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

Client is a non-profit with an ERISA-covered 403(b) plan. They believed (based on a seminar the finance officer attended) that they had until the 15th day following the end of the month deferrals were withheld to deposit the deferrals with the insurance company, and they've been doing that for quite a few years. Now they are facing the compliance question about late deposits on the 5500. They've become aware that the 15-day limit was not a safe harbor.

The question on the 5500 concerns only 2009 deposits, but presumably if they answer yes, the DOL is likely to take an interest in earlier years.

Has anyone had any experience dealing with the DOL on a correction for this? Would it be reasonable to take 1996 as the date when this violation began?

I have an employee who deferred and vested $50 prior to 2005. Since 2005 he has deferred and vested thousands. We had a slight operational failure that needs to be corrected under Notice 2008-113. I'd like to treat the $50 as subject to 409A so that we can make one correction under Notice 2008-113, instead of two (one for the thousands deferred after 2005 and one for just $50).

Is it ok to treat grandfathered nonqualified deferred compensation as subject to 409A?

Does anyone know if there are penalties for not keeping participant deferral election forms? If a participant originally elects to defer 10% of their salary, for example, and then changes to 1% (completes a new form and gives it to his employer), but the employer does not keep the new form, even if the change went into effect?

I have a 401(k) plan that is audited each year. In reviewing the personnel files, the amount on the election/enrollment form is not the same as what is being withheld per payroll. Potential penalties?

thank you

Plan has been a large plan for the past few years. This year the participant count at 1/1/2009 fell to 111. I would like to file a Form 5500 SF. Is the plan still a large plan for 2009 or can I use the 80-120 participant rule and file a Form 5500-SF?

This is the languag from the Form 5500 Instruction Booklet:

Exceptions:

(1) 80-120 Participant Rule: If the number of participants reported on line 5 is between 80 and 120, and a Form 5500 annual return/report was filed for the prior plan year, you may elect to complete the return/report in the same category(‘‘large plan’’ or ‘‘small plan’’) as was filed for the prior return/report.

Thus, if a Form 5500 annual return/report was filed for the 2008 plan year as a small plan, including the Schedule I if applicable,

and the number entered on line 5 of the 2009 Form 5500 is 120 or less,you may elect to complete the 2009 Form 5500 and in accordance with the instructions for a small plan, including for eligible filers, filing the Form 5500-SF instead of the Form 5500.

I have bold and italicized the words that I am relying on to be able to complete a 500-SF. If you can elect to complete in the same category and then can elect to complete in the other category....

Any thoughts....

Thanks.

does anyone know whether an arbitrator may go beyond the scope of a disputed issue, for example to decide that a withdrwawal had not occurred where the parties do not disagree that it has?

According to Revenue Procedure 2009-36, individually designed gov't plans can elect to use Cycle E as their EGTRRA remedial amendment cycle. When submitting for a letter, I believe they would need to include plan document changes for Cycles C and D cumulative list changes. Does that mean the Cycle C and D cumulative list changes just need to be adopted by the end of Cycle E or should they have been adopted already? HELP!!!!

We recently received a copy of a restated plan document that incorporated an amendment from 2005. Our (and the client's) intent was to make a specific employee (NHC) eligible for the plan as of 12/1/05.

Normally, we would draft the amendment to indentify the individual specifically. Unfortunately, the draft of the amendment actually reduced eligibility from 1 year to 3 months (401(k) only), and entry dates from semi-annual to monthly (all sources). This did allow the individual to enter the plan as of 12/1/05, but would obviously have impacted all eligibility calculations from then to the present.

Both the company and our firm have continued to operate the plan on the 1 year service and semi-annual entry terms.

1. Can we say this was a mistake in the drafting of the amendment, and this should only have applied to 2005?

2. ??? Suggestions?

Scenario: gov't agency sponsors a MPPP. Allocates X% to staff, Y% to Exec Director (who is an HCE). Do we need to cross test? Am getting differing opinions within the office and have not found anything specific in my research.

Thanks!