I'm looking for a good write-up on what the paid prepare penalties rules means for the TPA, particularly when we encounter clients who are looking to bury things in the sand (for example, business owner strapped for cash takes a loan, but misses a payment). Once upon a time, it's been said that as TPA we are not the Pension Police. Is that basically what this new rules says? We are the pension police? In other words, not even a CYA letter will help?

well, as part of my otherwise drab presentation, this was one the songs from the ASPPA Conference.

This group wrote a song about a defined benefit plan (there have always been rumors they used drugs)

and they were foolish enough to name themselves after those types of plans.

D Beatles

(Tune is Let it Be)

My 401(k) it is in trouble

And I just turned age 50

How can I save up quickly?

A D-B.

And in my hour of darkness

The solution’s right in front of me

Yes there’s an easy answer

A D-B.

A D-B, a D-B, a D-B, a D-B

A great big tax deduction

A D-B.

And when the broken hearted people

Living in the world agree

Yes there will be an answer

A D-B.

For though the company defaulted

Still there is P-B-G-C

Yes there will be an answer

A D-B

A D-B, a D-B, a D-B, a D-B

A great big tax deduction

A D-B.

And when the night is cloudy

There is still a benefit for me

Yes there will be an answer

A D-B.

I’ll wake up to the sound of money

Monthly checks are mailed to me

Yes there’s an easy answer

Annuity

A D-B, a D-B, a D-B, a D-B

A great big tax deduction

A D-B.

Does anyone have any suggestions or ideas on how to calculate the late contribution interest for quarterly contributions when using an end of year valuation under PPA? I've seen the suggestion to "do something reasonable" but are there any suggestions on what is actually considered reasonable? Is it actually reasonable to only apply the 5% increase to the fourth installment as the preamble to the proposed 430 regulations seems to say below?

". . .The proposed regulations would provide that, if the employer fails to pay the full amount of a required installment, then the rate of interest used to adjust the amount of the contribution with respect to the underpayment of the required installment for the period of time that begins on the due date for the required installment and that ends on the date of payment is equal to the effective interest rate for the plan for that plan year determined pursuant to § 1.430(h)(2)–1(f)(1) plus 5 percentage points. This increased interest rate applies only to installments that are due after the valuation date for the plan year because section 430(j)(3) refers to interest being charged on late quarterly contributions.. . ."

Based on this statement in the preamble, does the situation below seem "reasonable"?

2008 calendar year plan

12/31/2008 valuation date

Subject to quarterly contribution requirement

No PFB or COB

Quarterly contribution amount is $27,642 due 4/15/08, 7/15/08, 10/15/08 and 1/15/09

MRC as of valuation date of $122,853

Effective Interest Rate is 6.80%

Plan Sponsor made an early contribution to the plan of $80,000 on 10/3/2008 and a final contribution of $42,631 on 2/26/2009.

First project the three quarterly installments and the early contribution to the valuation date using the effective interest rate to determine the amount of required installment not made as of the date of valuation

$27,642*1.068^(260/365)=$28,968.21

$27,642*1.068^(169/365)=$28,496.95

$27,642*1.068^(77/365)=$28,028.30

Total:$85,493.46

$80,000*1.068^(89/365)=$81,293.66

Amount of quarterly contribution requirement for installments due prior to the valuation date that have not been made is $4,199.80. Since this amount is attributable to installments due prior to the valuation date, according the the preamble to the proposed regs, it is not discounted at the increased rate of interest. In this case, the $4,199.80 of unpaid quarterly is not actually useful going forward, but would have been had contributions exceeded required installments up to this point as the additional amounts would be applied toward the next quarterly.

The final installment due on 1/15/2009 was not made until 2/26/2009. Therefore $27,642 of the $42,631 final contribution is discounted at 11.80% from 2/26/09 to 1/15/09 and 6.80% from 1/15/09 to 12/31/2008, while the remaining $14,989 is discounted for the entire period at 6.80%.

$27,642*1.118^(-42/365)*1.068^(-15/365)=$27,215.80

$14,989*1.068^(-57/365)=$14,835.80

MRC as of 12/31/2008 is $122,853, and discounted value of contributions made is $81,293.66+27,215.80+14,835.80=$123,345.26. Therefore, minimum funding has been exceeded by $492 as of the valuation date.

BTW, I learned the hard way that accidentally hitting escape after writing a long equation filled post can sometimes erase an hours worth of work and the undo button won't bring it back.

I remember reading something about this and now I cannot locate the cite to double check. A plan amended their benefit formula from 2% per year to 6%, effective for the 2008 year. I seem to recall that when something like this happens, you cannot use the extra 50% of the funding target for the maximum contribution for the year following the change, i.e., 2009 - is this accurate? Are there any other considerations due to the new rules when the formula is increased? All help is greatly appreciated.

Do we agree that the funding-based restrictions on lump sums do not apply in the instance of a plan termination, per the final regulations that came out in October?

Dog

In 2008, a 403(b) plan was terminated and all participants received a distribution. Can a former participant who now has a paid up annuity roll that to a 401(k)? In other words, is their paid up annuity still considered a 403(b) and eligible for rollover?

A participant wants a distribution of 1/3 of what his RMD would be for 2009 and not have any federal withholding. Under the new 'rules' for 2009 is this allowed? Or would it really be considered a normal in-service withdrawal because he did not take the entire RMD amount?

Is a sole proprietor's 401(k) plan benefits protected from the IRS and State tax liens? Can a distribution be forced?

It is my understanding that, pursuant to Notice 2009-82, a participant who received a "purported" 2009 RMD in 2009 may do an indirect rollover to an IRA or eligible employer plan of all or any portion of such distribution by the later of November 30, 2009 or the date 60 days following receipt of the distribution.

