A profit sharing plan has two participants:John and Jill. They are spouses. Jill has a life insurance policy in the plan and she pays PS-58 every year.

The beneficiary of the policy is the plan itself. The death benefit (which I believe is essentially the portion above the cash value, that is to say the difference between the fair market value and the cash value) is $400,000. Jill passes away, leaving only John as the sole participant in the plan.

I believe that the death benefit portion is not subject to income tax. (Estate Tax is not relevant to the forthcoming questions), where as any amount over the fair market vaule (dividends/interest) is taxed and the amount up to the CSV is taxed. I need to know how that "tax break" could flow through certain situations.....

Q1) Since John is the only other participant, I would assume that the tax break is flowed through to him? Assuming he has $600k additional in the plan ($1M total), would he only pay income tax on the $600k?

Q2) Does it matter if John take a one time lump sum distribution or takes the distribution in installments? If he takes $100,000 installments every year, what portion does he pay income tax (all, none since he hasn't taken $400k total yet, or a pro-rated portion say 10% of it is not taxed since the distribution is 10% of the total balance)?

Q3) Say John wants to waive his right to the death benefit and instead pass it to his beneficiaries: their children. Eventually the children would have to take a lump sum distribution, at the very least as an RMD. If they take RMD's is there a portion of that distribution that is not subject to income tax? That is to say, would the tax break filter down to the children?

Hopefully I am not leaving out too many variables (trying to assist another party). If I need to "rephrase" anything let me know. Thanks in advance!

What happened? Form and instructions used to be but two pages !!!

f5500sb__1976.pdf

We’ve encountered a unique situation with a newly hired employee. The employee is a male, is married, and his wife’s name does not have a last name (she is simply "Martina"). We have a photocopy of her marriage certificate and her U.S. passport (that shows she was born in Illinois), both of which show her name as Martina. The problem is that our PeopleSoft system and the insurance carriers require a last name. We’ve already been advised by the employee not to use his last name for his wife because it’s not accurate. We have tentatively enrolled the wife as Martina Martina.

Has anyone seen such a situation before? Any thoughts as to proper way to address? One wisenheimer that i asked said to call the WWE and see how they handle it. Joke's on him, though, as my understanding is that WWE entertainers are independent contractors and not employees.

Thank you in advance for any insight.

Does anyone have any thoughts regarding the use of an asset allocation model as a QDIA (under -5(e)(ii)) where the allocation chosen is appropriate for the participants as a group? Such models appear to be contemplated by the regulation, but I haven't found any guidance that specifically addresses this.

How does a fiduciary determine wehther a product or model portfolio applies "generally accepted investment theories?"

I am looking over 417(e)(3)(B) and wondering how this plays out in the real world and how 415(b)(2)(E)(ii) affects 417. From my understanding, the 415 section referenced above sort of sets a floor on cashouts? ("the interest rate (under 417e) shall not be less than the greatest of 5.5 %", etc).

Is the cashout the 5k or less cashout or is it broader. Any light that can be shed on this would be helpful. As you can probably tell, I am so confused that I'm not even sure how to ask the questions. So, any help on understanding the Hows and Whys at a fundamental level would be greatly appreciated.

Feel free to add any history of the law.

Client just asked me if he can email this form to his participants. I am getting ready to leave for an appointment, but was on my way to check the instructions.

Would he be able to do this as long as they could respond that they read it (you kow, that option you can click in Office that requires that pesky box to pop up when you receive the email)?

I don't think they have any terminated participants, as the plan just started last year, but I would assume that he must mail those. In this electronic age where we even get notice of paystubs online, is this ok?

I do not know if they have a company intranet, now that I posted that comment about viewing the paystub from my other job online. I can view it on the company intranet, since I have direct deposit.

I have a participant who is 70.5, and a non-owner. He has terminated employment with his long-term employer and sponsor of his 401k account. But he has a part-time job now. Does the "still working" exception apply? Can he defer RMDs until he stops working entirely? or since he has terminated employment with the sponsor of the 401k, does he have to start?

Thanks!

Want to check my interpretation of the regulations definition of "includible compensation." In 1.403(b)-2(b)(11), includible compensation means compensation received from the employer for the last year of service. Since income included under 457(f) has not been received at the end of the last year of service, it seems to me that 457(f) income is not within the definition of "includible compensation." Correct, or incorrect?

