Opinions seem to vary widely on how to properly apply Section 415 to DROP accounts. However, according to my research it appears to be generally accepted that, where the DROP accounts are credited with actual earnings, the DROP account is treated as a separate defined contribution plan for 415 purposes under Section 414(k), and is therefore subject to the annual addition limits in 415©. My question is: Would both the monthly employer contributions and the earnings credits be subject to the 415© limitations? Or would the monthly employer contributions be treated along the lines of plan-to-plan transfers, and not counted as annual additions for purposes of 415©?

Alternatively, would anyone care to challenge the premise on which the question is based (i.e. that this would be treated as a separate DC plan)? Would your opinion change if earnings were credited at the entire plan's actual earnings rate? What if there was also a minimum guaranteed rate of return?

Any and all thoughts are appreciated!

I am a receiving a monthly lifetime defined benefit pension from a large company I used to work for and each year they send me an Annual Funding Notice. In comparing the 2008 notice to the 2009 notice I see that each of them, in the paragraph titled Fair Market Value of Assets, make this same statement: “For the Plan, fair market value is currently used as the actuarial value.”

The 2008 paragraph goes on to say that as of 12/31/08, the FMV of assets was $2.763 billion and the plan’s liabilities were $2.936 billion.

The 2009 paragraph goes on to say that as of 12/31/09, the FMV of assets was $2.945 billion and the plan’s liabilities were $3.384 billion.

All well and good so far.

The 2009 notice, on page 1 under the paragraph titled Funding Target Attainment Percentage, states that for the 1/1/09 valuation date the “Total Plan Assets” (line 2a) were $3.039 billion and “Plan Liabilities” (line 3) were $2.474 billion.

So how can the FMV of assets go up by more than ¼ billion dollars between 12/31/08 and 1/1/09?

And how can the liabilities go down by almost ½ billion dollars over that same 1 day period?

I called the toll-free number listed in the notices and put only the first question regarding assets to them. The response was that the asset value changed for three reasons: benefit payments, company contributions, and fluctuations in market value.

I pointed out that MV fluctuations didn’t make any sense since the markets are closed on New Year’s Day. It didn’t faze him. I then pointed out that probably the company was not open for business on New Year’s Day and likely wouldn’t be making a contribution that day. Also not fazed. And wouldn’t that be an awfully big contribution? No reaction. Then I asked wouldn’t benefit payments made on January 1 decrease, rather than increase, the asset number from the day before. Still not fazed. That’s how the conversation ended. (We didn’t talk about the change in liabilities -- can't imagine it could have gone anywhere useful.)

So what’s going on with these numbers? Anybody have any experience with this?

[Note to me: Mike 975908041701]

Is anyone using Form 5500-SF for 412(i) plans? If so, what asset figures are you putting on Line 7 (considering that in prior years 412(i) plans didn't need to complete Sch. H or I)?

Thanks for any help.

Has anyone been unfortunate enough to have to deal with the new definition of "Eligible Charity Plans" that came out in the Pension Relief Act of 2010 as well as possible subsequent technical corrections?

If so how have you or how will you be filing the 2009 Schedule B?? For example, will you be using the 2007 Schedule B marked up for 2009 plan year?? Special attachments??

Can funding methods be changed for 2008 and/or 2009 and if so, how??

Are contributions reported on Schedule SB (if previosly filed) locked in??

If employer elects to use PPA method for 2008 and Pre-PPA method for 2009, how is the pre-PPA credit balances, amortization bases and methods carried forward from 2007 to 2009??

With regard to the special rule use of the third segment rate as the current liability rate, do any of hte funding relief provisions apply, that is can we use a lookback month and is the basis subject to change until eventually locking in at some point??

I realize this is probably not a mainstream topic, but any help would be appreciated. Thanks.

Can a health plan require a participant to submit a QMCSO to the plan within 31 days of the court order? I have reviewed the statute, regs and DOL information but cannot find anything on this one way or the other.

Anyone take the DB Exam lately? I'm considering doubling up during ASPPA's Fall Exam window and taking the DC-3 the first day of the window and the DB exam on the last. That would give me about 6 weeks to study for the DB. I don't really have any experience with DB plans but usually do well study and taking exams. I was just wondering if there were any big differences in the DB exam as compared to DC-1 & DC-2. It looks like the recommended reading for the DB exam is a 300+ page study guide and then a 1200+ DB reference guide. I'm guessing the reference guide would not have to be read completely but just read the areas the study guide outlines. Can anybody confirm that?

Thanks for any info.

Section 412 of ERISA requires that the plan have a fidelity bond, unless the plan meets one of the statutory exceptions.

I have an insurance company that is being liquated by the State Dept of Insurance, this could take until the end of the year or next year, in the meantime they stay in business and they want to continue their 401k plan. They have not been able to renew their bond because of the pending liquidation. Can they operate an ERISA plan without a bond, or I should say, what is the result if they do? I cannot find a stated penalty under ERISA. The fiduciary risks DOL investigation, and remains personally liable for any crimes or acts of commission. If DOL audits the plan they are likely to find this as a deficiency but what other consequences could there be if the plan does not have a bond?

