I recently requested an corrective distribution for a 2009 failed ADP Test. The recordkeeper indicated that no tax will be withheld, even if the participant requested it, on any corrective distributions made prior to 3/15/10. Is this correct since the distribution is taxable in the year distributed? It makes no sense.

Facts: Distribution to alternate payee ("AP") pursuant to a QDRO occurred in 2009. The distribution was a direct rollover to the AP's 401(k) plan but in a separate account from AP's own 401(k) funds. 1099-R was issued with Code G. AP subsequently cashed out the entire amount that was rolled into the separate account with her employer's 401(k) plan. Approx. one month passed from the date the rollover contribution came into the separate account and when the total distribution was taken.

Comments: I know there is an exception to the 10% early withdrawal penalty under IRC 72(t)(2)© for distributions from a qualified plan to an alternate payee pursuant to a QDRO. In substance, I think this situation qualifies for the exception to the 10% penalty for early withdrawals, but I have concerns about the form of the transactions. The fact that the distribution from the participant's plan was rolled into a separate account within AP's employer's 401(k) plan concerns me. In effect, the plan adminstrator that acted on the QDRO, i.e. participant's plan administrator, did not pay the distribution directly to AP, but rather to the adminstrator of AP's employer's 401(k) plan as part of the direct rollover. The ultimate distribution to AP came from the separate account within her employer's 401(k) plan.

Question: Does anyone know if the 10% early withdrawal penalty can be avoided in this set of circumstances? Thank you.

A medium size employer decides to stop their union's DB plan and start at DC plan because of the costs. The union and employer agree on a 4% nonelective ER contribution (neither safe harbor nor discretionary) for the new DC plan. The adoption agreement states that this 4% nonelective employer contribution is effective 10/31/2009 and that salary deferrals are effective 1/1/2010.

The problem is, the Employer has been dragging their feet in actually starting the plan. Under increasing pressure from the Union to "get a move on" the employer signs the Adoption Agreement February 5, 2010, with the original effective dates above still on the form. It is now 2/16 and there has still been no communication to the employees regarding when they can start deferring. There have been no notices that there is even a plan, no salary deferral agreements, no nothing. The Employer may have even signed the adoption agreement simply because the union was threatening to file some sort of grievance.

Since no communication has taken place (save a few copies of the signed adoption agreement which were emailed to a few Union Employees who asked for it) what are the Employees' options? Do they have "missed deferrals?" Is the Employer not on the hook yet? What are the options for either side

I am a relatively new administrator and wanted to verify the following:

1. If my plan passes the ABT, the threshold for passing 410b w/in each rate group is the midpoint, correct?

2. Assuming each rate group passes and I satisfy Gateway requirements, do I pass 401(a)(4) or is there anything else?

3. When testing each rate group, can I exclude Eligible Terminated Employees w/ less than 500 hours?

Thanks in advance for your comments & help

We have a pure asset deal, where Company A will be purchasing the assets of Company B. Companies A and B are unrelated. Company B sponsors a VEBA. Can assets of the VEBA sponsored by Company B be transfered to a new VEBA sponsored by Company A to provide benefits for the employees who are transferred to Company A?

I have seen many PLRs on the topic where two companies merge, but not specifically in an asset acquisition. And has anyone heard of companies doing this without requesting a private letter ruling?

Thanks.

I have a client who failed to remit employee contributions timely and instead of paying the hefty excise tax reported on Form 5330, I was hoping to file them under the VFCP provided by the DOL. However, one of the requirements is that a Notice to Interested Parties be provided to plan participants. The DOL does not give a model notice and nobody else I have contacted has ever seen one. Is this similar to the IRS Notice To Interested Parties when filing for a determination letter? Anyone have any ideas?

Thanks!

Is anyone familiar with the mandatory official public holidays in Puerto Rico?

Is there a requirement to pay overtime for exempt full-time employees?

What about sick and vacation accrual?

We are a private company in the process of hiring employees who reside and will work in Puerto Rico and we just need to be sure that we are in compliance? any help will be appreciated????

Client has a cross-tested plan that is failing.

