I was discussing an amortization extension with a fairly high up IRS representative and they reminded me that the Trustees are not allowed to increase benefits to ANY plan during the extension period.

In other words, if during the period of the extension the union negotiates a higher contribution rate for the defined contribution plan, they have violated the terms of the extension. I knew they couldn't increase benefits in the db plan, but I didn't know it applied to ANY plan.

Just thought I would throw this out there for the group’s consideration.

I am working with a Profit Sharing Plan that the IRS is auditing for 2007. This plan, which was administered by the ADA (American Dental Association), was terminated and paid out in 2008. During the audit the agent found where a participant was not paid the correct vesting percentage due to the plan termination. The participant has elected to take a taxable distribution of the amount due her.

The plan sponsor closed his corporation back in 2003, and the Federal and State Tax ID's were also closed. The former president of the company is writing distribution checks for this participant from his personal bank account.

Will I have to apply for new Federal and State EIN's in order to process the taxes withheld on this distribution? Or is there another way to deposit and report these taxes? The ADA is not involved in making this distribution.

Thanks.

Does anyone have any recent experience with what kind of issues found during an examination that the IRS will consider a true "qualification issue"? Would a failure to make RMDs where the participant was notified of the need to do so but did not take action to receive a distribution constitute a serious qualification issue? The plan document provides that RMDs will be made and they have been made except for these few instances where the participant took no action. Apparently the plan did not proactively and unilaterally process RMDs. Even if the missed distributions are low, I am not sure whether this can/will be used to extract large sanctions from the plan sponsor. Any thoughts?

As long as a participant's aggregate 401(k) election does not "take into account" more than $245,000 in compensation, does it matter if a participant first elects to participate in a 401(k) plan at some point in the year after which he has already earned $245,000? In this case, the deferrals would technically be made out of compensation beyond the first $245,000. Perhaps it's all fungible, however.

It is clear from the 2008 FOrm 5500 instructions that a corporate extension (assuming all conditions are met) can automatically extend the 5500 due date until the due date of the corporate tax return.

There is a principal at my office (he is a CPA) who is not satisfied that the Form 5500 instructions are sufficient proof to support the availablility of using a corporate extension as an automatic extension.

He wants to know of the "law" supporting such an option. Does anyone know of a code section or regulation that provides for the use of a corporate extension as an automatic extension?

Thanks.

In 2520.104a-5 (a)(2) it states the due date as 7 months after plan year, unless extended. See "when to file" instructions of appropriate annual Return/Report Form. So that may be the extent of info in the law and regulations.

In the situation where a participant takes a distribution and tax withholding is sent to the IRS, if he is rehired and wants to repay his distribution so he can have his forfeiture restored, does he also have to repay the amount that was sent to the IRS as withholding or does he just have to pay back the net amount? Thanks!

We have a plan that contains a timing distribution provision which according to the sponsor was never intended. In a nutshell, the plan delays actual distribution for 1 year after a distribution event. An executive is now thinking about terminating and was shocked to see that they would have to wait a full year for their money.

I don't believe there is anything that can be done to correct this problem. This doesn't appear to qualify for the IRS correction "programs".

Is there anything we can do to fix this? I assume the IRS wouldn't be very receptive to a self correction through a retroactive amendment. Another problem is that there is little to no evidence that would support the sponsor's position that they never wanted a 1 year delay.

We will be amending the plan to remove the 1 year delay on the distribution of future contributions (2011 and beyond).

I have an LLC where the 2 owners take a draw. They have 2 other employees.

All 4 of these people are covered by a union with collective bargained benefits.

The owners are only in the union to get health insurance ( but they are still part of the small union pension plan )

Is there any way they can exclude the common law employees under the union exclusion rule, but include themselves only in a SEP plan for the LLC ?

THank you.

I recently came across a situation where the plan documents have for the plan's nearly 20 years of existence provided for profit sharing contributions, but not included a 401k feature, and called for trustee direction of investment of pooled accounts, but allowed for participant direction of investment. (The investment adviser when asked over the years would simply assure the ER that it could do these things because it is the ER's plan, so the ER could do what it wants--never mentioning the need to put those design choices into the plan documents.) Also, ADP testing has only been sporadically performed for the plan.

I have been hired to prepare an EGTRRA restatement, and will add provisions to reflect the practice going forward. Of course, my concern at this point is the past.

The different rates of returns that different employees have had since operationally being permitted to direct their investments presents a problem. Since the plan document has not allowed that, an employee whose rate of return has been lower than what the plan average has been could make a claim for more benefits than are in his account. And of course, any employee could make a claim against the trustees for investment underperformance if that is the case (I do not know).

Has anyone approached the VCP or CAP units of the IRS with a similar situation and know what might be their inclination for remedying such a situation?

Any experience sharing is greatly appreciated.

Can we add an option form of benefit to a DB plan which would be a lump sum distribution ONLY if you agree to rollover as elgible rollover distribution? We want to prevent people from losing their retirement (spending it etc) - but want them to be able to pick another plan if they want to upon termination etc. Any thoughts? I can't find anything that prevents this (or allows it). I don't see it violating the nondiscrimination rules but may be missing something... any thoughts?

