I have a non-profit organization looking to implement a 401(k) plan. Total of about 60 employee's all of whom are NHCE's. Approximately 20 of them are teachers. The organization would like to do 1 of 2 things and I'd love to get input from the group on if it can be done.

First, they would like to offer the plan to everyone, but only match the teachers. Can they exclude everyone but the teachers from receiving the match but allow everyone else to participate through salary deferrals?

The second and less attractive option for them is to exclude everyone but the teachers from participating in the plan and therefore only offer the benefit to the teachers.

I suppose that because there are no HCE's in the plan they would automatically pass all the testing, but it seems like allowing this could potentially open up a loophole for employers who want to exclude employee's by simply excluding certain types of compensation and/or intentionally keep an ee's comp under 110k.

Any comments would be greatly appreciated!

Say a plan has a 2011 AFTAP of 50% and the 436 contribution to bring it up to 60% is 100,000.

Say the sponsor makes a 436 contribution of 100k (adjusted) and a newly certified 2011 aftap is 60%.

For purposes of the 2011 MRC plan assets for such calculation will not include the 436 contribution. Is that correct?

I located something to this effect in on eof the examples in the 436 regs.

thanks

We are doing some compliance work for a 403(b) plan that contains language that states that for 403(b) contributions, covered employees exclude employees who do not elect to contribute more than $200 for the year. The prior TPA did not include these employees on the 5500 count information, which put the count below the audit threshold. However, they did include them as zeroes in the ACP test. This doesn't seem right. Does anyone know how this should work? Also, what about 410(b)? Will these excluded employees be counted as not benefitting or just disregarded for coverage? Thanks!

Does anyone know how to pay the mandatory withholding on lump sum and periodic payments from plans? Does the withholding go to the IRS or the Hacienda?

Okay - we are now within two 1/2 months of these forms being due. We have no extension form that we can use yet for the 8955, We have clients that will need to sign the forms and may have vacations scheduled. Does anyone think the IRS will extend the due dates of the forms without making us file an extension? Seems to me that they should give us six months from the publish date of the form and extension.

I am ready to send in some draft forms!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Frustrated that this will be cutting into summer plans. What is changing in the 5500-EZ that is making the form delayed in being published?

Am I missing something here???

Pat

401(k) plan failing ADP/ACP test. 401(k) plan provides for a match of 50% of elective deferrals up to 3% of their compensation. Propose excluding HCEs from 401(k) and setting up 403(b) for HCEs only with nonelective contribution in an amount of 1.5% of compensation (equivalent to matching contriubtion made under 401(k)). 403(b) excludes employees participating in 401(k), so NHCEs excluded from 403(b.

401(k) - ADP, ACP, and Coverage testing not required, but 415 and Top Heavy necessary.

403(b) - Coverage not required, but 415 is.

Is the proposed arrangement correct?

A 401k plan terminates 3/31/2011. Question on testing for this short period - it appears that for 415 purposes, you have to pro-rate comp i.e. 3/12 x $49,000 = $12,250. Is this right? And then for ADP purposes, can you use any compensation after the termination date when running the test, or is this also pro-rated? Can you look at comp beyond the 3/31 termination date for ADP?

Thanks!!!

C-Corp with ESOP wants to become 100% ESOP owned, but unsure what options are available to get the remaining shares held outside of the ESOP into the ESOP. All shareholders holding stock outside the ESOP are in agreement to have the corporation 100% ESOP owned. No shareholder wants to do a 1042 transaction.

Can the corporation complete a redemption of the remaining shares and then cancel the shares or transfer to the ESOP? Can the ESOP purchase the remaining shares from the shareholders? What option would minimize the tax consequences to the shareholders and the corporation?

Even though I have been practicing in ERISA for 30 years, I did not get my first Simple IRA question until last month. It is a different set of rules, and maybe someone has the answer.

In addition to a lot of other problems, there does not seem to be a Summary Description as required by 408(l)(2)(B) after the first year of the plan (2001). The statute (as well as the IRS form) indicate that the "trustee"/"financial institution" should supply the Summary to the employer each year. The financial institution is stating that generating the Summary and providing it to the eligible employees is the responsibility of the employer. I agree that distributing it to the employees is an employer responsibility, but is there something that shifts responsibility for preparing it to the employer which is the entity that is supposed to receive it.

