mbozek

Why not forfeit if the participants cant be located? Since the IRS discourages 100% withholding the only other option would be to escheat the funds to the state where the participants reside. But many states will not take q plan funds by escheat because of preemption issues or require that there be a waiting period of 1-3 years after the check is issued. I dont see anything in the reg that prevents forfeiture of accounts in a plan that will terminate since there is no requirement that the plan continue indefinitely until lost participants are located.

SBrownlow: Why cant the owner delay the rollover until 1/1/05 and take the MRD in 05 if he wants to be in a lower tax bracket? Otherwide it doesnt matter whether he receives the MRD in 04 or 05.

What are the liability issues for the custodians since under reg. 1.403(b)-3 Q-1 the MRD is applied on a contract basis similar to the IRA mrd which is applied separately to each IRA? There is no penalty or liability to the custodian or sponsor if the ee does not commence mrd or take an mrd amount because neither party has any control over the contract, e.g., the employee can take the mrd from another 403(b) contract of another fund co or insurer to satisfy the mrd. I am interested in the analysis under the 403b regs that creates liability for the employer or custodian. What custodians are being prevented from offering their products? The 403b providers that I am familiar with do not have the capability to commence mrds because they do not have the information necessary in their distributon data base regarding all of a participants 403(b) accounts. What organizations are trying to force the change?

Custodians are not responsible for commencing mrds because they do not have discretion to begin payments under the agreements and they dont get paid enough to make calculations. Requiring 403(b) custodians to be responsible for commencing payments is unlikely since the mrd regs dropped a similar requirement for IRAs to report the mrd amount to the IRS. I dont see any need for hold harmless agreements since the er has no liability if an ee does not take an mrd in a 403b annuity.

I presume he wants to delay because he will be in a lower tax bracket next year when he is required to receive MRDs for both 04 and 05. If his tax bracket will not be reduced by deferring to 05 there is no reason to defer the 04 payment of the MRD for 5 months. I think the a31 regs require that he must receive the MRD as a separate payment subject to 20% withholding but he could rollover the payment to an IRA until 4/1/05 if he can find a custodian who will accept the funds.

I think the law firm needs to review labor law to answer this question. The law firm needs to use the union exclusion because they cant pass the 410b test if the employees are only leased ee. But this brings up the quesion of how the 80 ee are going to be made into union members since the law firm cant force employees to join one. How can the employer negotiate with the union who will lease the ee without the employees first being recoginzed for collective bargaining purposes as being represented by the union under the NLRA? In other words the employees have to cast a ballots supervised by the NLRB in which a majority of the votes have to specify that they want the union to represent them. Then the union will negotiate on behalf of the ee for benefits.

In order to use deferred vesting employer must fund plan with a group annuity.

I dont know how the failure to comply with the incidential death benefit rule would apply to a 403(b) annuity other than to deem the pre 86 amt taxable in the year the ee attains 75 which would start the s/l for collecting taxes which would expire after 6 years. Its the old "if the tree falls in the forest and no one hears, it is there a sound?" question. The other option is to ignore Q-3 and tax the funds when they are paid to the employee or beneficary as an annuity payment under IRC 72.

Under IRS Notice 84-11 Q-14 and 15 and ERISA 202((a)(4), leased employees can always be excluded from a qualfied plan as a class of employees not eligible to participate regardless of whether they belong to a union. The leased employees have to be taken into account for 410b testing under the recipient employer's plan.

Requiring that the notice be updated for a change in the nuumber of participants is not consistent with the reg which requires that the notice shall be filed within 120 days after the plan become subject to ERISA without any requirement that it be updated.

REg 1.403(b)-3 Q-3 describes the application of the MRD rules to pre 86 funds under the incidential death benfit rule. However it does not state the penalty. One result could be that the entire pre 86 account balance is deemed taxable if MRDs are not taken at 75 but after 6 years the S/l for collecting taxes will expire and the taxpayer can treat the pr 86 funds as after tax money for distribution purposes.

Where does the reg require updating? Paragraph (b)(2) states that only one notice needs to be filed by each employer maintaining one or more plans.

