Does anyone know how to treat ER paid Health Insurance premiums for a self funded plan who allocates a liability on their payroll records for the ER portion of the Health Isurance premiums, but does not actually contribute this allocated amount to the self funded plan? They are just tracking the ER cost as a liability on the payroll reports. The question at hand is whether or not these allocated ER premiums should get taken into account when running the Key Employee Concentration Test when they are NOT actually paid; or should the EE portion of the premiums be the only item included in the Key Employee Concentration Test?

My understanding is the ER is just tracking these costs on their payroll. The only amounts being funded into the Self Funded Health Insurance plan are the various EE premiums being paid.

Thanks -

Nathan

Company A maintains 2 separate plans - Profit Sharing and 401(k) Safe Harbor (using nonelective). Both calendar year plan years. They want to merge them effective 11-1-09. Setting aside whether that makes sense with only 2 months left in the plan year, is it permitted?

The existing 401(k) Safe Harbor does not provide for any Employer contributions other than the SHNEC and a discretinary Match, so if they wanted to add a PS feature to the 401(k) that would be a change to the provisions mid year and that may prevent a merger mid-year.

What if the 401(k) doesn't permit any other contributions or changes to the Plan mid-year and it's basically the PS assets merging into the 401(k), would that make a merger acceptable?

Employer made contributions to a SIMPLE and a qualified plan last year. This was the only year in which contributions were made to the SIMPLE. What exactly happens to the SIMPLE plan now that there was a violation of the exclusive plan rule? Can distribution of those amounts be made now or must they stay in the SIMPLE until a distribution event? Must the employees recognize the amounts in income even if the contributions have to stay in the plan?

I have a plan that provides for a 3% SH Profit Sharing contribution to all employees. In addition, they provide for an additional ps contribution that has 1000 hours/last day requirement. Based on their formula, General Testing is required. My question is when performing the rate group test, do I include both contributions or just he additional contribution? Also, since the additional contribution requires a last day/hours requirement, must it pass coverage separately or can it be aggregated with the SH Contribution?

Any help would be greatly appreciated!

My understanding was that Notice 2008-73 provided one year relief to small plans to switch from a 2007 EOY val to a 2008 BOY val. If this is correct, was this change of val date automatic, or did it have to be applied for with the IRS?

I have a multiple employer plan. I test the companies separately, but do I have to submit separate 5500's for them? It seems in the past they were filing two returns, but in 2006 it was reported that company B "transferred" its plan assets to company A. In 2007, only one for was done with the combined assets.

Todays Federal Register

This is a clarification???

Hi,

Client called with this question. They have an employee who wants to know if their retired spouse's medicare premiums can be reimbursed through the employer's Sec 125 medical reimbursement plan.

I am not sure. I know there's been a lot of discussion about medicare, but since these premiums are for the employee's spouse, I think they may be allowable.

Any help would be appreciated.

Thank you!

In order to avoid realizing some of the losses in their funds, many companies are asking if they were to leave their current provider and trustee and go with a new provider and trustee, can the mutual funds move in-kind. This is not a brokerage type arrangement.

Is it possible to transfer plan assets in-kind between trustees?

Anyone care to weigh in on the following?

An employee is still working (i.e. no separation from service) at age 62 and wants to take a lump sum ESOP distribution at age 62.

I am confused as to how to read IRC 402(e)(4)(D)(i)(II). It says that a lump sum (for purposes of being able to exclude NUA) means a distribution 'within one taxable year' of the balance to the credit of the employee which becomes payable to the recipient after attaining age 59 1/2.

I know that 'within one taxable year' has been interpreted in various IRS rulings to mean payments included, literally within the same taxable year (i.e. two different payments, if made within the same taxable year, could still qualify as a lump sum for this purpose).

BUT, I am wondering whether 'within one taxable year' in the age 59 1/2 context ALSO means that an amount must be paid within 12-months of attaining age 59 1/2?

If so, then I guess the age 62 employee in this case can NOT exclude the Net Unrealized Appreciation from income.

If NOT, then my thought is that we are now in the time period "after" attainment of age 59 1/2, so bring on the NUA treatment.

Anyone else ever looked at this before?

Thanks for any thoughts.

Does anyone have data as it relates to auto enrolling employees with NO match? I am interested in how many plans are actually doing this and the success rates of keeping folks in the plan with the absence of a match.

Thanks!

An alzheimer's service group established a TSA plan in 1993. In 1995 they started to offer employees $150 per month for either group health insurance or if they did not need the ins coverage, the company would put it in an annuity in the plan. The $150 is now $250. In addition the employees are allowed to defer funds. There has never been a 5500 prepared since they started employer funding nor non-discrimination testing. Certainly the plan has serious issues. The director is wanting to reverse 2009 employer funding back to the company and make the plan Non-ERISA for 2009. I suspect that is possible, but what about plan years 1995-2008?

