I have a calendar year PS/401k plan with a 3% non-elective SH. They have a integrated PS formula. For the past 20 years, the company has maximized the HCE contributions each plan year. The HCE's make well over the maximum compensation limit, so at the beginning of each year, we can calculate the PS contribution percentage for the NHCE's. The plan document says that the Employer Contributions are allocated on the last day of each month. So at the end of every month, the 3% SH and the PS % is deposited into each participant's account based on that month's salaries.

With the change in the economy, the company decided not to fund the PS after the May contribution was sent in. Only the 3% SH was funded for Jun - Dec.

Now I'm trying to true up the PS contributions already deposited with the YTD salaries. If I give all eligible participants a 3% PS contribution integrated at TWB, there will only be a small amount of PS contribution due for the 2009.

However, there are nine participants who terminated mid-year. When I calculate their actual 2009 PS contribution, all of them have had too much PS deposited into their individual accounts. One of these participants has been paid out and has a zero balance.

My question is can we legally remove the excess PS contribution from the other eight terminated employees accounts? If so, how do we notify the employees?

Thanks.

Arrest report

A school teacher was arrested today at John F. Kennedy International Airport

by T.S.A agents as he attempted to board a flight while in possession of a ruler,

a protractor, a compass, a slide-rule and a calculator.

At a morning press conference, Attorney General Eric Holder said

he believes the man is a member of the notorious Al-Gebra movement.

He did not identify the man, who has been charged by the FBI with

carrying weapons of math instruction.

'Al-Gebra is a problem for us', the Attorney General said.

'They derive solutions by means and extremes, and sometimes

go off on tangents in search of absolute values.' They use secret

code names like 'X' and 'Y' and refer to themselves as 'unknowns',

but we have determined that they belong to a common denominator

of the axis of medieval with coordinates in every country.

As the Greek philanderer Isosceles used to say, 'There are 3 sides to every triangle'.

When asked to comment on the arrest, President Obama said,

'If God had wanted us to have better weapons of math instruction,

he would have given us more fingers and toes..'

White House aides told reporters they could not recall a more

intelligent or profound statement by the President.

It is believed that the Nobel Prize for Physics will follow---

What are you recommending ERs do with their restated EGTRRA plan documents using an IRS-approved prototype, regarding whether to apply for an IRS determination letter?

Employer has 401k and 403b Plans. After year end it is discovered that the deferral limits were not updated in the payroll system for several employees. This caused their deferrals to stop at $15,500 instead of $16,500 which is what they elected. How is this corrected ? Does the employer make contributions to the plans ? Is it 50% of the missed deferrals ? Thanks

I'm working on a plan, 3% safe harbor is allocated on full year compensation. The plan is top heavy. So the safe harbor covers the top heavy minimum. They also would like to make an additional 3% profit sharing contribution. The p/s contribution is allocated on an integrated basis. Would the 3% p/s contribuiton be allocated as if the plan is top heavy, straight 3% to everyone eligible, or would it be allocated as if the plan is not top heavy on compensation plus excess compensation. THanks for any help to clear this up.

A participant's spouse is currently under care of hospice. The participant wants to go ahead and take a hardship distribution to prepay the funeral expenses. Is prepayment of the expense allowed for hardship?

I have a 11/1 - 10/31 DB plan that due to layoffs experienced enough of an active participant reduction that it is considered a partial plan termination at 11/1/09. There has always been less than 50 participants. In the past the plan would get a waiver from reporting to the PBGC for the active participant reduction due to small plan status but now that the proposed regs are out is the Form 10 required to be submitted?

My company used to have a Cafeteria plan that offered Medical Reimbursement FSA, Dependent Care Coverage and Premium Conversion. We are switching to a HDHP with an HSA. We understand we cannot have the FSA any longer (we don't want to bother with a LFSA). Can we keep the other two parts? the Dependent Care Coverage and the Premium Conversion? I am getting conflicting advise on this from advisors. One says we have to switch to a Premium Only Plan and get rid of Dependent Care Coverage. The other says we can keep both.

Thanks in advance!

Hi. Has anyone heard whether the IRS has issued procedures for high income employees to "permanently waive" the COBRA premium subsidy in order to avoid having to pay it back later? If a former employee didn't waive the subsidy in writing, could he still be entitled to it?

A client (consisting of business owner and 1 employee) has maintained a PS Plan for years. PS Plan has a 2 Years of Service requirement for eligibility to participate, with 100% immediate vesting. Employee (thus far) has never been credited with 1,000 Hours of Service. Consequently, only the business owner has been covered by the PS Plan to date.

Owner is appproaching retirement age and is considering adding a 401(k) component to maximize/optimize her contributions from here on out. I realize that eligibility to participate in the 401(k) component cannot exceed 1 Year of Service, although the plan will continue to require 2 Years of Service for the "profit sharing" component.