Nothing personal but you seem to be the only person who questions whether pre 05 vested deferrals are exempt the restrictions on distributions under IRC 409A.

ERISA Section 502 provides for filing of suits for benefits and 503 provides for filing of claims. Otherwise top hat plans are exempt from regulation under ERISA and state laws are preempted.

GB: The Groom article prefaces its discussion of the changes by noting that 409A applies to deferrals of compensation after 12/31/04. Instead of referring to law firm newlsletters why not read the Conference Committee Report on the Ways and Means website which describes the application of the grandfather rule to pre 05 deferralson P. 526?

While there have been proposals to regulate public retirement plans with legislation similar to ERISA there has never been any interest in enacting such legislation given the anti-regulatory environment in DC. 457 plans are regulated by state retirement plan legislation where such legislation has been enacted. It is also possible that fed regulation of state retirement plans may exceed consitutional authority since the states do not operate in interstate commerce and the 11th amendment prevents law suits by employees in fed ct.

Since neither ERISA nor the IRC require that a retirement plan offer a lump sum how was TIAA required to give a LS? Do you know the name of the case?

Regardless of how a QSERP is defined (and is subject to the testing rules under 401(a)(4)) there is nothing in 409A which would prevent adding another benefit level to a qualified plan which would benefit only HCEs or TH persons since 409A does not apply a qualified plan. Non discrimination testing for a Q plan today is the same as it was in 2000. Of course putting QSerp benefits in a qualfied plan increases the plan liabilities which may not be the best thing for underfunded plans.

Section 409A applies to all amounts under a 457(f) plan unless they are earned and vested prior to 1/1/05. According to IRS officials a NQDC plan must conform to 409A at all times in form, e.g., terms must be in compliance with 409A. This will require all NQDC plans subject to 409A to be amended in 2005 even if there are no amounts deferred after 12/31/04.

Non spouses cannot rollover an IRA distribution. When the owner dies before benefits commence the payments can be made in a lump sum not later than 5 years after the owner's death or over the lifetime of the beneficiary. The investment co seems to be rather stupid- why wold they cash out the IRA assets without the consent of the beneficiary instead of retaining the assets? However the terms of the IRA control the distributon in the event of the death of the owner. If she has not cashed the check see if the investment co will accept a return of the funds and allow her to keep the IRA account as an inherited ira subject to the MRD rules. See IRS pub 590.

As noted by Gary, a contribution based on 168k of comp could be made by the S corp which would be deductible by the owner on his 1040 if the S corp makes a contribution before it dissolves. The loss from the LLC would be passed through the K-1 to the owner's 1040 as a deduction against the same class of income, e.g., capital gains or passive income. I dont think the 168k of S corp income can be counted by the owner to determine his deductible contribution for income on the LLC because they are separate employers for deductible contributions unless a consolidated return is filed for both entites which makes this an accounting question.

Jan: If the contracts are individually owned then the funds will be non forfeitable unless there is a rider that provides for vesting because the employee owns the contract. You need to have counsel review the contracts to see if non vested funds can be removed. Are the provisions for vesting of er contributions located in the plan document?

What does a participant get from defaulting on the loan other than taxation on the balance? Participant cannot have discretion to stop paying loan without PA taking acton to collect the debt. Loans should repaid only through payroll deduction wihch cannot be stopped by employee to avoid hassles of collecting when employee defaults.

Peace: In the event the designated beneficiary who is receiving payments under decedent's IRA dies, the bene can designate a person who will receive the IRA payments after the bene's death for the bene remaining life expectancy.

What federal law are you referring to? Neither the IRC or ERISA require that any form of payment other than a J & S annuity must be offerred to a married participant as the normal form in a pension plan. There is no rollover right, only the option to make a tax free rollover if the plan permits a LS. Second under IRC 403(b)(8)(B), only spouses are permitted to rollover a decedent's 403(b) distribution to an IRA. MZ- The answer is that the payments to the children is governed by the terms of the 403(b) annuity contract which does not have to provide a lump sum after the payments commence.