A 401k participant (not an owner) with a DOB of July 1939 terminated on 12-31-2012, making his RBD 4-1-2013. The investment company's computer system calculated his RMD based on his account balance on 12-31-12 divided by a factor of 23.8 for age 74.

In my opinion, since his first distribution year is 2012, the calculation should be based on his balance as of 12-31-2011 and a factor of 24.7 / age 73.

Who is correct?

Can a Gov't 401(a) not credit a year of vesting service for the followng reasons:

-Periods of layoffs; and

-If participant is not employed on the last day of the plan year.

Cycle C due 1/31/2014 or cycle E due 1/31/2016?

Or can they "elect" either?

Thanks

Having an argument with a plan sponsor over the definition of compensation under their plan. Compensation is defined as Code 3401 comp including deferrals but excluding 1) comp prior to participation; 2) while an ineligible employee; and 3) amounts in Regulation §1.414(s)-1©(3) (i.e., reimbursements or other expense allowances, including fringe benefits (cash and non-cash), moving expenses, deferred compensation and welfare benefits, even if includible in gross income).

Here is the issue - throughout the year they may pay 'temporary disability payments' to employees that is 100% paid by the employer and included a taxable income on their W-2. Client claims this amount is to be excluded from plan compensation and that only payment for actual work performed should be included. I argue that since payments are made by employer and includible in W-2 taxable income it is treated no different than sick pay and is included in plan compensation.

Can these 'disability payments' be construed to be a payment under §1.414(s)-1©(3) and therefore excludable from plan compensation as the client insists?

If an employer wants to start a new safe harbor plan in April, can they make it effective retroactive back to 1/1?

The 401k Regs read that “ a plan will fail to satisfy <safe harbor> unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year”. 1.401(k)-3(e)(1) This would seem to require that the plan itself cannot have an effective date earlier than the date it is signed.

We have taken the position before that we will make the plan effective back to 1/1 and then just put a 4/1 delayed effective date in place for the 401(k) and safe harbor provisions but I wonder if that is correct? That seems to violate the above rule.

What are others doing?

Thanks!

We have a doctors group with a cross tested 401(k) plan. One of the doctors retired in March. The plan states that you do not get a profit sharing allocation if you are not there on the last day of the plan year, except for death, disability and retirement. So we gave the doctor a contribution. He does not want to fund a contribution for himself.

Can he waive his allocation? All the doctors are in the same allocation group.

If so, is there guidance?

Thank you.

Kate Smith

One of my clients restructured their company as of 1/1/2012 and divived it into four different companies. There is an administrative company, which has all the administrative employees that does work for all the companies. Company A does insurance investments, Company B does realty invesmtents and Company C does personal investments.

I don't think this is a controlled group, but one of the companies ownes 85% of another, so i'm not sure about that.

COuld just Company B and D be a controlled group?

here is the ownership:

Company A COmpany B Company C Company D

Richard 39.50

David 5.56% 15% 8.5%

Morey 22.22% 2.5%

William 22.22% 70% 33.5%

Richard 5.56% 15% 8.5%

Paul 22.22% 2.5%

mark 22.22%

Gary 10%

Company B 85%

I'm treating them as all unrelated companies and testing them separately for adp/acp, coverage and top heavy. Just would like confirmation that I'm on the right track.

If they are unrelated, and the plan would elect to go with a safe harbor match, would all of the plans have to contribute the SHMAC or do they have a choice? Currentey the plan has a match that is 50% up to 6%. No nonelective contribution.

I nwant to double check my understanding. It's been a long week.

Safe Harbor match can only match deferrals up to 65 of comp.

Is there any limit on how high the match can be on a safe harbor match?

This is somewhat related to another post which is a hot topic, but it may be a little different.

One employer sponsors two 401(k) Plans:

Plan A is a non safe harbor plan covering 5 owners only.

Plan B is a safe harbor plan covering the 5 owners and 10 employees. It provides the standard match safe harbor and only non-keys are entitled to the SH match.

No contributions have been made to the non safe harbor plan for 4 years (ever since the safe harbor 401(k) plan has been adopted). Also, no owner has ever made salary deferral contributions to the safe harbor plan.

One owner made salary deferral contributions to the non safe harbor plan.

On the surface, this would appear to be non-discriminatory. Non-keys and NHCEs are definitly getting better benefits than key HCEs.

1. Can plan A and plan B be aggregated for 410(b)?

2. Would the ADP test for plan A be done by aggregating plan A and plan B?

3. If the group is top heavy, is the TH minimum satisfied by all non-keys being in a safe harbor 401(k) plan?

Thanks.

