Comp 245,000

Date of hire was centuries ago.

I've got a participant in a frozen DB plan with an annual benefit of 100,000. The same participant is also in a New Multiple Employer plan (Same ER in both). The participant has an benefit of 95,000 in that plan.

The participant's combined 415 annual benefit is not violating anything... however, when I calculated the lump sum in the old plan and add it to the lump sum of the new plan, I'm above the 415 lump sum limit. Individually, i'm not.

Is the 415 lump sum limit plan specific? or combined like the dollar and comp limits?

A broker called because he thinks his client is getting bad advice regarding a plan termination, and I don't find an easy answer anywhere...

Client is a one-person plan, under $250K, and wants to terminate his plan. For whatever reason, the prior (well, technically, "current" since I'm just consulting at this point!) TPA didn't do the EGTRRA restatement, I think because the goal was to terminate the plan effective 1/1/10. Other TPA is only now getting their act together about the plan termination and saying that it's OK to sign the plan termination resolution with a current date, still effective 1/1/10. Broker has read about the 4/30 EGTRRA restatement deadline and is concerned that not having anything signed by 4/30 is a problem.

The broker's position sounds right to me, but I'm not seeing anything concrete to back it up. Is there something out there? Thanks.

How are the loan calculations done when the Participant's account balance is less than $50,000? Please see below, did we calculate the 3rd loan correctly?

$3,622.35 = Current Cash at ING (100% vested)

+ 780.08 = Current Balance on Loan #2 (Loan #1 paid off 07/29/2010)

$4,402.43

x 50%

$2,201.22

- 1,880.53 = Highest Outstanding Balance on any one day (09/01/09 = $1,000 New Loan #2 + $880.53 Loan #1 Balance)

$320.69 = New Loan (But, does not meet $1,000 minimum threshhold, so no new loan)

Thanx.

http://sungard.com/sitecore/content/campai...o403bplans.aspx

Very very relevant article on mandatory contributionsby Steve Forbes...

Beginning of excerpt

Some 403(b) plans provide for mandatory contributions. In this situation, making the contribution is a condition of employment. Such a condition may arise from a statute or contract, or may simply be the employer’s policy.

Both of these types of contributions reduce the employee’s wages for tax purposes. The FICA rules count these contributions as wages. However, neither type of contribution is an elective deferral for purposes of a 403(b) plan under Treas. Reg. §31.3121(a)(5)-2, which the Treasury finalized in November 2007. Accordingly, these contributions are nonelective employer contributions as far as the plan is concerned. Except for church plans and governmental plans, these contributions are subject to nondiscrimination testing under Code §401(a)(4). They are not subject to the universal availability rule (and cannot be used to satisfy that rule) or the 402(g) limit. Unlike conventional elective deferrals, these contributions are not included in gross compensation for purposes of 415 or other Code provisions which reference the 415 definition of compensation.

End of excerpt

I have a plan where the employer mandates a 5% employee contribution. If you make said 5% contribution, you get an 8% contribtion. Question is, 8% of what? This article seems to suggest that it is 8% of comp EXCLUDING mandatory contributions unless unique language adding back the mandatory contriubtions is included.

From researching the 415 rules applicable to 403b's, I've looked at the regs and the IRS Pub 571. The regs seem to make it clear that the employer cannot provide a benefit in excess of the 415 limits (i.e., the test is an employer level test, based on the plan year).

But in pub 571, it seems to indicate that in addition to a "plan year" review by the employer, the employee also needs to run their own test based on their own taxable year. Am I understanding this correctly? Woluld this mean that as a TPA we should be reviewing calendar year data (even for fiscal year plans) to ensure compliance?

The test is actually quite complicated as I'm learning. It's complicated because of the definition of includible compensation, which could include comp from up to several years ago. It would seem to allow someone to go well over a qualified plan's normal 100% of comp limit, unless I'm missing something. Does everyone agree?

Has anyone seen a practical user friendly write up of these rules?