I am going to recommend that this client go safe-harbor 401(k), using the 3% safe-harbor non-elective contribution only for NHCE participants (i.e., to both eliminate ADP testing and meet T-H minimum contribution requirement). Then, IF her employee were ever to complete 1 Year of Service (she's been getting closer and closer to the magic 1 ,000 hours mark) and become eligible for the 401(k) and employer 3% safe-harbor components, I am assuming (hoping?) that there would be no non-discrimination or other issues with the profit sharing component, since the employee had not completed the 2 Years of Service requirement for same?

In other words, if the employee were to become eligible for 401(k) and safe-harbor - no biggie. Profit sharing, however, would be an entirely different story.

Seems obvious - but I've been tripped up by the seemingly obvious before!

Thanks for any and all input.

Someone sent to me a scan of question 2:220 of the 401(k) answer book. It says that for match calculated on a annual basis, you have 12 months after the Plan Year End to contribute the match.

I remember:

Deductible under section 404 is the due date of the tax return counting extensions.

Section 415 requires payment within 30 days after the due date of the tax return counting extensions to count in that year's annual additions.

Where does the "12 months after Plan Year End" come from?

This sounds almost too simple, but I have to ask? If a Church plan accidently omits a few participants from sharing in the employer contribution, they have to go back and make those contributions, plus earnings, correct? Wasn't sure if there was a difference because this is a church plan (compared to a PS plan).

Thanks

I have heard several DB/DC combo speakers make comments that both DB and DC plans, if combined for nondiscrimination testing, should avoid benefits, rights, and features (BRF) testing by making sure the plans have the same/similar BRF provisions. From an grey book Q&A, a 3-year cliff and a 6-year graded schedule are considered comparable and thus not subject to BRF testing.

I think BRF would include in-service distribution timing options? Suppose the DC plan has age 59.5 for an in-service option for all acoounts, but the DB has age 62. That appears to be a BRF, but how/what gets tested there?

What about an accrual requirement - suppose the DB requires 1000 hours for accrual, but the DC plan has no accrual requirement - is that a BRF that must be tested, and if so, how/what gets tested there, doesn't the 401(a)(4) test itself do exactly that?

This is a new one to me. My client can no longer make a match and has discontinued it with all proper notices, amendments etc. Of course, between that and the economy, deferral's dropped. He would like to hold an annual raffle for non-highly compensated employees who defer into the plan for some prizes as an incentive to defer. He might raffle monetary prizes (1,000 to the first person picked from the hat) or he might buy some prizes (a WII, or IPOD).

My suspicion is that this may not be allowed but am curious as to your (collective) thoughts. thank you.

Treas. Reg. 1.7476-1(b)(6)(i) says that "In the case of an application to which paragraph (b) (1) or (2) of this section applies, an employee who is not eligible to participate in the plan shall not be an interested party if such employee is excluded from consideration for purposes of section 410(b)(1) by reason of section 410(b)(2)(B) or ©."

Should the bold part be 410(b)(3)(B) or ©? It doesn't make sense to me as is.

From my understanding, that last required update to SEP plan documents was required by EGTRRA. Can someone confirm?

More -- I previously worked with 401K plans and given their popularity, it was always easy to stay atop of legislative/regulatory developments and new requirements since information filtered down from so many sources. I'm new to the SEP world and would be interested in hearing ideas/thoughts from individuals on what resources they rely on to stay current on any SEP related developments. I would also me interested in any favorite resources(e.g...books, online resources, etc) you count on or any suggested training that might be available. I'm new to SIMPLE IRAs, so same question would apply.

I am happy I found this forum as I can see this being valuable as well.

Are employee pre-tax payroll deductions to pay the employee's share of group medical insurance premiums in either a fully-insured plan or self-insured plan considered "plan assets?" If "yes," and the employer is the named fudiciary, is the employer (named fudiciary) subject to ERISA's Prohibited Transaction rules? Is a COBRA premium payment made by the Qualified Beneficiary also considered to be a "plan asset."

My mind is tangled up--hopefully someone can untangle me!

The maximum employer contribution=25% of eligible comp. for the plan. If this amount (for a small plan)=$50,000 but the employer wants to put in a $100,000 profit sharing contribution, is that allowed??

Or does the maximum employer contribution amount reign over all?

A client wishes to maintain separate plans for two company divisions that are separated by several thousand miles but otherwise are engaged in the same business. The two divisions would have different benefits.

Can anyone suggest what potentially harmful issues the client should be especially aware of?

Hey Ya'll - Drs P&Q have a 401k with self-directed accounts. In 2009, they moved from Brokerage Firm to Large Insurance Carrier. SOX Notice was properly given. Brokerage firm liquidated assets on the worst trading day of the year. Losses were, of course, dependent on the investments of each participant. Investments were wire transferred to Large Insurance Carrier.

Dr. Q wants to know what legal obligation does he have as trustee to notify participants of the investment loss. I don't know of any requirement to send a notice that specifically addresses investment losses due to the movement of plan assets from one investment firm to another. Is there any need or requirement for him to do so?

Thanks for your help on this.