I have just become involved with helping a plan that has the following investments, and I am concerned that this is a prohibited transaction.

It is a defined contribution plan with individual accounts, over which the participants exercise control in directing the investments. Two of the participants directed that part of their benefits be loaned to an LLC that owned an undeveloped piece of property with a high development potential (before 9/2008). At the same time, the one of the two participants and his wife also loaned other, personal money to the LLC. A single note was issued to the plan and that participant/wife, secured by a 2nd mortgage on the property and personal guaranties from the LLC owners.

Then when the financial crisis began in 9/2008, the bank holding the 1st mortgage threatened to foreclose and sale off the property. To avoid that, the two participants directed more of their plan benefits be loaned to the LLC and the participant who had already loaned to the LLC other funds, loaned yet more other funds to the LLC. The new loans were not made in the same proportions as the initial loans. With the additional funds, the LLC paid off the 1st mortgage (at a discount).

The LLC and its owners are not themselves disqualified persons or parties in interest vis-a-vis the plan. It yet looks like there could be prohibited transactions due to:

1-Use of personal and plan benefits together to make one and the same investment, i.e. each of the two loans that resulted in the notes.

2-Use of personal and plan benefits in different proportions exacerbating the first note situation in an attempt to save the first note's value.

I'm wondering if anyone else has faced issues raised by this situation and what IRS rulings there might be addressing these issues. Thanks.

ER sponsors a calendar-year Safe Harbor 401(k) with 2% NEC.

They want to change to a SIMPLE IRA for 2010.

I understand that you cannot contribute to a SIMPLE IRA in the same calendar year that you make contributions to a qualified plan.

An associate believes that means you cannot make deposits to the 401(k) in 2010 for contributions accrued for the 2009 plan year.

Does the ER really have to make all contribution deposits for 2009 before 12/31/09 in order to avoid violating the exclusive plan rule?

Thanks.

I have a client that is part of a controlled group. One entity (A) is a mix of HCEs and NHCEs and has adopted the plan I am testing. (It is immeidate eligiblity and immediate entry.) The second (B) is NHCEs and has adopted another plan which we do not administer. I am testing coverage on A's plan. For the Statutory Employees (Age 21+ and 1YOS+), the plan is passing the ratio test for both the 401(k) and match (no allocation conditions). For the OEE group (<21 and < 1YOS), I have one HCE who falls into the OEE group and did not defer in 2008 and, therefore, does not receive a match. However, he would still be considered benefiting because he has the right to defer. (DOH 7/2007; DOT 1/2008). Based on the data that I have, it appears that the OEE group will fail the ratio test and the ABT at approximately 8%. ABPT for the OEE will automatically pass as the HCE does not receive any contributions for 2008.

Short of adding in some of the participants from entity B, is there any other way to pass coverage? (I cannot combine the Stat EEs and OEEs as the ADP tests have been completed and I believe that the entire plan would fail anyway based on the number of NHCs in entity B.)

If I do have to include a number of NHCs from B, I would think that there is a cost for including them. Without looking it up, I would think that I would have to provide a QNEC contribution of some kind. (I have not reviewed this as I am hoping for another solution.)

Any help would be greatly appreciated.

A couple of questions related to COBRA's gross misconduct exception which I've seen discussed some in general on the board but have not been able to find definitive answers.

1. Realizing the lack of a clear definition of "gross misconduct" for COBRA purposes and other risks associated with denying COBRA coverage, assume a plan sponsor is determined not to provide COBRA and has fairly reasonable grounds for invoking gross misconduct, is there any legal obligation to notify the terminated participant that they are not being offered COBRA due to gross miscoduct? For example, by sending a modified notice of unavailability of coverage indicating that gross misconduct is being invoked? Although I certainly think it best practice and serves many useful purposes to provide participants some timely notice that they are not being offered COBRA, I am not aware of an actual legal requirement to notify the individual. An insurance carrier, however, has indicated that they called DOL (don't know who or where) and the DOL said the plan MUST inform the individual in writing that they are being denied COBRA due to gross misconduct.

