We received notice from the DOL that they are examining our 401k plans. They I've been advised they will come onsite in a couple of months for a interview that will last a couple of hours. I've never been through a DOL examination for a 401k plan, so I just wondered if anyone had any tips or insight on what we should expect, or suggestions on how best to prepare. I've been through DOL audits of other plans (welfare and pension) but they never included an onsite visit.

This posting hopes to get a quick refresher for myself and others on the "primary issues" of returning Excess Deferrals and Excess Contributions. I am posting below my understanding on rules that would apply to 2009 Contributions that would be returned in 2010. Thanks for any and all comments.

Excess Contributions (and Excess Aggregate Contributions) are monies that need to be returned given failure of ADP / ACP Testing; assuming that recharacterization, catch-up, and QNEC/QMAC is not applicable. In all cases, the participant is taxed on net value of contribution value plus/minus allocable investment return in the year of receipt. A Form 1099R is used to report this income (2010). If paid after 2 1/2 months from the plan year end, a 10% excise penalty tax applies. This tax is based on the contribution value, and is paid via Form 5330 within 15 months of plan year end.

Excess Deferrals are computed on the calendar year, and result from exceeding the IRC 402(g) Limit of that calendar year. If paid before the April 15th that follows the close of that calendar year, the deferral amount is taxed in the year of deferral and the allocable income is paid in the year of receipt. A 1099R is only used for the allocable income, since the Excess Deferral would be picked up as taxable on the person's 1040. If paid after April 15th, the contribution value is taxed in both the year of deferral and the year of receipt. This is done by including the contribution value on the 1099 that was used for the allocable income.

GAP Income applies to neither.

Again, thanks for your comments.

If a 401k plan elects in the PPA amendment to permit in service qualified reservist distributions, then is this a protected benefit? If the plan changes vendors and the new vendor is mapping over the PPA elections, can this provision be dropped or is it protected once added to the plan?

There appears to be a difference between correcting for a missed match when it is due to 1. excluding an employee whereby there is then a missed opportunity to defer and receive the match versus 2. a payroll glitch where suddenly matching contributions are not submitted on behalf of an employee who is deferring at a known rate, such that match is missed for say 6 months. It appears that the way to correct for situation 1 above is covered in EPCRS Rev Proc 2008-50, however a missed match when there has been opportunity to defer is not really discussed in EPCRS. If I am reading the Rev Proc correctly, Appendix B states a method for correcting matching contribution failures when the employee is precluded from deferring. In this correction, it appears you base the corrective contribution on the ADP % for the employee's group and then calculate the match based on the formula in the plan by using the ADP %. However, you would only correct after the ADP and ACP tests had been performed and passed, and the amount of match for an HCE could only be up to the ACP cap for that group. This way you do not have to re-run the ACP test. Is this correct?

On the other hand for a missed match under situation 2 above, when it comes time to submit the missed match, you know what is due the participant, and once submitted I assume you would re-run the ACP test, because you are submitting a missed match late and want to make put all the participants in the same position they would have been in had the match been made timely and included in the original ACP test. So it seems that situation 1 is easier to correct because you do not have to re-run the ACP test, could you apply this same correction for a missed match under situation 2?

Employee had money taken out for dependent daycare from Jan - Mar 09. Child did not start attending daycare until May 09. Employer is denying reimbursement because service was not provided during time employed. Says money is forfeited and goes back to employer. Is this correct? Seems like a way to steal money from employees - terminate before they use their balance.

A couple of nervous employees are pressuring their financially strapped employer to terminate their deferred compensation plan and pay them out immediately. They are essentially saying "we'll take the current tax hit and pay the additional 20% tax, because 80% of a loaf is better than none if you go under." It's completely contrary to the 409A-compliant plan document, so the document would either have to be amended or ignored for this to happen. Either way, the violation of 409A would be intentional/knowing on the part of the employer, and not only consented to but encouraged by the participating employees.

I recognize that a plan termination isn't permissible under 409A when it is "proximate to a downturn in the financial health of the service recipient," and distribution following termination is supposed to take place at least 12 and no more than 24 months following the termination. Nevertheless, what other than the 20% additional tax keeps the employer from terminating a deferred compensation plan and paying the benefits in spite of 409A? (Putting aside, for the moment, any penalties and interest for underpaying tax in a prior year, if that would even be applicable here.)

I recognize that such a maneuver undermines the intent and spirit of 409A, and I'm loathe to recommend to an employer that it intentionally and/or knowingly run afoul of a tax code requirement, but really, in such a circumstance, doesn't the 20% tax operate as nothing more than a haircut provision?

There are a few things which I can think of that should make the employer and employees think twice: (1) if the employer does go under, other creditors of the employer could argue that they were defrauded by the collusion of the employer and the employees; (2) properly reporting the violation potentially opens them all up to a lot of scrutiny (audits and the like); and (3) IRS could argue (although I think the facts ultimately would show otherwise) that the whole plan was a sham from the get-go and that the plan's benefits should have been included in income in the year of the deferral, so penalties and interest apply.

What else am I missing here?

I received this Summary Plan Information which said it is a new report being supplied pursuant to PPA. It talks about the contribution schedule and benefit formula. On the second page it has contribution information for the past several years and then a "withdrawal liability pool" and the withdrawal liability amount of the contributing employer if they were to withdraw from the plan. Is this the Withdrawal Liability Statement. If not, does anyone have a sample or could tell me what this Statement should contain?

Thank you.

A calendar year DB (beginning of year) plan terminates 1/31/2009.

There will be no Target Normal Cost because no participant would have worked 1,000 hrs one month into the year.

There will be a shortfall amortization payment of $40,000.

