We have a potential new client with some issues that need to be resolved.

First, there are two companies that are owned by the same 4 individuals. Our conclusion: They are a controlled group.

There are presently two prototype plans. The plans have never been tested together.

The owners are paid by both companies, but only defer in one of the plans and the owners are the only ones deferring in that plan.

There are no other employees that work for that company (or that is what they initially indicated in their correspondence to us. We havefound out consequently, there are other employees who work for that company as well.)

There are both union and non-union employees in both companies. Both plans cover union employees.

It appears to us that the plans should have been tested together. And possibly the combined plan failed ADP Testing for the past three years. Also, if both plans are aggregated, there is a top heavy issue for the past 2 years.

I would like some guidance. What recommendations would you make regarding this situation. What can we do to fix this client?

The 401(k) does not require spousal consent to issue a loan. The plan administrator knows the participant is going through a divorce but has not been presented with a DRO. The written loan policy is silent on the matter. Should the plan administrator grant the loan without spousal consent or request in this case because of the divorce?

Our employer has a self administered 401k plan in good standing, small company, about 15 participants.

Can the employer voluntarily "stop" (for lack of a better term) the self administered plan, not contract with a TPA, and tell the participants to roll over the 401k to an IRA?

Can a participant voluntarily decide to "leave" (again, for lack of a better term), the 401k plan and have his/her funds transferred to an IRA, while still being employed with the company, and the company still offering the 401k?

Carl C

Can anyone let me know, in a 403b document is there specific language/provisions I cna look for that will help me determine whether or not a plan document has been updated for the final 403b regs, PPA provisions, etc? Specifically, I'm looking at the Corbel oducments, and having a hard-time, especially with the IDP documents.

After you do your discrimination test, and have to have to include some benefits in gross income for a key participant. How is that tax reporting accomplished?

Do you have to issue a corrected W-2?

How would the FICA tax be collected?

Plan has discretionary match. Sevreal years go by during which Employer "wants" to make matching contribution, but is not able to do so. Employer later makes a matching contribution and allocates it based not only on current year deferrals, but on prior year deferrals, as well. (Don't ask me what it was thinking, or if it was thinking. )

Do you think that there is any chance that the IRS would approve a VCP submission requesting approval of a retroactive plan amendment that would allocate discretionary match based on deferrals during the last three plan years? Would such an allocation formula definitely be impermissible? Assume that ACP test is not a problem.

Thanks!

I am trying to confirm what my DB plan admin and the Tax guy is telling me - as I think you guys here are much more knowledgeable in these types of issues. Sorry for taking some space here:

1. My DB Plan guys are telling me that my DB Plan is overfunded - by close to 15K for the year 2009. Which means I should not take a deduction this year and let the plan catch up. Looks like I have already tapped into future deductions.

2. I have a 401(k) and PS plan in place. Since I only draw a limited salary (say 50K) I will be able to defer 16500 (or whatever the exact limit is for 2009) for 401(K) salary deferal and an additional 6% PS of the 50K (which is 3K) paid by the business.

3. Spouse is also coowner of the business. She participated in the DB plan, she drew 3 years of salary in 00-02 and now just participates in the DB plan to maximize the benefits/deduction. So the high income for 3 years are enabled for her for the DB plan.

Now I understand may be I should let the DB plan catch up this year and not take a deduction (not fund the plan). However; if I am not putting any money in the BD plan, does it still perclude me from adding anything to a separate SEP IRA account as well? I know the limits include the combined DC contribution and DB contribution - but for the business, if in 2009 I am not putting any monry in the DB plan, I still cannot qualify for the 25% (49K or so for each one of us) DC contribution either?

Any help or pointers greatly appreciated. Sometimes bringing info to my Tax and DB plan admin attentions helps them see the light....

Can you have a Premium Only Plan with an HSA?

We prepare Form 5500 for a large self insured welfare benefit plan (general assets of the employer) which has been exempt from the independent audit requirement through the use of a cafeteria plan. It has been our understanding that if COBRA premiums are the only "plan assets" there would be no trust requirement or audit required to be performed or filed with the 5500. In 2009 the plan administrator discovered benefits were paid on behalf of ineligible dependents and will request reimbursement from the participants. Will these recoveries constitue plan assets and thereby trigger the trust requirement and independent audit requirement?

Client established a new plan early in 2009 as a EACA with a 2% default deferral rate. They have now decided that for 2010 they would prefer to have a non ACA enhanced safe harbor match formula.

Once they amend to remove the automatic contribution provision, do they continue to withhold 2% deferrals for those employees who were previously automatically enrolled?

