FPGuy

One often overlooked advantage from the participant's perspective to doing a direct rollover is the ability to take partial withdrawals if/as possibly needed, and to do so without 20% mandatory withholding. Few smaller plans permit partial withdrawals (all or nothing). Your plan's investment advisor should be a help in communicating the distribution options to terminees, and many institutional recordkeepers provide a free rollover service (to their own IRA, of course). Millenium Trust and PenChecks are two independent companies that offer solutions for lost inactives (i.e. terminated participants with vested balances) and returned or uncashed distribution checks.

Belgarath and EBECatty are correct. The StockShield program is a private insurance trust arrangement, not a policy. Applicants petition to join a closed pool of other executives looking to discount the risk/cost of their respective employers' potential bankruptcy relative to their NQDC arrangements. Each participant (accepted applicant) makes a contribution to the trust, which has a finite duration. At the termination of the trust, the trust investment (US Treasury Securities) is liquidated, and participants who have an "insurance claim" (so to speak) are made whole (or as whole as possible) from the proceeds, with the balance returned pro-rata (less administrative expenses) to everyone else. Query if an applicant from a typical private company would be accepted.

Also, beware of transfer-for-value issues where buyer is not the insured. One suggestion in latter regard is for buyer to be a grantor (relative to insured) trust. This may also circumvent the three year rule estate inclusion rule where insured as buyer then wants to transfer the policy out of his estate to a non-spouse.

In the day there were firms that bought over-funded plans after participants had been paid out; maybe there still are. But I assume if a plan can be sold it can also be contributed to a CRUT (although as I understand it there may be unwanted tax consequences if the plan represents more than 80% or so of the business assets), in this case after H&W transfer out their respective LSE to IRAs. In due course (a year?) there is an early termination of the CRUT along actuarial lines (income interest and remainder, respectively). Not perfect, but probably better than a penalized reversion, particularly if the charitable deduction associated with the contribution is utilizable. A more aggressive, but also more tax favorable, wrinkle is for H&W to contribute their ownership interest to a so-called Malta Pension Plan (MPP) prior to the early termination, and following the transfer the business is liquidated. Subject to rather liberal rules, distributions from the MPP will be free of Maltese tax, and by tax treaty free of US income tax as well. I know of the strategy, although not specific to the contribution of an over-funded pension plan, but the tax free liquidation of a private corporation.

Depending on the type of policy the insured may have recoverable basis to the extent of insurance related imputed income. Less clear is whether basis only recoverable against an actual distribution of the policy and forfeit if policy is surrendered by the plan and cash value used for a lump sum distribution.

How about a qualified individual taking a distribution, treating it as a COVID distribution whether the Plan treats it as such or not, converting it, and spreading consequent taxes over 3 years.

As the annuity benefit is protected and known, but the "excess" is just that, any reason participants electing an annuity could not be paid their share of the post purchase excess in cash?

Recommend client consider that whatever he is contributing pre-tax to any plan will be taxed later, but that at the same time he may be reducing his net income for which he gets a permanent 20% QBI deduction. On the other hand, if joint return taxable income is over the phase-out threshold, deduction may get him a QBI deduction he might otherwise not get, particularly if his is an SSTB.

Suggest following outdoor procedure: client drives up, is handed document to execute through window. Executes in front of requisite witnesses, including notary if required. Hands executed document back to witness signature/notarization as required. Yes, I've had clients do it.

Under the circumstances, any chance these W-9 recipients and their "employer" could be considered an affiliated service group?

The Act does not require Plans to offer an annuity payout, only to inform participants of the approximate actuarial equivalent of a projected account balance. The Act also lays out some ground rules to facilitate the ability of a Plan to offer participants the opportunity to purchase annuity contracts and also to remove some roadblocks, such as limited portability, to their doing so. Annuity contracts as a qualified retirement plan investment are commonly available through 403(b) plans - the TIAA side of TIAA CREF. As to your QDRO questions, benefit splitting comes in two forms: shared payment and shared interest. With a shared payment, the AP may be dependent upon elections made by the participant and the latter's life expectancy. In the case presented, the participant has begun a life annuity. The QDRO cannot change that so the AP has to take a shared payment of the annuity, and if the participant gets hit by a bus on Tuesday (and the annuity is life only, no certain period), that's it for the AP's interest. Conversely if the AP gets hit by the bus, the participant no longer has to split the payments. With a shared interest, the AP is treated as if he/she were also a participant and is free to elect a distribution option accordingly. No problem if actual participant gets his by the bus, but if AP does, his/her shared interest does not revert to participant.

Don't think the loss of the stretch means much to anyone outside of the 1%. How many individuals who inherited IRAs they could stretch actually stretched them? But for the 1% it is a meaningful issue.

