A participant terminated in 2009 with an outstanding loan balance.

They took a distributuion in 2009, less the outstanding loan amount. The loan was defaulted. A 1099 R was issued for the distribution and for the loan default

My question is where to report the default of the outstanding loan amount of the Schedule H.

Is it reported on line e(1) Benefit payment to participants or is is reported on line g Certain deemed distribribtions of participant loans?

Thank you for any help

I am one of the lucky ones whose Social Security Number ends in 0, 1, 2, or 3. So I must renew my ERPA enrollment by 6/30/2010.

I was enrolled 9/3/2009 and it expires 9/30/2010.

I have read the Circular 230 regarding CPE credits for those enrolled during an enrollment cycle and am confused.

For a regular 3 year cycle it is clear that one must have 72 CPE credit, and one must have at least 16 (including at least 2 ethics) each year.

When one was enrolled during a an enrollment cycle Circular 230 states (page 9 - section 10.6 (e)(2)(iii)):

(iii) Enrollment during enrollment cycle. —

(A) In general. Subject to paragraph (e)(2)(iii)

(B) of this section, an individual who receives initial

enrollment during an enrollment cycle must complete

2 hours of qualifying continuing education credit for

each month enrolled during the enrollment cycle.

Enrollment for any part of a month is considered enrollment

for the entire month.

(B) Ethics. An individual who receives initial

enrollment during an enrollment cycle must complete

2 hours of ethics or professional conduct for

each enrollment year during the enrollment cycle.

Enrollment for any part of an enrollment year is considered

enrollment for the entire year.

I wasn't exactly sure what an enrollment year was for me. For part A, "In general", I figured that I had 10 months from 9/2009 to 6/2010 so that was 20 CPE that I needed. What I could not figure out at all was how many ethics CPE I needed. If the enrollment year was a calendar year (as defined in section 10.6 (e)(1)(i)), and any part of a year was considered a whole year, then I would need 4 ethics CPE. This made no sense to me as I have been enrolled less than one year.

After a couple of attempts I got through to someone at the IRS, and I was not able to clear things up - it only made it worse as I don't think the person I talked to knows what she was talking about.

First of all she said that first paragraph above ("(A) In general . . .") required that someone enrolled during an enrollment cycle had to have 2 CPE IN each month. So even though I was enrolled on 9/3/2009 and received my certificate and card sometime later that month, I had to have 2 CPE in 9/09, and then 2 in Oct 09, 2 in Nov 09, etc. I expressed that this didn't make any sense at all, but she was animate and said we would agree to disagree. That if I was audited, I could be sanctioned if I did not have 2 CPE in each month rather than 20 in the period 9/09 to 6/10. When I asked what I was supposed to about it now as there is no way to go back and get 2 CPE in each month, she said "can't you get them now before you renew?" Which of completely contradicts what she previously said - when I pointed that out, she said that they would accept the renewal, but again if I was audited, I could be sanctioned. I pointed out that the regular 3 year cycle does not require anything similar, that one just had to have 16 per year and 72 total, she referred me back to how the circular is written. She is clearly wrong about this, but it went no where.

When it came to ethics CPE, she first told me I had to have 4 ethics CPE. I’ll spare trying to describe all of this part of the conversation as it was completely bizarre. I explained that I had 1.5 ethics CPE from a recent conference and didn’t know where I could get .5 more to get to 2 total, let alone 2.5 more to get to 4, by 6/30. I asked her if she could define what my “enrollment year” was (calendar or other wise) so I could figure out how many years were in my cycle and then determine how many ethics CPEs I needed. She said some things, but never was able to answer the question - I don’t think she understands it herself. She said “what would I like, would I like it to be 1.5?” I said “sure” and she said “OK”. After picking my jaw off the floor I still don’t know what that means or what I’m supposed to do.

Then she said, “do you want the extension or not?” I didn’t know what she was talking about. She then said something like “well we knew for this first renewal cycle people would have difficulty getting the CPE by 6/30, so we’ve extended until 9/30." I felt like screaming “why didn’t you say this in the beginning?” That also contradicts her contention that we must have 2 CPE in each month.

