bm30003700[at]aol.com wrote:
- quote -

Well, they already have in effect done so.

If my children were still under aged and living at home,
each would have to satisfy (1) my rules and (2) wife's
rules. see the analogy?

ChEAr$,
Harlan Lunsford, EA n LA

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Harlan Lunsford wrote:
- quote -

I would think IRS would want to offer guidance for complying
with deadline (Simple IRA contribution deadline) imposed by
tax law where non tax law (Patriot Act) can inhibit such
compliance.

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Just to clarify - are we talking about mandatory cashout
distributions on account of termination of employment?

If so, as far as I can tell, the IRS and the financial
regulators have given fairly clear advice, at least with
respect to the customer identification program (i.e., CIP)
regulations under 31 CFR 103.121 - namely, that the CIP
rules do not apply until the employee for whom the account
is established first asserts ownership rights in the
transferred assets; until that time, the CIP rules don't
apply and the financial institution can open the account
without obtaining all of the required information from the
horse's mouth (i.e., the employee). For reference, see IRS
Notice 2005-5, A-10; OCC, FAQs:Final CIP Rule (discussion
note 4 under Sec. 103.121(a)(3)), available
at:http://www.occ.gov/10.pdf

If the situation doesn't involve a mandatory cashout
distribution from another qualified plan, but rather
attempting to set up accounts for ex-employees whom you can
no longer locate, but as to whom you are required to make
nonelective employer contributions, then the same reasoning
should apply by analogy. The basic principle appears to be
that a "customer" is a person with a beneficial interest in
the account assets who is attempting to assert such rights
as against the financial institution's custodial possession
thereof. The employer wouldn't be the "customer" because he
has no beneficial interest therein. The ex-employee
wouldn't be a "customer" until such time as he asserts
ownership rights, even if the account is in his name. Thus,
the CIP is not activated until that time. Provided the
employer and the financial institution have a SIMPLE
agreement between them, the financial institution should be
able to set up a SIMPLE IRA account for the AWOL employees
without triggering its CIP until such time as the employees
first assert ownership rights over the funds. The employer
is not the "customer" because he has no beneficial interest
in the funds, and cannot withdraw the funds once
contributed. Further, because the employer cannot otherwise
legally claim to be acting on behalf of the employee with
respect to the funds, other than making the initial
contribution, the employer cannot assert the employee's
ownership rights in the funds (e.g., the employer could not,
on its own and without the signature of the employee - which
would obviate the whole issue in the first place - cause an
early withdrawal to be made, e.g., for medical expenses, on
the employee's behalf). As a result, the bank is in the
position of a custodian of "lost" property rather than the
custodian of a "customer's" property, and therefore should
not have to invoke its CIP procedures until such time as the
"owner" of that "lost" property comes forward and asserts
his ownership interests.

It seems to me that someone at Schwab is being bone-headed
(or, there's some other subtle issue that my quickie
research didn't dig up). Since this doesn't involve doing
something that really is naughty, I don't see why Schwab's
general counsel (or their outside bank regulatory counsel)
doesn't just get on the phone to their federal regulator
(OCC, FDIC, Fed, whomever) and get at least an informal
opinion as to whether or not the CIP is triggered when the
employer deposits the amounts in question. It seems to me
that, since an otherwise eligible employee can choose not to
participate, and yet the employer is still required to make
nonelective contributions for that employee, that this issue
must have been raised (and settled) a while back.

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bm30003700[at]aol.com wrote:
- quote -

Forgetting the Patriot Act for a second, I don't see how a
financial institution can establish an IRA account for an
individual without that individual's signature.

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bm30003700[at]aol.com wrote:

(snipped...)

- quote -

As well they should. Remember that IRS has nothing to do
with the Patriot Act which applies to brokerage and bank
accounts. Therefore don't wait for any more IRS "guidance"
on this issue.

ChEAr$,
Harlan Lunsford, EA n LA

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bm30003700[at]aol.com wrote:
....
- quote -


The last is not the least bit surprising.

Rules may have changed since, but while associated w/ a
small company which did something similar to this, the
contributions for those no-longer-associated and unaccounted
for were distributed amongst the remaining active
recipients. If not prohibited by present contribution rules
for a complying plan, that's what I'd recommend.

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A. Kalman wrote:

- quote -

In my client's case, in prior years, instead of the employee
establishing the IRA, Schwab allowed the company to
establish the IRA on behalf of the employee, after the
company demonstrated to Schwab that it had be unsuccessful
in trying to contact the employee in order to have the
employee establish the IRA.

This year, though, Schwab is resistant to allowing the
company to have the company set up IRA's on behalf of any
employees, citing the Patriot Act, and unclear guidance from
IRS on this issue.

Also, Schwab has suggested to my client that it might be
possible to make deposits on behalf of the individuals with
open accounts and 'hold' the deposits for the unopened
accounts while we follow up to get the accounts opened.

Any other thoughts on this? Any and all responses much
appreciated

This year, Schwab is citing the Patriot Act

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bm30003700[at]aol.com wrote:
- quote -

Ah then, Schwab has finally seen the error of it's previous
ways. Any IRA must be opened by the owner, and therefore
requires his signature. And these days, his
identification.

ChEAr$,
Harlan Lunsford, EA n LA

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bm30003700[at]aol.com wrote:

- quote -

You can't establish a Simple-IRA without first or
simultaneously establishing an IRA. The former employees
would have to have an IRA in order for the employer to
establish the account and make a contribution.

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Harlan Lunsford wrote:
- quote -

Thanks for the response. My question, though, concerns
persons who, though no longer with the company today, were
eligible employee for 2005 contributions.

Schwab had in past years allowed the employer to set up
accounts on behalf of employees for whom the employer must
make contributions, where the employer was not able to get
the employee to register themselves. This year, though,
Schwab is not so willing to do so, for reasons I gave in my
prior post.

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bm30003700[at]aol.com wrote:

- quote -

No, but think of it this way. Simple IRA's are funded into
employees' IRA, meaning they must first be established in
order for any funding to be accomplished. No employee, no
IRA. Hence no funding.

ChEAr$,
Harlan Lunsford, EA n LA

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My client was told by a person at Schwab that opening
accounts on behalf of people in order to make timely
deposits in compliance with the terms of their SIMPLE IRA
arrangement with Schwab is a grey area and the IRS has not
given clear guidance on it as it relates to USA PATRIOT.

One supervisor at Schwab said she did not think the Schwab
operations department would open the accounts if my client
submitted applications on the individuals' behalf because of
restrictions imposed by the USA PATRIOT Act (HR 3162).

My client has not been able to contact three 2005 employees
so that these three persons can set up the accounts
themselves as they are no longer with the company. Non
elective Simple IRA contributions need to be made for these
three for 2005 by September 15, 2006.

Has anyone else run up against this issue?

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