Plan granted a hardship distribuion for payment of post secondary education expenses. Plan sponsor did collect a Hardship Statement signed by the participant stating the prupose of the withdrawal, but did not ask for evidence of the requested expense. The employee did not in fact end up attending school. The plan sponsor did have procedures in place requiring that some type of written evidence be collected, but in this case those procedures were not followed. They have had 6 or 7 previous hardship requests and in each case collected written evidence.

A few questions:

1. Can plan sponsor use SCP since procedures were in place, but just not followed in this isolated instance?

2. The general correction is to request that the participant repay the money with lost earnings. In this case the participant has terminated employment. He is not going to cooperate with any correction. What would be an acceptable correction? The concern with an employer corrective contribution is that the participant walks away with that corrective contribution. The plan only contains employee deferrals and safe harbor match and the participant was under 59 1/2, so I don't see that plan amendment is not an option.

Thanks in advance for any guidance.

A stand-alone DB plan has multiple formulas for varying job classifications. Example, 7%, 2% and no accrual rate (0%) for some job classifications.

Obviously this is not a design based safe-harbor formula. The question is whether the general test under 401(a)(4) is the only testing method available or is there an alternate approach by testing each benefit accrual rate separately under 410(b) via "restructuring" by testing each formula separately for 410(b) and if it passes 410(b) on that basis does that obliviate the need for the 401(a)(4) general test ?

Like many TPA's, we have folks on staff who "prepare" 5500 forms. They take the data certified by the client, and input it appropriately on the 5500 forms, based upon valuations performed using the certified data. Question is, is the IRS going to consider them "preparers?"

This is a potential nightmare if the IRS takes this position, which doesn't seem reasonable at all - the analyst really doesn't have any "discretion" in the 5500 preparation, other than the EA who is already registered so no problem. But your typical DC analyst shouldn't fall under this foolish proposal. What are people thinking/doing about this? Is ASPPA going to advocate against this foolishness?

Here's a link to the proposed regulations, and following is an excerpt of the applicable exception and examples. One problem, of course, is that this whole hoo-hah is really designed to "regulate" people who have discretionary ability to affect someone's income tax calculation, and that really doesn't generally directly apply to a 5500 form.

http://frwebgate.access.gpo.gov/cgi-bin/ge...cid=fr26mr10-17

(g) Only for purposes of paragraphs (d), (e), and (f) of this

section, the term tax return preparer means any individual who is

compensated for preparing, or assisting in the preparation of, all or

substantially all of a tax return or claim for refund of tax. Factors

to consider in determining whether an individual is a tax return

preparer under this paragraph (g) include, but are not limited to, the

complexity of the work performed by the individual relative to the

overall complexity of the tax return or claim for refund of tax; the

amount of the items of income, deductions, or losses

[[Page 14545]]

attributable to the work performed by the individual relative to the

total amount of income, deductions, or losses required to be correctly

reported on the tax return or claim for refund of tax; and the amount

of tax or credit attributable to the work performed by the individual

relative to the total tax liability required to be correctly reported

on the tax return or claim for refund of tax. A tax return preparer

does not include an individual who is not otherwise a tax return

preparer as that term is defined in Sec. 301.7701-15(b)(2), or who is

an individual described in Sec. 301.7701-15(f). The provisions of this

paragraph (g) are illustrated by the following examples:

Example 1. Employee A, an individual employed by Tax Return

Preparer B, assists Tax Return Preparer B in answering telephone

calls, making copies, inputting client tax information gathered by B

into the data fields of tax preparation software on a computer, and

using the computer to file electronic returns of tax prepared by B.

Although Employee A must exercise judgment regarding which data

fields in the tax preparation software to use, A does not exercise

any discretion or independent judgment as to the clients' underlying

tax positions. Employee A, therefore, merely provides clerical

assistance or incidental services and is not a tax return preparer

required to apply for a PTIN or other identifying number as the

Internal Revenue Service may prescribe in forms, instructions, or

other appropriate guidance.