She then said she wanted to fax me an internal memo. The fax is a Policy and Procedures Memorandum dated 3/8/10 from the Chief of the Case Development & Licensure Branch. It states in part:

ERPA CPE hours for the first renewal cycle of SSN’s ending in 0, 1, 2, and 3, will run from the date the ERPA was enrolled through the end of June 30, 2010.

Renewal applicants will be allowed to earn CPE credits through June 30, 2010.

Although the renewal application window will end June 30, renewal applications will continue to be accepted and processed up to the card expiration date of September 30, 2010.

But I’m lost in figuring this out. She told me on the phone that we had an extension to apply for renewal and get the CPEs, but the memo seems to say that we have an extension to apply for renewal, but he CPEs must be completed by 6/30.

It appears that we have to certify what we have done and retain the records to prove it only if asked. Nothing needs to be submitted with the application to support that we have competed the requirements.

I’m not even sure if I’m posting this to ask a question or just to make others aware of the issue. If any one has anything that can enlighten the situation I would sure appreciate it.

FACTS:

Plan defines Compensation as:

Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 641(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions.

Plan states that Benefit Service ends on the date Employee severs employment with the Employer and defines service as elapsed time.

Company has a policy to pay for any unused vacation accumulated by the termination date (could equal the annual compensation if somebody worked over 25 years without taking any vacation) within couple weeks after the termination of employment.

QUESTIONS/CONCERNS:

1. Based on the Compensation definition above, it appears that the final year compensation will include severance pay and will also include the unused vacation pay. Correct?

2. So if somebody terminates the employment on 7/1 and week later receives his severance pay for another 6 months, I will have to use 6 month of service for the last year and full annual pay to calculate retirement benefits. And if this employee has 52 weeks of accumulated non-paid vacations, I would really use double annual salary for the final year. Correct?

3. If client wants to amend the compensation definition to exclude unused vacation pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing?

4. If client wants to amend the compensation definition to exclude severance pay for benefit calculation purposes, will it make the compensation definition a non safe harbor definition subject to the compensation testing?

When correcting in a subsequent year an operational failure to make a distribution under Section VII.D of IRS Notice 2008-113, it appears there is a conflict in the reporting provisions of Section VII.D and Section IX.B. The company is required to provided an amended W-2/1099 as applicable to the individual to reflect payment of the amount for the year the missed distribution should have been paid. In addition, the individual is required to file an amended tax return to reflect the missed payment. However, In Section IX.B, the company is not required to provide the individual with the required statement until the due date for provided an information return for the calendar year in which it discovers the failure. Additionally, the individual is required to attach the statement to his or her tax return for the year the failure is discovered. The filing of the amended tax return for the year of the missed payment and notifying the IRS via the attached statement in a subsequent year don't seem to coordinate. Has anyone from the IRS informally commented on this apparent conflict?

The Sieve was at the Tigers' game last night, and then stayed up half the night watching the replay of the final "out" over & over & over. My reaction at the time, without benefit of replay, was that he should have been called out on a close play like that for the final out of a perfect game. The batter later said that he expected to be called out based on the circumstances. Interesting, though, when you look at the replays: Carlos Guillen, at 2B, was right there, and could have made the play had Carbera (1B) stayed at 1st to take the throw . . .

We all expected that the perfect game was meant to be after the absolutely phenomenal Willie Mays over-the-shoulder catch in left center field for the first out of the 9th. Unfortunately, we were wrong.

"... And she and Billy Joe was throwing somethin' off the Tallahatchie Bridge."

Do you suppose it was a first base umpire?

to the tune "Do you remember these" (Statler Bros) - ok, maybe nobody remembers this one, but I was inspired a bit by someone groaning about e-filing, so I 'dedicate' part of the 3rd verse to him!

a music file is enclosed - to make the file work you have to rename from .rpt to .midi, but I have to beat Mr. Baker's system of uploading attachments somehow - at least I think this will work

you probably have to be catch-up eligible to even understand this one.

well, ok, I only had time to come up with 3 verses so far on such short notice, maybe someday I'll dream of more.