I wanted to share my holiday greeting with my board (not bored) friends. These were sent to my clients, other professionals, and personal friends.

================================================================================

"Invictus," featuring Morgan Freeman, Jr. as Nelson Mandela, debuted in US theaters on December 11. A very peculiar title for certain, especially to those who are not a student of classical literature. Invictus, as you may have remembered or conjectured, is Latin for "unconquerable," which aptly describes Mandela.

The term invictus lay dormant for quite some time. In fact, the only other notable reference may have been a poem entitled "Invictus" that the English poet, William Ernest Henley (1849-1903), had penned in 1875 from his hospital bed. At age 12 he had contracted TB of the bone and had to have his left leg amputated below the knee. He was in poor health and hospitalized much of the rest of his life.

The poem is clearly a demonstration of his resilience to his physically crippling disability. While the subject sounds like a "downer," the poem is truly optimistic of life, which is why it becomes part of this holiday greeting.

There is little doubt Mr. Henley would have looked only to himself to deal with today's adversities. There is a lesson to be learned.

The warmest of holiday wishes to you, your family, and friends,

Andy t.a.

Does anyone know where I can find or have a copy they are willing to share of a sample "fresh start" amendment?

Thanks

We're working with a cautious client that needs to better understand how the HCE Rate (for getting the 5%, 6%, 7%, or 7.5% gateway) is determined in a DB/DC combo plan.

We explained that it is the sum of the DB HCE Rate and the DC HCE rate using the testing assumptions.

They understood the DC HCE Rate, no problem.

But the DB is a cash balance plan, and, for example, for one HCE the hypothetical credit to the account is just over 24% of pay. Of course, the DB HCE Rate did not come out very close to 24%. This is causing their question.

To calculate the HCE Rate, we explained that it is not the credit divided by the pay, but it's a conversion from the hypothetical credit by accumulating it to NRD at the current crediting interest rate, converted to an annuity under actuarial equivalence, with that annuity's present value calculated at the testing rate, divided by pay. Note: usually they just start nodding after the actuary says "conversion from the hypothetical" and then they can't remember what they even asked in the first place.

But not this time. We could tell that this client was not convinced. They want to know if the regs or other official guidance can confirm that. I'm looking at 1.401(a)(4)-9(b)(2)(ii) and 1.401(a)(4)-9(b)(2)(v)(E). Is there somewhere else that would spell it out even better?

Attached is an update to the Excel add-in that I created and posted last year. The updated add-in now contains 52 mortality tables. These tables are documented in the attached PDF file.

The attached PDF file gives a short overview of installing and using the custom functions contained in the add-in. These functions have been in use by a good number of different users now for well over a year, and I have not received any negative comments about the ease of their use or the results they generate.

Since over the course of the past year I have had numerous people asking me for the full version of the add-in, I decided to just post the full version on this site and rely on the honor system to get paid by those that choose to use it. Although unconventional (and perhaps stupid), this approach will save me the time from having to respond to individual requests.

Also since last year, I noticed a similar add-in at the following link:

http://www.armontech.com/XLActuary_.html

Obviously, this company put more time and resources into presenting its product in a much more professional manner. This product also does some things that my add-in currently does not. However, if your main use of these add-ins is to simply calculate present values, the key difference between this company's product and mine is the way fractional ages are handled. Armon Technologies, LLC's add-in uses linear interpolation of factors based on integral values, whereas mine uses "first principles" and a Uniform Distribution of Deaths (UDD) approach. The other key difference is cost. Armon Technologies, LLC uses a per-computer annual fee arrangement, and I just use a one-time fee for up to five different users on unlimited machines.

For those that would like to evaluate my add-in:

o Download the attached file named "PENPROG Functions.xls" to a directory called "C:\PENPROG"

o Rename the downloaded file's extension from "xls" to "xll" -- That is, the add-in should be called "PENPROG Functions.xll," but I could not upload a file with that type of extension to this site.

o Follow the instructions in the attached PDF overview file to "install" the add-in into Excel's directory of add-ins

o Experiment using the add-in's functions by reviewing the sample applications Excel file that is also attached

After evaluating the add-in, if you would like to use it in a professional manner, please return a signed copy of the attached license agreement along with a check to my attention at:

Doug Goelz

The Phoenix Benefits Group, Inc.

4232 Brownsville Road, Suite 137

Pittsburgh, PA 15227

phone: 412-881-3435

e-mail: doug.goelz@phoenix-benefits.com

Important Disclaimer1: Before using the add-in to calculate results for a professional purpose, be sure to first review and agree to the terms of the attached software license.

