Hello all,

I have a client who is a partnership with 3 partners. Each of these partners receives both K-1 and W-2 income. No comment on the appropriateness of that - it shouldn't be possible but it happens all the time.

In any event, both the 401(k) plan and the partnership are on a calendar tax year. All three partners made deferrals from their W-2 income. Now the plan is terminating effective 6/30/10.

For the purpose of ADP testing, would you say the testing compensation is zero (because earned income is deemed to be paid on the last day of the tax year, which hasn't been reached) or the W-2 compensation through the date of plan termination? Obviously the client would like to to avoid refunding all their deferrals for the year due to 415 issues.

Any help is much appreciated!

Dog

We have an employee who has family coverage (he covers himself and 3 children) and now wants to add a domestic partner. Would there be any after tax cost and imputed income on covering this DP since he is already at the family coverage tier. There is no other tier available.

Lets say that prior to 1/1/2010, a company had a bi-weekly pay period. Starting on 1/1/2010 and going forward, the pay period switched from bi-weekly to semi-monthly (paid on the 1st and 15th of each month).

Participants make loan payments through payroll deduction. What happens to the amortization schedule when the pay period switched?

Should participant receive a new amortization schedule based on the outstanding principle due? Does the participants need to sign new loan paperwork because the terms of their original loan paperwork have changed? If the reamortized schedule calls for larger payments, and the participant has been making payments amount on the original schedule, what happens? Any other issues/thoughts?

Thanks!

If a plan currently uses target date funds with a 10 year spread and now are adding a 5 year spread, can defaulted participants be moved into a more appropriate 5 year fund without giving a 30 day notice? The sponsor is giving a notice, but want to make this effective 7/1 so will only be a 2 week notice.

I am not finding much written about switching from one QDIA to another mid year.

Any thoughts?

A partnership of 6 dentists is going to end, as one of them is now retiring. A new LLC will be formed by the remaining 5 to continue the dental practice. The old partnership will continue to exist only to collect accounts receivable. All dentists and staff will go to work for the new LLC on July 1.

The old partnership had a profit sharing plan (no 401k feature). The new LLC will set up a new 401k plan.

Question 1: would all those with benefits in the old profit sharing plan have a severance from employment for purposes of Code section 402(e)(4)(A)(iii) since they no longer work for old partnership? Any citations would be useful.

Question 2: if no 'severance from employment', could the old profit sharing plan be terminated in order that all of the benefits under that plan could, at the individuals' options, be rolled into IRAs? Again, any citations would be helpful.

DB plan year is 7/1-6/30. Plan termination date is 4/15/10. Participant is claimiing retirement benefit as lump sum payable 7/1/10. 2009 AFTAP is above 80% but less than 90%. What are the rules with regard to AFTAP calculation (if required) after plan termination but prior to distribution of assets upon plan term which probably won't take place before 12/1/10? Thanks.

I am looking for a confirmation of my understanding based on 2009 5500 changes. Have read through the Form 5500 instructions for 2009. Assume plan is unfunded and fully insured, over 100 lives, provides life, AD&D and disability insurance benefits. Appears Form 5500 (SF version not permitted) is required to be filed, w/ Schedule A attached. No IQPA requirement. File Sch C, D and G only if required based on the situation. Pretty much same as before. I just want to make sure I'm not missing something big, as I do very few of these. Appreciate any assistance.

I am used to seeing plans set up for cross testing using named allocation groups in the plan document. When it comes time to fund the contribution as of the tax return due date, the group method is followed and tested as stated in the plan - is 1. Owners, 2. HCE non owners, 5. Dept Heads, 6. Rank and File. So you have clear allocation groups set forth in the plan.

However, how does it work if each participant is in his own group? Is this much flexibility allowed, whereby after the plan year has ended, the employer could change what they wanted to give to the HCEs lets say depending on the last minute plan design needs, or could create or delete certain allocation groups and merge into another group if that would work better.

This seems to allow too much discretion. How is this method usually used by a TPA?

