Larry Starr

Hey, I left the "big insurance company" to form my own firm in the early '80s; the plan was a social security offset plan with a 10 year vesting schedule (nothing vested until 10 years) and I left with 9 1/2 years, so no vesting! But I have always told my classes that it was a good thing that I left because I was age 30 and I could do the math, and I would have owed them money at age 65 if I had been vested!

I have to say that the court systems, which should be "fair", often are just not educated enough to make the "right" decision. Frankly, it often comes down to who is the better expert. I know that I am a "good" expert; I can make things understandable and easily gain a rapport with the judge. I have seen experts on the other side who are also good, but more often, they are not just bad, they are TERRIBLE. They actually often don't understand the law, nor do they understand the nature of how DB plans can be divided and on what basis. Too often I am up against a university economics professor who really is not adequately armed to deal with ERISA plans (disclosure: I also have an MBA in economics and finance, but that really does not qualify anyone to talk about DB valuations). It is often a shame that the better expert wins the day (of course, it is fine because that is often me in my cases and I know I did it the "right" way). I have seen other cases that came my way AFTER the initial court hearing and BOTH experts were terrible. It is often laughable as to what they provided as their "analysis" to the court and how inaccurately they determined their values (leaving out certain provisions of the plan, for example, that affect the valuation). Just one of my pet peeves....

If a plan is not subject to ERISA, then it is, ahem... not subject to ERISA. If the plan you are talking about is not subject to ERISA, then the vesting rules of ERISA don't apply and they can basically provide the benefit with restrictions as they see fit.

Actually, he did not contribute to his "deductible" IRA. He simply contributed to his regular IRA. Whether it is deductible or not depends on a number of factors that show up when he files his tax return. And in this case, that little box that was checked on his W-2 says he won't be able to deduct this contribution on his return, so it turns out to be a non-deductible IRA contribution with the attendant additional IRS form and recordkeeping requirements.

I had a nice phone call with Zack. There is no 2017 missed contribution; the issue is the 2018 required minimum contribution. Yes, termination of the plan is called for in his situation. I won't go into the gory details, but it is much worse than just what we see in the posting and termination of the plan is appropriate. Without termination (and a majority owner waiver), the compounding of the excise tax would apply.

Yes, it is a deduction. So, for example, if a DB contribution for a sole prop with no employees (just to make it simple) of, say, $100,000 brings the income of the couple down to, say, $300,000 (and it otherwise qualifies), the deduction on the return will now go up by $60,000 (20% of $300k) and the total deduction will now be $160,000 because of the $100k db plan deduction. These will be major planning opportunities.

If two 1099Rs are done, then the client will have an issue when he does his 1040. At that point, he (or his accountant) will ask one of the parties that prepared the 1099 to file an amended 1099 for that reported payout. That will correct the IRS system.

This is an issue for the court and the parties. One side got a valuation of $2.1. The other side got one of $1.3 Now they fight it out before the judge. Arguments will be made by both sides trying to justify their numbers. The judge will decide and maybe will just decide to split the payments and not use any lump sums. This is not our issue; it is the divorcing parties issues. When I am hired as an expert in divorce cases and do my own valuation, I justify it to the court when requested, but it is the judge who decides what numbers to accept.

It doesn't appear that you are getting adequate advice. Whether your "retirement plan folks" are fully versed on the actions that can be taken to mitigate the excise tax is unknown from your posting, but appears to not be likely. It is likely you will have a 2018 excise tax penalty to pay, but that does NOT mean you have to fund the plan (that is, only the penalty is paid, not the funding itself). You said something different and that is not correct; if that is what they told you, then you need better advice. And there are things that can be done to minimize the penalty. In any case, it is also true that the penalty would apply ONLY for one year as there is specific action that can be taken to eliminate the funding requirement in 2019 and beyond. You do need to talk to them and see if they can give you more detailed and knowledgeable answers. If they are a defined benefit shop and understand the detailed operations and complexity of those plans and how to make them work (like, is the actuary part of their practice), then you should be getting different answers than what you say they said, and heeding their advice. However, many pension firms farm are not full service actuarial firms and outsource the real DB work and are not experts in their operation, and if that is the case, you may need to find someone else to guide you. If you want to call me, I would be happy to give you a little more specific guidance. My office phone is 413-736-2066. If I am not there, leave a voice message since that is forwarded to me as an email. Good luck.

