mbozek

There are only two possible options: 1. If the rules for 457 do not apply a fed credit unions then the rules of IRC 451 apply to the deferral of comp by employees e.g., no limit on deferrrals. 2. A fed credit union could establish a non qualified plan under IRC 451 which incorporates the requirements of IRC 457, e.g., deferrals cannot exceed 13k, distributions must be made under 401a9 rules, etc. without being established under IRC 457 because there is nothing in IRC 451 that prohibits a plan from substituting the more 457 stringent rules. A profit making er could also establish a nq dc plan which meets the requirements of IRC 457 (other than the provision permitting tax free transfers between 457 plans) since it would meet the requirements of IRC 451. Other than stating that a fed CU could not establish a non qual plan labled as a plan established under IRC 457, the ruling dosent have any impact on nq DC plans of Fed credit unions.

Why not look in the agreement between the TPA and client to see when assets must be transferred.

Thats because it was decided as a claim for a reduction in vested benefits under ERISA 203(a) -Edwards v Wilkes-Barre Publishing, 757 F2d 52. By the way what is your interest in this issue.

Under the Supreme Ct decision in the Mead case, 533 US 218, administrative agency rulings are no longer entitled to automatic deference by the courts unless the enabling legislation specifically grants the agency the right to speak with the force of law on the matter and the agency's position on the matter is reasonable. Otherwise the agency's position is merely an informal agency policy not entitled to deference by the courts. See Matz v. Household international, 265 F3d 572- IRS position on which employees must be counted for determining if partial termination occurred as expressed in revenue rulings and termination manual was not entitled to deference by courts but is merely an informal agency policy pronouncement. Under the Mead case there doesnt appear any basis for granting deference to IRS Ruling 65-295 as a "clarification" of the regulation on who must receive an allocation in order for compensation to be counted for deductions under IRC 404(a).

Generally a trust can deduct from income the amounts properly paid from income or corpus which are required to be distributed.

L: Are u saying that the payments were considered made under a 457f plan? I am not going to do research but why couldn't the board just continue to pay her salary each month and have it taxed as income as paid? I would never let an employee be taxed like that because the payments are not deferred comp under 457 but could be structered as salary continuation, disabilty or a transfer of property under IRC 83. By the way how was this determination to tax the benefits under 457 made?

Under the final regs 25.2518-1©(1)(i), a disclaimer not valid under local law is valid under Fed gift tax law if the disclaimed interest is transferred to another party without any direction by the disclaimant. See reg. 25.2518-3(d) example 1 which permits a partial disclaimer of an interest even though state law provides for a transfer only of the entire interest, if the transfer otherwise meets the requirements of 2518. A transfer of an interest created transferred after 1981 is subject to both the above rule as well as IRC 2518©(3) which permits the disclaimer of an interest which would meet the requirements of IRC 2518 to be treated as a disclaimed interest even it it does not meet the requirements of state law, e.g., state law requires disclaimer to be made within 6 months of date interest is establshed. Note: The proposed regs on 2518 required compliance with state laws but this was dropped in the final regs because there is no requirement in 2518 that a disclaimer must be effective under local law. See BNA tax management portfolio # 848, P. A-55. The Delaune case specifically notes that the transfer at issue in the case would have been a valid disclaimer under 2518©(3) even if not valid under state law had a transfer actually been attempted because ©(3) was enacted specifically for this situation. The Supreme ct case quote is discussing the esoteric question of when an individual must disclaim a contingent interest that was created under a trust established before the gift tax became law in 1932 not whether the disclaimer must conform to state law in order to be valid under 2518.

