401(k) plan with year ending 1/31/09. A catch-up eligible participant elected to defer $22,000 out of his 1/31/09 bonus check, but payroll messed up and did not withhold the deferrals. Because of the error, he had no deferrals withheld for the 2/1/2008 – 1/31/2009 plan year. He wants to defer $22,000 for calendar year 2009. The participant is the owner. There is no match.

Rev. Proc. 2008-50, Appendix B, Section 2.02(1)(a)(ii)(B)(2) says

If the employee elected a fixed dollar amount that can be attributed to the period of exclusion, then the flat dollar amount for the period of exclusion may be used for this purpose.

Then it goes on to say

The missed deferral for the portion of the plan year during which the eligible employee was improperly excluded from making elective deferrals is reduced to the extent that (i) the sum of the missed deferral (as determined in the preceding three sentences) and any elective deferrals actually made by the employee for that year would exceed (ii) the maximum elective deferrals permitted under the plan for the employee for that plan year (including the § 402(g) limit).

He hasn’t actually had any deferrals withheld for 2009 yet, so he should be able to defer $22,000 now. The correction would be deposited as a QNEC, not deferrals.

If he does defer $22,000 this month, I’m not clear about whether that affects the correction. The correction method refers to a limit for the plan year. The correction is for the pye 1/31/2009, so deferrals now would not cause a plan year limit to be exceeded. If you add the 1/31/09 $22,000 missed deferrals to $22,000 deferred now, the total would exceed the 2009 402(g) limit. But, the time period for the 2009 402(g) limit covers portions of two different plan years.

I see two possible interpretations:

1) The reduction is only done if a plan year limit is exceeded. That doesn’t happen here, so there is no reduction. His missed deferrals for the plan year are $22,000, so $11,000 plus lost earnings are deposited as a corrective QNEC for pye 1/31/09. He can also defer $22,000 this month.

Or,

2) The phrase “(including the § 402(g) limit)” means you reduce the missed deferrals if the sum of the missed deferrals plus actual deferrals would cause any year’s 402(g) limit to be exceeded. $22,000 of deferrals this month reduces the missed 1/31/09 deferrals to zero and there is no correction to make.

I'm leaning towards 2). Any opinions?

Does anyone know of any useful studies that looked at the criteria for what makes a great 401(k) website?

I would very much appreciate if someone knowledgeable about qualified retirement plans could please comment whether an owner-employee Profit Sharing Plan (PSP) with 4 Trustees can be continued after the Employer retires without incurring IRS disqualiification. In an effort to be helpful, specific information follows re this Employer and the PSP.

The Employer is a sole proprietor and is the only PSP participant and plan beneficiary (i.e., no other employees). To provide continuity and permanence of administration, the PSP has 4 Trustees who are individually fully empowered to act on the plan and who can continue to maintain the the PSP and Trust after the Employer’s retirement and who can terminate the PSP if the Employer dies and can distribute any PSP assets to the Employer’s designated beneficiary(ies).

The Employer has had a PSP since 1963. His current plan is a self-trusteed Vanguard prototype PSP, maintained since 1992 (including GUST amendment in 2002) with annual filings of the 5500-EZ except in 2007 and 2008 since the PSP assets were less than $250,000. He has taken annual Required Minimum Distributions since age 70-1/2 and is now retired.

In the 2009 Vanguard Plan Adoption Agreement (to amend the plan for EGTRRA), the box was checked for a “Frozen Plan” after which is printed: “The Employer has discontinued all further contributions to the Plan. The Employer and the Trustee will, however, continue to maintain the Plan and Trust in accordance with the requirements of the Internal Revenue Code.” As part of continuing plan maintenance, the Employer is about to submit the Vanguard PSP amendment for the Pension Protection Act of 2006 and the Heroes Earnings and Assistance Relief Tax Act.

Recently, he was told by a compliance officer at Vanguard that (1) the IRS considers any plan without an Employer currently operating a business to be an “orphan plan” and that a plan needs to have “continuity and permanency” (which I would think may be met by having several plan Trustees) and (2) that the IRS has often ruled that a PSP whose contributions are frozen is effectively disqualified since there are no longer “substantial and continuing contributions” (and yet Vanguard offers a choice of “frozen plan” or of discretionry contributions in its PSP adoption agreement).

This Employer would like to keep a PSP for several reasons, including that his beneficiaries can choose to take their distributions as either a TIRA or RIRA, that he can include a survival contingency feature not available on an IRA, and that reasonable plan expenses can be paid by the PSP.