We have a plan that allows in-service distributions at 59.5 but by lump sum or equal installments (no partials). The sponsor has been allowing in-service distributions to take place paying out partial amounts over the last several years. What is the best way to fix the document. They wish to continue to allow this feature and have not been discriminatory on who may take one (HCs vs NHCs).

For some reason I had it in my head that the final year of a large DB plan does not require an audit to be attached to the Schedule H, but I can't seem to find any evidence of this. Was I wrong? Is an audit required if there were more than 100 participants as of the beginning of the plan year?

I have an LLP with many partners who have not deposited their deferrals yet. They have all elected to maximum defer and they all will have net comp over 250K (which makes calculations easier). There are HCE's that are NOT partners but are receiveing W-2's. The ADP test will fail. I see three ways to deal with this and am not sure what is correct.

1) Have the partners contribute the net amount (maximum deferral minus refund) note that this wil NOT cause the ADP test to pass - it is taking the two transactions contribution and refund and combining them into one. I am not comfortable with this but see that it has been done in that manner in a prior year.

2) Have the partners make the maximum deferral per their election and then do a refund properly 1099'd in 2013.

3) Calculate the amount the partners would have to reduce their deferrals by in order to pass the test - which means their net deferral will be less than (2).

I am interested to hear any opinions.

Thank you.

Edited to add a followup question -- if contribution and refund (2) is the way to go -- can the partners's take their refunds now (to avoid penalties) although they have not contributed yet?

We are working on a 401(k) plan. The plan is not safe-harbor and is top heavy. The two partners do not want to make nor can afford an employer contribution to the Plan. The plan will pass ADP testing, so the two partners may defer the maximum under the 401(k) provisions. However, if they defer it will trigger a top-heavy minimum contribution.

Does anyone have a similar situation or know of anyway to allow the partners the ability to defer under the 401(k)?

Another twist is that two partners retired in 2010 and 2011. They no longer have ownership interest in the employer. They left their money in the Plan. They occasionally comeback and work for short stints. When they come back and work, will they be considered key employees?

Thanks for any advice or help!

We have a client who maintains a SEP in accordance with his company Fiscal Year End of 01/31. It appears his contribution limit for the 01/31/2013 plan year is the 2013 limit of $51,000, this amount is less than 25% of his compensation. Would he take the deduction for this 2013 contribution on his 2012 (02/01/2012 - 01/31/2013) company tax return?

Thanks,

Chuck

My new employer allows employees to drop medical and/or dental insurance (pre-tax deductions) at any time during the year without a reason. The plan is "closed enrollment" however, so the employee can never come back on unless they've lost coverage elsewhere (presumably under a spouse's plan).

My concern is the cancellation clause is a violation of Section 125. I've been in HR for quite some time, specifically benefits, and have never seen this.

Any comments from 125 experts?

Without the handy-dandy search tools we have for ERISA plans (EFAST2, freeERISA, Larkspur, etc.) how do you go about finding a list of governmental plans in your area?

I know this has probably been answered but I was not able to find through the search.

For 401(k) plans that have a brokerage account for each participant and traditional and Roth deferrals, are most requiring a separate brokerage account for the Roth money? It would sure be easier just to record keep each source separately within the same brokerage account.

Thanks.

This can't be all that uncommon, yet I'm finding very little information about it.

Suppose a company basically runs into such financial trouble that their stock is now almost without value (likely bankruptcy, but I don't know that). ESOP will be terminated. Apparently the last valuation from a few months ago shows participants with substantial account balances, but of course now they are nearly worthless. Other than possible fiduciary issues, which isn't in question here, is this just as simple as paying the participants their current balance based upon stock value - i.e. no different than any plan where assets have dropped precipitously in value?

Participants have right to take their distribution in stock, although I don't know if this is one of those plans where corporation by-laws or charter prohibit outside ownership. If the company is in the toilet, participants probably won't want stock anyway! And I don't know where the plan falls in a bankruptcy heirarchy.

Just wondered if anyone has encountered this?

X buys Y in a stock purchase on 12/31/11. Both have 401k plans.

Y’s plan is frozen 12/31/11 and they are invited to participate in X’s plan 1/1/2012.

When I perform the 2012 testing for Plan X, I can’t use the “coverage transition rules” because I’ve already invited Y into Plan X. Right?

Sorry, I'm sure this has been said somewhere else. But, I need a quick answer.

A Participant was married and had kids. Got divoriced, and then filed a Beneficiary Designation for his two kids. Then got re-married, and in his will stated that his new wife gets everything.

Do we act on the Beneficiary Designation on file, or does that change since that he was re-married?

Thanks much!