I'm trying to vet a consultant's 409A plan design proposal. This would be a deferred compensation plan for key employees of a privately held C-corporation.

The plan is set up as a defined contribution plan, with credits placed annually in participant's bookkeeping account.

Although this is not being (and they don't want it to be) set up as a stock option plan, what the company would really like to 'incent' is that when money become payable (on specified date), it is used to purchase company stock.

If the money is not used to purchase company stock, the amount (cash) received is forfeited by 50%.

My take on this is that it's a no-go under 409A - or at least, that, forfeiture or not, they're still going to have to include FMV of the whole vested amount in income (reduction notwithstanding).

Further, I believe this design specifically violates 1.409A-3(i)(1)(i), which says that an "amount is not objectively determinable [for purposes of being payable as of a specified date] if the amount of the payment is based all or in part upon the occurrence of an event, including the consummation of a transaction by, or a payment of an amount to, a service recipient."

Do you agree that this means you can't make the amount/value of payment, as of a specified date, contingent upon whether or not there is a stock purchase/sale?

I believe a better proposal is to allow amounts to be paid upon a certain schedule (as they become vested over a graded schedule). The Company can allow each payable amount to be used to purchase stock, or not, but there is no reduction in amount payable if stock is not purchased. The only disincentive to employee for *not* buying stock is that, if they don't buy stock when amount is first payable, they lose that 'stock purchase opportunity,' and the paid amount will not be able to be used to buy stock in future.

Anyone else ever seen a similar proposal or have other insights to share? I'm all ears.

Many thanks.

If our co. wants to use the same eligibility rules for the dental plan and medical plan (the medical has to cover dependents to age 26), won't the tax consequences be different to the employee? The rule that allows medical coverage to dependents to age 26 won't be taxable to the employee doesn't apply to dental coverage so if dependents don't qualify as a dependent as defined before health care reform, the coverage will be taxable to the employee. Thanks!

Suppose it is not possible to do the actuarial work and complete the 2009 Sch SB by Oct 15. Can you file just the 5500-SF w/o the Sch SB and avoid any filing penalty? Or will EFAST reject the filing w/o the Sch SB? It is anticipated the SB would be completed within a month after Oct 15 and filed at that time. Thanks in advance for any thoughts/insight on this.

A client is being sued personally. His self-directed IRA is also a named defendant in the lawsuit. The parties have worked out a settlement and the IRA will pay a portion of the amount necessary to settle the lawsuit. Is this a prohibited transaction under 4975? I think it is, but can't find any affirmative authority. Also, the settlement is not subject to the exemption granted under PTE 2003-39 because that does not apply to claims brought against a plan. Any help would be greatly appreciated!!!

With a Safe Harbor 401K plan it is my understanding that the elective deferral and safe harbor money sources cannot be accessed in an in-service distribution until the participant has reached age 59 1/2. The Adoption Agreement of the Prototype plan document we use allows you to select the money sources from a list that will be available for distribution but there is a note that states the following:

Distributions from a Participant's Elective Deferral Account, Qualified Matching Contribution Account and Qualified

Nonelective Contribution Account (including 401(k) safe harbor contributions) are subject to restrictions and

generally may not be distributed prior to age 59 1/2.

Are these sources unavailable to the participant until age 59 1/2? The "note" above states "generally" cannot be distributed. Is there any circumstances they can be distributed?

Also, what would happen if a participant / trustee decided to take an in-service distribution from all sources including the Elective Deferral and Safe Harbor money source before they were 59 1/2?

I really appreciate any clarification on this!!

Assuming the Plan Sponsor plan docs allow for the forfeiture account to be used for payment of administrative expenses and contributions, can it be used to pay the gains/interest required because of a late contribution?

Are you truncating or rounding? Any guidance from the IRS other than the SB instructions that say to truncate entires on SB?

In section 2715 of the Affordable Care Act it talks about the new uniform benefits summary and says that guidance about the new format will be out by March 23, 2011 and the new format must begin being used no later than March 23, 2012. Within section 2715 there is also a provision that requires plans to provide 60-days advanced notice of material modifications to plan participants. Section 2715 falls under the general effective date of the first plan year beginning on or after September 23, 2010.

If a calendar year plan is going to make changes effective January 1, 2011, does the 60-day advance notice provision apply?