If the funds used to buy the investment come from rollover money which have been transferred to a Qual plan then there are three different tax consequences depending on how the investment is structured. 1. If the indivdual uses the rollover money to become a minority investor in a private corporation where no other plan participants can invest there is a question of whether this investment violates the BRF rules for non discriminaton in a qualified plan. 2. If the individual uses the funds to invest in another co in which he is the majority owner then you have a PT under the Flahrety's Arden Bowl Inc. decision which is subject to the 15/100% excise tax as well as a BRF issue. 3. If the individual uses the funds in the plan to purchase his interest in the Plan sponsor as some form of ESOP then he could have income tax on the gain on the purchase price paid by the plan. Receiving a favorable determination letter for qualified plan does not mean that any investment transaction is approved by the IRS because the Service only approves the form of the plan, not its operaton under the tax law. So getting a determination letter does not mean that the individual or the plan will not have adverse tax consequences for making an investment.

The only sucessful application of this concept is where an IRA owner directs the custodian to purchase an initial offering of stock from a business that the owner is incorporating which results in the IRA owning 100% of the income from the dividends generated by the business. Under the Swanson decision the issue of an initial offering of stock to the IRA is not a sale which would violate the PT rules of IRC 4975. The client needs to retain a tax advisor who understands the PT rules. As for the tax aspects isnt the individual taxed on the receipt of the 200K since he is selling his interest the C corp stock to the IRA in exchange for 200k in cash?

There is a case where union employees who participated in a final 5 average pay plan went out on strike for a year or because of a labor dispute. At the end of the strike some employees retired. Under the plan formula they receive a lower benefit then the benefit accrued prior to the beginning of the strike. The employees sued under ERISA for a violation of the cutback rule. The court found for the plan on the grounds that the reduction in benefits was due to the plan formula, not an amendment to the plan. The IRS answer to Q 21 in 2001 ASPA conference is correct but not for the reason stated. The reduction would not be permitted if it would violate the terms of the plan. E.g., If the employee 3yr average comp goes down during the 10 yrs period before retirement because of part time employment the accrued benefit will still be based on the the highest salary earned during any 3 year period within the last 10 years because the plan formula does not allow for the reduced salary to be substituted for the highest 3 yr salary, not because it would be a reduction on account of age or service. After 10 yrs of part time service the accrued benefit could be reduced because it would be the result of the calculation of the benefit under the plan, not a cutback. Q 33 in the 2003 ASPA confrence is inconsistent with case law interpretion by the courts. Its also common knowledge that the IRS does not enforce example 4 because it would prevent qualified plans from offering an increased early retirement benefit for employees who voluntarily retire during a window period after which the extra benefit will be eliminated.

It would be possible to design a DB 457(b) plan using the annual deferral amount as the minimum funding amount to provide the benefits. The amount deferred for an employee under the 457 plan at retirement would be the present value for paying an annuity benefit to a participant. Because of its complexity I have never seen such a plan. A simplier alternative would be to pay the account balance to the participant under the mrd rules.

Merging the MP plan will require that you retain the J & S option for those funds. termination of the MP plan will permit the funds to be rolled over to the 401k plan w/out offering the J& S annuity but will incur cost of IRS termination review. Termination requires that annuity be purchased for those ee who do not get spousal consent for lump sum. Merging permits the use of forfeitures from the MPP for benefits provided under the 401k plan.

IF the NP is a 501©(3) entity replace the 401K plan with a 403b plan with the same contribution mix. There is no ADP testing in a 403(b), no IRS approval and 5500 reporting excludes info on plan assets. Then you only have 1 qual plan to administer.

I dont know about look though trust but there is a concept called a conduit trust where the mrd payments from the IRA are paid to a trustee who then pays the amount to the beneficiary. This prevents the beneficiary from having direct access to the IRA to make withdrawals and eliminates any tax on the trust.

Q: If a plan is top heavy each year from adoption can benefits vest under 2/20 schedule for a TH plan or must the benefits be vested under 5 yr cliff vesting for a non TH plan? Ans: IRC 401(a)(10)(B)(i)-" In the case of a top heavy plan ... such plan shall constitute a qualified trust under this section only if the requirements of IRC 416 are met." The general vesting schedules apply only in those years the plan is not TH, e.g., if a plan using 2/20 is top heavy for its first 4 years and becomes non TH in yr 5 participants with 5 yrs of service will remain 60% vested in year 5 under under 3/20. If the plan become TH again in yr 6 then those ee with 6 yrs of service will be 100% vested or 80% vested if the plan is not TH. PS: When the TH provisions were enacted in 1982 the general vesting rules permitted a choice between 10 yr cliff vesting and graded vesting of 5 to 15 years so both TH vesting schedules required 100% vesting earlier than either general schedule.