Example 2. The facts are the same as in Example 1, except that

Employee A also interviews B's clients and obtains from them

information needed for the preparation of tax returns. Employee A

determines the amount and character of entries on the returns and

whether the information provided is sufficient for purposes of

preparing the returns. For at least some of B's clients, A obtains

information and makes determinations that constitute all or

substantially all of the tax return. Employee A is a tax return

preparer required to apply for a PTIN or other identifying number as

the Internal Revenue Service may prescribe in forms, instructions,

or other appropriate guidance. Employee A is a tax return preparer

even if Employee A relies on tax preparation software to prepare the

return.

Example 3. C is an employee of a firm that prepares tax returns

and claims for refund of tax for compensation. C is responsible for

preparing a Form 1040, ``U.S. Individual Income Tax Return,'' for a

client. C obtains the information necessary for completing the

return during a meeting with the client, and makes determinations

with respect to the proper application of the tax laws to the

information in order to determine the client's tax liability. C

completes the tax return and sends the completed return to employee

D, who reviews the return for accuracy before signing it. Both C and

D are tax return preparers required to apply for a PTIN or other

identifying number as the Internal Revenue Service may prescribe in

forms, instructions, or other appropriate guidance.

Example 4. E is an employee at a firm which prepares tax

returns and claims for refund of tax for compensation. The firm is

engaged by a corporation to prepare its Federal income tax return on

Form 1120, ``U.S. Corporation Income Tax Return.'' Among the

documentation that the corporation provides to E in connection with

the preparation of the tax return is documentation relating to the

corporation's potential eligibility to claim a recently enacted tax

credit for the taxable year. In preparing the return, and

specifically for purposes of the new tax credit, E (with the

corporation's consent) obtains advice from F, a subject matter

expert on this and similar credits. F advises E as to the

corporation's entitlement to the credit and provides his calculation

of the amount of the credit. Based on this advice from F, E prepares

the corporation's Form 1120 claiming the tax credit in the amount

recommended by F. The additional credit is one of many tax credits

and deductions claimed on the tax return, and determining the credit

amount does not constitute preparation of all or substantially all

of the corporation's tax return under this paragraph (g). F will not

be considered to have prepared all or substantially all of the

corporation's tax return, and F is not a tax return preparer

required to apply for a PTIN or other identifying number as the

Internal Revenue Service may prescribe in forms, instructions, or

other appropriate guidance. The analysis is the same whether or not

the tax credit is a substantial portion of the return under Sec.

301.7701-15 of this chapter, and whether or not F is in the same

firm with E. E is a tax return preparer required to apply for a PTIN

or other identifying number as the Internal Revenue Service may

prescribe in forms, instructions, or other appropriate guidance.

Does anyone know what a "Variable Benefit Plan" is? One of our clients is interested in this type of plan but we do not know what it is

Based on the description it sounds like a Defined Benefit Plan, but the investment risk is on the participant.

Can we use pre-approved DB plan documents for this type of plan or would a IDP have to be done?

Any information would be helpful.

Thank you

The objective is to change the benefit formula.

(1) What is the procedure to amend the plan? (Corporate resolution, interim amendment ... ?)

(2) Is there a possibility IRS will reject the amendment?

thanks.

I realize this should probably be in the Relius users section, but that thread does not have too many users and the people on there seem to be short-tempered due to Relius' 5500 submission process and all the problems, and really dont want to have to answer a question about something other than that....

We are a TPA using Relius, doing daily plans. Have moved a lot of our plans to paperless processes (paperless statement delivery, online enrollment, etc). We already do paperless loan requests, but at the point we get the online request, we still do paper am schedules and promissory notes. We'd like to rid ourselves of all of that and go completely paperless.

I have been all over Relius' help sections but I cant find any instructions. Would you mind sharing how this process works if you do paperless loans? Does a notification somehow go to the HR person to begin deducting repayments, much like online enroll sends a notification? What section of Relius do I look at to set this up?

Thanks so much!