Our own plan is operating under a Corbel prototype document with immediate eligibility for deferrals (quarterly entry) and a 1-yr wait for safe harbor matching contributions. We are changing providers and the new provider is telling us their prototype document cannot handle such dual entry provisions. The big problem however is we hired 2 new people in the last 3 months who will be eligible to begin deferring under the current plan provisions on October 1. However, our new provider is telling us they will be again ineligible to participate once the new document goes into effect on or about November 2. I am trying to determine if this is really the case. It does not sound right to me that we would have to take away their ability to defer once they have met the eligibility and entry requirements. Would appreciate your thoughts.

If I remember correctly, a rollover from a Roth IRA to a 401(k) Plan (with "designated Roth" provisions) was initially NOT allowed.

Has this changed under the current regs? (I have a client with an owner-only 401(k) Plan with designated Roth provisions who wants to roll his Roth IRA funds into his 401(k) Plan to consolidate investments.)

Thanks!

IRC section 414(p)(4)(A)(iii) provides as follows:

"A domestic relations order shall not be treated as failing to meet the requirements of

subparagraph (A) of paragraph (3) solely because such order requires that payment of benefits

be made to an alternate payee ... (iii) in any form in which such benefits may be paid under the plan to the participant

(other than in the form of a joint and survivor annuity with respect to the alternate payee

and his or her subsequent spouse)."

I represent a potential AP who is a child due back child support payments. The P's benefits are currently in a DB plan. The terms of the plan provide for an optional lump sum payment in the event that the amount of benefits payable is less than $25,000. The Plan Administrator has informed me that a QDRO transferring an amount to an AP that is less than $25,000 will not be eligible for the lump sum payment option because the total benefits payable to the P exceed $25,000.

My understanding of the IRC section above is that the AP should have the right to elect any payment option that would be available to the P with respect to "such benefits" - the benefits transferred to the AP. The AP essentially is treated as a P and is entitled to make elections as any P would be with respect to the benefits due the AP.

Any information or clarification about this issue would be greatly appreciated.

Are there any disadvantages to electing to add to the prefunding balance?

Seeking input on others experiences with companies applying FICA and Medicare taxes to non-qualified plan distributions upon retirement. My non-qualified plan was fully funded 13 years ago when my prior employer was acquired by a major conglomerate. Now the new owner indicates that FICA and Medicare taxes are deductible from any future distributions of the plan. The statutory tax rates (7.65% and 1.45%) are being applied to the present value of the future payment stream to calculate the tax liability. This catch up (13 years after the fact) for taxes normally due when the income was earned seems incorrect. Note that for some 30+ years, I annually maxed out on the FICA tax liability. Also, the full amount was paid for the Medicare portion on gross income in each year. Thanks in advance for input on your experiences with this type of issue.

This could apply to any group whose members embrace self rather than group interests.

A. Treasury Regulation 1.401-1(a)(2) A qualified pension, profit-sharing, or stock bonus plan is a definite written program and arrangement which is communicated to the employees and which is established and maintained by an employer...(ii) In the case of a profit-sharing plan, to enable employees or their beneficiaries to participate in the profits of the employer's trade or business, or in the profits of an affiliated employer who is entitled to deduct his contributions to the plan under section 404(a)(3)(B), pursuant to a definite formula for allocating the contributions and for distributing the funds accumulated under the plan (see paragraph (b)(1)(ii) of this section)

#1 Issue with respect to the safe harbor match -

#1.1 Information provided concerning validity of payroll based safe harbor match:

paragraph 3.02 of the Basic Plan Document, “the matching contribution amount may be determined by the employer at any time during the Plan Year so long as the amount of the matching contributions is determined in a uniform and nondiscriminatory manner”. In summary, our 401k plan is fulfilling its safe harbor match obligation (4%) by submitting matching contributions at the same time it submits elective deferrals.

#1.2 Issue:

No participant can calculate his or her match with certainty. They will only know it after it has been it has been determined and deposited. The match provisions of this paragraph also contradict the safe harbor notice which provides for 100% of elective deferrals up to 4% of compensation annually.

#2 Issue with respect to deferral suspension on account of participant loans -

#2.1 Information provided concerning suspension of deferrals on account of participant loans:

No documentation has yet been provided that states the plan has ever restricted elective deferrals on account of a participant loan. A statement was first made that federal regulations prohibit deferrals while making loans payments, which was subsequently reduced to a statement that there were agreements in the prior plans that created this restriction.

#2.2 Issue:

If such a plan provision existed it was not disclosed in the SPD, loan policy, or loan application and it still has not been shown to be a plan provision at any time via a reference to a plan document or an actual copy of the plan document. A participant would have determined their deferrals to continue based on the documentation provided to the participant. I would venture to say most participants would have taken at face value an assertion that there are federal regulations which prohibit concurrent deferrals and loan repayments. I doubt many participants would know they were denied benefits to which they were otherwise entitled if in fact the plan provision to restrict deferrals never existed or were denied benefits if the provision existed while the plan was a safe harbor plan.