Thank you for your comments re if this owner-employee can continue using a PSP after retirement without disqualification risk If so, he would adopt a master and prototype plan or volume submitter plan with the curent 4 Trustees since Vanguard is discontinuing its PSP.

In addition to the COBRA Initial Rights Notice, is there a HIPAA Initial Notice that must be distributed to all employees who enroll in a health plan? Can the HIPAA Notice requirements be included in the COBRA Initial Rights Notice?

Note: I'm not referring to the HIPAA Privacy Rules notice that must be distributed every 3 years.

a 58 year old part in a ps plan received a $30,000 distribution from his 3 participant plan. He is not terminated and the plan does not allow for loans or in service distribuitons or have early retirement provisions.

Suggestions?

I have a client who wants to move their SARSEP assets from one financial institution to another. It is my understanding a SARSEP requires either a prototype from the institution or IRS form 5305A-SEP form along with a 5305 SEP form.

The receiving financial institution does not have its own prototype SARSEP plan, so the hope is that the employer can simply use the existing one if it's not a prototype from the current institution (I am assuming they would prohibit use of their prototype without the assets).

I don't know if the client can simply adopt the receiving financial institution's 5305-SEP form and keep their existing 5305A form, or whether they must execute a new 5305A-SEP form. Does it depend on whether they used a prototype from the old financial institution? And, are there any limitations on the employer's ability to require all employees to move their SEP IRAs to the new institution.

Thanks in advance for feedback!

When a DB (not cash balance) plan terminates, who gets 100 vested due to the termination:

Actives with less than 100% vesting

Terminated participants - who have not been paid out - with less than 100%

Does anyone that has been paid out or deemed paid out because of terminating with 0% vesting get "vested up" at plan termination?

Did anyone else understand that Marty Pippin indicated in the IRS teleconference on 10/28 that if a person is first eligible for an RMD in 2009 and he decides not to waive it but takes it in 2010 (prior to April 1) that he will NOT be able to roll it over, whereas if he takes it in 2009 he can roll it over?

I can't seem to find any information on this now but my recollection is that Marty felt like WRERA only amended the code to allow rollovers for distributions taken DURING 2009, so an RMD for 2009 taken in 2010 couldn't be rolled.

A business owner in the US owns a small company and maintains a 401(k) plan. He also owns a European company in which he is the only employee and sole shareholder. Other than the fact that the owner is a US citizen and lives in the US, there is no US presence for that company. He reports the income from the European company on his US 1040 tax return. Can the income from that business be included when determining his contribution to the plan? The accountant says that the income from the European business is reported as salary on his 1040.

I

Employee in the "restricted employee" category separated from service 2 years ago. Employee received but never returned paperwork regarding his pension benefit.

DB Plan terminated effective 1/1/09 and plans on making benefit distributions in early 2011.

Employee now wants a lump sum distribution of his benefit.

DB Plan is not 110% funded.

My question relates to the restriction on distributions from pension plans. Do these restrictions apply in the normal operation of the plan or during plan termination? I read Treasury Regulation § 1.401(a)(4)-5(b)(2) as restricting the benefits paid to certain “restricted employees” upon the termination of a defined benefit plan. However, I am being told by pension professionals that this rule only applies during normal operation of the plan and not during plan termination.

Any help is appreciated.

Does anyone have a free resource or other current information that they can share about current average employer matching contribution levels in 401(k) plans?

Question: Is it possible to be exempt from establishing a new shortfall amortization base while not being eligible to wipe out prior bases?

IRC Section 430©(4) defines the term Funding Shortfall as the excess (if any) of the funding target over the value of the plans assets reduced by the carryover balance and prefunding balance.

IRC Section 430©(5) gives an exemption from establishing a new base if your assets reduced by pre-funding balance (if applying the PFB to the Minimum Required Contribution) is greater than the funding target multiplied by the applicable percentage (i.e. 94% for 2009)

IRC Section 430©(6) says that if the funding shortfall is zero than all shortfall bases and charges (and waiver bases and charges) shall be reduced to zero.

If you are exempt from establishing a new 2009 base because your AVA minus PFB is greater than 94% but less than 100%, do you have to carry forward the 2008 shortfall base and charge since 430©(6) does not include any applicable percentage?

Numerical example

01/01/2009 Funding Target: 100,000

01/01/2009 AVA: 95,000

01/01/2009 FSCOB: $2,500

01/01/2009 PFB: $750

2008 Shortfall Amortization Charge: 10,000

Sponsor elects to apply the PFB toward the 2009 MRC.