I do not see why this will not work. Please reply with any cites or rulings that would disallow this idea!

Step #1

LLC is formed to run a trade or business where the annual gains of the business are not subject to self-employment earnings. i.e. a "hedge fund."

LLC retains a managing member (via a 1099-MISC arrangement) to provide management or consulting services needed to operate the hedge fund.

Result, LLC has gains not subject to self-employment and the LLC has management fee expense that is used in computing self-employment earnings. Therefore the K-1 has negative self-employment earnings. Let's use $300,000 of such expense in this example.

Step #2

Now over to the form 1040. The taxpayer has $300,000 management fee income reported on his Schedule C, subject to SECA tax. The member also has a K-1 following $300,000 of negative self-employment earnings,

Result: based on this Schedule C trade or business of management services, the taxpayer establishes a plan and funds it with $49,000. Then when the taxpayer completes his Schedule SE, the Sch C earnings are offset with the K-1 negative earnings and he nets out with zero self-employment earnings and therefore zero SECA tax.

Conclusion:

Bottom line result: taxpayer has justified a $49,000 deductible plan contribution and yet he incurs zero SECA tax.

Please throw some stones at this, with support for your conclusions!

Possible problem:

Using a 1099-MISC when GPP Guaranteed Payments to Partners might be required, and if done that way then the K-1 would show NET zero self-employment earnings and therefore perhaps that would jinx any deduction for a $49,000 plan contribution? [Thoughts?]

IF SO - then I propose forming a single member LLC and that SMLLC is not a member of the LLC, but is hired to provide management and consulting.

The SMLLC not being a member in the LLC, would legitimately not be paid GPP. but a SMLLC, being a disregarded entity with regards to the form 1040, would still net out the self-employment earnings.

My thinking is that either method would be legitimate, but method two would be bulletproof.

Any, comments will be appreciated...

A 403(b) plan is established by a county hospital, which is a dual status entity because it is a 501©(3) entity and also a governmental entity. The question is can they impose a 5 year eligibility requirement on the employer contributions? At first I thought not, but per the regs below, it appears that the minimum participation standards of the Code do not apply to governmental entities?

Any thoughts??

410© APPLICATION OF PARTICIPATION STANDARDS TO CERTAIN PLANS. --

410©(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to --

410©(1)(A) a governmental plan (within the meaning of section 414(d)),

I want to know if partial distributions are protected benefits? It appears Examples 4 and 5 could be interpreted as being the case.

Any thoughts??

§ 1.411(d)-4 Section 411(d)(6) protected benefits.

Q–1: What are “section 411(d)(6) protected benefits”?

A–1: (a) In general. The term “section 411(d)(6) protected benefit” includes any benefit that is described in one or more of the following categories—

(1) Benefits described in section 411(d)(6)(A),

(2) Early retirement benefits (as defined in §1.411(d)–3(g)(6)(i)) and retirement-type subsidies (as defined in §1.411(d)–3(g)(6)(iv)), and

(3) Optional forms of benefit described in section 411(d)(6)(B)(ii).

Such benefits, to the extent they have accrued, are subject to the protection of section 411(d)(6) and, where applicable, the definitely determinable requirement of section 401(a) (including section 401(a)(25)) and cannot, therefore, be reduced, eliminated, or made subject to employer discretion except to the extent permitted by regulations.

(b) Optional forms of benefit—(1) In general. The term optional form of benefit has the same meaning as in §1.411(d)–3(g)(6)(ii). Under this definition, different optional forms of benefit exist if a distribution alternative is not payable on substantially the same terms as another distribution alternative. Thus, for example, different optional forms of benefit may result from differences in terms relating to the payment schedule, timing, commencement, medium of distribution (e.g., in cash or in kind), election rights, differences in eligibility requirements, or the portion of the benefit to which the distribution alternative applies.