My understanding is that the contribution would be $40,000 x 1/12 = $3,333 (adjusted for interest at effective rate).

In other words the full TNC (provided participants will accrue a benefit) plus the pro-rated shortfall amortization payment.

Agree?

Thanks.

Plan says employee can elect to $100 of income (already earned) either this year or next.

Is this a deferred comp plan?

Ok so I have this client with some interesting technical questions that I'm not sure of the answers on. The 401(k) plan allows for in-service distributions at age 59 1/2 so a participant (of age) can elect an in-service rollover to an IRA.

The questions I have are can they roll directly to ROTH-IRA now? I'm pretty sure that is now a simple yes under current law.

If they do roll directly to ROTH-IRA, can they elect to defer the taxes to 2011 & 2012 as they can under conversions? or is it all taxable in 2010?

If all taxable in 2010 under 1st option, can they roll directly to Traditional-IRA (in 2010) then convert to ROTH-IRA (also in 2010) and take advantage of the 2 year tax spread?

On a somewhat related note, since the conversion limits no longer apply after 2009, does that mean there is a loophole in the contribution limits for ROTH-IRA contributons? Effectively you can make a non-deductible IRA contribution for 2009 (on say 4/15/2010) and the immediately (say on 4/15/2010) convert your "2009 non-deductible traditional IRA contribution" to a ROTH-IRA. And you could keep doing this annually until the law changes. Am I missing something?

What do you do when a new client comes along asking for a 403(b) document now, January 4, 2010? We kinda knew this would happen, and I'm wondering if we should go through a correction program, or have them sign it late or what.

We've decided to offer to help them with the VCP program. Part of that includes creating the new document, having it signed currently, and then submitting under VCP to get the correction approved. I'm hoping there will be a lot of understanding on the part of the DOL. This is a nonERISA plan.

I have been looking at the final regs regarding the fact that QNECs used in the ADP test have to be limited to the greater of 5% of pay or 2 times the representative rate. (Reg 1.401(k)-2(a)(6)(iv))

The regulations read that “notwithstanding” the paragraph that provides for the 5%/2X representative rate limit, contributions made for Davis Bacon can be taken into account if they don’t exceed 10% of pay. I can’t tell if the 10% is meant to replace the 5% in the 5%/2X rule OR if the 10% is the absolute maximum and the 2X rule does not apply.

Has anyone done any research on this?

I did see an article from Sungard where they indicate that the 10% just replaces the 5%, so effectively the overall limit for DB is higher. I think this is probably the intent of the Regs but I just can't come to that conclusion when I look closely at them. Maybe it is just a matter of semantics...

I'm posting this on the chance that I'm not the only one who has looked over an unidentified VS document for a prospective client and wondered which document it is.

Does the list include something that indicates which document provider is being used? I think it does, in digits 8 and 9 of the FFN. The FFN is also listed on the Opinion letter, if you actually get a copy.

Here is the list.

http://www.irs.gov/pub/irs-tege/egtrra_listdc.pdf

If I'm on the right track, Accudraft will be the digits "BE",

ASC is "BH"

Datair is "85"

Fort William is "FT"

McKay Hochman is "19" or "BG"

Sunguard Corbel is "07"

If your firm uses one of these document providers and you have a couple of minutes to look your firm up on the list to confirm this, I would appreciate it. If your document provider is not listed above, look them up on the list, note digits 8 & 9 of their documents' FFN's and compare those to your firm's FFN's on the list.

Please forgive my ignorance in this area. Large multi-employer plan - from the quick view of the financials, it appears the the plan is fully funded. Company is considering selling. Attorneys for the other side are talking about the large withdrawal liability. Disregarding the rules under Section 4024, can a company be subject to withdrawal liability if the current Fund's status show it as fully funded and none of the employees are even partially vested at this point?

Thank you!

The employer had a year-end bonus run and did not withhold 401(k). Since there is no more time to remove it from future checks (paid in 2009), what can be done?

Definition of comp in plan is full-year W2 comp, with no mention of either excluding bonuses or even having a separate election for the.

Does the Employer have to pony up 50% of the deferrals as a QNEC?

Has anyone heard anything about plans having to adopt an amendment stating/outlining the requirements of IRC Section 432 and its regulations?

I finally got the 2008 census data I needed from a client today (yes, I said 2008). As it turns out, the owner made less than the broker estimated on 9/15/09, so the safe harbor match that was reported on the 2008 Sch I was overstated. We'll need to amend the return - can we still do that on paper?

I know that, before we send in our determination letter application, we are to provide notice to interested parties no less than 10 and no more than 24 days before we send in the application.

I know the attorney and administrator who worked on the plan before simply posted the notice at the union hall.

Reading Rev. Proc. 2009-6, I believe that we actually have to send out the notice to the participants, not simply post it at the hall.

Does anyone have thoughts confirming my belief or proof that simply posting it at the union hall would suffice?

Thank you.

does anyone know of an online source for codes for old 5500s? (1997-current)

My sister was dropped from her health insurance under COBRA. She misunderstood the payment plan, and thought she was a month ahead on her payments, and so didn't pay for a month. She called the insurance company during the grace period because a bill had come back, which looked like they had refused to cover a procedure. They told her over the phone that everything was fine with her plan, and that the bill was a mistake, and they would fix it. She called her previous employer a week and a half later just to make sure there were no problems, and they told her that she had been dropped and could not be reinstated.

She never received any kind of notification that her payments were late, or that her coverage had been terminated. I have read in other places that no one is required to send such notifications, although many employers or administrators do. But I also saw that some proposed IRS regulations from 2003 would, if passed, have added a notification requirement.

My question is, does anyone know if these regulations were passed, or where I could find them? I would also appreciate any directions to information regarding this topic. Thanks in advance.