Ananda

Just to supplement my earlier response, another lawyer that is part of our ERISA lawyer discussion group emailed me that he has taken the position that a qualified plan death benefit can be rolled over to a Roth IRA. He based his view on IRS Notice 2008-30 which addressed qualified plan monies being able to be rolled over to Roth IRA's. More specifically, 2008-30 generally states that qualified plan to Roth rollovers must be "eligible rollovers" as defined under IRC 402(c)(4) and 402(c)(4) does not exclude after tax monies such as life insurance proceeds. Nonetheless, the biggest hurdle to overcome is that the IRS Notice and other sections refer to the participants account balance as being eligible for rollover if it meets the 402(c)(4) requirements. I can hear the argument that a death benefit is not part of the participant's account balance or accrued benefit. Yet, if the insurance company uses the plan as a conduit to pay the beneficiary, as they do in my set of facts, a reasonable argument can be made that this is coming from the participant's account balance and nonetheless, arguing that death proceeds springing from an ERISA plan are plan assets also helps. Nonetheless, we both recognize the risk of challenge by the IRS but we and the other attorneys in our group are not aware of the IRS ever challenging this although they are aware of this practice.

Thank-you Peter. I appreciate you sharing the citations with the group. Its interesting to note that while the 402 regulations excludes non-taxabe income from the definition of an "eligible rollover" IRC Section 402 does not. Also, Roth IRA's are treated differently given that they accept after tax rollover monies. Its interesting to note that this morning I presented this question to a group of ERISA lawyers that I net work with and one of them stated that he is aware of an unpublished decision by a district court in the 5th Circuit that concluded that death proceeds from a policy held by a sub-trust within a qualified plan paid to a non-spouse beneficiary was an eligible rollover to a Roth IRA. He didn't know the specific facts and whether this was an actual holding or dicta, but if I can get my hands on this opinion I'll share it with the group. Thanks again

Thank-you for your responses. My response is that the insurance policy held by the plan is a plan asset and the plan sponsor fiduciary must prudently make this investment. Thus, since the life insurance death benefit is springing and originating from an ERISA plan asset it would seem that an argument could be made that the death benefit could be rolled over to an IRA as a plan asset. Moreover, there is some support that the death benefit is a plan asset. For example, there is some case law stating that if an insurance company does not distribute the full death benefit coming from an ERISA plan but rather pays out the death benefit in installments it is self dealing with plan assets. Strangely enough I did not find any IRS rulings, opinions, notices, etc., addressing this issue, nor any case law on this topic.

Can you explain why, if the plan document permits rollovers to Roth IRA's, a 401(k) plan non-spouse beneficiary can't rollover the 401(k) monies to a Roth IRA? Is your concern that pursuant to the facts at hand, the non-spouse beneficiary is entitled to the deceased participant's 401(k) held insurance death benefit? It seems to me that if rolling over 401(k) plan assets to a Roth IRA is permitted, and I feel it is, why can't there be a rollover of the deceased participant's 401(k) death benefit to the Roth IRA?.

If a 401(k) plan owns a term life insurance on the life of a participant, and the participant dies, the death benefit goes to his children as beneficiaries. The children are requesting that the death benefit, which is income tax free, be directly rolled over into a Roth IRA. I see no problem with this but their accountant is saying that an income tax free death benefit can't be rolled over to a Roth IRA. Does anyone agree with the accountant?.

Thank-you for your responses. this is helpful

A 401(k) plan has been deemed Top Heavy and will begin making minimum contributions to non-key employees who are plan participants. However, there is a group of employees who are eligible to participate in the plan, but absolutely refused to do so because the funds offered by the plan invested in companies that have poor records regarding the environment. If a non-key employee is eligible to participate in the plan but absolutely refuses to do so, should they be receiving minimum contributions or can the plan sponsor argue that only employees that enrolled in the plan should receive minimum contributions. Regulations Section 1.416-1 Q&A M-10 states that non-key employees that are "participants" in a top heavy plan must receive minimum contributions and ERISA 3(7) defines "eligible employees" as participants. However, Q&A M-12 refers to "employees covered under the plan" as receiving minimum contributions and I could argue that these non-key employees are not "covered" under the plan. Any thoughts?

OK Thank-you for your response. I did some quick research and the source for this is ERISA Section 3(7) which states that a participant is defined as someone "who may be eligible to receive plan benefits". However, regarding SPD's the confusion is ERISA Section 101(a) which doesn't just state a "participant" must receive an SPD but rather states "each participant covered under the plan" must receive an SPD. Arguably, if I'm eligible to participate in the plan but do not enroll in the plan I'm not "covered under the plan" and thus not required to receive an SPD. Despite the confusing language, its probably best to play it safe and provide SPD's to employees eligibile to participate, but who never enrolled in the plan.

Thank-you for the responses. My question is if an employee is eligible to participate in the plan by meeting the service requirements etc., but chooses not to participate or neglects to participate in the plan, does that individual need to receive an SPD when he or she becomes eligible? ERISA Section 101 states that "each participant under the plan" needs to get the SPD so I read this to mean only plan participants get the SPD. However, I've seen some treatises that state employees eligible to participate also need to get the SPD, but I've found no support for this. Does anyone provide SPD's to employees who are not plan participants but eligible to participate?

