Meaning of "Retired" for 401(a)(9) purposes

[smm]

When exactly is an employee "retired" for 401(a)(9) purposes. Is a non-5% owner deemed to be "retired" soley because he works for no compensation? The employer considers him to be an employee as do all of the other employees. This particular individual hasn't received W-2 earnings from this employer in years but is subject to the rules and requirements that all other employees are subject to. I would prefer not to get into a detailed discussion of the facts, but suffice it to say that he is not a volunteer, nor is he a member of the board of trustees (it is a tax-exempt entity). In the 2003 IRS Q/As, the IRS says that "when an employee retires is a facts and circumstances determination....." This would suggest that "compensation" is not required. Any thoughts?

[WDIK]

I would prefer not to get into a detailed discussion of the facts, but suffice it to say that he is not a volunteer, nor is he a member of the board of trustees (it is a tax-exempt entity).

Indentured servitude?

On a more serious note, you will find several discussions on the boards relating to the topic of "employees" with zero compensation. I would suspect that the same logic applies in this instance as well.

EDIT: After rereading the threads mentioned above, I think I'll take back what I said. I remembered some of the statements differently than they actually were. Sorry.

[Harwood]

smm - is the person actually working?

[smm]

Excellent question. Yes.

[TBob]

the IRS says that "when an employee retires is a facts and circumstances determination....."

Is this person receiving other benefits that a regular employee receives? For example...Health Insurance, Life Insurance, Disability Insurance, etc.?

[Guest CharlieLaur]

This particular individual hasn't received W-2 earnings from this employer in years but is subject to the rules and requirements that all other employees are subject to.

I have submitted this exact question at prior ASPA meetings and was understandably "thrilled" with the "facts and circumstances" answer which, of course, only means that the IRS has no clue as to how to write regulations that would cover the multitude of possible retirement scenatios that could be considered.

I would wonder how he could be subject to the same rules and regulations as other employees. What are they going to do to him if he doesn't follow the rules --- not pay him?? Being considered an employee usually involves a degree of control on the part of the employer. That control may not exist here.

You did not indicate the amount of the required minimum distributions - the amount of the income taxes or the excise tax might have some influence on the IRS's flexibility in handling the situation.

Despite the facts and circumstances answer from the IRS, I would be concerned about justifying the employment status of someone who has not received a W-2 in years.

Have you considered requesting a Private Letter Ruling??

[Earl]

It would really be some special circumstances for me to not recommend that the person start taking a RMD. How much could it be? Compared to the downside, I think it is an easy choice.

[MGB]

Earl,

It is not such an easy choice if the plan does not allow in-service distributions.