So may favorite client has cooked up what sounds like an absolutely *swell* idea for establishing spousal status, and I wondered if anyone here has seen a similar approach or has any thoughts about it generally.

Although I am sure counter-examples could be found, for the most part employers seem to take an employee's word for it if she says that she's married. Standard practice seems to be to ask the employee-spouse to certify her marital status and leave it at that, subject to discpline, recoupment of benefits improperly paid, and/or being turned over to the fuzz for fraud if the actual status is other than advertised. Some employers might even ask for a marriage license.

The brain storm my client has had is that marriage licenses and other ancillary evidence of marital status just aren't good enough! Instead, the idea is to require allegedly married people to produce a copy of their federal tax return (Each year? Once? Not clear.) showing either "married filing jointly" or "married filing separately" status. This would be the exclusive evidence that could be used to show marital status - no ancillary evidence would be allowed. Not even the sworn testimony of a bus full of bishops would suffice in the absence of the tax form.

I see the "logic" behind this idea since you are required to declare yourself every year on the tax form, and merely possessing a marriage license does not establish that you are currently married. Even so, the idea of a plan sponsor asking for sensitive financial information from employees every year - or even once - creeps me out just a little. If you only ask once, it is not any better than a marriage license at picking up subsequent divorce. To get what you really want, you'd need to ask for the form every year.

Problems? For one thing, I think the problem they are trying to solve - namely, unauthorized "dependents" on the plan - can be addressed adequately through less intrusive means. There is also the possibility that married people might check the wrong box on the tax form, either purposefully or accidentally. Or they might have a tax "strategery" that the plan sponsor would just as soon not know about. It's just TMI. Some things, a plan sponsor just doesn't want to know.

There is also the problem of how to deal with domestic partners and same sex spouses who may be precluded by law from "married" filing status - certification appears to be good enough for them, but not for married people? To this last point, the optics of requiring more personal info from married people than from domestic partners could rub some folks the wrong way.

I think it is fair to say that this approach would be a bit unusual. As such, I am thinking that clear communication would be imperative, or enforcing the rule would be (even more) problematic. I am also thinking that it would be a spectacularly poor idea to attempt to enforce this rule retroactively on employees whose spouses have incurred large medical claims where it is clear that the employees are married but refuse to hand over their tax forms.

Anybody have any thoughts about this?

Hi there.

I am trying to figure out when a defined benefit plan has to be terminated. It is going to be left behind in an asset sale and the company is winding down.

I understand that the termination process can take a year or so and the company needs to be around until distributions are made to avoid an "orphan plan" situation. But is it ok for the company to be basically an empty shell in the meantime, so long as contributions are made to the plan on time/annual reports are filed? I poked around and found an IRS official's informal response in a 1999 Q&A session indicating that this is fine, the company doesn't have to be actively engaged in business.

Not having seen any rules to the contrary, seems right to me so long as the plan is being maintained. But, considering the informal/dated source, was hoping someone could confirm.

Thanks in advance!

Assume a significant failure that goes back more than two years. Clearly the plan sponsor is ineligible for SCP, and is required to use VCP to correct. Question: What are the consequences if the plan sponsor uses SCP anyway? Would the plan technically be disqualified even though the error was corrected? (For this particular error, the substantive correction method is set forth in the Rev. Proc.)

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

A corporation (100% owned by one shareholder) engages a practitioner to prepare a small retirement plan’s Form 5500. The plan has never had an audit or any level of CPA service concerning the plan’s financial statements. For every previous Form 5500, the financial reporting was on the cash-receipts-and-disbursements method of accounting. The practitioner’s engagement letter says that she may rely on information furnished by the employer or any financial institution unless she has actual knowledge that the information is false.

Although the practitioner didn’t ask for it, the corporation furnishes to the practitioner a copy of the plan’s document. Against good business judgment, the practitioner doesn’t send it back with a letter saying that she didn’t look at the document. Rather, she does glance at it, and immediately notices that the document hasn’t been amended for several law changes that were required to be in the plan’s document before the year to be reported.