The attorney should have read the IRA custodial agreement which makes the beneficary the owner of all rights under the IRA upon the death of the owner, including the right to determine the method of withdrawl. The only way to restrict the IRA withdrawals is to have the payments made to a trustee who will contriol the distributions from the trust.

You need to consult a tax advisor to answer the following questions. 1. Was the plan terminated when the dentist died because there was no longer a plan sponsor. 2. Can the spouse acquire her husbands plan as an asset of his estate. I dont know why the estate should be the employer since the spouse is the party who will claim the tax deductions for contibutions based on her net earnings. Why can't the spouse establish her own plan for her net earnings in 2004 and rollover any benefits she receives from her husband's plan to her plan and then terminate his plan?

Who is the plan trying to recover the payments from? The bank or the estate? The bank's position is that the personal representative of the deceased is authorized to cash the checks under state law which means there is no forgery or fraud which requires repayment of the funds by the bank. (The plan had a duty to inform the bank to cease the payments. Check the custodial agreement with the bank.) In order to be repaid the Plan administrator needs to sue the estate for return of the overpayments as unjust enrichment of the estate before the s/l for filing claims expires or the estate is closed. The plan needs to retain counsel if it wants to recover the funds.

You need to review this matter with a tax advisor. Generally if the trust meets certain requirements the mrds can be paid to the trust using the life expectancy of the trust beneficiary. The payments from the trust to the beneficary will be governed by the terms of the trust. I dont understand why a 15 year life expectancy would be used.

Where does IRC 2518 or the regs require that a disclaimer meet state law in order to be valid under 2518? See estate of Lute, 19 Fsupp 2d 1047 ("disclaimer is valid if it meets the requirements of IRC 2518c3 even if it does not qualfiy as a disclaimer under state law"). I think the materials you cite need to be updated to reflect the final 2518 regs.

Its a spin off of plan assets. See Instructions to IRS form 5310A. Its not a distribution but a trustee to trustee transfer of assets. Amend the plan to permit transfer to another qualfied plan.

Its still less than the cost of an opinion from a competent tax advisor. Or you can always play the audit lottery with a 3 year lookback for denying deductions plus interest. You do the math.

Apparently IRS personnel do not read IRS publications. Pub 590, P 9 defines mantaining another qualified plan as making contributions to, or accruing a benefit under another retirement plan for service in any year beginning with the year the SIMPLE becomes effective. There is no requirement that the qualified plan be terminated.

Reg. 1.404(a)-9(b)(1) includes the compensation of employees who are beneficaries of of trust funds accumulated under the plan in the year the contribution is made. There is no requirement that the employee be credited with an allocation in the tax year in order for comp to be included -only that the employee benefit under the trust which could include any participant who made a contribution or received an allocation under the plan in a prior year. For those that do not wish to take an audit risk on the tax deduction before the s/l expires why not make a nominal contribution of $10 from forfeitures for each eligible employee who does not participate in the plan.

Why is this an operational failure of the plan instead of the failure of the employer to withhold funds from the employee's pay outside of the plan? The employee is not entitled to be enriched by 6k at the expense of the plan sponsor. Section 6.01(5) of the EPCRS procedure provides that correction is not required if it would be unreasonable. The plan can self correct for 04 contributions which were not withheld by having the ee remit $2400 reduced for FICA to the employer for contribution to the plan and the employer will reduce the employees taxable income by a equivalent amt since the employee had no claim of right to the money which should have been deferred under the salary reducton agreement. Rev. Rul 79-311. Alternatively the employee could increase deferrals for the rest of 04 by an additional $600 a month. The ee has responsibility for not checking his pay stubs for 03 and informing the employer that deferrals were not made.