Assuming my understanding is correct, may such a rollover be made back into the plan from whence the distribution was made?

Do terminations for cause, such as failing drug tests or violating attendance policies with tardiness, add to layoffs when evaluating the number of terminations against the 20% limit for partial plan termination?

In section 404(b)(2)(A) it states, For purposes of this section, any plan providing for deferred benefits (other than compensation) shall be treated as a plan deferring the receipt of compensation. In the case of such a plan, the determination of when an amount is includible in gross income shall be made without regard to any provisions of this chapter excluding such benefits from gross income.

In section 404(b)(2)(B) it states, Subparagraph (A) shall not apply to any benefit provided through a welfare benefit fund (as defined in section 419(e)).

Don Levit

I have been hearing about companies that have two different health plans based on service. A new hire goes into one plan for the first year and on their anniversary they move into a more generous medical plan. Do any of you have clients or does your plan work this way? I was wondering what the pros/cons are for this type of plan structure?

Also, do you have any clients that have employees on a generous (aka media called "cadillac plan") but have dependents on a less generous plan? Is that even possible to have dependents on a plan with a higher deductible. If so, what would be the pros/cons?

Thank you

I work for the recordkeeper of an ESOP. We are not the trustee or custodian.

Some distributions were processed in 2009, and the plan sponsor instructed the custodian on the checks to be cut for the participants, along with the applicable tax withholding amounts.

The custodian issued the participant checks, and also issued two separate checks to the plan sponsor for the tax withholding amounts. These dollars obviously have to go to the IRS or U.S. Treasury.

Is there a form of some sort the plan sponsor needs to complete when submitting these tax withholding dollars? Also, to whom should these payments be made to, and where should they be mailed.

Thank you in advance!

I retired from a company (Ford Motor Company and Spun off --Visteon )(at Age 50) with a defined benefit plan. Most of my pension comes from my original employer and a smaller portion comes from its spun off company. As part of my early retirement plan the spun off company was to provide about $350 per month from the DB plan until age 55. At that point (as part of my early buyout plan) the plan was to increase my pension up to $750 per month and then at age 62 the plan was to pay out $1100 per month from the DB. All is going well as I turned 55 two years ago and the increase to $750 happened without a hitch. Earlier this year my spun off company filed for bankruptcy and my guess is that somewhere in the future they will turn over their DB plan to PBGC. Here is my question. Is there a provision in ther PBGC system to "increse" by benifit up to the $1100 in a few years or willl that promised early out benefit be lost and my "current" pension provision ($750)be the basis for my PBGC benifit

Plan provides that if you fail ADP, elective deferrals are returned and the related match is forfeited. Under PPA, we eliminate gap period income on the excess elective deferrals; how do we measure income on the forfeited match? Do we eliminate gap period income on the match as well? These are not matching contributions that fail ACP; this is the match on amounts that fail ADP.

Have a takeover plan. For some reason the plan excludes compensation in excess of $50,000. (Haven't figured out why yet.) The prior tpa used that definition when running the ADP test. I don't see that excluding wages in excess of $50,000 ever satisfies 414(s) & therefore the limitation couldn't be used in the ADP test. Am I missing something?

Thanks in advance for any guidance.

I noticed that our plan document provider's Post-EGTRRA "Good Faith" amendment (needed to be adopted by 12/31/09) seems to have the following options:

1. Just change the in-service distribution age to 62 or later but not the actual NRA for other purposes.

2. Change both the NRA definition and the in-service distribution age to 62 or later.

I'd like to make as few of changes as possible while still complying with final phased-NRA regs.

For the few plans with NRAs of say 55, that may lack supporting industry data for 55, would keeping the NRA at 55 but changing ONLY the in-service distribution age to 62 or later meet the IRS concerns (ie., they would only get a distribution at age 55 if they physically retired) ? Or are there other reasons I need to be concerned about changing the NRA to 62 for to be in compliance ? (you can assume I don't want the change for funding purposes)

Opinions ? Thoughts ? Thanks in advance.

In last years open enrollment I kept the Healthcare TaxSaver account I had already and added a Dependent Care TaxSaver account. I thought the DCA was for medical reimbursement for my domestic partner. We dont have nor have we ever had children. I realized my mistake in Aug 09 after my partner had surgery. I called and was told I had to write a letter to my employer. I did so and my request was denied. I wrote another letter of appeal. I have an open case but am trying to get together as much information as I can together for when I get the letter saying the appeal was denied. I have read 125 and 129 and cant find much in the way of how I can get the funds moved from the dependent care account to the health account. That is all I really want. I will send in for reimbursement for these funds as I have before. Is there anywhere I can go to find more info to send my employer. This is the best site I have found so far.

Thanks

I have a plan that contains a SH Match using the basic formula with no other employer contributions. They are asking if they can exclude HCEs from receiving the 2009 SH Match. They did provide the SH notice to all employees and did not indicate that HCEs would be excluded. They have had a rough year financially speaking and are looking for ways to reduce the amount of match owed.

I understand that in some cases HCEs can be excluded but wondered if they could be in this situation considering that notice was given to all employees. In addition if there was some way they could get away with excluding HCEs would additional testing be required as a result. Obviously the ACP test won't be an issue if no HCEs receive a match but what about the top heavy test? In this situation there are several HCEs who are not Key employees so would some sort of Top Heavy Minimum be required? The plan is Top Heavy for the 2009 plan year which is the year they would like to exclude HCEs from receiving a match. Any insight into this issue is greatly appreciated.

Thanks!

I haven't seen any guidance suggesting that cash balances plans are not covered by 436. Anyone disagree with that conclusion and, if so, have any supporting authority?