billfgrady

Thanks to all who responded. Rev. Rul. 2002-62 is pretty clear that: "substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph (d) above. Thus, a modification to the series of payments will occur if, after such date, there is (i) any addition to the account balance other than gains or losses, (ii) any nontaxable transfer of a portion of the account balance to another retirement plan, or (iii) a rollover by the taxpayer of the amount received resulting in such amount not being taxable." I read (ii) and (iii) to mean that a trustee-to-trustee transfer OR a non-taxable rollover would cause a modification of the SEPP and negate it.

Appleby: It is the latter. Thanks for the cite to the Rev. Rul. Bill

IRA beneficiary (age 58) is taking substantially equal periodic payments. Is it possible for the beneficiary to request a non-trusteed rollover of some of the funds in his account without affecting the tax benefits of the SEPP? In other words, IRA beneficiary wants to structure this as a short-term loan, where he will roll the funds back into the IRA within the 60-day time limit. Is there an argument that, provided he gets the money back into the same or another IRA within 60 days, this isn't a "distribution" and that the SEPP isn't affected?

Would anything invalidate a properly prepared IRA beneficiary designation that was completed a week prior to the IRA owner's death? Company policy? Something in the code? Thanks.

We are reviewing a plan document that has four or five "slap-on" amendments. I recall seing something somewhere that a plan sponsor must restate a plan in its entirety after the plan has been amended a certain number of times. Can anyone confirm this with a cite?

Thanks, Tom. That's what I suspected.

For an initial plan year (say, 2002), I am fairly certain that you look at 2001 compensation to determine who is an HCE. Or do you rely on current year data? If the former, I assume that the 414(q) limitation for the lookback year (2001) would apply and not the limitation in effect for the test year (2002).

Under a dependent care assistance plan, participants are eligible to defer up to $5,000 per year. In addition, the employer makes a nonelective contribution for all participants. Does the nonelective contribution count towards the $5,000 limit? My guess is that if the nonelective contribution causes the amount to exceed the limitation of exclusion contained in Section 129(a)(2)(A), this would result in taxable income to the employee for any amounts contributed in excess of $5,000? However, I can't find any authority for this position.

The Service was of no help on this. Any suggestions?

Can a participant who receives the maximum contribution allowable to a defined contribution plan make contributions to a traditional or other IRA?

If not, where is the definition of "corporations" that applies for purposes of Section 1563?

Outside of plan language prohibiting other employers from adopting the plan sponsor's plan, is there anything else that you can think of that could prohibit an employer unrelated to the plan sponsor from adopting its plan? Obviously, the companies would be in agreement that this could happen.

Has the Service changed its position on whether a corporation can deduct contributions made for employees of another controlled group member? My understanding is that it is not generally an ordinary and necessary business expense for one corporation to provide retirement benefits for the employees of another corporation, even if the two corporations are in a controlled group. Ours is NOT a situation that would be governed by Section 404(a)(3)(B), which permits one company of a controlled group to deposit a profit sharing contribution for another member of a controlled group if the other member does not have profit and the contribution is based upon the profitability of the company. Rather, profit sharing contributions are made notwithstanding earnings and profits.

What is the general rule with respect to the effect on retirement plans in an acquisition setting? My understanding is that, with a stock purchase, the retirement plan of the acquired company is included in the deal (unless the purchase documents indicate otherwise). On the other hand, in an asset purchase, the purchasing company would not be responsible for the acquired company's retirement plan unless the retirement plan was among the assets purchased. Correct?

If a 401(k) Profit Sharing Plan has one NHCE who defers 0 in 2004 and then terminates in 2004, how do you handle the ADP testing for 2005? Given that the NHCE ADP is 0%, does this mean that the HCEs can't defer anything in 2005? Obviously, the HCEs could just get profit sharing contributions, which would satisfy this problem. But there are certain HCEs who do not want to contribute the 402(g) limit because it comes out of their pockets. So, we're stuck with elective deferrals. How do you make a QNEC when there are no NHCEs in the plan for the 2005 plan year?

A 401(k) profit sharing plan participant received a RMD in 2003. There were several problems with this distribution. First, the plan contained vestages of a money purchase pension plan and the participant, although I'm certain that he never intended to take the annuity, never waived his right to receive a Qualified Annuity Benefit. However, the plan administrator did not purchase an annuity with the portion of the participants' plan account attributable to the money purchase plan. Second, the plan administrator has yet to prepare a 1099-R and did not withhold on the distribution. How would you correct these problems?

After digesting all of this, along with Rev. Procedure 2003-44, here is where I am on this right now. The distribution is clearly a "deemed distribution" under Section 72(p) and will be included in the participant's taxable income for 2003. Thus, the plan needs to issue the participant a 1099-R for the entire amount of the distribution. Subsequently, the participant needs to pay back the entire amount of the distribution to the plan (plus interest, I assume). We are going to take the position that the participant does not get a deduction for this payment under the "claim of right" doctrine; rather, we think he simply has additional basis of $5,000 in his plan account. Here is a related issue: there was no withholding on the distribution and, obviously, no Form 945 was filed by January 31, 2004. Should the $1,000 of withholding be paid from the plan or from the participant's pocket? Do you foresee any issues with the 945? I think there is a $250 penalty but I can't think of anything else.

Where in Rev. Proc. 2003-44 does it say that?

I would have considered this option, but for the fact that the distribution was made in 2003 and not discovered until this year.

A plan participant was allowed to take a $5,000 distribution on the mistaken belief that a 401(k) profit sharing plan allowed participant loans. This is not the case and the participant is not otherwise entitled to take a distribution. We expect that the easiest (only?) way to resolve this is to report this to the Service (through EPCRS) or to self-correct, have him pay the tax on the distribution and any penalties, including early withdrawal, that apply. In other words, we should treat this as a deemed distribution under Section 72(p) of the Code. Has anyone encountered similar circumstances? Does self-correction cover this?

I imagine that the rules of Treas. Reg. s. 1.401(a)(9)-7 will apply under these circumstances, right?

When does an RMD obligation arise in a given year? On the first day of the year?

A five-percent owner of a 401(k) profit sharing plan turned 70 1/2 in December, 2003 and terminated his employment effective January 1, 2004. In connection with the termination, he elected to roll all of his plan funds out into an IRA. My understanding is that the RBD isn't until April 1, 2004. Can we allow the participant to roll all of his funds out (including what would be the RMD amount) or was the RMD obligation triggered?

A plan administrator is required, under Section 402(f) of the Code, to provide each distributee with a written explanation of the plan's distribution options, including the direct rollover provisions and the mandatory withholding requirements. Must this notice contain the value of the distributee's total account balance?

Found it: I.R.C. 4980G.