Larry Starr

OK; feel free to have him call me! :-) And, that's why my NAME (and not some alias) is always on my responses.

Um.... I am a tax expert. I am an Enrolled Agent; same as a CPA except I can't do audits. Tell him I said so!!!! :-)

That is neither your job nor your responsibility. The answer is NEVER. You resign and just walk away.

Real simple: you need to do this or we resign.

Or a funeral director; just as much logic. What on earth do actuaries have to do with deferred compensation agreements? When they make sense, they are most often legal documents drafted by qualified and knowledgeable attorneys.

This is so simple; if he owns the business, all a "deferred comp" plan does is promise that his right pants pocket is going to pay something to his left pants pocket! "We don't need no steenkin' badges .... er.. large accounting firm missive" to make that situation clear. A deferred comp from the owner to himself is a waste of time and effort. A deferred comp agreement's value is where someone is promising the recipient money FROM THEM to the recipient in exchange for something. In the case of the owner, IT'S ALREADY HIS MONEY. If it's someone else's money (like a partner), then that is a different situation. And as to "more deductions", if he's a pass through entity, it's already in his personal tax return; there is no "bigger deduction" at all. Did he run this by his accountant, who will tell him exactly the same thing, which is that it is a stupid idea! :-)

Sorry, but that TPA should be fired, assuming that what you note as their position is indeed correct. You need advisors who will keep you OUT OF TROUBLE, not get you into trouble. Would your boss keep an accountant who has you deduct things that are not deductible on your tax return?

JPOD: go back and look at my earlier posts. You may be surprised, but there are significant circuit court decisions that have done just that (I noted the ones that had done so as of the date of that reference, which is a few years old now). It can be a big mess, and my guess is more circuits over time will go with the ones that found that the equities argue for giving the post death order validity, at least at some degree.

We've had 100's of DL on terminations over the years. Most times we go for them; sometimes we don't. We ALWAYS get the approval when we go for them; it's a pro forma thing,but generally a pain because we always have to educate the IRS reviewer or provide multiple copies of stuff because they can't find things that we have already submitted.. The most important reason for going for the DL is to make sure the IRA rollovers are secure. While I am almost 100% sure we would never had a problem with IRS finding a problem in a terminated plan that did NOT go for a DL, that approved termination letter is simply an insurance policy that guarantees that the IRS will never be able to attack the IRA rollover as from a non-qualified plan and all the problems that would arise from such a finding. And the rollover we are concerned about it the BIG ONE that's coming from our business owner client, not the little ones of the rank in file employees. So, if it was a really small plan asset wise (say, under $100k maybe), we probably would talk the client about forgoing a DL request. Other than that, we pretty much make it automatic and don't even talk about it being a choice. But NOT getting a DL does not increase the risk of audit. The IRS systems for selection for audit does not look for a DL filing on a terminated plan. But we do like that insurance policy! FWIW.

Unless the divorce decree qualified as a QDRO (and they RARELY do), then, no, my answer would not change. Let's assume that there are competing claims (the provider or the original question did not so state but it's reasonable to assume that's why he's asking). I don't know of "express statutory procedural requirements". The DOL has provided some guidance for the type of things that should be in your plan's QDRO procedures, and we have a standard QDRO Procedure that is pretty vanilla (like most of them that I have seen over the years). The problem is that the procedure will not deal with conflicting claims where it is not clear who is entitled to what. It is an absolutely perfect decision to throw your hands up in the air and say "I don't know" and let someone else resolve it. And that is what the courts are for. I don't understand your concern about courts "being happy". Courts deal with resolving issues all the time; that is what they do; that is their job (whether they are "happy" or not is irrelevant). Federal courts (where this will be heard) are quite capable of doing exactly what they are supposed to do. The judges are (mostly) very good and competent at dealing with both the legal issues and the issues of equity. We will just have to agree to disagree on those issues.

But it only works if that's what the EMPLOYEE wants; it doesn't work if forced on the employee.

Let me ask you another question: is it this one employee who really wants $36,000 contributed and it is the employee's desire to do this? if so, there is a way it can be done. FIrst, the employer drops the salary by $18k. Then, the employee contributes the maximum 401(k) of $18k. The employee is NOT an HCE (at least by income; I'll assume not an HCE by any ownership rules). Now, at the end of the year, the employer does whatever he is going to do with an employer contribution to the plan, but in addition, he does a -11g amendment that provides an additional $18,000 to this NHCE. Same result; no ERISA violation.

They clearly have to be tested on the same retirement age; in this case I would absolutely change the DC to 62 (what's the downside), But whether you can have different NRAs (but test on a uniform date) is not someting I am sure of; hopefully someone else who knows for sure can answer as I won't be able to look it up for a day or two.

I'm going to suggest that this is possibly ILLEGAL as a violation of their ERISA rights. If the employer establishes a 401(k) plan, the employee has a legal right to defer under the terms of Code Section 401(k). By docking his salary for the employer match that the employee is entitled to, he is certainly penalizing the employee for exercising his ERISA rights, as his deferral of $18,500 actually reduces his take home pay by twice as much. The employer's option is to provide a match or not, but if they do, to me it is a clear ERISA violation to penalize the employee by reducing their pay by the employer's match. If the client really want to do this, he needs an opinion from a very good ERISA attorney (who will no doubt actually tell him he can't do it!).