It has been recommended to them that they put one HCE in a group by himself and test with a group of NHCEs based on contributions; then test the rest of the HCEs with the other group of NHCEs based on benefits. The two groups of NHCEs are already defined in the plan document. Can you group participants in a plan and test them in different ways?

Currently have a one person D/B Plan with insurance. In reviewing the RMD, the issue was raised that once the participant commences their minimum required distributions, a participant can no longer maintain life insurance coverage, deeming it post retirement coverage. Has anyone run into a similar situation or discussion?

Thanks for your advice or help in advance.

Mike

Hello

I worked for a company for a few years (~2000 through 2002) where I had a 401k plan with matching employer contributions. I contributed a total of about 850 dollars and my employer matched that amount. A few weeks ago I decided to start rolling old IRAs into a single fidelity managed IRA. I told the director of the IRA what I wanted to do (a direct transfer to fidelity) and she directed me to paperwork to accomplish this. Instead of seeing the money deposited into my fidelity account I received a check yesterday for half the amount that was in my IRA. I have been scouring the internet for information about this but can find no instance where the employer was allowed to retain his contributions.

Is there some sort of rule that companies have that if you don't work for them for a certain number of years they'll pull back their contributions?

And if so why didn't they do that when I quit?

How do I know that they pulled what they contributed. They literally divided the account in half and withheld that amount. What if that was money that had grown as a result of their contributions.. Are they allowed to keep that too? The check stub just says "Amount Forfeited: 857" which is half of the account balance. (Maybe it's not due to employer contributions but I can't think of anything else)

I plan on calling this woman tomorrow but want to be prepared before I talk to her.

Thanks for any help!

The reg says

(2) Safe harbor. For purposes of

paragraph (a)(1) of this section, in the

case of a plan with fewer than 100

participants at the beginning of the plan

year, any amount deposited with such

plan not later than the 7th business day

following the day on which such

amount is received by the employer (in

the case of amounts that a participant or

beneficiary pays to an employer), or the

7th business day following the day on

Pay-Day is 2/5/2010, which is a Friday.

Don't count Saturday or Sunday (6th and 7th).

Day 1 = 8th (Mon) (first business day following the date on which it was withheld)

Day 2 = 9th (Tues)

Day 3 = 10th (Wed)

Day 4 = 11th (Thurs)

Day 5 = 12th (Fri)

Don't count Saturday or Sunday (13th and 14th).

Day 6 = 15th (Mon)

Day 7 = 16th (Tues)

Is this correct? The reg say

Participating employer has received a notice that the plan is in critical status. It is, therefore, obligated to pay a 5% surcharge on the contribution otherwise due to the Plan. I understand that the Plan must adopt a rehab plan within 240 days following the deadline for plan certification, but is there any means by which a participating employer can force the Plan to develop a rehab plan earlier than such time or force negotiation over such rehab plan prior to the imposition of a 5% surcharge. I am curious as to whether there is any way to avoid the 5% surcharge. It seems to me that the employer should review its CBA to see if they have anything in it that would compel mid-term bargaining over the surcharge. Any other ideas or comments?

As I understand it Proposed reg 1.125-1(g) limits participation in an FSA to employees and self employed persons are excluded from participation. Under IRC 1372 a more than 2% owner of a S corp is considered self employed for taxation of fringe benefits. In otherwords any fringe benefits paid by the S-Corp on behalf of or to the owner are included as taxable income to the owner subject to available deductions, e.g., health insurance which is included as wages on the owner's w-2 and deducted on line 29 of the 1040.

The above would imply that FSA amounts paid to the owner would be regarded as a taxable fringe benefit for which no corresponding tax deduction is permitted but I cannot find a confirmation of this answer.

Is there an IRS cite?

I'm not coming up with the answer on the answer key, but then again....I'm one of those strange DB guys. Anyone care to take a look?

Based on the following information, which of the following statements regarding excess contributions is/are TRUE?

*The plan is a calendar year 401(k) plan.

*The plan does not permit employer contributions.

*The plan fails the ADP test and is going to correct by refunding excess contributions to the HCEs.

*The HCE ADP limit is 6.00%.

*All HCEs are listed in the table below.

*None of the HCEs are catch-up eligible.

