I hope you have the best new year ever!

And thanks for all your posts in 2011.

We administer a calendar year cross-tested 401(k) plan with a prevailing wage component. Everyone is in their own allocation group. To receive an allocation of the PS contribution there is a last day & 1,000 hour requirement. The plan is not safe harbor.

For 2011 the client wants to allocate a 1% profit sharing contribution to everyone (HCE's and NHCE's). The plan document says to offset PS contributions by prevailing wage contributions.

There is one HCE that received a 10% prevailing wage contribution, and the other 8 HCE's did not receive any prevailing wage contributions.

Do I have to cross-test this plan if we allocate the 1% PS contribution (& therefore include the prevailing wage contributions in the test, which would trigger the gateway test) or is there a way we can test the PS separately (since the 1% PS is a uniform allocation) from the prevailing wage?

Thanks in advance for any help.

I have been circling this topic forever and I can't seem to pin down an answer.

Say a small business owner sets up a SIMPLE with the the 3% matching contribution. He has 6 employees, none of whom want to participate in the SIMPLE. The employer says fine, sets up an account only for himself, and contributes the maximum with match. Is this permissible or not? The way I read the IRC and the DOL Notice 98-4, as well as the IRS FAQs below, an employer must enroll the employees so that they have a plan, but if they contribute zero, great, their accounts will reflect that. The employer has a son who passed the bar this year, has been licensed for 8 months, and is saying there's no need to set up any accounts for the employees if they don't want to participate.

Who is correct? If anyone could send me any evidence or authority to their answer, I would be eternally grateful. This simple issue is driving me nuts! Thank you!!

FAQs

Which employees of an employer must be eligible to participate under a SIMPLE IRA plan?

If an employer establishes a SIMPLE IRA plan, all employees of the employer who received at least $5,000 in compensation from the employer during any 2 preceding calendar years (whether or not consecutive) and who are reasonably expected to receive at least $5,000 in compensation during the calendar year, must be eligible to participate in the SIMPLE IRA plan for the calendar year. If an employee meets the conditions described in this paragraph (or such lesser conditions imposed by an employer) and is not excluded, then the employee must be covered by the SIMPLE IRA plan.

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May a participant "opt out" of a SIMPLE IRA plan?

An employee may not "opt out" of participation. Of course, any eligible employee may choose not to make salary reduction contributions for a year, in which case such employee would accrue no employer matching contributions for the year, but would receive an employer nonelective contribution for the year if the plan provides for such contributions for the year.

The group has a plan # that contains 2 separate benefits (life and LTD) that are on differing anniversary dates (1/1 and 6/1). Thus the schedule A's come in at different times. I have heard that there is a way this can be done. What is the process for doing this?

Thanks!

If a plan terminates and the loans not paid back are treated as distributions, are these considered involuntary therefore exempt from the early withdrawal penalty? My guess is no but I cannot find this in black and white.

Thanks!

Multiple (not multi) employer calendar year DB plan freezes 12/31/08. One of the employers pulls out of multiple employer and starts their own calendar year plan effective 1/1/10. Benefit Formula allows for some past service. A participant who is 75 years old in 2010 would otherwise be required to take RMD by 12/31/10, but my question is would there be an RMD from this new plan since there was no plan and/or accrued benefit at 12/31/09?? Any cite would also be appreciated. Thank you.

I have been given a plan to administer that excludes everyone except:

a) the shareholder

b) the shareholder's spouse

c) the business manager

d) any employee hired before 1/1/2010

I am okay with a) through c) - the plan is part of a combo arrangement and that testing will pass. I have some concerns about d) though. I have a bad feeling that it may be looked at as a circumvention of the statutory age and service requirements. In other words, I'm not sure that it's a valid business classification. It could be I'm too conservative. It wouldn't be the first time. Any opinions?

Dog

I am looking for general guidance on the sale of an overfunded pension plan to a non-related third party (a third party that is an active business with an underfunded plan - not a financial firm contemplated by Rev Rule 2008-45).

I am aware that TAM 9650002 suggests in some circumstances (e.g. a deemed asset sale) the excess assets (to the extent of deductible contributions) should be included in the seller's income under the tax benefit rule. However, I have not seen any further guidance on this (in case law or IRS guidance). Does anyone know what is currently occurring with respect to strategic sales of overfunded db plans? Is the IRS attempting to enforce this position in the context of strategic sales? I would think I would have seen subsequent case law challenging the IRS's position but I haven't.

What is the going rate for the excess assets in a pension plan?

I am also aware of Rev Rule 2008-45 providing that the sale of an overfunded plan to an unrelated taxpayer where the transfer of the plan is not in connection with a transfer of business operations violates the exclusive benefit rule. I have not seen anything further on this either. In my opinion, selling a defunct entity whose sole asset is an overfunded db plan to an entity with active business operations when the overfunded plan is merged with the underfunded plan following the sale actually furthers compliance with Seciton 401(a)'s exclusive benefit rule - especially when the selling corp no longer has any active participants and the buyer does.

So Im wondering if the IRS is trying to actively enforce these positions with respect to strategic sales or if they are just letting this guidance hang out there to try and discourage the transactions.

Any thoughts?

Thank you.

A formerly terminated participant has been rehired within two years of her termination. She had received a distribution of her vested account balance.