The problem is that the participant has now DIED; so benefit rights to spouses and ex-spouses have matured but we are not sure what they are. There is no QDRO for the ex-spouse (yet). There is a beneficiary designation that still provides the ex-spouse as the beneficiary, a plan provision that does not revoke that automatically upon divorce, and a new spouse who is entitled to her own ERISA rights to the account. The widow wants her money NOW: their still is not QDRO from the ex-spouse. I think that is sufficient complexity for throwing this to the courts to decide.

The short answer is: 25% of your W-2 from the S Corp.

This is insurance; it is employer provided via self-insurance. The insurance company is providing ASO (administrative services only) type of services. Again, what you describe IS INSURANCE paid for by the employer. That means it IS taxable compensation FROM THE EMPLOYER. Regardless of what EIN it is reported under on the W-2 issued, it is compensation from the employer (clearly, they are not EMPLOYEES of the insurance company!) and should be reflected in their benefits unless there is something that says amounts paid in that manner are excluded. And you should stop calling them non-insurance payments. They are EXACTLY what insurance payments are, they are just self-insured.

Tom, Did you get a number for HCE; will it go up from $120k? Larry.

I don't see how the quoted material has anything to do with your question. How about you tell us exactly what the client proposes to do, how he is going to do it, and what you think the problem is? Then, tell us how you think the quote from Sal's book answers any of the issues that arise from what the client wants to do. Then, I think we will have something that we can get our teeth into and help parse the rules for your.

You need a copy of the negotiated agreement between the employer and the union. If done correctly (not always the case), the parameters of the plan should be in the contract. Sometimes, the plan is drafted as part of the negotiations and attached to the contract and referenced by the contract. If the plan covers only the union employees and none of them are HCEs, why have a safe harbor plan? But yes, there is no prohibition on a plan that covers only union employees from being a SH format plan. Now, as usual, we don't get enough information (people like to make us guess, I guess!). You say the plan was set up just for the owner AND HIS EMPLOYEE. What does that mean? Is this a two man business with one employee being a union employee? Are there other employees? It it's just that one, are you going to set up a plan JUST for the one, or do you want to include the non-union owner? The answers to these questions could change how the plan would be designed.

Thanks; I was going to quote that answer. Although the IRA custodian or retirement plan administrator may calculate the RMD, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD. And now.... who is the retirement plan ACCOUNT OWNER? Not the participant, I assure you. It is the trustee that actuallys OWNS all the accounts (yes, on BEHALF of the participants, but the trustees are the OWNERS). So, the plan (trustees, if you wish) calculate the RMD not the participant. IRAs are different because the IRA account owner IS the participant; a custodian is NOT the owner. I fully acknowledge that it is the participant who is hit with the 50% failure tax, but that is even though he has no control over it. It's unfair (stupid, even) but there it is.... FWIW. Larry.

From your lips to g-d's ears! And I'm THRILLED to get rid of that stupid $500 extra deferral that makes the math much harder to remember.....

Having been involved in exactly TWO contested situations in over 35 years of doing this stuff, I certainly do not recommend interpleader glibly. Go back and look at the commentary I provided that different circuit courts have held differently on this basic issue. I disagree that the fiduciary is required to do as much in depth research as you suggest is necessary; it is enough to know that there should have been a QDRO drafted for the ex-spouse and it was not done before the death of the participant. We know that for a fact. The court ordered some sort of division and it was not done. Beyond that, now that there are two competing claims, either or both of which might be legitimate, this is a situation absolutely ripe for interpleader. The fiduciary is NOT required to figure out the law in this situation; it clearly ISN'T clear and now that's the job of the courts to figure it out. There is just NO WAY that the fiduciary is violating his fiduciary duty by recommending interpleader (if he were to go that route) in this situation. The fiduciary is actually exercising his appropriate judgement and as an expert witness (which I am), I would fully back him up in his decision. Now, if you review my prior posts, I actually suggested they AVOID interpleader. Since the parties appear to be represented let them fight it out and have the plan tell them that they will wait for a court order telling the plan what to do. That is also a good fiduciary decision since now the plan does not have to incur the costs of going to court and ultimately, the distributions will be made with all the proper paperwork. However, if the client is a law firm and it won't cost them any real money to do the interpleader thing, then go right ahead with my blessing, though I do wonder how the court will deal with all the disclosure stuff and reporting stuff (I have never seen an actual interpleader with a retirement plan, though in my insurance company home office days I know we had bunch of them, but the corporate legal department took it over once my operation determined we could not figure out who to pay in a given situation.

I won't be responding to your Question 1 (I'll leave that for others who might be able to answer off the top of their head), but I wonder where you get your understanding provided in Question 2 that it is the participant who determines how much the RMD is? I have never heard that argument before and, while I have not researched it, I know our plan documents (and all plan documents that I ever remember seeing) have all the requirements for calculating RMDs in the plan language and that language determines the amount of the RMD. And on top of that, the 1099R produced by the plan indicates that the distribution amount is a fully taxable distribution (so it can't be rolled over). The determination of the 1099R reporting is made by the plan, not the participant. FWIW.

Interpleader IS a fiduciary decision when the merits of two claims give rise to the inability of the fiduciary to decide which claim takes precedence and it is appropriate for a court of competent jurisdiction to make such a decision.