10 year cliffs, class year plans, and the rule of 45,

Five to fifteen year vesting really made those plans alive

Laid off just before you’d vest, but that’s the way it goes-

Ah, do you remember those?

No EGTRRA, no USERRA and what the heck is GUST?

No top heavy requirement was placed upon the Trust

No self-direction, default funds and why disclose the fees

Ah do you remember these

Fifty-five hundred C or R, there’s No e-file 2

hand filled forms sent in by mail, that’s all that we need do

no nondisrim, no 410-b, we didn’t dream of GATT,

ah do you remember that?

Employee elected 15% in January 2009. This somehow didn't get printed in the payroll office and the employee never mentioned that his deferrals never started. This comes to light in May when he is talking to the financial advisor and his account balance is zero.

We are being advised that the proper corrective action is to fund his account with 50% of the deferrals that should have occurred and 100% of the missing match, adjusted for any growth. Is this correct? I thought I read something about missed deferrals being at the average rate of the ADP test or something like that, but it's very likely that I misunderstood or that that is for something else.

Thank you.

Our client sponsored a DB plan for several years and then acquired another entity. They froze their plan timely in order to avoid covering any of the employees of the new entity. Now after several years, the plan has become somewhat overfunded. The current benefit formula is pretty low (i.e. the 2 owner/participants are well below the 415 limit), so the overfunding can be eliminated by amending the benefit formula, but they have a rather large staff now and do not want to have to provide benefits to staff in order to increase their benefits.

They aren't looking to close the plan right now, so the overfunding is not a problem just yet, but they want to know if there are any other options other than providing benefits to staff or paying the excise tax should they need to close the plan in the future and it is still overfunded. Do they have any other options?

When an existing company establishes a 401(k) plan, does it have to count service for eligiblity purposes for periods prior to the effective date of the plan for those individuals not actively employed with the company on the effective date of the plan but rehired at a later time?

Facts are as follows:

Company has been in existence awhile. It sets up a 401(k) Plan effective January 1, 2010. Plan includes basic 1 Year of Service requirement for eligibility. Plan SPD provides that "in determining whether an indiviudal satisfies the minimum service requirements to participate in the Plan, all service the individual performs for the Employer will generally be counted."

On January 1, 2010 there are a number of regular employees that have been employed with company continuously for a long time. They all have a Year of Service based on their prior service and begin participating in the Plan immediately. The company also has some seasonal summer employees--some of whom come back and work multiple summers. During the summer, the seasonal employees may work 1,000 hours or more and so would earn a Year of Service for participation purposes. My question is when do these seasonal employees enter the Plan.

In particular, if the company had a seasonal employee that worked the summer of 2009 and earned 1,000 hours that summer--does that employee have to be permitted to participate in the Plan June 1, 2010 (upon return for 2010 seasonal work) or does that individual have to earn 1,000 hours in the 2010 summer season (i.e., the first period following adoption of the plan) before getting into the plan?

No dispute that the seasonal employee would be entitled to participate June 2011 if he returns in 2011 after working 1,000 hours in summer 2010. Just not sure if they get in right away based on service earned prior to the time the plan went into effect when they were not a current employee on the effective date. (Note, I have also seen plenty of guidance that indicates prior service must be counted for active employees in place on the effective date as well as plenty of guidance regarding the need to track prior service for rehires that previously worked during periods when the plan was in place but this is a different question.)

The plan document does not seem as clear as it might be on this point because it speaks in terms of employment commencement dates and tracks eligibility based on computation periods starting on the employee's employment commencement date. The Year of Service definition in the Plan notes that "the initial computation period shall begin with the date on which the Employee first performs an Hour of Service (employment commencement date)." The seasonal folks arguably have multiple employee commencement dates though (i.e., they come and go each year) so question would be which commencement date counts and does first hour of service mean first hour of service once the plan has been adopted. In particular, do we look at the first commencement date beginning after the effective date if the individual was not actively employed on the plan's effective date?

I was told that the statutory test is generally not enforced. The same source indicated that, in practice, these plans have been held to be nondiscriminatory if the same benefit is available to all eligible employees.