(2) Examples. The following examples illustrate the meaning of the term “optional form of benefit.” Other issues, such as the requirement that the optional forms satisfy section 401(a)(4), are not addressed in these examples and no inferences are intended with respect to such requirements. Assume that the distribution forms, including those not described in these examples, provided under the plan in each of the following examples are identical in all respects not described.

Example 1. A plan permits each participant to receive his benefit under the plan as a single sum distribution; a level monthly distribution schedule over 15 years; a single life annuity; a joint and 50 percent survivor annuity; a joint and 75 percent survivor annuity; a joint and 50 percent survivor annuity with a benefit increase for the participant if the beneficiary dies before a specified date; and joint and 50 percent survivor annuity with a 10 year certain feature. Each of these benefit distribution options is an optional form of benefit (without regard to whether the values of these options are actuarially equivalent).

Example 2. A plan permits each participant who is employed by division A to receive his benefit in a single sum distribution payable upon termination from employment and each participant who is employed by division B in a single sum distribution payable upon termination from employment on or after the attainment of age 50. This plan provides two single sum optional forms of benefit.

Example 3. A plan permits each participant to receive his benefit in a single life annuity that commences in the month after the participant's termination from employment or in a single life annuity that commences upon the completion of five consecutive one year breaks in service. These are two optional forms of benefit.

Example 4. A profit-sharing plan permits each participant who is employed by division A to receive an in-service distribution upon the satisfaction of objective criteria set forth in the plan designed to determine whether the participant has a heavy and immediate financial need, and each participant who is employed by division B to receive an in-service distribution upon the satisfaction of objective criteria set forth in the plan designed to determine whether the participant has a heavy and immediate financial need attributable to extraordinary medical expenses. These in-service distribution options are two optional forms of benefits.

Example 5. A profit-sharing plan permits each participant who is employed by division A to receive an in-service distribution up to $5,000 and each participant who is employed by division B to receive an in-service distribution of up to his total benefit. These in-service distribution options differ as to the portion of the accrued benefit that may be distributed in a particular form and are, therefore, two optional forms of benefit.

Just wanted to confirm my understanding of deductibility of contributions. Plan Sponsor failed to make contributions for 2007 and 2008. Amount to satisfy unpaid minimum required contributions for 2007 and 2008, and min. req. for 2009 (as of 9/15/2010, inlcuding adjustments for interest) is $175,000. My understanding is that none of this would be able to be deducted in 2007 or 2008 with a revised tax return because it was made after the deadline for both of those years. Is this correct?

Has anyone seen any guidance on how to handle missing participants in an ongoing defined benefit plan? I'm having a surprisingly difficult time finding any. There seems to be a lot out there on DCs and terminating DBs, but nothing specifically applicable to ongoing DBs.

I would think the search methods for DC plans set forth in FAB 2004-2. However, if the participant is not found, the distribution options aren't feasible in the DB context. What should be done when missing participants start hitting their required beginning dates?

Thanks!

I don't prepare, sign or file 5500s, so I have no EFAST2 PIN. Where is the DOL's public viewing room for filed Forms 5500? I can't find it . . .

Can a 457(b) plan sponsored by a tax-exempt employer be amended to adopt the "deemed severance" rules from the HEART Act?

If it can adopt this, must the plan also apply the 6-month suspension of if a participant takes such a distribution?

An employer offers a HDHP and an HSA. Currently the employer makes a contribution to the HSA on behalf of its employees. The employer wants to try to keep the HDHP grandfathered under health care reform. Can the employer go ahead and eliminate the employer contribution to the HSA without disturbing the grandfathered status of the HDHP?

The regulations really focus on changes to the health plan itself. Any thoughts on whether the change to the HSA would impact the HDHP?

Thanks.

I posted on the 5500 site and got no reponse. Maybe someone here has the solution. Do we need a bond that exceeds the ER Stock?

Question realates to Small Plan Audit and Bonding. I have a plan that has employer stock as an OPTION. We are filing a 5500 and Schedule I. I am wondering about the required bonding. The employe stock is over 5% of the plan assets. Employer stock is not traded. (small company) I don't understand the Qualifying Employer Securities below. I looked up the sight and I still am confused. Do they need a bond covering the entire amount of the Employer Stock to get out of the Small Plan Audit Requirements?