Thanks,

Ken Davis

I have a profit sharing plan (no 401(k) provisions) with a 2-year service requirement; a One-Year Break in Service rule and a Nonvested Participant Break in Service rule (Rule of Parity) for eligibility.

A participant was hired in 1994, entered the plan in 1996 and terminated employment 1997 receiving a payout of their 100% vested account balance in 1998. Now in 2012 they are being rehired.

Question #1 – The Rule of Parity does not apply because the participant was vested when they first incurred a break in service; correct? The fact that they have not been a participant since 1998 is irrelevant; correct?

Question #2 – Since the plan also has a One-Year Break in Service rule the participant does not re-enter the plan immediately on the rehire date but instead retroactively to the rehire date after the completion of 1,000 hours; correct?

Question #3 – The vesting is full and immediate so they are immediately vested in the 2012 contribution. However, what if the plan required 2 years of service for vesting and had the One-Year Break in Service rule for vesting?

So, employees who have otherwise satisfied eligibility requirements of 1 year/1,000 hours are in an excluded class. While they must be included for coverage testing, must you include them for ADP testing? 1.401(k)-6 isn't specific on this issue. I can see arguments for either side.

Can someone tell me if I am thinking fully and corrrectly about the concept of the mortality table and interest rates as they relate to actuarial equivalence and/or actuarial increase? I know that you would use these to determine actuarial equivalence when optional forms are involved. I just don't know exactly how they work. Well, I know how the interest rate plays into this, I think. That is, if the normal form of benefit is a single life annuity (and the interest rate is high (8%)) that means you will get less is a lump sum distribution than you would have if the interest rate were lower--because the the assumption is that you will invest that lump sum at 8% a year or something like that.

And, I understand that the mortality table predicts the age of death and how that would affect funding; I guess I don't see how a certain table is chosen or if I need to know anything else about the concept.

I guess the better question relates to actuarial increase: I have read that:

An "actuarial increase must be provided under a defined benefit plan for an employee who retires after age 70 1/2."

What is the difference between accrued benefit and actuarial increase of accrued benefit? I have seen language concerning late retirement that reads somehting like this: "a P's who continues employment after attaining NRA his benefit shall be the greater of continued accruals or act. eq. of acc. benefit." I can't wrap my mind around it. The I read that the late retirement benefit could be "paid as though the P had actually retired on the NRD." That seems weird to me. Can that be done?

Please understand that I have plenty of people in my office who can tell me if I am right or wrong on something; I am just trying to learn this DB stuff to the point of really understanding it and being able to explain it to a novice--understanding at a fundamental level.

Can someone explain to me in laymen's terms how this Eligible Rollover Distribution works? Specifically, one of the transactions listed as ineligible for a rollover is where there are a series of substantially equal periodic payments:

1) Does that just mean that if you have a single life annuity and you are in pay status that it cannot be rolled over into a qualified plan?

2) RMD is listed too. Maybe if someone could help me wrap my mind around the concept of RMD, RBD, etc I would be able to understand this one more. I am assuming that if you get a RMD that it cannot be rolled over. Or, does it apply when certain funds have been marked as a RMD (before the distribution)? I don't even know if I am asking the right questions.

Any help would be very much appreciated. I have many more questions today and in the months to come. I am hoping that you guys will be my teachers. It's not that I do not research these issues, it's that I like to learn things in a way where I could explain it to the average person.

Plan correctly permits eligible employees to make (k) deferrals, but fails to make the match for some of them. Is the correction only to make the match and adjust for earnings? Or - since presumably folks who knew they could make deferrals may have made them in different amounts had they known they were eligible for match - does this correction also involve a missed deferral calculation? Don't see anything in VCP about failure to make a match WITHOUT failure to allow deferrals when eligible.....

I have a plan that was originally considered abandon by DOL, however after approximately 2 years DOL found the trustee and began working with him to terminate the plan. I received a call from DOL and was informed that since they found the trustee that the plan is no longer considered abandon but now a plan termination. However, here is the problem: There are two plans associated with the case, the first plan terminated and assets were transfered from that plan to the other. We prepared all the necessary required documents to terminate the plan and start the new plan however after several calls DOL informed me that the second plan never really existed since a plan document was never signed by the new trustee's. However, we did not found this out until after we completed a final 2008 form 5500 (showing assets transfered new tax id number to second plan) and completed the 2009 & 2010 5500 for the new plan.

