IRA is not required

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L1: IRA is not requiredI believea SEPPPlan under 72t does not require a rolloverto an IRA. If so, does anyone have any stats on DC plans that offer SEPP under 72t?2005-07-05 20:02, By: Joel, IP: [68.197.111.95]
L2: IRA is not requiredMost DC plans would not require the use of a SEPP since most (at least many) have early retirement provisions that allow early retirement at age 55.
However, whetheror not early retirement distributions can occur (and in what amounts)would be defined by the Plan Document andwill most likely vary from one plan to another.
2005-07-05 20:13, By: Gfw, IP: [172.16.1.70]

L2: IRA is not requiredHello Joel:
Your are correct. In order to use a SEPP plan one must satisfy two fundamental rules: (1) All of the details found in 72(t)(2)(A)(iv) about the distribution plans themselves, and (2) satisfy IRC 72(t)(1) which says in part: “receives any amount from a qualified retirement plan (as defined in 4974(c)…”
When we read 4974(c) we find all of the usual suspects: any and all plans under 401(a) which includes virtually all private employer sponsored plans; 403(a)’s and 403(b)’s which are the public sector’s answer to any and all pension plans; 401(k)’s by inclusion through 401(a); 408(a)’sand (b)’s which includes virtually all IRAs and 408A’s; ROTH IRAs.
As a result, just about any qualified retirement plan can used to implement a SEPP (except 457 plans); however; with IRAs (408(a), 408(b) & 408A) one need only deal with IRS rules; with any of the rest one needs to deal with all of the IRS rules plus all of the plan rules which may support, restrict or prohibit SEPP transactions.
The statistics (which you asked for) are very difficult, if not impossible, to come by. However, as a general perception: small plans, say under 50 -100 participants, are likely to prohibit SEPP transactions just because they are not equipped to handle the transactions. Conversely, large plans will likely permit SEPP transactions, but might also charge you for that priviledge.
TheBadger
wjstecker@wispertel.net
2005-07-05 21:07, By: TheBadger, IP: [66.250.23.23]

L2: IRA is not requiredLet me try to simplify what TheBadger said:
To maximize simplicity of operation and have maximum control over the plan, complete an IRA Rollover and then set up your SEPP.
Wow! I wrote something short for a change. Amazing.
Jim2005-07-06 09:46, By: Jim, IP: [70.184.1.35]

L2: IRA is not requiredThis rollover market is a full employment Act for brokers. Plan sponsors should encourage retirees to leave their money with the Plan. Why should one who is not experienced with managing large sums of money suddenly assume such a profound responsibility? If more Qualifed Plan Participants knewwhat they were paying for fund operating expensesthe number of rollovers to variable annuities/loaded mutual funds would be sharply reduced. 2005-07-06 10:12, By: Joel, IP: [68.197.111.95]

L2: IRA is not requiredJoel:
Your argument for an employee leaving their money in a company”s Defined Benefit Plan misses one very important point: plan solvency. When you state that “Plan sponsors should encourage retirees to leave their money with the Plan,” I”m sure the sponsors would like to be able to do that very much to help support their failing plans.
Qualified Plan insolvency is a huge problem for American workers. I can”t believe I”m going to recommend an AARP article, but Page 14 of the July-August 2005 AARP Bulletin has a great article about this problem.
Whether someone chooses to leave their retirement with their former employer”s DB Plan or take a lump-sum distribution is a very individual question that should take a lot of study before making the final decision. When you consider the solvency issue, costs for another investment option may become a non-factor. Take a look at the airline industry. I have had several pilots come to me an tell me quite emphatically to “get the money NOW” while it”s still available.
The AARP article points out that, according to the Wharton School of Business, there hasn”t been a new DB Plan started by a major corporation in 15 to 20 years. I think there”s a message there.
No argument that fees and commissions do affect the overall return of a portfolio. But sometimes people are more concerned with “return of their money” than “return on their money.”
Jim2005-07-08 08:56, By: Jim, IP: [70.184.1.35]