The financial institution is also denying that it is the trustee even though the preprinted form from the current FI's predecessor states that it is the trustee. No successor document was generated when the current FI acquired the predecessor's business.

Can someone tell me if employer contributions made to non-HCE executives (99% for EE+Fam) that are greater than the contributions made to other classes (99% for EE only) would cause the plan to be discriminatory? This is a church group, no HCEs as to officers, owners, compensation over 110,000, so all are non-HCEs Thanks.

I came across online where setting up a SEP IRA for your nanny is possible and almost seems a little common. Anyone ever set up a 401K plan for a nanny in order to have a vesting schedule? The nanny would be the only participant. Any info on this is greatly appreciated.

Before PPACA, employer-sponsored coverage of dependent children was tax free only if the dependent was a qualifying relative or qualifying child under 152 of the Code (although certain pieces of 152 didn't need to be satisfied for purposes of tax-free coverage). PPACA amends the federal tax code to say that employer-sponsored coverage of adult "children" is tax-free through the end of the year in which the child has not yet attained age 27. Because not all states will automatically follow the change in the federal law, there may be some instances where a person has imputed income for state tax purposes but none for federal.

I'm wondering if anyone found a resource that outlines the rules (with citations) regarding state tax treatment of employer-sponsored coverage? I've seen numerous articles from law firms and benefits consulting firms with charts, but no two charts are alike. It'd be nice to have a resource that was reliable and regularly updated.

Johnny divroces Susan. Both are participants in the Plan. Johnny owns 100% of the business.

1) Can Susan take a distribution to the extent of her QDRO proceeds? All of the money came from Johnny's 401k balances. Neither one is over age 59 1/2. The document does say that QDRO's can get paid out "as soon as possible" (i.e., you don't have to wait until the participant terminates), but now it is the participant themselves who are not eligible.

2) We've usually treated QDRO's as in-service distributions, to add them back for 5 years for top-heavy. But that doesn't seem to apply to well here.

Any help is appreciated...

A one person DB Plan has about $100k in contributions from 2009 that was not made. Form 5330 was filed, excise tax paid and now the amount is growing because the contributions still has yet to be made. Client is considering plan termination to stop the bleeding. If she were to terminate the plan would the 2009 contribution still be required or would she just be paid out to the extent the plan is funded? There is a small MRC allocable to 2010 as well, even though the plan was frozen in 2010. My inclination is that these liabilities have been incurred and need to be funded, even though it would seem somewhat impractical given it is a one person plan, no employees.

Partiicipant's account balance (net of all loans) = $50,000

Oustanding balance of Loan #1 = $10,000

Participant wants to make a second loan.

Question: In determining the 50% limit for loan #2, does the account balance include existing loan #1 balance?

That is:

Is the limit of loan #2 =

(a) 50% of $50,000 - $10,000

(b) 50% of $60,000 - $10,000

Thanks for all responses.

Good morning, all. A colleague asked that I post the following:

"We have become aware of an odd fact/guidance situation involving the PBGC and terminating defined benefit plans. The situation is as follows:

"A DB plan was amended to terminate in 2008. In 2009 the plan was amended timely for PPA, including for PPA interest rates which were consistently in use from 2008 on. Subsequently the plan received a favorable IRS determination letter and, as the PBGC did not object to the submitted Standard Termination, benefits were distributed. Recently on audit the PBGC has asserted the plan benefits needed to be based on the pre PPA interest rates since the PPA amendment was adopted after the plan termination date. (PBGC cites the 2007 Blue Book (Q-9) as guidance.) Using pre PPA rates would require a sizable additional contribution.

"If you have encountered this situation, we would appreciate hearing how you responded and what the resolution was."

Thanks in advance for any and all responses.

I’d like to know what BenefitsLink mavens think about the following hypothetical snafu:

For decades, an employer’s collective-bargaining agreements provided for contributions to a multiemployer health plan tied to the union local. (Although in formal terms the plan has two slates of trustees – elected from employers and from the union, in practical operation the union local’s staff runs the plan; and the union local’s chief makes the plan’s coverage-buying and management decisions.) For decades, the employer has regularly paid contributions to the local health plan.

In the most recent collective bargaining two years ago, the parties bargained to impasse. The employees have continued to work. The employer has continued to meet all obligations that it agreed to in the incomplete collective bargaining along with all obligations of the expired collective-bargaining agreement that were not displaced. Among these obligations, the employer has continued to pay its contributions to the local health plan.