HCE1, comp = $180,000, Deferral = $15,000, ADR = 8.34%

HCE2, comp = $100,000, Deferral = $10,000, ADR = 10%

HCE3, comp = $80,000, Deferral = $5,600, ADR = 7%

I. The total amount of excess contributions to be refunded is $8,200.

II. HCE1's excess contribution is $4,200.

III. HCE2's excess contribution is $2,000.

A. I only

B. II only

C. I and II only

D. II and III only

E. I, II, and III

The Answer Key says C is the correct answer, but I'm coming up with $9,000 for the amount to be refunded. Aren't I supposed to bring each HCE ADR down to 6% to determine the excess contribution? That gives me $4,200 for HCE1, $4,000 for HCE2, and $800 for HCE3.

Two employees had (k) contributions during 2009 in a Safe Harbor Match plan prior their date of participation. The client would like to have a corrective amendment done so that these employees can keep their (k) contributions in the plan.

Is there flexibility to have the amendment only allow for the (k) contribution and not the SH Match? I understand the possible Top Heavy implications.

A plan sponsor partiicpant is taking an in service distribution on a quarterly basis.

He asked how the withholding should be handled.

As far as I see it, the income of course is taxed as ordinary income and with regard to withholding it should be handled just like any W-2 income (except no FICA taxes). I think this is something that is in the domain of their CPA (or payroll provider for that matter) not their pension professional.

Does my opinion seem reasonable? Better ideas?

Thanks.

Employer decides to deposit employer contributions every single pay-period. Document says last day rule / 1,000 hour requirement.

Wouldn't it be a cut-back to then forfeit the contribution for those employees who ultimately do not meet the allocation requirements? To me, it seems that the employer clearly decided NOT to impose allocation conditions on the profit sharing contributions, or that should at least be what a reasonable participant's interpretation would be.

Plan match formula is 50% of all deferrals (including catch-up) and has only one HCE. Assume no earnings to make it easier.

The inital ADP refund is calcualted as $5,000 but $1,000 is recharaterized as catch-up eligible and retained by the plan so the ADP refund of excess contributions is $4,000.

The Plan also fails the ACP test and needs correction of an additional $5,000 for the match to pass. - the plan's ACP correction is method in the document is to refund the excess aggregate contribution to HCEs however any match "related to excess contributions" is forfieted.

The related match on the intial refund amount is $2,500 (half the $5,000) but the related match on the actual amount distributed would only be $2,000 (half the $4,000 ADP correction).

So for the excess aggregate contribution would the plan refund $2,500 and forfeit $2,500 or refund $3,000 and forfeit $2,000?

Any thoughts?

Everyone,

We have a new client who has 2 plans. A DB and a DC. The owner is the only participant in each plan.

Assets in the DB plan at year end 2009 total 135,000. Assets in the DC plan at year end 2009 are 180,000.

The 2008 5500 EZ instructions read as follows:

You do not have to file Form 5500-EZ (or Form 5500) for a plan year (other than the final plan year) that began on or after January 1, 2007, if you meet the five conditions above and you have one or more one-participant plans that separately or together had total assets of $250,000 or less at the end of that plan year.

The Client meets the 5 conditions alluded to in the instructions. Pretend the instructions hold for 2009 as well.

Since the instructions say "OR" as in seperatley OR together. I am interpreting it as if individually the clients plans have less than 250,000 each no 5500 EZ. OR if together total assets are less than 250,000, no EZ.

Basically this client does not pass the "together" test but passes the "seperately" test. Should the client file the form 5500 EZ for the 2009 plan year?

Also, please note that we would just file the form to be safe but an advisor already told the client they would not need to file forms 5500 EZ and we prefer not to eat crow.

Thanks so much.

Hi,

Am relatively new to church plans. From what I've read so far, I believe that non-electing church plans do not need to have a plan document unless they are including 403(b)(9) provisions in their operations? Is this correct?

Secondly, since non-electing church plans are exempt from ERISA, plan sponsors can perform discretionary functions such as approving loans, determining eligibility for hardships, etc. without subjecting the plans to ERISA. Is that correct?

Lastly, if plan documents are not required, what do you recommend we receive so that we'll know the operative provisions of the "program', e.g., if ROTH and/ or employer contributions are permiitted?

Thanks for your input.