Ah ha! That is the customary reason for these issues. The trustee has to be informed that he has no right to withhold the payout because of an external issue between the employee and the employer. The trustee is a fiduciary to the plan; he cannot act as an agent of the employer even if he IS the employer. The trustee needs to proceed with regard to this participant as if the dispute was non-existent, and failure to do so can make him PERSONALLY responsible for the violation and lots of other legal problems. I tell my clients (in situations like this) to just hold their noses and do what they are required to do - pay the individual.

This is not the venue for that type of question; you need to have a competent lawyer working with you and it looks like you need to move quickly.

Maybe because they are the least competent to actually interview the managers! As QdroPhile noted, if they have an investment advisor that they are working with and on whom they depend for expertise, then having the committee actually interview the manager may be a useless action. The individual situation will determine what is best.

Remember that the fully secured PLAN loans are secured by 200% (or more) of the value of the loan, whereas no such requirement is applied to the loan you are checking. That alone can be used to justify the prime plus 1.

You have run right up against one of the major problems with the historic 403(b) being shoehorned into the current 401(k) concept. The investment/contract is not under control of the employer. Without getting into that mess, remember what the penalty for failure of RMD is: the 50% penalty is on the PARTICIPANT. If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken. Also remember that pre 1987 amounts in the contract are not supposed to be subject to RMDs. They have a different set of rules that looks at age 75 or when the person actually retires. Just another reason to hate 403(b)'s! :-)

Both of your postings show that you really don't understand what is going on with participant loans and plan returns, and the issue of diversified investments. Also, there appears to be a lack of understanding of the plan provisions that are REQUIRED to be in a plan with regard to participant loans and defaults. RatherBeGolfing's response is correct; you clearly are confused about how pooled assets work. But there are so many other issues you raise that would require reams of discussion to correct, that this is not the place to do it. But just one: a plan loan is 100% collateralized with at least a 50% cushion on the value of the collateral, and payback secured by payroll deduction make the participant an excellent credit risk that requires no additional determination of credit worthiness; it is automatic.

Perfect answer; 100% agree.

I don't see why not; the bank will encumber the property via the registered mortgage. That would probably require consent of the participant who is not a party to the outside mortgage. I expect that if she doesn't consent, there will be no loan from the bank.

OK; here it is: 5. Leased employee who becomes a common law employee of the recipient. In 4. above, we discuss the consequences of a common law employee becoming a leased employee. What if the change is in reverse, where a leased employee later is hired by the recipient as a common law employee. In that case, the employer will treat the “new” employee like any other employee for all purposes under the qualified plan rules, not just those listed in IRC §414(n)(3). Also, the employee’s service as a leased employee iscounted by the employer where service is a relevant consideration. See Notice 84-11, Q&A-8. 5.a. Participation in the plan. How the change to common law employee status affects plan participation depends on how the recipient’s plan deals with leased employees for eligibility purposes. If leased employees are excluded by classification, then the individual’s hiring as a common law employee will be treated like any other employment classification. If the classification as a leased employee was the only reason why the individual was not eligible, and the individual has satisfied all other eligibility requirements, the individual will become a participant immediately upon his or her being hired as a common law employee. Refer to Chapter 2 (Section IV, Part F) for more details on the entry date rules for employees who are previously excluded under a job classification. If the employee still must satisfy other eligibility conditions (e.g., the employee did not satisfy the year of service requirement as a leased employee), then those conditions would have to be satisfied first before the common law employee becomes a participant. If the plan does not exclude leased employees by classification, then, if the employee had met the plan’s eligibility conditions while a leased employee, the employee’s participation in the plan would continue uninterrupted after he or she becomes a common law employee of the recipient employer. 5.a.1) What if employee did not meet the one-year “substantially full-time” service requirement before becoming a common law employee.? Suppose at the time the individual becomes a common law employee of the recipient he or she has not performed services for the recipient as a leased employee on a substantially full-time basis for at least one year. In that case, the recipient was not required to treat the leased employee as an employee for the qualification requirements listed in IRC §414(n)(3) before the individual became a common law employee. Should that prior service be counted toward establishing eligibility for the recipient’s plan? This is not clear. If the individual’s brief service as a leased employee was on a substantially full-time basis, so that the individual would have been treated as a leased employee under IRC §414(n) had that service continued for a full year, then it would seem to be more reasonable to take that service into consideration, so as not to artificially delay participation in the plan. On the other hand, if, on an annual basis, the leased employee would not have met the substantially full-time test, then there is a stronger argument to disregard the period of service as a leased employee and treat the individual as a new employee as of the date they commence employment as a common law employee. We emphasize, however, that no clear guidance has been issued on this issue, and the plan fiduciary will have to make a reasonable and prudence determination of how the applicable circumstances affect the application of the plan's eligibility requirements. 5.a.2) Example. Xavier commences services with Corporation W on April 1, as a leased employee. Xavier performs services on a substantially full-time basis so that, if he performed such services for a 12-month period, he would be treated as a leased employee under IRC §414(n). On September 1, W hires Xavier as a common law employee, and Xavier is terminated as an employee of the leasing organization. Corporation W’s plan requires one year of service for eligibility purposes. Although not clear under §414(n), a reasonable interpretation of §414(n) is to treat Xavier’s “employment commencement date” for eligibility service purposes as April 1, not September 1. Thus, if Xavier completes at least 1,000 hours of service during the 12-month period measured from April 1 to the following March 31 (including hours credited for the five months as a leased employee), he would have credit for a year of service for eligibility purposes under W’s plan as of such date. So, Sal notes that it is not clear whether to go back to the earlier hire date; to quote: "We emphasize, however, that no clear guidance has been issued on this issue, and the plan fiduciary will have to make a reasonable and prudence determination of how the applicable circumstances affect the application of the plan's eligibility requirements." In an off line discussion with Derrin, he is convinced that the correct position is to give credit to the earlier date. He has given me some arguments for this and I will be studying it and parsing his explanation to see if it changes my mind. More to come.....