Based on the plan’s financial information and consistently using the cash method of accounting, it’s possible to answer truthfully every required item of Form 5500 without ever mentioning that the plan isn’t tax-qualified.

The practitioner would prefer not to say to her client that the plan is tax-disqualified. Why? She believes that mentioning the point would lead to unbillable telephone time with the client’s owner.

Leaving aside the wisdom of the practitioner’s reluctance even to mention what she noticed, is there any Treasury department rule or other Federal law that makes it improper for her to prepare the Form 5500 without mentioning the tax-qualification defect?

Does anyone have a sample notice they would share? I can't believe I can't find one. We are an open architecture shop with a few audited plans. The recordkeeper we're using is getting some revenue sharing so I'm trying to disclose this to the clients in compliance with EIC rules.

Any help appreciated...

Thanks,

Small plan with 5 HCEs and 1 NHCE. Prior year testing. 5-1 to 4-30 plan year. Come to find out the NHCE didn't make any elective deferrals for the 2007, 2008 or 2009 plan years - ADP = 0% meaning the HCEs ADP fails and wouldn't be allowed to make deferrals (other than catch-up). No corrections have been made yet.

Do you agree that since any correction for the 2007 and 2008 plan years would be later than 12 months after the applicable plan year, EPCRS would allow a QNEC to the one NHCEE in an amount need to pass each year's ADP (plus earnings) without any distribution to the HCEs? Don't want to go the one-to-one route.

But what about for the 2009 plan year. 12 months haven't passed yet since the end of the 2009 plan year (4-30-10) and since this plan uses prior year testing, it seems if they wanted to correct before the end of the 12-month period, corrective distributions to the HCEs is what has to be done. Rather than that, couldn't the employer just wait until the 12 months has passed and make a QNEC on behalf of the NHCE for the 2009 plan year avoiding distribution to the HCEs?

RMD's for 2010 -

They were suspended for2009.

Were they also suspended for 2010?

If a plan meets the eligibility requirements to be able to use the SF, are they required to do so? Or is it a matter of choice?

Some of my plans are with carriers that I will file an A and possibly a D; some are not.

Does it make a difference that I am using the 5500 instead of the SF? I can't find anything in the instructions that requires you to use the SF if the plan qualifies....

With regard to determining HCEs and key employees, does the type of share (voting share vs. non-voting share) make a difference? And in the same line of questioning, are shares held in irrevocable trusts treated the same as ones not in an irrevocable trust?

When you take on a new client with an existing plan and the prior plan document they provide is flawed in some way - be it missing an interim amendment, not timely restated, etc. what liabilities does the TPA incur if they put the client on their prototype document anyway knowing that the prior plan document may not have been fully compliant?

A severance agreement says "we'll hand you a promissory note for $X within 60 days of termination" and then goes on to provide that "the promissory note will require equal monthly payments of principal and interest over six months...and may contain such other terms as agreed between employer and employee." Assuming employer delivers a note within 60 days, for 409A purposes is this in effect treated as a lump sum payment, with the employee being "paid" for tax purposes on the date the promissory note is delivered or do the terms of note come into play for 409A purposes to determine if we have a permissible schedule, etc?

Was listing it as "Corporate Debt and Equity" each year, when actually it was a receivable. However, since it is appx 6 years late, what recourse is there. It's practically impossible to go back and revise.

Can a 403(b) plan have a multiple employer arrangement pursuant to Code Section 413©? The regs under 1.413(3)(iv) discuss the qualificiation of a section 413© plan at any relevant time under section 401(a), 403(a) or 405(a) but not 403(b).

Perhaps the final LRM and prototype program will give direction. I did not see this issue addressed in the 403b regs either.

Any ideas would be appreciated.

We have an IRA that is a partner in a partnership.

Do we use the individual's SSN for the tax identification and show that it is an IRA - exempt entity on line I of K-1 or should we use the IRA sponsor's id number?

Source documents to put in the file would be appreciated.

thanks