mbozek

Why is this a problem? The non forfeitable benefits % is determined at termination of employment the same as in any other DC plan, e.g., ps or mp and the vesting schedule is disclosed in the spd.

Whether the Roth conversion is advantageous depends the clients age and marginal tax bracket on the date of the conversion since the amount of after tax income used to pay the taxes will result in lost investment income. Example: If taxpayer is in 25% bracket then 40k conversion to Roth will result in loss of 10k of income for future investment. If taxpayer is 50 years old 10k would compound to 32k in lost income over 20 years assuming an AT return of 6%. In other words conversion to a Roth account will result in lost investment income on the funds used to pay taxes which will cancel out the advantage of having non taxable income on the Roth account.

If a partnership is dissolved I dont see how a sole proprietorship can be the same employer because a sole prop is a separate business entity, not a continuation of the pship and does not use the pship TIN. If you dont feel comfortable with that answer then establish a SEP or a simple plan for 1 year.

There is no prohibition on establishing a qualified plan after the 401k plan is terminated. What sucessor plan rule are you thinking of?

The TH exemption applies to an unfunded plan established primarily for a select group of management or HCEs. Since there are no regs or binding guidance from the DOL there is no is no prohibition on covering a large portion of the highly compensated work force. The worst case scenario is that if the plan is determined to be subject to ERISA then it must be funded and terminated. The participants would be taxed on the amounts that are deferred in the trust. Any employee who elects to participate would be required to acknowledge that he understands that the plan's benefits could be paid prior to the time elected under the plan and the ee would be liable for income tax.

Some fids require that the employee pledge assets to secure the loan in case of a default because plan funding would be affected if the loan cannot be paid as opposed to merely reducing the participant's account.

If she is self employed her max deducton to a DC plan would be 41k (20% of $205k max comp limit) if comp is paid in 2004. If she is over 50 she could contribute an additional 3k to a 401k plan. Don't know why you want a mp plan when a PS/401k plan provides the same deduction. Deduction for DB plan depends on minimum funding requirement and various limits to benefit accrual, e.g. max retirement benefit limit of 165K is phased in over 10 years. You need to consult with an actuary to determine max deduction to DB plan for 2004. I dont understand your reference to 100k attributable in previous year year. If she earns 100k from SE in last 2 months of 2004 and 140k in 05 she can deduct 20k (ignoring the FICA reduction) on her 2004 tax return and 28k (20% of 140k) on her 2005 tax return since SE persons are calander year taxpayers. See rev rul 76-28.

Assuming the client is a calendar yr taxpayer, she will have 40k of income for 04 attributable to the LLC and can take a deduction on her 1040 for 20% of her net earnings from self employment after reduction for 1/2 of the Fica tax if a qual plan is established by 12/31/04. See Rev Rul 76-28 and IRS pub 560. Otherwise she can take the same deduction to a SEP plan established for the LLC by the date for filing the 04 tax return with extensions. IRS Pub 560. She should have a plan yr and a tax year that both end on 12/31 since comp earned in a plan yr that ends after the employer's taxable year is not deductible for that tax year. Rev Rul 90-105.

The reg cited by Kirk permits amendments which increase or decrease involuntary distributions amounts to the extent permitted under IRC 411(a)(11)and does not limit the frequency of the amendments.

Veba : Top hat NQDC are subject to ERISA but they are exempt from all requirements except filing of a notice with the DOL, QDROs and claims procedures. State laws are preempted including state labor laws. A funded NQDC plan is subject to all of ERISA's requirements. State laws are preempted including state labor laws. Unfunded excess benefit NQDC are exempt from ERISA and are subject to state laws.

It also requires that there be an admission by the participant that they are not entitled to the payment which I have never seen. Every participant who receives an excess amount always claims that they are entitled to the money because they received an estimate or statement before retirement which included the overpayment. Prosecutors will not indict employees for overpayments because of an error in calculating the benefit under the plan's formula.

Under Prop reg 1.408-7(b) a SEP can be established at any time up to the date for making the deduction (filing the tax return w/extensions).