I appreciate your help!

If you represent an employer that seeks to avail itself of the Early Retiree Reinsurance program, what amendments would you suggest should be made to your group health plans covering such early retirees?

In addition to the annual matching contribution made on behalf of employees contributing to the employer's 457 plan, a governmental 401 plan provided for a one-time employer non-elective contribution for the 2004 plan year. The plan was restated effective 1-1-2009 and continued to provide only for employer matching contributions. However, following the 2004 plan year, the employer continued to make non-elective contributions and wishes to make this a permanent feature. To remedy this operational defect, should the employer submit through VCP a retroactive amendment effective 1-1-2004 for the inclusion of the non-elective contribution?

Is it possible to have a multiple employer governmental 457 plan? For example, numerous municipalities wish to consolidate their benefits and regionalize for purposes of 457(b) plan sponsorship. How would such a plan be structured? Would it be suffice to have one plan document and each adopting employer execute a joinder agreement signifying their adoption of the plan identifying any plan provisions that deviate from the standard plan structure? Other than monitoring the deferral limits, are there any compliance and recordkeeping issues that would need to be addressed?

Hi ...i was wondering if someone can defer a percentage of their total compensation?

if over the Comp limit?

thanks

As an IRS agent specializing in employee plans, I am puzzled by the failure of employers to lower their payroll excise taxes by compensating employees through 401(a) plans. I am also mystified by the failure of advisors to notify employers about how profit-sharing contributions avoid excise taxes of as much as 21.3 percent while elective deferrals to the cash-or-deferred arrangement in a 401(k) plan fail to avoid any of that tax (see 3121(v)(1)(A) and 3306®(1)(A)).

A small employer with five employees earning $100,000 in compensation (including deferred compensation) each can defer up to $100,000, thus avoiding $15,300 in Social Security and Medicare excise taxes. The full 21.3 percent (including unemployment), or $21,300, can be avoided if the employees earn no more than $7,000 each. $15,300 seems like a significant tax savings for such a small company, and $21,300 even more so.

When I asked a business-owning friend about this topic he said that his company had a 401(k) plan without profit-sharing contributions because he thought they needed big profits to make such contributions. Of course, such is not the case- the requirement that profit-sharing plan contributions be limited to profits was abolished by statute in the 1980s. Saying that an employer cannot afford such deferrals makes no sense either, because profit-sharing contributions allow employees to keep a greater proportion of their compensation.

Of course, contributions to retirement plans are generally subject to the additional tax on early distributions. However, even if employees cash out all of the contributions, the tax of ten percent is less than the tax savings of 15.3 percent or 21.3 percent. Keep in mind that employer contributions to profit-sharing plans can be distributed at a certain age and that the age at which such distributions are allowed can be less than the age of each and every one of the employees. Revenue

Procedure 80-276 includes the following assertion. "...a profit-sharing plan may specify any age for distribution of

benefits..."

Use of profit-sharing plans for excise tax avoidance may limit the extent to which highly-compensated employees can exploit the benefits of tax deferral. However, I strongly question whether those benefits can realistically be expected to be greater than the value of excise tax avoidance. To begin with, the ADP test can substantially limit the amount highly-compensated employees can defer. Even if they can defer up to the 402(g) limit, the amount is still not very impressive. For example, if all five employees in the example employer cited above deferred the full $16,000 (my apologies if I am a little off) and were in the 31 percent marginal rate in retirement (I am using the rates for married individuals), the savings would only add up to $4,000. And that assumes that they will be earning substantially less during retirement and that tax rates will not go up- both of which are dubious assumptions, for the most part. If the difference in earnings between the time when the compensation is earned and when it is withdrawn does not cross a bracket, no savings will be achieved at all from tax deferral. Moreover, the employer contributions that I discussed above have the very same tax deferral advantages as elective deferrals. In fact, they are even more advantageous, since the total amount of deferred compensation is $100,000 versus only about $80,000 for elective deferrals, as limited by 402(g).

So what am I missing?