Here are my choices:

A. No, because the 60-day provision isn't effective until March 23, 2012 when the new uniform benefits summary provisions apply

B. No, because the 60-day provision isn't effective until January 1, 2011, so the duty to provide advanced notice doesn't arise until that date (and therefore would be impossible for changes implemented 1/1/2011)

C. Yes, because the changes will be effective January 1, 2011

What are your thoughts??

In my opinion, the reimbursement/in-kind benefits provisions (e.g. 1.409A-3(i)(1)(iv)) are the nuttiest 409A rules.

Here is the current issue: An employment agreement, like most that I have reviewed, does not have any of the 409A reimbursement/in-kind benefits language for items like business expenses, auto allowance, country club membership dues.

Under Notice 2010-6, reimbursement/in-kind benefits provisions can be corrected by adding the 409A-required language, so long as the correction is made before the date that the employee would have become eligible for a reimbursement or in-kind benefits under the agreement (a requirement which, for all practical purposes, in my mind renders the correction fairly useless). Regardless - in the current transitional window under 2010-6, we are permitted to correct the failures addressed in the notice and it will be as though the document were in compliance on 1/1/2009. However, we must correct the failure "in accordance with the notice".

Does that mean that existing reimbursement/in-kind benefits arrangements cannot be corrected in the transitional window, assuming that reimbursements/in-kind benefits have been provided in the meantime? Or can we go ahead and correct now, no harm-no foul, so long as payments were made properly in the meantime though the document wasn't compliant?

I have been correcting anyway, figuring better now than never, but I'm not sure it's really fixing the document problem retroactively.

Employer has two DB plans. In 2009, several participants who should have been paid out of plan 1 were paid out of plan 2. Participants received the correct amount but from the wrong plan. I think one correction method would be to get a refund of the overpayment from plan 2 and make the payments out of plan 1. However, the particpants do not have the available cash to refund the money. I know they will be getting a check from plan 1 in the same amount but that doesn't guaranty that the check back to plan 2 will clear. Also, the plan will then have 1099 issues for the payment. Do you think the plans can avoid this hassel and just have plan 2 transfer the money to plan 1? Everyone is in the same position.

Another alternative would be for the employer to contribute the money to plan 2 and move on.

What are your thoughts?

OK - someone in our office filed some returns through EFAST2 and instead of attaching the "other attachment" *.pdf file with BOTH pages of the 5500 form they only included the signature page in the file.

Does anyone know if this would require doing an amended return? Page 2 of the 5500 is already there of course in the main filing.

I know that both pages were SUPPOSED to be included in the file, I'm just wondering what others think as far as amending and refiling.

any thoughts appreciated.

If you have plans of employers that have been under common control investing in a Master Trust, what happens to the Master Trust if the employers are no longer under common control? Is it now a collective trust? If so, is it a collective trust immediately or do new trust documents need to be prepared indicating that it is now a collective trust?

AFTAP for 2009 is certified based on 12/31/2008 valuation to be 89.54% on 9/30/2009.

2010 AFTAP is not certified until September 28, 2010 based on 12/31/2009 valuation. On 4/1/2010 the presumed 2010 AFTAP is deemed 10% lower than the 2009 AFTAP and a restriction would apply because it is now below 80% - but there was a carryover balance that when reduced brings it back up to 80% ($219 reduction).

Per the preamble to the regulations, the election is treated as having been made on the new AFTAP measurement date - 4/1/10.

When is this reduction treated as having occured? The reduction was based on the assets, FT and COB as of the 2008 valuation, so do I have to amend the 2008 SB to show the reduction occuring in that year (which would change my other valuation calcs such as shortfall) or does it show up on the SB line 12 for 2009 or 2010?

Some of these PPA timing issues have me completely lost.

My employer filed for bankruptcy in 2005 and in the process sold off two business units in attemp to return focus to the company's core competencies. Anyhow, these business units each maintained their own 401(k) plans and, upon bankruptcy, my employer terminated their respective plans.

We were recently notified by the record keeper--both company's employed the same rk--that they filed for and received a share of class action settlement proceeds on behalf of both plans. Because these plans are terminated (which may or may not change anything in terms of IRS rules regarding plan distributions), I would like to simply distribute the proceeds, pro-rata, to eligible participants in the plans. In the past, we've had a slew of issues distributing money to these participants because they obviously don't provide as updated addresses as they're not, and never were, in our personnel database.