Thank-you for your views. I understand that an argument can be made that the mere receipt of a participants benefit is not a PT. However, the concern here is not the receipt of a plan benefit but the additional cash payout that is enticing the participant to receive the benefit. A DOL Regional Office raised these concerns pursuant to a DOL investigation I was involved with years ago. Regarding 406(b)(3) the fact pattern I addressed is where the owner/plan administrator received a very generous cash payout offered by the plan trustee to take a distribution. However, if the participant is not a plan fiduciary the concern would be 406(a)(1)(D), where a participant/ party in interest is using plan assets, to obtain a benefit i.e., the cash incentive to take a distribution, at least this is the position of a DOL Regional Office. By the way, pursuant to this DOL investigation, although PT concerns were raised by the DOL regarding cash incentives to be paid to participants to take a lump sum, no PT penalties were imposed and instead the DOL focused on other PT issues.

But where do you put the FEMA # on the Form 5500 or do you just alert the IRS in a cover letter etc., of the FEMA #

While I understand that plan participants are required to receive an SPD within 90 days of becoming a plan participant, where is the support under IRS or DOL regs. that employees eligible to participate must also receive the SPD even if they never become plan participants?

My understanding is that if you file the form 5500 late and the plan sponsors zip code is in a disaster relief area that the IRS accepts the late filing. Is this correct?

I have another mandatory distribution question. My understanding is that if a retiree has an account balance over $5000, participant consent is required before a distribution can be made. However, if the balance is between $1000 and $5000 then per 401(a)(31) the plan has to notify the participant that they can direct a rollover to a named bank or take a lump sum, but if there is no response from the participant then the plan must do a direct rollover to an IRA selected by the plan. Thus my interpretation is that if the balance is under $1000, no such rollover notice is required and the plan can write a check to the participant and W/H 20%. However, if the balance is less than $200, mandatory 20% W/H is not required. Is there agreement on my interpretation?. Finally, what about spousal consent? Does the plan document have to specifically state that distributions of balances less than $5000 does not require spousal consent. What if the plan states that balances over $5000 require spousal consent. Is that sufficient?

Luke But if the plan participant is getting a cash benefit from the employer to make a withdrawal doesn't the ERISA self dealing concern focus on the participant and not the employer. So in the IRA toaster example the IRA holder and not the bank should be concerned because the IRA holder is accepting cash or a "kickback" in a transaction involving plan assets. Similarly the plan participant employee is receiving a cash benefit (from the employer) in a transaction involving plan assets i.e., withdrawing plan assets from the plan. All these transactions could raise 406(b)(3) concerns.

If a plan sponsor is providing a cash or other incentive to a plan participant to take a lump sum distribution, isn't this self dealing on the part of the plan participant/party in interest or a 406(a)(1)(D) violation i.e., using plan assets to receive a benefit? Isn't this similar to the concerns raised by the DOL when IRA holders received gifts from the bank or other financial institution for opening an IRA?.

OK Thank-you. So it seems that the plan document would need to have language to require mandatory distributions for certain retirees. Without that language it seems the plan is bound by the $5000 lump sum payout rule.

A 401(k) plan for the first time has over 100 participants and unfortunately must meet the plan audit requirements. There are over 50 retirees that have between $5000 and $10,000 in their account and if only a few of them withdraw their monies the plan would have less than 100 participants. The plan sponsor would like to force out or encourage these retirees to take a lump sum. Are there any options available? It seems that the plan sponsor can contact these participants and remind them that they can take a lump sum or rollover to an IRA. I'm concerned that if the plan sponsor offers a cash or other incentive to take a lump and the retiree accepts it could be deemed self dealing with plan assets. Further if the employer recommends a lump sum or a specific rollover it could be deemed fiduciary investment advice Any suggestions?

When filing the 5310 to terminate a plan, is there a requirement to submit and fill out the Procedural Requirement Checklist? I previously used this checklist as a frame of reference and reminder as to what has to be filed with the 5310. I'm not aware of any requirement that this checklist has to be completed and filed with the 5310. Any thoughts on this?

A 401(k) Plan is a single employer plan and filed Form 5500's as such. Mid-year 2019 the plan selects a multiple employer plan provider and converts to become a participant in a multiple employer plan. The Lead employer that sponsors the multiple employer plan files a full year 2019 Form 5500, and this 401(k) plan is listed as a participating plan. While the IRS received a single plan Form 5500 from this 401(k) Plan in 2018 they are asking why no 5500 was filed for 2019. Thus, we are sending them the multiple employer plan Form 5500 that was filed for 2019. Is this enough? Or does the plan need to file a short year 5500 for 2019 for the months it existed as a single employer plan and use the DOL DFVCP to correct this apparent filing error?

Thank-you for your responses. I found out that the participant's spouse lives in Haiti and there is no separation agreement or abandonment etc., They are happily married. The concern is that while the spouse in Haiti is willing to sign a spousal consent agreement, to authorize a participant loan, she lives in the Haiti countryside and given the political turmoil in the country could not possibly get this notarized by a US notary. It would seem to me that if we can obtain signed spousal consent with proof of ID, that given the political turmoil in Haiti that we could accept the spousal consent without notary?

The question involves spousal consent regarding a plan loan and does not involve a QDRO. My understanding is that a court ordered legal separation does not excuse obtaining spousal consent for a plan loan since the participant is still legally married..

I can't answer why the life insurance policy was held after NRA but the policy had a cash value so RMD should have been made from the cash value but the plan sponsor mistakenly made the RMD to this participant from other plan assets. Subsequently, through the years the cash value of the policy went to zero. So it seems that the plan needs to be made whole by the employer

A plan participant needs spousal consent since he wants to receive 100% of his accrued pension benefit. However, the spouse is in Haiti, and they have not spoken in years, and numerous attempts to contact her have not been successful. Is there any relief available here or will he just have to keep trying to get the spousal consent or elect a 50% QJSA?.