Important Disclaimer2: The add-in and sample application Excel file are being distributed “as is” and with no warranties of any kind, whether express or implied. The user assumes the entire risk of using these files and the validity of the values generated by them. In addition, in no event shall I or my employer be liable for any incidental, consequential, or punitive damages whatsoever relating to the use of the files. Your use or installation of the files indicates your acceptance of these terms. If you do not agree to these terms, then do not install or use the files.

Thanks and if anybody has any suggestions for improving the tool, please let me know.

PENPROG_Functions___Sample_Applications.xls

PENPROG_Functions_Overview.pdf

PENPROG_Functions.xls

PENPROG_Functions_Software_License.pdf

We have a 401(k) that is being terminated. A handful of former employees with balances above $5000 have not responded to requests to complete distribution paperwork. They are not missing, as their addresses are correct. What steps need to be documented before we transfer their assets into IRA accounts?

The custodian will not release the funds until all distribution paperwork has been received, so these few are holding up the whole process for the rest the participants.The former employees have already received multiple mailings with the paperwork.

We have a client who set up a 401k profit sharing plan.

They have about 25 participants.

They asked that we assist with establishment of accounts at Schwab.

They want each participant to complete an application to establish their own self directed account.

The money will likely start in the participant's money market type account and then be available for each of them to invest as they choose (i.e. no menu of investment options) and access on-line just as if they had their own savings account with Schwab.

Is this a permissible type of self directed arrangement?

Thank you.

Cheiron, Inc. is pleased to announce that longtime IRS veteran James E. Holland, Jr., ASA, EA, FCA, MAAA will be joining Cheiron, Inc. on January 4, 2010 as the firm's Chief Research Actuary. Holland, who has been Assistant Director, Employee Plans Rulings and Agreements since February 2008, is leaving the Service after a distinguished 36-year career.

One of the nation's leading experts on the pension provisions of the Internal Revenue Code and ERISA, Holland is a frequent speaker at professional conferences. He has provided technical guidance, interpretations, and rulings on the myriad of complex issues throughout his tenure with the IRS, both directly and through supervising the Employee Plans technical staff. He holds a bachelor degree from the University of Virginia with a major in mathematics.

I'm not sure how to ask this question, as it was asked of me: With a sole prop entity, is FICA paid on the company's profit sharing contribution? Does FICA reduce the reportable gross income?

Thanks - Mike

I've got three questions for posters. I'm trying to find out what others are doing with these issues.

Assume that a 401(k) plan is intended to satisfy the QACA safe harbor for employees who have attained age 21 with 1 year of service. Match is 100% on 1% + 50% on next 5%. There is auto enrollment beginning at 3% + 1% annual contribution increases stopping at 6% - 10%. Eligibility for deferrals begins 2 months after hire date and eligibility for the match begins one year after hire date. Assume a calendar plan year.

1) Arnold is hired April 1 of year 1. Arnold does not make an affirmative election to contribute. As of what date should Arnold be automatically enrolled: June 1 of year 1 or April 1 of year 2?

2) Beth is hired April 1 of year 1 and earns over $110,000 during that calendar year. For year 2, is Beth included entirely in the age 21+ and 1+ YOS group that does not require testing because it is a QACA safe harbor plan? Or does one include Beth's data from January 1 - March 31 of year 2 in the otherwise excludable group and (because there is now at least one HCE in that group) perform an ADP test on the otherwise excludable group?

3) Carmen is hired April 1 of year 1 and earns over $110,000 during that calendar year. Carmen terminates employment on March 15 of year 2. Does Carmen have to be included in the ADP test for year 2 for the otherwise excludable employees?

I'll suggest an answer to question 3 but will leave questions 1 and 2 open for discussion. Yes, Carmen must be in the ADP test for year 2. There is an early participation rule whereby HCEs from the nonexcludable group can be included in the age 21+ and 1+ YOS testing group, but after looking at Treas. Reg. 1.401(k)-1(b)(4)(iv)(A)(last phrase), 1.401(k)-1(b)(4)(vi)(Example 2), and 1.401(k)-2(a)(iii)(A), it appears that the early participation rule only applies if the age 21+ and 1+ YOS testing group or "plan" is subject to ADP testing instead of relying on a safe harbor. Besides, Carmen never received a QACA match, so it really doesn't seem right to put her in that testing group.

Thanks for any help you can provide.

Can anyone direct me to references for the impact the NRA 62 amendment would have on a governmental plan and what the amendment deadline would be?