It's my preference to distribute the money, withholding 20% of any distribution in excess of $200, and simply inform the participants that they may roll over the distribution within 60 days and, if they had 20% withheld, make up the 20% or have that portion considered a taxable distribution. Can I do this or do I have to provide the participants the opportunity to elect to have their distribution rolled over?

Thanks

Section 1.409A-1(h)(4) contains a 409A "same desk rule" under which, in an asset sale, buyer and seller can agree that the asset sale does not result in a separation from service for participants in the NQDCP of seller. However, the regs say nothing about how to implement the same desk rule. Would the buyer adopt a plan that essentially mirrors the seller's plan (except for the definition of "employer," which would now refer to buyer rather than seller), with a transfer of assets, liabilities and participation to the buyer's mirror plan? Or would the employees remain participants in the seller's plan, with separation from service from buyer serving as the payment event from seller's plan. In that case, it's not clear how the seller's plan can authorize payment upon separation from service from an unrelated employer. In short, I'm not sure how to implement the 409A same desk rule, and any ideas would be appreciated.

ING Sched C information appears to be incorrect. They only have 2 months worth of info and they do not break down the fees. What is everyone doing on the Sched C for your plans with ING?

A client with a Sungard Prototype Profit Sharing Plan wishes to allow a participant (age 52) to receive a partial distribution from the plan. The participant has a rollover account in the plan that was an unrelated rollover into the plan several years ago. According to what I read in the plan document and in the ERISA book a participant can receive distribution of his/her rollover account in a PS plan at any time regardless of age or service. I have not read anything to the contrary in the plan document. This partial distribution would be a direct rollover into an IRA so that he can invest in a partnership holding real property. The plan does not allow this type of investment and the employer wants to keep it that way. The participant is under the plan's early retirement age of 55 but has over 10 years of service and is one of the company owners and is an HCE. The company also has a 401k plan but the participant does not have a rollover in that plan. Is this rollover direct to an IRA possible? If so, does the plan that currently only allows lump sum distributions need to be amended to allow partial withdrawals? Are there any other issues to consider?

A participant enters plan midway has total comp of 100k and comp as a participant of 50k for year.

my understanding is that:

gateway can be based on 50k

non discrimination rate group can be based on 50k

top heavy must be based on 100k

deduction limit based on 100k

Agreed?

thanks

An employee's spouse is under COBRA at another company. Can the employee cover the spouse's COBRA premiums via a premium reimbursement account (PRA) at the employee's (not the spouse's) company?

A different PRA question: Must an employee be covered by the insurance paid for under a PRA or can it cover only spouse and/or children?

It does not appear that the Small Business Jobs Act of 2010 (SBJA) changed the definition of “earned income” for retirement plan purposes. A temporary provision allows self-employed individuals who claim a deduction for health insurance premiums to reduce their earnings for self-employment tax purposes (SBJA § 2042, IRC 162(l)(4)) for one year. However, the SBJA did not change the definition of earned income for retirement plan purposes found in Code Section 401©(2) referring to and making adjustments to IRC 1402(a), net earning from sef-employment. The Technical Explanation of the Tax Provisions in the Senate Amendment 4594 To H.R. 5297 prepared by the Joint Committee on Taxation states that "It is intended that earned income within the meaning of section 401©(2) be computed without regard to this deduction for the cost of health insurance." The explanation indicates that "A technical correction may be needed to achieve this result."

For example, if net earnings from self-employment under IRC 1402(a) is reduced by the health insurance premium amount, then it would have to be added back in calculationg EI under 401©(2)--which it isn't--for the intended result to be achieved. As inteneded, earned income under 401© should not be reduced by the health insurance premium--thus, allowing higher contributions.

Law (enrolled version), available at: http://thomas.loc.gov/cgi-bin/query/D?c111...p/~c111DFUn1V::

Official Explanation, available at: http://www.jct.gov/publications.html?func=...own&id=3707 See pages 22-23.

Note. The SPJA also created "internal" rollover conversions into DRA portability for 401(k), 403(b), and 457 governmental plans (see Explanation pages 39-43) and provisions for partial annuitization for certain nonqualified annuity contracts (see Explanation pages 44-46). It is unclear to what extent the new "internal rollover" provisions will apply to governmental 457 plans before 2011 (which may affect the ability to spread conversion income to 2011 and 2012 with a "2010" internal rollover to a DRA. The rollover provisions are effective sooner that the ability to have a DRA in a governmental 457 plan.

Hope this helps.