430©(4) 01/01/2009 Funding Shortfall = Funding Target - (AVA-FSCOB-PFB) = 100,000 - (95,000 - 2,500 - 750) = 8,250

430©(5) 01/01/2009 Shortfall Base Exemption: 0.94*FT - (AVA - PFB) = 0.94*100,000 - (95,000 - 750) = -250 therefore the plan is exempt from establishing a 2009 shortfall amortization base.

430©(6) 01/01/2009 Early Deemed Amortization Upon Attainment of Funding Target: Even though the plan is exempt from establishing a new 2009 base, there is a funding shortfall as defined in 430©(4), so it appears that the $10,000 amortization charge is maintained for the 01/01/2009 valuation.

Sincerely,

Joseph Carolan

430_c__4__430_c__6_.pdf

Hello,

I have a question regarding FSA nondiscrimination testing. We are in the middle of trying to complete our FSA renewal and need some help on the IRS' definition of "group health insurance". Is medical, dental, vision, life, LTD and STD apart of their definition? Or just medical, dental and vision?

Our FSA administrator was not all that convincing when she said all of them so I thought I could get some help through here.

Thanks!

Has anyone heard anything further about the likelihood of the IRS issuing a document failure correction program by the end of this year?

I wasn't expecting an automatic change in valuation date to be allowed for 2009 but if I'm reading the final regs correctly it appears to offer such for 2008, 2009, and 2010. I'd appreciate any confirmation and other interpretations to the following questions:

1. So a plan using an End-of-Yr valuation date through 12/31/08 has automatic approval to change to a Beg-of-Yr val date as of 1/1/09 ?

2. Do you interpret this as being a multi-year option for years from 2008-2010 so in theory could you do a EOY-Val for 12/31/08, BOY-val for 1/1/09, then back to a EOY val for 12/31/09 ? Kind of an extreme example but just trying to flush out the full scope of options available.

See attached for the section I'm talking about (red-boxed section).

Valuation_Date_Change_Final_Regs.pdf

Can a 401(k) plan with Safe Harbor NECs plus matching contributions of 50% of elective deferrals up to 6% of comp. eliminate the matching contribution feature mid-year and remain a safe harbor plan? Will the plan be required to conduct ACP testing for the year?

ARRA states assistance-eligible individual has to have involuntary termination "through" 12/31/2009.

If someone is involuntarily termed on 12/31/09, COBRA would start 1/1/2010.

Also, if an employee is termed anytime in Dec. and coverage runs through the end of the month, COBRA would start 1/1/2010.

COBRA admins and others saying that in the above 2 scenarios, no subsidy because coverage was not lost by 12/31/09. I don't think that was the intention of the law.

Any opinions?

An employer has an older 403(b) plan for its veteran employees (and retirees), and a newer 401(k) plan for those hired in recent years. It wants to move all the veteran employees' and retirees' money from the 403(b) plan to the 401(k) plan. The insurer holding the 403(b) assets says the employer can do that—IF the state insurance department approves its application for a new policy form or something like that (presumably to change the policy to allow such asset movements—whether as rollovers, trustee-to-trustee transfers, or whatever).

A 2007 Treasury regulation change (72 Federal Register p. 41128 et seq., especially 41140 et seq., amending Treasury Regulations section 1.403(b)) did expand the ability of employers to terminate 403(b) plans and transfer their assets to some other kinds of plans (see particularly subsec. 1.403(b)-10). But those regulations do not appear to allow a 403(b) plan when terminated to have its assets transferred to a 401(k) plan specifically.

Does anyone know of a way to make such a movement of all of an employer's 403(b) plan assets to its existing 401(k) plan?

EditInIllinois

Doctor Group, Cash Balance plan plus a 'Maybe' Safe Harbor 401(k) Profit SHaring plan, all on Corbel documents. Obviously Top Heavy.

The DC doc says it makes the TH contribution unless it is a Safe Harbor year, and the DB document does not make reference to the DC plan - all the usual language.

Now let us pretend that the DC plan elects safe harbor for years 1,2,3,4 but not 5, and elects again in year 6. THe DB plan provides TH in years 1,2,3,4, does not in 5, does in year 6. THe question is what is the DB TH formula in year 6?

Is it 2% times 5 years or 2% times 6 years? THe document reads "2% times Plan Years of Service" and years in which TH is made in DC plan is not referenced.

First, I need to fix the documents for cross TH minimums (ie not TH in DB if made in DC) or just always make TH in the DB plan. OR exclude years of TH made in the DC plan from "Plan years of Service" in the DB plan.

Any other thoughts?