Hi,

We have a new client. While working on the 2010 Form 5500, the client realized that they included the wrong participant count information on the 2009 Form 5500-SF. On the 2009 Form 5500, the client reported 69 participants. In reality, they had 43. Everything else on the 2009 Form 5500-SF was correct.

My question is - would you amend for this? I know it is technically wrong but am not sure we should advise the client to amend. The client will do whatever we suggest.

Thank you!

I have a client who retired May 2010 and was told by his employer's plan custodian that before rolling over his 401k to his IRA, he must first take his RMD from the 401k, then they would roll the balance to the IRA. That's ridiculous, but I need to find the IRS Code that says it is! I know he'll have to take the plan balance into consideration for his distributions, but it doesn't have to come out before we roll the plan to his 401k.

*He plans on making a contribution to his church with the distribution and we're unable to take it from the 401k, so we figured we'd roll the whole 401k to his IRA then take 'both' distributions from the IRA. (He turns 70-1/2 in Nov. and between his accountant and I we determined it best to take it this year.) Anyone know where I can find the IRC (not Pub 590) that says we don't have to take the RMD before rolling it? Thank you,

I used to think that an on-going plan could not amend plan for safe harbor after the start of the plan year.

But if my understanding is correct section 1.401(k)-3(f) provides that the plan can be amended after the first day of plan year to retroactively provide a non elective safe harbor effective as of BOY.

Is that agreed? thanks

Faculty at a school are only working September to May, 20 hours a week. They are paid over a 12 month period. May the employer treat the the summer months as paidt time off, creditign them ith 20 hours a week as paid time off for the summer months when they are not teaching?

So for example, if we credit the summer months as hours of service, then they will exceed 1,000 hours (vesting years, etc). If we do not count the summer months, they are below 1,000 hours.

Does the answer change if they elect to be paid over teh school year, as opposed to the calendar year?

Seems like a gray area...

Need some help...

Plan has been safe harbor since 2002. Prior to the start of 2011, plan decides to remove safe harbor provision. They also elect to use the prior year testing method for 2011. Can they do that? Which I think they can...but what average would you use for the NHCEs in the test. Would you have to go back and "run" a test for 2010 to get the NHCE average?

Any thoughts would be greatly appreciated.

Yes, a death distribution was made to the wrong beneficiary. In 2010, a participant passes away and his wife receives a distribution of the participant's account, per the beneficiary designation form that both the employer and TPA firm had on file. A year goes by and the employer then comes across a much more recent beneficiary form in which the participant names his two children as primary beneficiaries. The spousal consent signed by his wife was witnessed by a Notary and appears valid.

Any thoughts on how to handle this situation? The only similar topic that I can find is with a distribution overpayment and to try to get his wife to return the overpayment. But, realistically, she won't be inclined to return the funds, especially after a year has gone by.

Thanks for any help.

BTH

401 (k) Plan currently uses forfeiture to reduce match contributions (discretionary match) in the plan year following the year when the forfeiture takes place. Forfeitures are not used to pay plan expenses.

Can the plan be amended currently to use the forfeitures to pay plan expenses rather than allocate for the current plan year? There's about $2,500 in forfeiture that would have been available for 2011 (from 2010 distributions) and an additional $2,500 in forfeiture that occurred from 2011 distributions that would have been available in 2012.

Is the use of this forfeiture considered a cut-back in benefit if used to pay plan expenses? The match is discretionary and employer does not wish to provide a match in 2011 and 2012.

Thanks.

I prepare the annual Form 5500 for a Welfare Plan with some of their benefits under a Cafeteria Plan.

A Schedule A was provided from the insurance covering all the benefits that they provide (pre-tax and post tax, less than 100 participants and more than 100 participants).

Some of the benefits listed are post tax and some have more than 100 participants.

Some of the benefits are pre-taxed and covered under a Cafeteria Plan, but these particular benefits have less than 100 participants.

What do I report? Should I report only the pre-tax benefits under the cafeteria plan even though they only have 26 participants? Do I exclude reporting the post tax benefits even though they have more than 100 participants?

The remaining Schedule A from other insurance companies consist of pre-tax benefits under the cafeteria plan and all have more than 100 participants.

I appreciate any guidance in this matter.

Has anyone heard of a PEO that is under a collective bargaining agreement? They say they become the "common law employer" and sign a collective bargaining agreement with a union. And it will allow for the owners to set up a DB plan that excludes the employees that are in the PEO. I have found one. I was wondering if anyone had names of some others out there that I could contact.

I have a plan that froze benefits and service for non-union employees as of a 1/31/2010. Date of Entry is defined as the first of the month coinciding with or after 12 months and 1000 hours. A non-union participant was hired on 9/15/2009. Can he enter the plan on 10/1/2010, although it has been frozen? The amendment freezing the plan states that the only eligible employees after 1/31/2010 are Union Employees. I do not think he is Eligible, whereas there are others in the office that disagree. What do you think?

Thanks ahead of time!

ABC Company has a plan year end of 6/30.

John HCE is over age 50 and has maximum comp of $245,000 for both plan year 7/1/09 to 6/30/10 and 7/1/10 to 6/30/11.

For plan year 7/1/09 to 6/30/10, John HCE made $0 salary deferrals.

During 7/1/10 to 12/31/10, he deferred $5,500.

During 1/1/11 to 6/30/11, he deferred $5,500.

For plan year ending 6/30/10 his PS allocation was $49,000.

For plan year ending 6/30/11 his PS allocation will be $49,000.

Is it possible to treat all $11,000 salary deferred from 7/1/10 to 6/30/11 as catch-up contributions?

Perhaps the only yes answer is if the plan document has a deferral limit for HCEs of $0.

