A client wants to change their cafeteria plan (which includes Health FSA and Dependent Care) from an 8/31 plan year end to a calendar year end. I have read that a plan year change is permitted but only for a valid business purpose. They have had their plan for many years but would like to make this change so that their employees can make their annual elections based on the health insurance benefits for the same time period as opposed to making them in August each year (before they even know what the health insurance benefits will be in the upcoming year). They would also like the change made so it agrees with their fiscal year and is in line with their health insurance. They do not want the plan year to be changed to circumvent the requirements of Code Section 125.

Would this qualify as a valid business purpose?

In 2005, a 12 participant PSP hired a new adviser, released its TPA and started a 403(b) plan, which all but 3 participants account values were transferred into the new 403(b). A resolution to terminate was never prepared nor was a black out notice or notice to interested parties prepared.

Additionally, 5500's were not prepared from 2005 on, nor was their plan document updated. I know the 5500's can fairly easily be resolved by using a DFVC, but what about the "false" termination issues? Could they retroactively terminate the plan and file under EPCRS? When they were transferring money to the new 403b back in 2005, they noted it was a "change in plan provider" as a reason for the distribution on the participant forms, not plan termination.

It seems the new adviser dropped the ball big time, when establishing the new plan and the plan sponsor as well.

As part of the Omnibus Reconciliation Act of 1990 ("OBRA"), as an alternative to the payment of FICA taxes, state and local governments may establish a retirement program to cover part-time, temporary or seasonal employees. In order for an employer to avoid FICA tax liability, its FICA alternative plan must satisfy certain design and benefit requirements. A FICA alternative plan:

must provide a benefit of at least 7.5% of compensation;

contributions must be credited with a reasonable rate of interest

benefits must be 100% nonforfeitable.

A question has come up whether these type of arrangements may allow participants to invest in variable funds and permit loan distributions.

Based on Treas. Reg. §31.3121(b)(7)-2(e)(2)(iii)©, variable investments would not provide a reasonable rate of interest and would conflict with providing a benefit comparable to an OASDI Social Security benefit. The practical approach would be to offer only a fixed investment (i.e., stable value fund) as the only investment option.

There is no explicit reference in the regs prohibiting loans. It is implicit in the nonforfeitability requirements of the regs that require a covered participant to be "unconditionally entitled to a single-sum distribution from the retirement system equal to 7.5 percent of the employee's compensation over the period of covered service, plus interest." Hence, there should be no access to the funds before termination of employment, retirement, death or disability. It would follow that such plans would not allow for in-service withdrawals on account of a serious financial, attainment of age 59-1/2, or loan distributions.

What do you think?

1) All employees switch from payroll of the employer to the payroll of the leasing company.

2) They now participate in that employer's multiple employer plan

3) No break-in-service, so we can't pay people out

4) Can't terminate because of the existence of a replacement plan.

So what do we do?

1) Merger to multiple employer plan (seems unlikely)?

2) Nonelective transfers to new plan and then plan termination of old plan.

Have never really used nonelective transfers, but I'm pretty sure they would apply hear

An NQDC plan currently provides for payment upon the earlier of a 409A-compliant Change in Control event or a 409A-compliant Separation from Service. NQDC plan sponsor would like to remove Change in Control event as a payment event and leave only the Separation from Service as the permissible payment event.

The guidance in 1.409A-2(b)(6) indicates that the deletion of a permissible payment event is subject to the subsequent deferral election rules under 1.409A-2(b) where the deletion of the payment event may result in a change in the time and form of payment of the deferred amount. 1.409A-2(b)(6) also states that the subsequent deferral election requirements are applied separately to each payment upon each payment event.

I'm struggling to determine how to apply this guidance in this situation. Does this mean that the subsequent deferral election rules would require the change not to be effective for 12 months following the change, and for the payment event to simply be 5 years following a Separation from Service? This would seem to satisfy the five-year push requirement because in any instance, even if a Change in Control occurred immediately, the payment would be delayed an additional five years.

Welcome to the new ERPA message board.

Feel free ask your questions, express your concerns.

The linked-to paper argues that health coverage reform sets up incentives for an employer to design its “self-insured” group health plan to motivate those who consume more medical care than others to prefer individual insurance over employment-based coverage.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1651308

Do you think that the authors’ theory is realistic?

The authors suggest that one inducement for an employee (and his or her family) to leave an employment-based plan might be the employer’s cash-wages payment in an amount somewhat more (recognizing some tax differential) than what would have been the employer’s “contribution” to the employment-based health plan. [Pages 22-23 of the paper, pages 23-24 of the .pdf] Is this realistic?

If an employer were to offer such a cash-wages payment, would the choice run into constructive-receipt issues? Or would Section 125 protect those who chose the group health coverage as not having had constructive receipt of the available but not-taken cash payment?

Profit-sharing plan provides forfeitures are used to reduce the employer discretionary profit-sharing contribution.

Employer says - we want to provide that forfeitures are going to be allocated in same manner as profit-sharing contribution as an additional contribution and not used to reduce the employer contribution.

My question - do we really need to amend to provide this?

For example, employer has $150,000 set aside to make a contribution and also has $20,000 of forfeitures.