Several months AFTER the collective bargaining ended, without the employer’s consent or involvement, the local health plan arranged to get coverage from a national multiemployer health plan. The employer signed nothing. All enrollment forms were signed only by the employee, with nothing written by the employer. Although some employees pay contributions (if the “premium” for his or her coverage is more than the amount that the employer is obligated to pay), the employer has no involvement concerning those payments. The employer has never agreed to a dues check-off or wage deduction for any purpose.

After the local health plan switched coverage, the union local’s agent requested a few times that the employer sign the national health plan’s participation agreement. The employer declined to do this. The employer believes that it never agreed to become a participating employer under the national health plan, and that it never agreed to do anything other than pay an amount of money to the local health plan.

This absence of a participation agreement now seems to be at a boiling point. The national health plan has informed the local health plan that, if the desired participation agreement is not received by a due date that the letter specifies, the national health plan will end coverage for the employer’s employees (and their spouses and dependents).

If it matters to our thinking, the documents of the national multiemployer health plan make clear that the plan is not insurance. (Although to participants the plan looks like mainstream PPO health insurance with big insurers, those insurance companies provide only administrative services.) The local multiemployer health plan’s most recent Form 5500 reported the plan’s arrangement with the national plan as though the arrangement were insurance. Its preceding year’s Form 5500 reported that the plan bought coverage from a health maintenance organization.

If the national health plan ends its coverage, am I right in guessing that the national health plan does not provide COBRA continuation coverage because the loss of coverage would not have resulted from a termination of employment or reduction in hours? Assume that the employees continue to work at least full time and work all regularly scheduled shifts.

If the local health plan ends its coverage, is it likewise so that the local health plan does not provide COBRA continuation coverage?

The employer’s obligation to pay contributions to the local health plan was grounded on a natural understanding that the local health plan would provide coverage to the employer’s employees. If the employer knows that coverage is not provided, must the employer nonetheless continue to pay its contributions?

Assuming that the national plan’s fiduciaries lacked express knowledge that a group of employees had been enrolled despite the absence of the employer’s participation agreement, do the fiduciaries have any responsibility for suddenly ending coverage after having allowed the situation to continue for a year and a half?

If, because of these circumstances, an employee lacks any health coverage and has an expensive hospitalization, could the employer or the union local be liable for those uncovered expenses?

Does the employer have any legal responsibility to help its employees get health coverage?

The employer might feel a moral responsibility to help its employees get other health coverage if the employer can do so without violating any law. If the employer wants to help its employees get coverage through means other than multiemployer health plans, is there anything that the employer can do? Or does labor-relations law preclude the employer from communicating with the employees other than through their bargaining representative?

Participant has terminated and has two outstanding loans – the first one defaulted in 2005 and was a deemed distribution with 1099 issued; second one is active loan until termination. Participant is taking cashout, so I’m trying to calculate both withholding amount and distributable amount after loan offset of second.

This is my calculation, any helpful thoughts?

General Account Balance (excluding loans) $50,000

Loan 1 - Defaulted with 1099 in 2005 $20,000

Loan 2 - Active Loan Current Principal $15,000

Interest on loan 1 accrued through default date (never paid or reported) $500

Interest on loan 2 accrued from last pmt to distribution date (never actually pd) $100

Subtract Loan 1 with phantom interest - already deemed $(20,500)

Total - Taxable Amount $65,100

Less 20% $(13,020)

Offset - Subtract Loan 2 with interest $(15,100)

Net Cashout Amount $36,980

I'm stumped on a simple question in response to an unsual client request.

Is it permissible to design a 409A-subject agreement under which, if the benefit recipient dies, payment of (remaining) benefits is forfeited?

I'm hung up on the concept that the benefit are otherwise "vested" (which I thought meant nonforfeitable).

If both parties consent that death will result in the cancellation of all employer obligations, then it should be fine. (....right?)

Thoughts welcome. Thanks.

Has anyone heard any rumblings about disaster relief pertaining to plan loans and distributions in the aftermath of the April tornadoes that devastated parts of Alabama and other southern states? They passed something to help plan participants after Hurricane Katrina - just wondering if they might do something similar now.

Thanks.