For example, say $5,000 is available to all employees. All employees are eligible, but only 10% of employees utilize the self-insured medical benefit at all. Since less than 70% of all employees benefit, it appears the plan would be found to discriminate. However, according to my source, if the IRS audited this plan, they would accept it as nondiscriminatory.

What do you think? By the way, of the 10% of employees that do utilize the plan, an overwhelming majority are non-HCEs.

Looking at Reish and Reicher's website, 404© is specifically meant for individual account plans that can have participant investment direction. Reish and Reicher say that means qualified plans. Can it apply to 403(b) also? I would think so, but does anyone know any differently?

db froze in 2008. combo plan, is the minimum still 5% in the DC plan (except for new employees who aren't participants in the DB?

My Company filed a form 5330 for 2010 about 1 month ago, but it appears we have some additional corrections. Can I just send in another Form 5330 with additional corrections?

The SB instructions provide, "On an attachment to Schedule SB, list the rate of retirement at each age and describe the methodology used to compute the weighted average retirement age, including a description of the weight applied at each potential retirement age, . . . "

A plan provides for unreduced early retirement at age 62 and 20 years of service. The retirement assumption is that participants retire at normal retirement age (65) or otherwise when first eligible for an early retirement age. This statement describes the methodology. However, the weights are dynamic and not an assumption but rather a function of the participant demographics.

Are those with analogous provisions providing the "weights" (i.e., w% at 62, x% at 63, y% at 64, and z% at 65) and if so, are the percents weighted by benefits or liabilities.

We administer a DB plan that is PBGC covered. There are 98 participants in the plan. The plan sponsor plans to purchase annuity contracts for all the participants since lump sums are not paid (and they do not want to amend to allow for this option). There are some participants in pay status and some active and terminated participants with deferred benefits. Benefits are frozen as of 12/31/2004.

We plan to choose August 15, 2010 (or 8/31/2010) as the plan termination date (due to the 60 day notice). Can the plan sponsor purchase the annuity contracts before the plan termination date? If so how can we file the Form 500, etc. with 0 participants as of the plan termination date?

Any thoughts?

I searched the forum trying to find something regarding this topic and couldn't find anything, so here is my question.

I have a profit sharing plan which has a graded vesting schedule according to the plan document as

0%, 20%, 40%, 60%, 80%, 100%

But for the past three distributions, the participants were all vested at 100%.

Clearly the plan sponsor did not following the plan document. Can she retroactively amend to change the vesting schedule to 100%, since no benefit was taken away from the other participant's?

(any forfeiture would have gone toward the employer contribution).

And what if she wanted to keep the currect vesting schedule, would there even be a fix since none of the participants were affected? (They each have their own segregated accounts).

I looked at rev proc 2008-50 which explains how to fix vesting problems but this is only if the distribution gave too little! In this case the distributions were too much.

thanks for any thoughts on this.

A charity's president signed a vendor's "Plan Establishment Form" in 2008 thinking it was a 403(b) plan document. It was not -- it lacked the items required by 403(b) regs like eligibility and benefits description. So they had no plan document as of 12/31/09 as required.

I know the IRS is coming up with a retroactive amendment correction program if sponsors adopt a new 403(b) prototype when that becomes effective but Announcement 2009-34 says that relief applies only to periods after 1/1/2010. The relief does not apply to the 2009 tax year (the first year when a plan document was required). So for the 2009 year, we had no document. I'm thinking the charity needs to go through VCP to correct the 2009 year. My question -- has anyone done this already?

A tax exempt entity currently has a 403(b) plan. The sponsor would like to add a match, but only for some of the employees, but it would be quite expensive to pass ACP tests.

If we set up a top hat 457(b) plan for HCE matches, will that remove the need for ACP testing in the 403(b)? HCE's would still defer in 403(b).

Are there any problems with this combination?

Question on testing a frozen cash balance plan:

If a Cash Balance plan is frozen for contribution credits, but still provides interest credits, are participants considered to be "benefitting"? I would think the logical answer is no, however if the plan were NOT frozen, I know the accrual rate is based on BOTH contribution and interest credits earned during the year. So there seems to be a contradiction in that interest credits are only counted towards accrual rates if there is also a contribution credit provided during the year. Is this correct?