mbozek

Monday is the 60th day after enactment.

Despite what some believe, the conclusion in the rulings which allow the spouse to establish an IRA in the decendent's name is not expressly allowed under the regs (where it should be stated for the benefit of all surviving spouses not just those who can afford a PLR). These rulings are another "gotcha" trap for unwary taxpayers. The uninformed spouse who rolls over the deceased's retirement plan interest or IRA to his/her own IRA will be subject to the 10% penalty tax on withdrawals whereas the spouse who has a cleaver tax advisor will establish/continue the IRA in the decedent's name and avoid the penalty. This distinction in taxation does not appear in in the final mrd regs.

I think the IRS response on currently maintained is a reasonable answer since there is no prohibition on an employer who has adopted a SEP from adopting a q plan at a later date and there is no formal terminaton of a SEP- The er simply does not make any contributions in a future year when contributions are made to the Q plan. In any event the 415 requirement only forbids an er from overcontributing to both a SEP and Q plan not from maintaining both plans.

In Izzarelli v. Rexene, 24 F3d 1506 the 9th cirucit held that when allocation of a contribution occurred was to be determined under the plan docs, and did not occur when the contributions were made to the plan. Under Izzarelli, a plan amendment or waiver by the employee before there is an allocation of the contributions would not be a cutback.

For tax purposes the distribution to the participant occurs on the date the payment is either mailed or wired by the payor to the participant. Payment to an intermediary is not payment to the participant unless the intermediary is the agent for the participant.

All institutional custodians/trustees have rules about what classes of assets they will accept. Many will only accept publicly traded securities and will pass on LPs, foreign securities, non publicly traded stock, RE, mortgages, promissory notes,etc. You need to ask the custodian/trustees what assets they will accept. If the plan uses individual trustees who hold assets directly in the name of the plan then you need to retain counsel.

It depends on how the law of decedent's estates in the state where the deceased lived would intrepret such a provision. It could exclude the heirs of a deceased child, may not include illegitimate children, violate community property laws, etc.

The interest does not have to be left to a trust whose trustee who must be paid from the assets of the trust. The participant should consult with counsel to determine how the bene should be designated. Leaving an interest to a child who dies before the participant may result in the share going to the child's estate or being forfeited depending on state law. If the participant wants a deceased child's heirs to receive the child's interest then each child should receive such interest per stirpes.

Could be the furnishing or goods and services by a disqualified person to the plan. But even more important why would the individual make improvements to real property he does not own to increase his tax liability, e.g., using after tax funds to improve real property increases the basis and reduces cap gain on property he owns. In the Q plan he has now increased the value of the property which will be taxed as ordinary income when he receives a distribution. In effect he has converted after tax funds to taxable income.

Upon termination of a DB plan the participants must receive an annuity if they do not elect a LS option. If the PV does not exceed $5,000 a cash out can be the only option. EEs who elect a LS have to be given the right to make a direct rollover to a Q plan or IRA or have the payment reduced for 20% withholding.

Since the -10 reg has never been revised for the addition of the 415 limits, the controlled group rules and the application of the 415 limits to all members of the CG it is not controlling law on these issues.

Ellie: 403b annuities have never been regarded as an employer sponsored plan by Congress. In 1942 Congress exempted the predecessor IRC provision for TDAs from the nondiscrimination requirements (participation, nondiscrimination, intergration, etc) imposed on qualified plans. The 1958 amendment limited contributions by salary reduction to 20% of comp. (Prior to 1975 there were no limits on the amount of employer contributions.) The origin of 403b plans can be traced to the incorporation of TIAA in 1918.

The language in the last sentence in my 12/14 6:58 post appears in both the plr and the -8 A-7 reg.

What about the heirs of children who die before the IRA owner?Do they lose out? and what about adopted children? you ned to consult counsel.

I think there is authority that an individual can waive a PS contribution at any time before the date the contribution is allocated to the individuals account because a waiver of a contribution before it is allocated is not a cutback under 411(d)(6). There is a 9th circuit case on when an allocation is deemed to occur. As for the NQDC issue why not wait for the IRS issues guidelines on Dec 21.

B: I think the IRS is acknowledging that even though the IRA is titled in the name of the deceased, it is established by the spouse since she is the owner and her tax ID is used for the distributions. It is strange that the ruling lifts key language which permits opening of the IRA in the name of the deceased from the -8 A-7 reg but does not cite it.

Why do you need a TPA ? Cant the Trustee prepare a check payable to the bene and withhold 30% required under 1441, prepare a manual w-8 form and send it to the IRS ? In the future find another TPA.

What is odd is that the ruling allows a spouse to establish an IRA in the name of the deceased participant with the spouse as the bene and the owner of the IRA in order to avoid the 10% penalty tax on distributions before 59 1/2. The ruling states that while a surviving spouse who rolls over a distribution from a Q plan to an IRA may elect to treat the IRA as the spouse's own, such an election is not necessar, but does not cite reg. 1.408-8 A-7.

Two answers: have the bene assign the payment to the er and use it to pay your legal fees for this stupid question or send the $190 to the bene w/out withholding because there will be no taxes due since bene is entitled to standard deduction of $4850 plus $3100 exemption.

It seems that the only advantage to establishing the new plan is that after 5 years the participants are only 60% vested in benefits under the new plan instead of 100% vested. They are 100% vested in the old plan. Q- is this saving in vested benefits worth the cost of maintaining 2 plans for 5 years and terminating old plan? It seems that the only benefit to establishing new plan is to reallocate forfeitures from participants.

It does create the opportunity for any surviving spouse to transfer the deceased's benefits to an inherited IRA to avoid the 10% penalty tax and is consistent with the liberalizaton of the rollover rules under recent tax law. It seems to be at odds with the IRS position that an IRA cannot be established after death by the personal rep of estate although maybe there is a distinction if the IRA is established by the beneficiary who does not represent the estate. There is also a PLR which allowed a non spouse bene to direct a trustee to trustee transfer from a qual plan to an IRA established by the decedent naming the bene as recipient of death benefits.

B: As everyone in NJ knows, Jimmy Hoffa is buried under the north goal post in Giants Stadium in Rutherford, NJ.

Harry: The Treasury cannot issue a regulation that contradicts the law because under Sup Ct precedents there would be no deference by the courts to such a reg. There is nothing in 417(e) that exempts CB plans from the PV requirements that apply to all db plans. CB advocates ignore the fact that ERISA is a benevolent law intended to protect employee's pensions from employers. The political considerations will not allow a CB plan to pay a lower accrued benefits to older ees by excluding interest credits because then it would be a DC plan with no investment risk to the sponsor. As for a wealth transfer to lawyers, no one forced CB plans on corporations. Most employers avoided the temptation to adopt a CB plan in order to put some lipkstick on their financial statements. IBM may have sealed the fate of the CB plan because it was reviewed by the ct in tandem with a PEP plan formula that clearly discriminated against older ees (used a formula that stopped giving benefit points for accrual for after an ee reached a certain age). The court had to use the same analysis in reviewing the CB formula for age discrimination that was used for the PEP formula. IBM settled its PEP liability rather than appeal to avod the comparision with the CB formula.

There is no specific s/l for recovering excess benefits under ERISA. The period is determined by using the most relevent state law, e.g, contract, that applies. However since ERISA is a law in equity the plan admin. will have to identify the over payments in the participant's assets. If the participant has spent the overpayments there can be no recovery.

Blinky: Is grandfathering required by reg 1.411(a)-8(a) which is not replicated in the temp reg (which I did not notice before)? While you can start up the new plan with longer vesting schedule without terminating the old plan, the employees will continue to vest under the schedule in the old plan.