and dividends to a maximum of 15% and the tax rates were reduced to a maximum of 35%.

There are cases and IRS rulings that permit a recission of a taxable event eg. return of stock purchased under a stock opton program, within certain parameters, e.g, the recission occurs in the same year as the transaction, the parties are restored to the same positions that existed before the transaction and state law does not forbid a recission. Never seen it done with a taxable distribution but why should it be any different than a return of funds mistakenly paid to a taxpayer especialy if the return is permitted under the IRC. Problem is that the tax anlaysis will require a lot of resource time.

See if you can fit the additional deferral under reg 1.401(k)-1(b)(4) which permits a contribution allocated for a plan year to be contributed after the end of the year. Making the contribution out of AT funds is dumb as well as not permitted because it is the equivalent of about 13,000 in pre tax wages whereas the 9,000 is pre tax except for fica.

MGB: Since the court in Cooper v. IBM 274 F Supp 1010 held that the NRA is age 65 I would appreciate any cite that holds otherwise along with a reference to IRC sections other than 411 for which an NRA after 65 would apply. Also the LRMs do not permit an NRA later than 65 for persons with more than 5 years of participation. Benefit commencement is required at 65.

I know of 457 plans established by municipal govts that are funded with VAs so I dont know what the reg prohibits.

I would be surprised if such a case exists. I have worked on many deals where corporate lawyers would not make any special reps regarding PBGC liens if there was a general rep that there were no outstanding liens against corporate assets since a lien in favor of the PBGC is no different that a lien of any other creditor. I think the issue is how the rep was given- was it a rep by Seller that there were no outstanding liens?

Given the language of 411(a)(8) I dont see how there can be an NRA later than 65 for any partcipant who has 5 years of participation at age 65. I dont see the relevance of the SSRA since its is not included in 411(a)(8) and is no longer used to define the max DB benefit payable under IRC 415(b). It is possible to continue accruals after age 65 and as noted fund a for benfit payable at a later date but that date cannot be the NRA. In the IBM case the court noted that under ERISA the NRA is 65.

While the plan can charge a participant for the reasonable costs of reviewing a QDRO, the amount must be disclosed in the plan documents such as the SPD or QDRO procedure if a separate document. The Plan should use a fixed fee and not just pass along counsel's bill for reviewing the QDRO because this may not be reasonable. The plan will need to have an arrangement with counsel as to how much will be paid for each QDRO review. The plan could have different charges such as one charge if the parties use the model QDRO and one if plan counsel reviews a customized QDRO. In order to charge it would be advisable for a plan to have a model document, especially in DC plans where there is little need for customized language and the parties can insert the variable terms so as to keep the charges to a reasonable amount.