Any other ideas?

generally all of the 401k plans I have done non discrimination testing have been safe harbor 401k profit sharing plans.

I recently observed a non safe harbor 401k plan that did not pass ADP test or the ACP test.

While I am not responsible for correcting the failure I want to have some understanding of what can be done.

For example, if the sponsor makes a QNEC for $1,000 for a given participant is it potentially permissible to divide the $1,000 in any desired way to apply to ADP and ACP tests?

For example can $500 be applied to ADP test and $500 to ACP test or any combination including all $1,000 to ADP test? Of course the $1,000 cannot be double counted for both tests. Curious if that is a way it can be utilized. This way the plan doesn't have to make QMACs potentially and can make contributions for participants who did not defer as well.

Thanks

Owner only DB is frozen. He is considering hiring an employee for 2012. I think this means he will fail minimum participation when you look at prior benefits structure.

How much does he need to give the employee if there is a 401(a)(26) failure based on prior benefit structure? Just the 1/2%? Based on the prior benefit structure?

Thanks!

Employee seeks to add a newly adopted child as an eligible child/dependent under the employee's employer-sponsored health coverage. While the plan covers "legally adopted" children, it is unclear whether the adoption is such that the child can be covered under the plan as an eligible child/dependent.

Facts

The child is a relative of the employee, and the adoption occurred outside the U.S. (in the home country of the child and other members of the employee's extended family). The child is now living with the employee in the U.S., and they are in the process of applying for a green card for the child. The child is also applying to attend college in the U.S.

The employee has not provided an adoption decree or other similar documentation of the non-U.S. adoption, and it is unclear whether the local (non-U.S.) adoption is recognized in the U.S. The employee is pursuing a visa that will allow the child to stay in the U.S. as the employee's child, but the employee has indicated that other avenues (e.g., international adoption process, temporary guardianship or kinship guardianship) will not be pursued.

Plan Provisions

The plan is an employer-sponsored group health plan (self-insured with stop loss), which covers eligible children through age 26. Eligible children include: (i) legally adopted children (from the earlier of the date the child is lawfully placed in the participant's household for adoption or the date of legal adoption), and (ii) any other unmarried children (e.g., grandchild, niece, nephew, etc.) living with a participant who can be claimed as dependents on the participant's tax return and for whom the participant is appointed legal guardian.

Issue/Questions

It is unclear whether the non-U.S. adoption constitutes a "legal adoption" for purposes of the plan. Even if the non-U.S. adoption were not a "legal adoption," it seems that the plan could cover the child if the child were "lawfully placed" in the employee's household for adoption (in anticipation of legal adoption). However, the employee does not intend to pursue further international adoption procedures. The employee is also reluctant to pursue legal guardianship that would qualify the child under clause (ii) above.

• Does the plan run into any issues if it provides coverage on account of the child being "legally adopted" (albeit outside the U.S. and without confirmation of whether the adoption is recognized in the U.S.) or "lawfully placed" for adoption (although the employee is not presently pursuing further international adoption procedures)? For example, could this present any issues with respect to the stop loss carrier?
  

• Under ERISA 609©, employer-sponsored group health plans are required to cover adopted children of plan participants under the same terms and conditions as apply to dependents who are natural children -- irrespective of whether the adoption has become final. The law protects children who are under 18 as of the date of adoption (or placement for adoption). Although the child is college-age and could very well be 18 or older, the plan covers eligible children through age 26. Even if the law protects only protects children adopted prior to age 18, doesn't it seem inconsistent with the intent/spirit of the law to treat adopted children age 18-26 (or, rather, children who were 18-26 at time of adoption/placement) differently from natural children age 18-26 (who would be covered under the plan)? This is probably moot as the plan covers all children 18-26. If this child cannot be covered under the plan, it will not be because the child is over 18 and not protected by ERISA 609© -- it will be because the child is not "legally adopted" and thus not an "eligible child" under the plan.
  

The 2009 Form 5500SF was filed, but one of the assets in the plan did not actually meet the definition of "eligible", so we should have filed 5500. Do we need to amend the 2009 Form? Is there a penalty for this?

A participant affirmatively elects out of an automatic-enrollment 401(k). Nonetheless, the participant is enrolled at the default rate and has been making deferrals for four months. I don't believe there is any "IRS approved" correction for this problem in Rev. Proc. 2008-50. Has anyone attempted to fashion their own correction or have any thoughts on what it would look like? Thanks!

Feeling a little dense here. I can see where the regulations permit a participant to designate whether a plan distributes a Roth or pretax excess contribution due to an ADP or ACP testing failure, but I don't see the same rule for 402(g) violations. If a participant has a 402(g) violation (for example, due to contributions to two or more unrelated plans) and the contributions consist of both pretax and Roth, can he be permitted to designate whether the Roth or pretax contributions are distributed? If not, how is this determined?

If an employer "refuses" to pay the excise taxes for a funding deficiency, can the owners/officers be held personally liable for them?

An employee was divorced back in April (4 months ago) but failed to report the life event to HR within the required timeframe (30 days). He is now bringing it to HR’s attention and wants to drop his ex spouse from some of his pre tax plans (Medical, Dental, etc.).

Technically an ex-spouse is no longer eligible to be covered on the group plan and should be dropped and offered COBRA. The carrier will likely allow the change to go back 60 days, but the question is what should be done with the employees deduction for Medical and Dental. Since the life event was not reported with the required timeframe, should the pre-tax contributions remain as-is until the next annual enrollment period even though the ex spouse will be dropped off of the coverage?

Could not find any information in the regs on this. I assume the same situation would come up if a deceased dependent wasn't reported within the required Section 125 timeframe. Thank you.

Where can I find the 417(e)(3) rate for August, 2011?