Thanks

Have a client who wishes to convert their current IRA to a Roth IRA. Current IRA is invested in stocks, with a cost basis of $100/share and market value of $300/share.

When doing the conversion, is the amount includable in income based on the $100 cost basis, or the $300 market value?

Has anyone dealt with issues involving:

- 2 participants terminated in the "applicable period" and were rehired 2 months later - same plan year -not that this means anything since our applicable period is 18 months? Due to 2 months not employed, one still worked 1000 hours each Plan year and received an employer contribution each year, but the other worked 900 hours in a Plan Year and did not receive an employer contribution that year. 401(b) passes.

-same as above but DOT is in one plan year and rehire date is in next year and also after the end of the applicable period

Generally, the guidance indicates that a participant becomes 100% vested if a partial plan termination has occurred and participant terminated during the period and employer cannot offer a rebuttal as to why a partial termination has not occurred. However, guidance on short-term absences between DOT and rehire date cannot be found.

Can an ESOP provide that, in the event of a default on an ESOP loan, voting rights associated with pledged shares are transferred to the sponsor or other lender?

Would this run afoul of the DOL's exempt loan reg (default provision)? I cannot find anything out there on this and my client believes it can be done (without providing a basis for that view, natch).

Company X maintains a number of welfare benefit plans providing benefits to its active and certain former employees. For its former employees, X has a separate plan document and offers particpants a choice among different medical, dental and employer-paid life insurance options. For medical purposes, the retirees are rated for experience separately from their active employee counterparts (which results in a substantially higher premium payment for retirees). However, for Form 5500 purposes, the active and retired employee plans are bundled with certain other active employee coverages and filed under the bundled plan's plan number.

Does X's plan for its retirees meet the retiree only exception for purposes of HIPAA and the PHSA provisions added by PPACA?

I have a money purchase pension plan that contributed more than the plan limit to an employee's account (the compensation amount was incorrect). By the time the error had been discovered the employee had already terminated and rolled over the account balance.

We're trying to get the custodian to return the excess, but they are resistant. The former employee is offering to cut us a personal check (it's not a lot of money). Would this be OK?

What else could be done?

Can FICA Replacement plans under Section 3121 have loan and/or hardship provisions? I can see that if the plan is a money purchase plan that hardships would not be allowed but what about loans?

Help!

We have just discovered that one of our deductions, a spousal surcharge for employees who choose to cover a spouse who is employed and eligible for coverage elsewhere, was set up incorrectly in the payroll system. It was set up as a post-tax deduction, while our plan docs indicate that this should be a pretax deduction. The issue spans several plan years and affects 40-50 employees.

Obviously, this needs to be corrected because the affected employees are due the taxes that they incorrectly paid on these deductions. My question is, is there any way I can do the entire correction "upon discovery" in 2010, or am I really looking at going back and amending 941s, 940s, W2s, etc. for several years for each of these employees? I fear I know the answer, but given that the impact to each employee is maybe $200 in taxes, the idea of paying thousands to amend all of those tax forms is something we'd like to avoid if there is any provision that would permit us to do so.

Thanks in advance for any advice!

If a retroactive change under VCP changes the information that would have been reported on Form 5500, must the plan sponsor go back and amend the 5500? And redo the audit for the accountant's opinion?

I have a situation where a participant went out on an approved medical leave for a few months, came back to work and made several payments but is now back on an approved medical leave. My question is this - is the suspension a one time event or cumulative to total not more than a year during the five year loan repayment period?

I just got back from vacation to find a message on my answering machine about a dec'd participant in one of my plans. We always tell the client to obtain an original copy of the death certificate when processing the distribution(s) for a participant's beneficiary(ies). this participant died earlier this year and apparently her bene is not a family member. The clerk of courts won't give this person an original death certificate, and the family is upset ~ apparently they are not happy with who the named bene is....

The client has a copy of the death certificate, but not an original. Under these circumstances, and assuming that the dec'd enrollment form (on file with the client, not us) states that this person is the bene of this unmarried participant, do you think we could proceed with the distribution - or would you just advise the client to speak to an erisa atty?

A client received a $16,000 penalty notice from the IRS today for a plan that ceased to exist around 1994. Apparantly the Form 5500 actuarial information for this profit sharing plan was not signed by an actuary.

We are a small employer and have an employee that was out on maternity leave (unpaid leave). Since the leave was unpaid, there was no pay for us to withhold FSA contributions from. Now that she has returned to work, can we have her pay in the missed deductions? If so, over what time period? Do we have discretion? We don't want to make it hard on her by taking it all from her first paycheck back. We would rather space it out over several pay periods if possible.

Thanks.

Our client sponsors a non-PBGC client DB plan that is very underfunded. There are two owner and two non-owner participants in the plan. Their business is doing very poorly and they cannot come up with any money to make this year's contribution of $80,000. They would like to terminate the plan as soon as possible and have the owners waive a portion of their benefits to the extent funded, but since we're already in 2010, they will have another contribution for this year as well of about $80,000 again.

I told them that they are required to make the contribution even though they don't have the money, and they're wondering what happens if they just close it, make their payouts and file 5500's showing the unfunded contributions.

I realize that they can't take the waiver into account for funding, so:

1) What options (if any) do they have?

2) What happens if they don't make the contribution and just close everything out?