2. What if the plan sponsor decides that relying on the gross misconduct exception is too risky even though they think they have clear grounds for gross misconduct. Are they legally required to deny eligibility for the ARRA COBRA subsidy even if they are willing to be more generous than COBRA requires and let the terminated individual elect COBRA without the subsidy?

Thanks.

A qualified plan that is a partner or limited partner is potentially subject to UBTI since there is an "unrelated trade or business" if the qualified plan is a partner (IRC Section 513(b)(2)). I believe the same would apply in the case of the plan that is a member of an LLC which is taxed as a partnership.

1) Does the same rule apply to IRAs? Specifically, is it an unrelated trade or business if an IRA is a partner, or a limited partner, or, in my case, a member of an LLC taxed as a partnership? (I think the answer is No, but that doesn't make a lot of sense to me.)

2) Related issue . . . The IRA uses cash to become a partner by investing in a partnership, or to become a member by purchasing a membership interest in an LLC. If that cash is then used by the parthnership/LLC as security for a loan, does that cause the IRA (or a portion of it) somehow to lose its status as an IRA (under IRC Section 408(e)(4))? (I think the answer is No.)

With respect to a plan that is in the red zone, if the default schedule is imposed (as opposed to being adopted as part of a CBA), will the surcharge continue to be assessed?

Are there any written rules regarding the allocation of fees among participants?

We normally process these pro-rata based on account balance (a 0.5% fee is taken from each participant's account, for a total fee of 0.5% of plan assets).

Now have a client asking if the fee can be taken per-capita:

$2,000,000 in assets x 0.5% fee = $10,000 total fee / 20 participants = $500 paid from each participant's account

I have performed a limited scope audit based on the reliance of a SAS 70 certification. I thought we were to issue a qualified opinion based on inability to apply audit procedures. Or do we issue a disclaimer of opinion? I'm having trouble deciphering the rules. Any clarification would be greatly appreciated. Thanks!

HI,

I have a physician client who is considering rolling her 401k account into a roth 401k account. She had a financial adviser that I believe told her she could do this so that her money would be over a spread period of time? I don't believe this is true. I would think that the total contribution would be taxed in the year that the rollover occurs. Is this correct?

I'm not sure if there would be any benefits concerning withdrawing the funds by converting to a Roth 401k. Does anyone have a good understanding on why her fin. adv. would tell her this would be beneficial to her? I know there could be specific account reasons here, but does anyone know what benefits generally exist for someone who decides to roll their traditional 401k into a designated Roth? The only thing I could think of is that if your tax rate is lower at the time of the rollover than what you expect it to be at the time you would withdraw funds from the traditional 401k account. But, I know this physician is approaching retirement, so I do not see any benefit here. Is there something I am missing? Any advice or suggestions are appreciated!

Thanks

A multi-employer group health plan received an audit notice from the IRS relating to the COBRA subsidy application. They want copies of the "Request for Treatment as AEI" forms submitted by those eligible for the subsidy.

As counsel we reviewed the audit request and assumed that one of the HIPAA exceptions would apply. However, no exceptions appear to cover a general information request that is not accompanied by a summons or subpoena. We also found an IRS memo (2004-034) from the Office of Chief Counsel confirming that plans cannot supply PHI pursuant to a simple information request. (Note that the same information in the hands of an employer is not PHI-- per EBIA and regs).

This problem was brought to the attention of the IRS and the agent is attempting to help us work through these issues. However, they are apparently unwilling to issue a subpoena or summons. Instead the plan is being told that if it chooses not to comply, it will lose the subsidy. Their office is apparently being told that the COBRA subsidy applications are not PHI, even though the DHHS preamble to the HIPAA regulations states that enrollment and disenrollment information is PHI.

