QP_Guy

Along with Kevin's thoughts i'd add to keep your eye on the real goal. Is the goal to merge plans or is the goal to have a single set of employees under a single plan. That may sound parsed, but Kevin's solution and other like solutions depend on keeping the real goal in focus.

Wish we had voting buttons. I'd vote the following is incorrect IRS discussions and slide decks are not law, they are just indications of what the IRS would argue. At that time. No, that's not the essence of the safe harbor. The essence is that if an employer allocates according to the safe harbor, it will be deemed to pass, despite weird demographic instances when it wouldn't pass.

Here's a response i rec'd from an attorney on this issue: Pursuant to 26 U.S.C 402(a) , taxation for all distributions should be made to the distributee. However, Section 402(e)(1)(A), states that the alternate payee would be treated as the distributee when it is a spouse or former spouse of the participant where payment is made under a qualified domestic relations order. Therefore, Stahl v. Commissioner, 81 T.C.M 1087 (2001) held that where the distribution is made to a non-spouse alternate payee taxation should be properly assessed to the plan participant. The court stated that Petitioner can only escape the taxation on the distribution where it is made to the spouse or former spouse. And any distributions from petitioner’s pension plan to the child, not his spouse or former spouse, petitioner should be treated as the distributee and subject to the taxation. IRS Publication 575 page 4 also states “ A distribution that is paid to a child or other dependent under the QDRO is taxed to the plan participant.” I know you also had questions regarding the amount of taxes to withhold and I hope this will address your questions regarding withholding 10% v. 20%. Pursuant to 26 U.S.C 3045, federal income tax must be withheld from any distribution unless the individual elects to not have withholding. Any distributions during the lifetime of the participant to a nonspouse alternate payee should not be included in the gross income of the payee but rather included in that gross income of the plan participant. This type of distribution would be considered nonperiodic distribution under 3045(b)(1) and therefore, withholding should equal 10% of the distribution. Additional based on 26 U.S.C § 72(t) states that the participant may be subject to an additional 10% in taxes (or “penalty”) when taking an early withdrawal from their retirement plan, however, this taxation will not apply to the withdrawal taken pursuant to the QDRO.

The employer can't return the deferrals from the plan directly, but should correct the error by 1. removing the incorrect deferrals from the participant's account to the forfeiture account; then 2. making the employee whole via payroll.

What about the improved ability to receive in-service distributions? SH source can't use 2 yr/5yr rules.