Given the problems with implementing an rollover program under the DOL regs and the fact that the IRAs will escheat to state abandoned property funds I dont know why an employer would bother with the administrative hassles of establishing an IRA rollover account instead of limiting cashouts to $1000.

Fitch did not involve unjust enrichment- It was a suit by employees against the plan to recover the difference between what they were initially told their early retirement benefit would be and what they actually received from the plan. I dont think Great West has any impact on a claim for recovery of overpayments by a retirement plan under the equitable remedy of restitution because of the unjust enrichment of the participant. Equity will allow the plan to reduce future payments or recover the excess payments to the extent traceable in the participant's account (which is the limit of a remedy in equity). What is not permitted in Equity is a recovery from the participant for money damages (a general claim against all of a person's assets) for the plan's loss because money damages is a remedy in law. In Great West the Sup ct held that a law suit to recover advance payments made by a welfare plan under a subrogation agreement was a remedy in law (i.e., contract) because it was a claim for money damages (a general claim against all of the participant's assets) which is not an equitable remedy permitted under ERISA. Great West points out that any action by a retirement plan to recover overpayments will be limited to recovery of those assets of the participant (IRA) which can be traced back to the plan distribution because that is all that is allowed under restitution.

I thought that 414n only requres that a leased employees be counted for nondiscriminaton testing but were not required to be covered by the recipient's plan. See Notice 84-11, Q-14,15 which permits exclusion of leased employees as a class from the recipent's plan. MSFT was required to include independent contractors because the ICs were determined to be "employees on the US payroll" and the 401k plan did not exclude independent contractors from the eligible class who could participate in the plan. Under the Bronk, Dupont, Exxon and Coca-Cola cases, leased employees who perform the duties of common law employees and are excluded from participation in the recipient's plan as a class are not eligible to participate in the recipient's plan.

Benefits in a 457f plan are subject to income tax and Sect 885 in the first year that there is no risk of forfeiture, e.g. no requirement to perform substantial services. Amounts deferred after 12/31/04 will be subject to the restrictions in sect 885.

How does leased employee participate in recipient's plan if he paid by the leasing organization?

Doesnt this problem go away in a group annuity contract which is the vehicle for most employer sponsored plans? I think its a systems issue-can the recordkeeper keep track of the years of service for vesting in er contributions. The forfeited amounts can be used to reduce contributons or allocated among reminaing participants.

Why would a bona fide loan be an advance payment of DC? Allowing a loan would not be inconsistent with the intent of Section 885 to prevent executives from withdrawing funds from a corp shortly before it declares bankruptcy. An executive who takes out a loan from a corp shortly before it declares bankruptcy not only will lose his deferred comp benefits but will be a debtor to the corp for the amount of the loan.

GB: To return to the issue at hand, why do you think grandfathered deferrals are subject to the restrictions on distributions in Secton 885 effective 1/1/05?

How much are you talking about? Your problem is that you need to retain counsel to deal with employee's lawyer. The over payment is called unjust enrichment and yes the plan can recover the amount if it sues the employee but you have to retain counsel to research applicable law.

Isnt pre tax vs. non tax a distinction without a difference because the premium is excluded from taxable income in either event?

GB: Method 2 of RR 61-146 specifically permits the employer to issue a check for the premium payable to the employee's ins co on a pre tax basis under Reg 1.106-1.

As correctly noted by MGB, P 526 of the Conference report states that Sect. 885 applies to amounts deferred after 12/31/04 and to amounts deferred prior to 1/1/05 if there is a material modification to the plan after 10/3/04. Adding a benefit, right or feature (e.g. haircut) is a material modification. However, removing a haircut would not be a material modification. There is also an example of how pre 05 deferrals and post 05 earnings on such deferrals would be subject to the terms of the plan in effect on 10/3/04 if there are no subsequent material modifications. The Conference report is available on the Ways and Means website.

Under Rev. rul 81-140 a vested benefit cannot be waived unless permitted as a forfeiture under IRC 411(a). If a spousal annuity benefit is a vested benefit how can it be waived ougtside of a QDRO?