Sequential Roth conversions certainly work, but they would have to be on top of the IRA holder's RMD assuming he/she has same. Better alternative might be applying the RMD (and more if necessary) to purchase life insurance. Assuming insurability not an issue (and where the IRA holder is married, a survivorship policy can often finesse that issue, even if one spouse is otherwise uninsurable on his/her own), that might be step one, with sequential Roth conversions as step two. CRUTs also can work better than you might think, even if one has limited charitable leanings. Based on current AFR, a 50 yo CRUT beneficiary could receive as much as 8%+ a year of the CRUTs annually valued corpus. CRATs don't work very well in a low interest rate environment.

FWIW, we've seen several recordkeepers eliminate direct deposit because of increasing fraud related to electronic transactions. Implications and liabilities being hashed out. See Naomi Berman vs. Estée Lauder et. al involving the Estee Lauder retirement plan.

Isn't the quoted language indirectly countenancing a bonus accrued during employment but paid following termination? Mr. Starr is a walking authority but if the money in question had been an accrued bonus would she not have been able to defer from it, assuming it would have otherwise qualified as compensation for deferral purposes per the Plan document? If so and the payment can be defended as an accrued bonus...

Fair market value is not necessarily cash value. For a new or more recently issued policy, FMV is premium insurer charged, or would charge, for a new policy based on insured's attained age (and risk classification?). For an older policy, see Rev. Proc. 2005-25 Section, Section 3. Policy, subject or not to a policy loan that reduces its FMV, could be distributed to the participant if Plan permitted. Advantage: depending on type of policy, recovery of cumulative economic benefit value charges (aka "PS58 costs") as basis. Disadvantage: potential application of 10% premature distribution penalty on taxable balance of insurance specific distribution. Rev. Proc. 2005-25 applies very mechanical rules that do not reference the insured's risk classification. There being an increasingly prominent life settlement market where policy values are determined by current re-underwriting, and can substantially exceed the cash value (or in the case of settled term policies, the absence of cash value), has the RP become obsolete, or at least potentially questionable? A safe harbor is a safe harbor, but the RP does require its application to be reasonable.

I believe the "materially greater" extension requirement is under 409A, whereas 457(f) specifies that the present value of the benefits as of the extended vesting date must be at least 125% of the value of the benefits had the vesting date not been extended.

Thank you as well.

Unless you client needs to reduce his income to maximize his QBI deduction, consider that jacking up W-2 at the expense of K-1 for Plan contribution purposes may be reducing a 20% income exclusion on K-1 for tax deferral in respect of W-2. At least until 2026 under present law.

Luke - A group plan can incorporate individual term policies owned by the employer (as a group policy is). Not necessarily using Lloyd's specialty policies, but more prosaic term, this is not an uncommon way to provide enhanced coverage for key execs. Advantages typically include better conversion and portability options for the insured; better pricing on the base group by limiting base group coverage limits.

Would beg to differ as to nomenclature and tax treatment. This is not a split dollar arrangement as the policy has no cash value and the employer has no interest in the policy proceeds. It can, and probably should, be treated as part of the employer's group life plan and Table I used for imputed income.

Actually, S-corp. dividends are generally not taxable but pass-through earnings are, and at ordinary income, not capital gain, rates. However, as much as 20% of the pass-through income can be deducted under the qualified business income (QBI) rules, which could argue against running that income through a qualified plan where they would lose their QBI qualification when distributed. If the business in question is a so-called SSTB (specified service trade or business), which includes a variety of professional and personal service occupations, the QBI deduction phases out for higher income taxpayers. Deductible contributions to a qualified plan that reduce taxable income may allow for a greater QBI deduction. I suggest an accountant as well as actuary be involved in the discussion. Note: QBI deduction is currently set to sunset in 2025.

You might want to check with a trust company that facilitates retirement plan distributions in respect of missing or non-responding participants. Two that come to mind are Penchecks and Millennium Trust. I expect they have experience with this situation and may have a solution such as creating rollover IRAs and/or bank accounts in the participants' names.

Don't understand economics either - she can afford to buy the mortgage from the Plan with funds that will ultimately be taxed to her but not pay the tax on a DIK? That being said, there are a number of institutions which will custodian alternative assets, like real estate mortgages, in their self-directed IRA. WealthAdvisor puts out an annual "{Year} America's Best IRA Custodian." There is a cost for this, but offset will be eliminating the need for an annual 5500 if she does a total transfer. If RMD is $40K I wouldn't imagine account value is under the filing requirement.

Allowing for in-service distributions is much like offering a brokerage window with, arguably, less fiduciary exposure. I question the propriety of questioning the motives for the request, unless it might open a discussion of issues related to the plan investment menu and/or participant transaction capabilities. I would not like to be the one to suggest to the owner or anyone else that they are being bamboozled by their investment Svengali. On the other hand, account balances, particularly in smaller plans, may be critical to plan pricing. That is something the employer may want to consider wearing her business hat (if the employer pays those expenses) or wearing her fiduciary hat if the expenses are borne in whole or part by participants.