Any great ideas on how to proceed? Is there a HIPAA exception that would allow the group to comply without risk of violating the privacy regulations? The group doesn't want to lose the subsidy, but is also aware that HIPAA enforcement is going to ramp-up next year.

It would seem that the Service would need to have some mechanism to deal with this problem. It is not reasonable to ask a GHP to risk violating the HIPAA regulations to collect a subsidy to which it is entitled.

Any suggestions on where I might be able to locate some sample compensation statement formats? Most of the sites I have seen say they are free, but at the end require a payment to view the results. I just was looking at formating ideas and maybe wording ideas.

Thanks!

Has the IRS invented a new way to count?

Notice 2009-77 includes the yield curve and segment rates for August 2009, issued ~ September 11, 2009.

Notice 2009-76 includes the yield curve and segment rates for September 2009, issued October 6, 2009.

Employee is fired/laid off in December 2009. As is common, his coverage under the group health insurance is paid for and continues through Dec. 31, 2009. No further extension beyond the end of December will be initiated by employer, unless employee elects COBRA. Is employee an assistance eligible individual? Stated another way, does he experience a "loss of coverage" on Dec. 31, in which case he would be an AEI, or does he experience the loss of coverage on Jan. 1, which means he is not an AEI? Q&A 14 of Notice 2009-27 suggests to me that the loss of coverage would occur on Dec. 31, but that Q&A does not purport to address my question and as such it is "dicta."

Can an Indian Tribe set up a 457(b) plan as a Governmental organization since PPA

Is there a way our corporation can do a capital call and make the shareholders pay to fund the employer match for our 401(k) Plan? I have seen corporations make a capital call for other issues without an agreement. Do you need a written agreement to do a capital call to make the investors pay for the employer match in the 401k Plan?

I have a QDRO that does not award the AP any distribution from the DB plan except for the following language:

"This Order assigns to the AP an amount equal to 100% of the survivorship portion of the Participant's benefits which have accured during the entirety of the Participant's enrollment and membership in the Plan."

The remainder of the proposed DRO is the fund's model separate interest QDRO. It speaks to the AP being named surviving spouse for 100% of the QPSA. I know this is acceptable, but can you also be named survivor for QJSA?

Any assistance/explanation would be helpful and very much appreciated.

Does anyone have a template for a consent resolution where I can borrow some language, i.e. intro language, some whereas clauses, santa clauses, etc.

I've got an assignment to draft a consent resolution. I've seen them in other jobs but this is a new job and I don't have a sample to guide me.

Any help is appreciated.

I filed for divorce in Calif 4/08. We have a special needs daughter with a revocable special needs trust with my SSN as the tax id.

My will be ex-husband moved his IRAs from one brokerage to another. The new brokerage sent him an "IRA beneficiary designation form" to complete that needs my signature. On the form he specifies 50% to spouse(me); 25% to his daughter by a former marriage; 25% to the Special Needs Trust.

I don't know if the new brokerage knows that we are divorcing.

Question: is this a ploy for me to relinquish a portion of his IRA that is due me in the splitting of community assets?

Thank you in advance for your reply.

Does anyone know if retroactive disability payments would be subject to benefit restrictions?

I have a plan where the AFTAP is 65%. The plan pays an immediate disability benefit commencing when social security deems a person disabled. Sometimes social security takes years to make this determination. For example, the participant might receive a letter in 2009 stating they were disabled in 2007. In this situation the plan would retro pay disability benefits back to 2007. (disability is pure subsidy - not a retirement benefit)

I know the regs say "any payment", but I was wondering if for some reason ancillary disability payments might be exempt.

I have a restricted stock award where an employee will vest in a certain number of shares in a closely held company at the end of this year after sucessfully completing 10 years of service. Assuming the arrangement is not subject to Section 409A, can the forfeiture period be extended by the end of this year for another 7 years under Section 83 without trigerring taxation? Thanks for the help.