She did incur debt; she borrowed from the plan to buy a house. Where is the concern? Her name is on the deed, so she has borrowed from the plan to purchase a principal residence. What does it matter if the fiance also has personal debt with regard to the property? I'd say it's a safe harbor loan (which is I think what you are asking).

100% agreed.

Belgrath, can you give the exact cite; the online version does not have page numbers. I will post what Sal says. BTW, I am in the midst of a "discussion" with Derrin as to the interpretation. So far, we are disagreeing but I need to research his comments further, and will do so.

Take a look at 414(n)(4)(A) which says that the whole leasing issue shall only apply AFTER the close of the one year period discussed in (2)(B). So, you don't get to (n)(4)(B) until after the one year period has elapsed, as I said in that prior post. He has to have the full year before we get into the issue. Our guy who worked a few months for the temp company does not ever meet that condition and therefore we never get to applying any of the leased employee rules. I reviewed Derrin's book for justification and, I think, I have found contradictory statements (of course knowing Derrin, he will explain me how it is not conflicting). I have sent him a detailed email asking for his take on this and the conflict I see in two of his Q&As. I will report back.

I went back and checked; Nope. He posted on Friday and with all this activity, still hasn't clarified. So, until we know exactly what the situation is, here are the answers (BTW, would love to have fully fleshed questions posted; always provide MORE information than you think is necessary; our business is one of nuances and tricky issues): If this is a distribution from an IRA, it is fully taxable and counts for the RMD. If this is a distribution from a church plan, it counts as an RMD, but whether it is taxable is a separate question dependent on the rules for minister housing allowances, a separate issue. The issue is actually simple when boiled down: it's not "is a housing allowance an RMD", it's "is a distribution from a plan (whether taxable or not) counted toward RMD requirements". The answer to that is simple: Yes; the status of the taxation does not affect the application of RMD rules.

Kevin's answer is wrong. See my explanation to his comment. Here's the problem. A misinterpretation of what is said with regard to 414 (n)(4). Counting the service when not a leased employee is applicable IF the individual meets the requirements otherwise of being a leased employee which still requires a full year. In other words, you don't get out of counting him as a leased employee by having him on the employer's payroll for six months AND THEN on the leasing company for six months and claiming he doesn't have the year with the leasing company. That first six months counts in that case.. Now, back to our question: the employee is, from the beginning, on the temp company's payroll for a few months and THEN is hired by the employer (plan sponsor). Does his temp time count for the employer's plan: ABSOLUTELY NOT. 414(n)(4) is simply not applicable. Is anyone still saying something else?

Wait a minute; we are talking about apples and succotash! A RETIREMENT PAYMENT by a church from a church plan (nothing to do with an IRA) can have as part of the payment a housing allowance that is non-taxable (the cite above explains some of that). But that has NOTHING to do with an existing IRA and nothing to do with an RMD that is required from that IRA. PERIOD.