If the plan document is not amended, can't employer declare a $170,000 profit-sharing contribution and then reduce it by the amount of forfeitures to $150,000. A total contribution of $170,000 is made - $20k from forfeitures and $150k from the employer - achieving the same result without amending the plan?

Is a limited parternership considered an eligible asset?

Is a life insurance policy (with cash value) considered an eligible asset?

Couldn't find anything definitive in the instructions.

Thanks!

I dunno about this...employee worked for Wachovia Bank, now is in one of our plans and elected a rollover to the plan. Wells Fargo, which took over Wachovia, sends a check for part if his account and a stock certificate for the employer stock part.

I know that the stock could have been distributed to him, but I've never seen stock going from one plan to another. I'm inclined to take it and sell it in the new plan (pooled brokerage account so it can be done) and give him credit as a rollover for the sale amount. We sure don't intend to hold that stock just for him and I don't think it was a proper way to distribute it. Comments?

I'd appreciate any help on a determination letter application we are filing for a cash balance plan.

Line 11a of the 5300 asks "For defined benefit plans - Method for determining accrued benefit." There is a very short blank there. The instructions don't really explain it further. The Plan is a cash balance that recently transitioned to a DB, so my inclination would be to answer this that the accrued benefit = the frozen accrued DB benefit + the actuarial equivalent of the hypothetical account. This would not fit in the small blank though, so I'd have to do an attachment. Am I missing a better easier way to answer this question?

I've seen 5300s for CB plans prepared elsewhere that put 133 1/3 on Line 11a.

Thanks in advance!

My code in my possession is as of 1/1/2008 so it may not be accurate enough in this situation.

Anyway, if a db plan is not covered by pbgc than it is my understanding that an SAR is still required.

Agreed?

thanks

I'm looking for opinions.....small "one man" Defined Benefit Plans.

Some of my small DB plans are less than 250K in assets and won't need to file a 2009 EZ. The way I read it, we are required to provide the client with a signed Sch SB. Is there some kind of time frame in providing that to the client?

What are your thoughts on a fixed interest credit for a cash balance plan? Are you doing it? What rate?

Also, what are your thoughts on "meaningful benefits" under 1.401(a)(26)-3©? Is 1.5% of compensation enough?

Thanks

How long are monthly brokerage statements required to be kept for a SEP IRA? The only guideline I can find is 6 years after last transaction for pension plan documents (IRA, Keough, SEP). That would mean pretty much keeping statements forever and alot of worthless paper in storage. IRS guidelines for IRA's do not mention brokerage statements but says to keep the the annual Form 5498 to confirm contributions, distributions and FMV.

Any help would be appreciated.

Thanks,

Roger K.

Based on the assistance required to be given to certain foreign-speaking participants in the SPD regs, do you think there is some comparable obligation with respect to maintaining a 404© plan so that it removes fiduciary responsibility from the plan sponsor, trustee, etc.? In other words, how can a Spanish-only speaker exercise independent control over assets in his/her account without some assistance?

Without such assistance, do you think the plan loses 404© protection as to those foreign speakers?

If a decedent did not satisfy his or her RMD in the year of their death, can a surviving spouse beneficiary transfer the RMD to an IRA in their own name and take the RMD from their own account by the 12/31 deadline? Or is the transfer to the spouse's own IRA treated similar to a direct rollover in the sense that the RMD would not be eligble to be rolled into the new IRA?

I've come across an opinion, citing Treas. Reg. 1.408-8 Q&A-5, that the RMD can be transferred, however that reference appears to only talk about the requirement for takign an RMD in the year of death and does not discuss from where it can be taken.

I THOUGHT it was pretty clear that the earned income for a limited partner was calculated solely by taking into account their Guaranteed Payments, based on 1402(a)(13). But the question I am now struggling with is that in spite of this exception, do I still need to reduce their comp by their own employer contribution (eg, ps contributions allocable to their own account)?

1402(a)(13) says they can disregard the distributive share of the income of the partnership, but their own contriubtions would not have been deducted on their anyway, so I'm not sure they fit into the exclusion?

Can someone tell me if I am correct. We just took on a new plan in 2009. In 2008, they had 135 participants at the beginning of the year and 123 at the end of the year. They filed a 5500 with an audit for 2008.

In 2009, the beginning of the year participant count is 118 and the end of year participant count is 87. They are still required to have an audit for 2009?

This plan is being merged in with another plan in 2010 so we will do a final 5500 in 2010 with a beginning of the year participant count of 87. The audit is still required if they did not file a Form 5500SF in 2009 even though they do not have over 100 participants.

I came across this DB plan in an odd situation that needs advice. The facts: one-man DB plan got overfunded by a million plus dollars due to risky investments that paid off. The owner dies and benefits are due to his wife, the beneficiary. The issue relates to the excess assets. I see that there are two options.

1) We are not sure the sponsoring entity is still in operation, but I believe the beneficiary should get paid out, the excess assets should revert to the sponsoring employer, and the IRS will laugh all the way to the bank to deposit the excise tax.

2) The wife can continue sponsorship of the plan with her own company (not sure at this point if she even has her own company) and gradually absorb the excess assets.

Other options are not obvious to me at this point. Any advice and direction is appreciated. Thank you.