Does anyone know the difference between a sub-transfer agent fee and a shareholder servicing fee?

On 6/1, the company I work for was acquired, resulting in new benefits becoming available to our family. The effective date of any elections under the new benefit plan is 6/1.

Our family is currently covered through a HDHP/HSA offered by my husband's employer, but we're opting to change to the family coverage offered by my company. The new coverage is a PPO plan, offered with an optional full (NOT limited purpose) health FSA. I understand that discontinuing participation in the HDHP will make us ineligible to continue contributing to the HSA.

My husband's employer states that any family status changes are to take effect 30 days after the date of the change, so our coverage under the HDHP/HSA will continue until 7/1. We will be thus double-covered for the month of June.

Specifically because of this overlap month, I *think* we are ineligible to participate in the new health FSA, because it looks to me as if simultaneous participation in an HSA and a non-limited-purpose health FSA is prohibited by IRS code. Am I correct?

We've talked to both employers, and no one is willing (or able, very possibly) to budge on coverage end/begin dates.

Are we best off just making a lump-sum contribution to the HSA before 7/1 to max out our $3075 adjusted limit for the year and foregoing the health FSA until next open enrollment (which is the same as the calendar year)?

I have a TPA who is charging two types of loan fees - an annual maintenance fee that is deducted from the participant account each year and a loan set-up fee which is not posted to the participant as a fee, but is included in the loan disbursement and then deducted from the check amount (ie the participant has a loan for $5,000 but only received $4,900 check due to the $100 loan set-up fee). My question is about how these fees should be reported on the new Schedule C for 2009. The TPA has prepared the Schedule C showing only the annual maintenance fees as direct compensation, and not the set-up fees. I am not sure if this is correct or not. On one hand the set-up fees are being distributed from the plan to the TPA and seem like they would be reportable as fees received. On the other hand, the fees are being paid by the participant to the TPA (not that the participant ever sees the money or has a choice). How is anyone else handling this situation? I couldn't find any clear guidance in the IRS instructions or FAQ's. If I missed it please help me out! thanks.

Under the Early Retiree Reinsurance Program regulations, plan sponsors are required to have a written agreement with their health insurance issuer or employment-based plan, requiring the health insurance issuer or employment-based plan to disclose information on behalf of the sponsor to the Secretary of HHS.

Does the Business Associate Agreement that is already in place with the health insurance issuer cover this requirement? Or do we need to get a separate agreement signed?

Any thoughts?

I was asked to do a proposal for a defined benefit plan for company that has an existing 401(k)/profit sharing/Davis Bacon plan. Now normally this does not present a problem except this is the first Davis Bacon plan I have seen with a contribution rate of about 25% on Davis Bacon wages.

When I inspect gross covered pay for the 401(k) plan vs Davis Bacon contribution it comes to 22.5% of pay. Regular profit sharing took the contribution to a full 25%.

That leaves very little to use for a defined benefit plan, whether traditional or cash balance. Since the pension plan has to pass 401(a)(26) with meaningful benefit accruals for a sufficient number of participants, a standalone plan seems out of the question as well as a plain DB/DC combo.

That leaves me with an offset plan, probably a traditional offset because of the meaningful benefit problems - that is, a formula that gives the desired contribution for the owners and see how the offset affects the rest of the contribution - which is limited due to Davis Bacon contributions.

I believe the offset can only be balances accumulated while both plans are in place. Question 1- is is possible to use all prior accumulated balances if past service is granted?

Of course this rules out using DB/DC combo testing, but it accomplishes the same goal. Question 2 - is there a better design, and if so are you willing to share it with me?

Thanks all.

We are just trying to get the hang of using Web Client.

It seems when we set up a new client, they automatically receive an an email notification with their UserID and password. Then when we publish their 5500, they once again receive the same email notification with UserID and password.

Is there any way to circumvent these duplicate nofications?

(A fellow employee is submitting an incident to Relius; we are trying to see who gets an answer first.)

Has anyone seen information on an extension beyond June 1, 2010?