L2: IRA is not requiredJim,
Please notethat this thread is dealing with taking lump-sum settlements from Defined Contribution plans, not Defined Benefit plans. Recognizing this fundamental difference in plan types you may want to change your post.
Peace and Hope,
Joel L. Frank
2005-07-08 10:31, By: Joel, IP: [68.197.111.95]

L2: IRA is not requiredI guess I’ll have to take sides based on personal experience – we (actually my wife)lost about $125,000 because the employer and the plan went broke.
Given the opportunity to move funds to personal control or leave with the employer – I’ll opt for the personal control every time.
Almost any investment availablein the employer’s plan is also available outside the employer’s plan. In addition, there are many no-load or low-load funds that are available with very little research on the part on anyone looking for information.
Justmy thoughts.2005-07-08 10:37, By: Gfw, IP: [172.16.1.77]

L2: IRA is not requiredHello Joel:
Admittedly, DC plan assets are a thousand percent safer than DB assets; however, there are some pitfalls even in the perceived safety of DC assets. Two come to mind:
1. based on plan year accounting versus the fiscal year of the plan sponsor; the DC trust (which holds your assets) may actually be holding up to a 2 year account receivable for company match & profit sharing dollars. If the company goes bankrupt; this A/R becomes valueless. You wouldn’t know if this situation exists unless you carefully read the 5500 which in and unto itself is usually 6 – 9 old, or more.
2. The plan sponsor has pledged company stock to fulfill its company match / profit sharing contribution and you happen to work for Enron/Worldcom/Global Crossing, etc. The pledge to cotribute the securities might have been made when the stock was trading @ $50 and actually gets contributed at a market value of $1.35.
In summary, there are some pitfalls in the percieved safety of DC money. Conversely, if all of your DC assets are tucked away at Fidelity/Vanguard, etc. I would reverse my opinion. Then, I would ask the question, are the plan subsidies I am getting; e.g. noload funds where retail customers pay a load for the same fund; access to reaserch or even access to funds unavailable to the public; individual trading accounts at reduced trading costs that you could not get as a single individual, etc., worth staing in the plan?
TheBadger
wjstecker@wispertel.net
2005-07-08 10:57, By: TheBadger, IP: [66.250.23.21]

L2: IRA is not requiredGFW: Was your wife’s plan a DB or DC?
Joel2005-07-08 11:22, By: Joel, IP: [68.197.111.95]

L2: IRA is not requiredActually it was a ESOP – she was restricted from taking the funds until age 55 – unfortunately, the employer and the plan went to never-never land when she was about 50. But, as said previously – I’ll always opt for the control.
BTW – given the option, never leave money in a DB plan – you get what was promised – any gains (and/or losses) accrue to the employer – not the participant.
2005-07-08 11:44, By: Gfw, IP: [172.16.1.77]

L2: IRA is not requiredHi Joel:
Yes I see now that you started off with a DC plan discussion and I focused on DB. However I’ll stand on my post for the DB aspect and add the following for DC.
I concurr with TheBadger and GFW comments for DC plans, butlet me add another problem for leaving assets in aDC plan vs IRA Rollover.
Over time a company is subject to changing the DC platform from one sponsor to another. For example, it may start out with Fidelity then change to Putnam then change to Vanguard, etc. Many times the investment options get changed at the same time. ‘Proprietary Funds’ is a particular problem you have to deal with when these changes occur. These changes are driven by different things, mostly politics of who’s a friend of the decision maker at the time. As decision makers change the platform tends to change, and this affects current and former employees. Given this I still opt for personal control. I’ll deal with the costs of operating my own system rather than be at the mercy of a corporate board or wayward CEO.
Jim2005-07-08 11:53, By: Jim, IP: [70.184.1.35]

L2: IRA is not requiredI know you must all be aware of this but i didn’t see it in the post. As well as the plan document allowing for 72(t) SEPP distributions, the employee must be separated from service. See 72(t)(3)(B)2005-07-11 08:44, By: jevd, IP: [12.147.86.150]