Now, how do I amend the 5500's for both plans? Do, I know I have to show that the 1st plan was not a final 5500 and then prepare the 2009 & 2010 5500 (as well as 2011, of course). And then, amend the second (that never existed)? but, do I show the assets as zero and just check amend?

Any assistance would be greatly appreciated...thanks again

TEJ

This is an off the wall question, but I'm kind of going around in circles trying to figure out an answer. A plan participant named a tax-exempt organization as a beneficiary. The plan paid the distribution as a lump sum. Since it was an eligible rollover distribution, the plan withheld at a 20% rate. The tax-exempt would (obviously) like to get the withheld money back.

First question: Should the plan have withheld? While it might be common sense that a distribution to a tax-exempt entity should not be subject to withholding, I'm not finding any exception to the 20% withholding requirement for tax-exempt payees, either in section 3405 or the regulations thereunder.

Second question: Now that the plan has withheld, what should the tax-exempt do? Since they don't file income tax returns, what form would they use to file a claim for refund under these circumstances.

Has anyone here dealt with such a situation?

I am using Derrin's book to help me through a situation and am wondering if I am interpreting it correctly. Any input would be most welcome.

I have a client who adopted a safe harbor cross-tested 401(k) plan. It is a husband and wife physician practice. They may have traditional employees at some point, but for now, they have 4 individuals they are leasing from another organization. The doctors have virtually NO control over these individuals. The leasing organization trains and sends out these individuals to practices with a similar specialty. They hire them, fire them, control their hours, manage them, train them. I truly believe they are the common law employees of the leasing organization. That organization has also adopted a safe harbor 401(k) plan and is allowing them to defer and is making 3% SHNEC's on their behalf. My client pays a fee to them to cover their payroll, related taxes and benefits.

The way I am reading Derrin's book, my client's plan will consider these leased employees as participants for coverage, top-heavy, nondiscrimination testing, 415 limit, etc. purposes. My client will make a safe harbor contribution for them in the practice's plan based on their compensation paid by the leasing company. For 401(a)(4) purposes, I can use the safe harbor contribution made to the leasing org's plan in my figures for employer contributions in the practice's plan. So, in my case, they will be treated as receiving a 6% employer contribution (3% to one plan and 3% to the other plan). We won't have ADP/ACP testing because the safe harbor is being met. Top heavy isn't a problem (unless we have mid-year entry) and the 3% in both plans doesn't cover 3% of their annual pay.

Any problems with my comments and/or any other warnings I should be thinking of???

Thanks.

James

Plan definition of comp does not exclude bonuses. Employer missed deferring on bonuses for a recent payroll. Rev. Proc. 2008-50 does not appear to directly address this situation, unless I somehow missed it.

It seems that one method of correction would be to have the Employer make a QNEC for 1/2 of the missed deferral , then make the SH Match based on this amount? Am I missing anything? Plan Document does not address this issue. Perhaps just taking the missed deferral from the next payroll?

I appreciate any suggestions.

Is it possible for an S-corporation with a single owner-employee to establish sec.129 plan to cover dependent care expenses? Technically, it would fail 129(d)(4) concentration test and 129(d)(8) 55% test, however, here it is stated

that these non-discrimination tests do not apply since there are no NHCEs to discriminate against. Can anyone comment on this?

Thank you

I am trying to determine whether my employers are part of a control group.

Both organization A and B are 501c3s. We share office space. The 4 directors(officers) work for both organizations. Organization A has a 5 member board and B has an 8 member board. Only 1 person serves on both boards.

If I look at board membership as ownership, they are not a control group. If I look at the day to day operations, they are. How do I determine the issue for the purposes of our Health Insurance tax credit?

A participant received a lump sum distribution from a pooled profit sharing account in July 2010. Federal withholding was sent to the IRS. He received a 2010 1099-R Form reflecting the distribution and the withholding. The participant never cashed his check, so 6 months later (January 2011) the investment company staledated it and put the money back in the pooled account. The employer just brought this to my attention. I need to issue a corrected 1099-R for 2010. Do I enter the gross distribution and taxable amount as zero, then show the withholding? This is going to look really strange, but I don't know any other way to do it. Also, do I enter a distribution code?

Thanks,

Susan