mbozek

The amounts contributed under a cafeteria plan are not considered to be subject to income or FICA tax because the employer never pays it to the employee. Second, the maximum charitable deduction from income tax is 50% of Ajusted Gross income which very few taxpayers reach. Since the funds in queston are owned by the employer the transfer does not acure to the benfit of the employee. The question of how excess funds can be disposed of revolves around who owns the excess contributions -the employer or the FSA plan since there is no trust.

I think that your definiton of a directed trustee and custodian is useless and confusing since it bases the difference on a conclusion, not on an analysis of the duties assumed. Under ERISA a fiducary is any person who performs a fiduciary function e.g., administers the plan, regardless of the designation. As I see it neither a custodian or a directed trustee has discretion to act without instructions from a fiduciary.

While I would tend to concur with Kirks advice, I would not put anything in writing unless I was sure that the proposal was not permitted under the tax law because making such a comment could cost you a client. I suggest that you review reg. 1.105-11©(3).

The IRS should clarify why a wrap around plan could not comply with the rules for 409A. It would also be possible to make contributions by using funds that are not subject to 409A restrictions.

Joel: What NY law section are you referring to?

Since the law firm is both the employer and is capable of interpreting the tax law a TPA has no standing to question this decision. You do what the client tells you it wants to do by confirming the clients instructions in writing. Any tax issues will accrue to the employer not the plan administrator since it is the employer's plan.

I dont see what is significant about this notice which does not change the liabillty of the trustee who acts at the direction of a Fid. Directed trustees can require a representation from the fiduciary that the instructions are in accordance with the plan and ERISA before taking action and be indemnified for liability in acting on the instructions. The trustee is not required to perform an independent investigation of the proposed instructions or review the decisions of the plan fids. But what is the difference between the fiduciary responsibility of a custodian and a directed trustee under ERISA?

GB: Where does 409A require quantification? SROF is not quantified under IRC 83 which has been in effect since 1969.

See Q-10 for definition of subs. risk of forfeiture.

How can you have a loss in a mm fund? I thought that mm share valuations below $1 were extremely rare and only occurred with institutional not retail funds?

I thought that the recipient employer for whom the leased employee performs services can always exclude leased employees as a class from being eligible to participate in the recipient's plan under ERISA 202(a)(4). IRC 414(n) only requires that leased employees be taken into account for non discrimination testing under the recipient's plan after performing a year of service but does not require that they become participants.

If you are SE why do you need to establish a 401k plan instead of a PS plan in which you would make a discretionary contribution by the date for filing your tax return if the plan is adopted by 12/31. Otherwise you can adopt a SEP plan up to the date for filing your tax return and take the same deduction that can be taken for a PS plan.

You really need to review the laws of each state. Assuming that the state will take qual plan funds, some states, E.g. NY requires that there be newspaper publication directed to the owner of the abandoned property by the holder of the property which can be paid from the property. Its easier to forfeit the funds of missing part. and use them to pay some expense, e.g legal opinion to permit forfeiture of the funds than to go though the escheat procedure for multiple states.

Where does 411(a)(8) say that? Under IRC 401(a)(14) the accrued benefits must be available no later than NRA. Under IRC 411(a)(7) the accrued benefit is determined as an annuity payable at NRA. How can you have an NRA at 69 for any participant with more than 5yrs of service at 65 when 411(a)(8) states that the NRA is the later of the time a participant attains age 65 or the 5th anniversary of the date participation commenced?

I dont know if the funds can be given directly to the state before the expiration of the statutory period for unclaimed funds since the funds are held in the name of the trust not the participant prior to issuing the check.

Under 411(a)(8) isnt an NRA after 65 only permitted for participants who have less than 5 yrs of service at 65?

Its easier to use the funds to pay plan expenes. Some states will not accept money from a qual plan because of preemption concerns. Also there is a time period of 1-3 yrs that usually runs from the date the check is issued to the participant before the state will accept the funds as abandoned property. Trying to figure out state laws for escheat is a very time consuming process even if you use a web site to fidn the rules for accepting funds.

How about elective contributions which are subject to a risk of forfeiture when they are made but are converted to 401k sal reduction at yr end when the excess becomes a vested NQDC?

The employee will not be making a gift for charitable deduction puposes becuase the contributions are deducted from the employee's compensation. The employer will be eligible to claim a charitable contribution since the employer owns the funds. Excess FAS contributions are to be used to provide additonal benefits or reduce plan adm expenses. The employer could use the excess to pay plan admin expenses and contribute an equal amt to the charity. You need to consult a tax advisor to structure the arrangment properly.

Gven the depth of congressional opposition to CB plans by both parties the IRS is not going to issue any regulations favoring CB plans and has withdrawn proposed regs pending hearings and review. I have a different view of the future of this issue if it gets to the Sup ct because of litigation over employer annuities. Twenty years ago the use of sex distinct annuities in 457 and 403(b) plans was defended against claims of sex discriminaton on the grounds that the lower benefits provided to women under the annuity contracts was the result of insurance company mortality tables which predicted longer life expectancy for women, not the result of employer action which would violate Title VII. The Sup ct held that the use of annuity contracts which provide a lower benefit to women violated Title VII because the employer chose the provider. In CB plans the employer selects a formula which determines benefit accrual on the basis of time value of money which will result in a lower benefit on account of age at NRA which is not permitted under ERISA. I think IBM will settle its case rather than run up legal expenses.

Assuming that state ins law permits covering of other persons, there is no requirement that a health ins policy be limited to employees in order for the employer contributions & benefits to be excluded from the employees income because IRC 105 and 106 apply to any employee whose employer contributes to a health ins plan. For example, an employer health plan can cover non employees such as self employed persons but the self employed person does not have the amounts excluded from income under IRC 106. The cost of the coverage for non employees will be included as income.

E: Under the proposed regs the plan document, not the law will control how the plan is administered so 403(b) will have to be revised for every change in tax law or regs. Under current law a non ERISA 403(b) is not required to be in writing. Under current law there is no distribution of assets upon termination of a 403(b) plan because the employee owns the interest in the annuity.

What does the plan say? Like any other funded plan, all assets must be distributed in accordance with the terms of the plan but there is no filing with the IRS. The distribution is a taxable event but rollovers are permitted.

This issue has been extensively discussed under the 401k plan board. The plan can avoid any hassle in maintaining the accounts by charging an admin fee to the accounts of terminated participants to eliminate the cost to the plan or motivate the ee to remove the funds.

Making a determination of who is a bene is a fiduciary decision. How is the PA to determine who are the deceased's surviving children if they are not named? What if the deceased has remarried and and has a new family? What if an illegitimate child appears after all of the benefits are paid out to claim a share? The plan admin needs to obtain a death cert to confirm that a bene is deceased and conduct a search to determine if there are any missing children. While the PA is not required to follow state law there is usually nothing in the plan doc that provides any guidance on how to determine a bene so state law is a good fall back. In estate planning I always review the clients bene designation to make sure that all benes are designated by name, address, relationship and per stirpes. The PA can always spend money and file a complaint in interpleader to have a ct determine who the benes are. If the estate is the bene then all the PA has to do is wait for the plan rep to apply for the benefits and present the ct order.