I sent her a notice about repaying her distributed amount within five years of rehire so her forfeitures could be restored. She is asking if she can pay back her distributed amount over time with payroll deduction.

I've been trying to think this through to see if it would be feasible. I realize the deduction should come from her check "after tax". I would not restore her forfeited balance until her entire distributed amount was paid back. What if she were to terminate her employment again before the entire amount was paid back? How would the partially paid back amount be classified? Should her paid back amounts be held in a suspense account until she pays it in full? The more I think about this, the more potential problems I see.

Maybe I should just tell her that payroll deduction is not an option??

I appreciate any input!

DB plan originally effective 1/1/2011. Son is 100% owner. Mother (100% owner by attribution) becomes a participant on 7/1/2011. Servcie prior to effective date of plan is excluded for vesting so at end of 2011 plan year Mother's hypothetical account balance is $800 but her vested hypothetical account balance is $0. Her DOB is 2/12/34. Are there any RMD considerations for 2011? Or does she actually have to have a vested accrued benefit, in ehcih case her first RMD would not be until 2013?

NRA is defined as 65/5 so that would not make her 100% vested.

Somehow I got myself totally confused, so what else is new?

Terminating DB plan covered by PBGC. Act Equiv is set to GUST, fully amended to PPA/EGTRRA.

IRS says to use its rates for PVAB and lump sum distributions.

PBGC says use its rates for lump sum distributions.

Which rates do I use for distributions from on-going plans?

Which rates do I use for distributions from terminating plans?

Why can't they get their acts together and use one set of rates for PBGC premiums, funding and distributions? Never mind answering this one, "Its the government, stupid!".

How does the IRS know if I am filing a Combined 2009 and 2010 filing?

The instructions I am reading doesn't seem to differentiate. What am I missing?

A client terminated their SIMPLE IRA effective 12/31/11. They are starting a 401(k) effective 1/1/12. They have the 2011 matching contribution and last 2011 deferral to deposit yet. Can they deposit this money in January 2012 without violating the exclusive Plan rule?

I wanted to invest $800k in life insurance can anyone help me in getting this. I don't know much about it curious please help me with some good and affordable recommendations.

Can a private letter ruling be issued for a plan that has not yet been established? Section 6.02 of Rev. Proc. 2011-4 states that the EE Plans will issue letter rulings on proposed transactions and on completed transactions, which seems to suggest it can. However, section 8.03 states taht a letter ruling will not be issued on alternative plans of proposed transactions or on hypothetical situations.

Does anyone know if such a ruling request be considered to relate to a hypothetical situation merely because the plan has not been formally established?

Just out of curiosity, has anyone established a new MP or TB plan recently? Or have these plans gone the way of the platypus?

VFCP generally provides, to correct defaulted participant loans, the plan sponsor must make a voluntary correction of the loan failures using VCP before submitting under VFCP...

Question is - if loan failures are discovered during an IRS audit and subsequently corrected through Audit CAP (instead of VCP), can the sponsor still submit under VFCP to prevent 502 civil penalties or does a sponsor's receipt of a Closing Agreement somehow preclude submitting the loan failures under VFCP because the submission under EPCRS wasn't voluntary? And if VFCP is unavailable, how can the sponsor clear up the fiduciary violations with the DOL?

Thanks in advance..

Hi again,

I have another question re: SCP.

Rev Proc 2008-50, Section .05(d) under Appendix A states provides that if an employee was not provided the opportunity to elect and make elect deferrals...to a safe harbor 401(k) plan that uses a rate of matching contributions to satisfy the safe harbor requirement, then the missed deferral is equal to the greater of 3% of compensation or the maximum deferral percentage for which the employer provides a matching contribution rate that is at least as favorable as 100% of the elctive deferral made by the employee...the required QNEC is 50% of the missed deferral + the matching contribution.

My client's SH match is 100% up to 3%, then 50% of anything >3% and not over 5% of pay. My confusion lies in the bolded text above-do I only look at the portion of the match that is matched at 100%, or do I take the 50% into consideration as well?

The associate that I replaced had figured the QNEC to be 1.5% (he used the 3% of comp as the "greater of" number, but I'm thinking that the match rate is higher if we do not disregard the 50% on the 4% and 5%, as provided for in their matching contribution formula). If my thoughts are right, oy vey, would the calc for QNEC then be 3% + 1% (50% of 4 & 5)? I.e., 3% (for the 100% match) then 50% of anything over 3 but not more than 5, so 2 would then become the 1%, and then I take half to get to a blanket 2% corrective contribution for those who were affected but will remain under the 402(g)?

Advice from a seasoned pro for a green rookie? Thanks in advance.

Calendar year PS plan is terminating 12/31/2011. there are several former employees whose 5th break year occurs on 12/31/2011. Plan termination datre is 12/31/2011.

Can their forfeiture occur, or must they vest 100%? I suspect an argument could be made for either, but the conservative approach seems to be that IRC 411(d)(3) says "...benefits accrued to the date of such termination...are nonforfeitable."

Has anyone ever had a real case where the IRS has opined one way or the other?

Partner has a negative k-1, earned income figure for 2011, but has already funded their 401k. How does this work in the absence of a w-2? Just do the refund by 4/15/12? But then the 1099 will say "taxable in the prior year" but there won't be a w-2 showing a deduction for the corresponding amount?