Thanks

Pat

I"n the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control and with respect to which the participant or beneficiary is furnished, at least annually, a statement from a regulated financial institution referred to above describing the assets held or issued by the institution and the amount of such assets;

Qualifying employer securities, as defined in ERISA section 407(d)(5); "

This is probably something for an attorney to work out, but I would appreciate any thoughts or ideas.

A 401(k) plan participant passed away. She named her 3 sisters as beneficiaries in the plan. However, she also had a will, which stated that all of her assets are to go to the children of her 3 sisters.

Question #1: Does the will supercede the beneficiary form? Who gets the 401k account, the 3 sisters or their children?

After the participant's death, the 3 sisters want to waive their benefit. Their intention is to have their children receive the 401(k) assets.

Question #2: Can the sisters waive their benefits in the 401(k) Plan?

Question #3: If they can waive, does 401(k) balance get distributed pursuant to the will (the children)? If not, where does it go to?

Thanks

With respect to a 457(b) Plan sponsored by a local government entity, an executive-level employee has worked under an employment agreement for several years, under which the employer agrees to contribute 6.5% of employee's wages into a 457(b) Plan. (This is above and beyond other standard benefits, including contributions into state retirement/pension system). (Part of the goal of the arrangement was to make the overall salary appear lower).

For 2010, employee has proposed that the 6.5% be recharacterized as an 'employee' instead of an 'employer' contribution. (Goal is that this makes his 'salary' for the year appear 6.5% higher, making his 'high three years' higher for state pension purposes - he's nearing retirement).

The 457(b) employer contribution amounts have been going into the 457(b) plan on a bi-weekly payroll basis in 2010.

The proposal would leave the 2010 contributions in the plan (no distribution), but a 'correction' would be made so that the employee would include the amounts for 2010 as income, and the government entity would pay applicable employer taxes on the amount. The total amount contributed for 2010 would be unaffected.

I'm stumped on this one.

Doesn't seem right, and yet, because of government and 457(b) status, I'm not finding any specific provision that prohibits it.

Because of his executive status with respect to the government entity, could be a possible prohibited transaction (in addition to any other problems)?

Anyone else out there who works more with government plans (this is not my specialty area), who can weigh in?

A member of the government board, whose permission is required, in order to approve this change for 2010, is objecting. I've been asked (by the executive) to either prove it can (or can't) be done... (Executive's position is that it's his compensation, either way....[so of course, he think's it's no big deal]).

Defined Benefit Plan was frozen effctive 01/01/2006. Conditions of the freeze included no fresh participation after plan freez date.

Doctor wants to terminate the plan that is now over-funded. According to the plan document, excess is to be distributed among all participants.

Do we have to consider a bunch of employees that would be participants had the plan not been frozen? If so, at what rate will they accrue benefits? Under what code section?

Does anyone feel that they are getting an unusual number of 2007 Late 5500 Notices? Or is it just that the IRS has sent out a ton of them in the last couple of months?

If a plan was established in 2008 and contributions were never made:

1.would the plan need to file 5500s with $0 balances? Assuming testing is not necessary since no contribs were made.

2.would the plan need to go through the normal plan termination process?

I can't seem to get a straight answer on this.

Recently, a number of former airline pilots contacted us regarding the payment of their benefits by the PBGC. Typical situation is that the pilots began receiving benefits prior to the airline bankruptcy, selected a level income option, and were recently informed by PBGC that their benefits are being reduced because of the social security offset taking affect. When PBGC took over, the pilots pensions were significantly reduced b/c of the maximum PBGC payouts, but are now below PBGC's maximum level b/c of the reduction for the level income option they selected. Seems to me they should still be entitled to PBGC's maximum guarantee.

Anyone have any experience with the airline pensions or how PBGC administers level income payments?