So, I'm taking over a CB that has been combined with a 401(k) Profit Sharing Plan for 401(a)(4) testing.

The 401(k) PSP document was drafted using an integrated allocation rather than a cross tested allocation. The amount of the PS contribution is discretionary.

If what should have happened is that the NHCEs needed to get a 5.5% PS contribution and the HCEs get 0% PS contribution, would it be possible to say that the employer decided not to make a profit sharing contribution, thus causing a testing failure, and then make an 11g amendment giving the NHCEs a 5.5% allocation?

Then we would amend the 401(k) to provide the correct allocation going forward.

Is that pushing it too far?

Thanks!

Can anyone tell me if a KSOP is required to prepare a 1099Misc for an expense paid from the plan?

457(f) Plan states that payments will be made over a period of years. As of 2009, there is no longer a substantial risk of forfeiture, and we will report the full amount of the deferred compensation. First payment is due this year.

Former CEO is upset that he must pay tax on full amount now, but only receive payments to which he is entitled per the agreement.

Regs permit acceleration in 457(f) arrangments for purposes of paying taxes. Can we add this provision now? While I cannot find anything that specifically permits this, I cannot find anything that prohibits it. The new correction procedure released this month contemplates fixing a plan with an impermissable acceleration by converting it to a permissible type.

What I am trying to figure out is if I can just add a provision that is permitted by the regs at this point.

A small business owner has a DB Plan that she set up back in 2005 with about 3 other NHCEs. Prior to the implementation of the DB Plan she had a SEP, which she stopped contributing to in 2005 and has not contributed to since 2004. The DB plan is now frozen but she would like to contribute to the SEP again as opposed to making a contribution to the DB Plan. Trying to figure out the testing implications for this. Wouldn't the SEP need to be tested for 401(a)(4) combined with the DB Plan?

Everything I've found seems to make clear that salary reductions to a Health FSA are plan assets when they can be reasonably segregated from the employer's general plan assets, even if they are not actually segregated.

Employer holds salary reductions in a large general account and uses the funds to reimburse a TPA who pays the actual claims.

Anyone see and leeway here to avoid calling these plan assets since they are held in large generally named account??

any help/cites are appreciated.

We are planning on terminating a DB plan. A question came up that I can not pin down. I get that if we have an "eligible rollover distribution" that it must be allowed to be rolled over. however the plan does not allow for lump sum distributions other than for small annuity amounts. Currently only annuitys (QJSA etc) are permitted - no lump sums - all not eligible rollover distributions as they are "series of substantially equal periodic payments over a period specified". We don't want to give everyone the option of getting a lump sum. We do want to allow people to rollover if they wish. Are we REQUIRED to allow people to rollover the lump sum "value" of their annuity? Can we allow them to? Would we have to do an "elective transfer" to permit them to rollover?

Any thoughts...

We just got a call from a client with a Profit Sharing Plan. Contribution for 06/30/08 plan year end was about $300K. Contribution for 06/30/09 plan year end was $0. IRS auditor said that the profit sharing plan was being audited since the corporate tax returns showed a large deduction for 06/30/08, and zero deduction for 06/30/09. IRS was auditing the profit sharing plan to make sure there are no problems with the plan.

We've never heard of this from any other client or plan, where the corporate tax returns were reviewed to look for possible plan audits based on contribution deductions. Maybe a defined benefit pension plan, but why a profit sharing plan. But the basis of the plan audit was a review of corporate tax returns. Anyone hear of this?

I need confirmation that under the following set of facts, the ACP test would be run using 0% for the NHCEs and there would be a guaranteed fail for the HCEs

1. prior year testing selected (not a new plan)

2. not amended to switch to current year prior to the end of the current year

3. no match was made in the prior year

If my statement above is not correct, I would appreciate any authority for any other options. Thanks

8a on the 5300 asks "Do you maintain any other qualified plan(s) under section 401(a)?"

Does it matter if the plans cover the same group of employee's or not? Or should this be answered "yes", regardless of whether the plans cover the same employee's?

Facts:

Company A purchases 80% of stock in Company B in 2007. Both A & B have existing 401(k) Plans with 12/31 Plan Year End. Transition period ends on 12/31/2008. Company B terminates their 401(k) plan on 12/31/2008 and distributes all assets during 2009. Neither A or B is a participating employer in the other companies plan. Prior to stock acquisition neither company had any ownership interest in the other. Company A has 10,000 employees while Company B has less than 50 employees.

Questions:

1. When do companies A & B become related control group members--on the acquisition date in 2007 or after 12/31/2008 when transition period ends?

2. Does 401(k)(10) prevent Company B's terminated plan from distributing deferral assets in 2009 because Company A maintains a 401(k) plan?

3. Does the fact that no employees in Company B are allowed to participate in Company A 401(k) plan either before or after acquisition entitle Company B's terminated plan to distribute deferrals because Company A plan would not be considered an alternative defined contribution plan?

Thanks.

401(k) Plan Terminations in control group