B. Treasury Regulation 1.401(k)-3©(5)(ii) Periodic matching contributions. The safe harbor matching contribution requirement of this paragraph © will not fail to be satisfied merely because the plan provides that safe harbor matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that safe harbor matching contributions with respect to any elective contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter.

#3 Issue with respect to safe harbor match -

#3.1 Information provided concerning validity of payroll based safe harbor match:

paragraph 3.02 of the Basic Plan Document, “the matching contribution amount may be determined by the employer at any time during the Plan Year so long as the amount of the matching contributions is determined in a uniform and nondiscriminatory manner”. In summary, our 401k plan is fulfilling its safe harbor match obligation (4%) by submitting matching contributions at the same time it submits elective deferrals.

#3.2 Issue:

The paragraph provided states the contribution amount may be determined by the employer at any time. It does not say the contribution amount will be determined on a payroll basis.

C. Treasury Regulation 1.401(k)-3©(6) Permissible restrictions on elective contributions by NHCEs —(i) General rule. The safe harbor matching contribution requirement of this paragraph © is not satisfied if elective contributions by NHCEs are restricted, unless the restrictions are permitted by this paragraph ©(6).

(ii) Restrictions on election periods. A plan may limit the frequency and duration of periods in which eligible employees may make or change cash or deferred elections under a plan. However, an employee must have a reasonable opportunity (including a reasonable period after receipt of the notice described in paragraph (d) of this section) to make or change a cash or deferred election for the plan year. For purposes of this paragraph ©(6)(ii), a 30-day period is deemed to be a reasonable period to make or change a cash or deferred election.

(iii) Restrictions on amount of elective contributions. A plan is permitted to limit the amount of elective contributions that may be made by an eligible employee under a plan, provided that each NHCE who is an eligible employee is permitted (unless the employee is restricted under paragraph ©(6)(v) of this section) to make elective contributions in an amount that is at least sufficient to receive the maximum amount of matching contributions available under the plan for the plan year, and the employee is permitted to elect any lesser amount of elective contributions. However, a plan may require eligible employees to make cash or deferred elections in whole percentages of compensation or whole dollar amounts.

(iv) Restrictions on types of compensation that may be deferred. A plan may limit the types of compensation that may be deferred by an eligible employee under a plan, provided that each eligible NHCE is permitted to make elective contributions under a definition of compensation that would be a reasonable definition of compensation within the meaning of §1.414(s)–1(d)(2). Thus, the definition of compensation from which elective contributions may be made is not required to satisfy the nondiscrimination requirement of §1.414(s)–1(d)(3).

(v) Restrictions due to limitations under the Internal Revenue Code. A plan may limit the amount of elective contributions made by an eligible employee under a plan—

(A) Because of the limitations of section 402(g) or 415; or

(B) Because, on account of a hardship distribution, an employee's ability to make elective contributions has been suspended for 6 months in accordance with §1.401(k)–1(d)(3)(iv)(E).

#4 Issue with respect to deferral suspension on account of participant loans -

#4.1 Information provided concerning suspension of deferrals on account of participant loans:

No documentation has yet been provided that states the plan has ever restricted elective deferrals on account of a participant loan. A statement was first made that federal regulations prohibit deferrals while making loans payments, which was subsequently reduced to a statement that there were agreements in the prior plans that created this restriction.

#4.2 Issue:

If such a restriction existed in the plan at any time it was a safe harbor plan it was not a permissible restriction at least with respect to non-highly compensated employees. I do not know if the existence of a restriction is sufficient error that needs to be corrected or if a correction is only necessary if at least one non-highly compensated employee was affected.

D. EPCRS correction method for the exclusion of eligible employees can be found in Rev. Proc. 2006-27. They provide for a QNEC contribution equal to 50% of the missed deferrals and 100% of the missed match, adjusted for earnings.

#5 Issue with correction method

#5.1 Information provided concerning correction:

It was verbally communicated that a contribution equal to 50% of the missed deferral would be added to the next contribution file as well as a contribution equal to 100% of the missed match. It was communicated that the deferral portion would be added to the deferral made for the next period and the match portion would be added to the match made for the next period.

#5.2 Issue:

The corrective contributions are not being processed as QNECs and no adjustments for earnings are included. This may not be a problem if the other recent participant affected and I are the only participants affected, but the EPCRS correction may need to be used if there are other participants affected as identified in issue #4.

Can a church set up a Simple IRA plan for its lay employees?

I seem to remember that the Simple IRA is not an option for churches, but I can't find that documented any place.

Thanks.