What are the tax consequences for a beneficiary (non-spousal) of a ROTH 401(k) account? Can they roll that over into a ROTH IRA and not pay taxes? Can they take a lump sum distribution and not pay taxes either? Is there any circumstance where a non-spouse beneficiary of a ROTH 401K account would have to pay taxes?

Thanks in advance!

Is the max for the entire family? Or could an employee and their spouse (different employer) both elect $5,000 with their own employer. I am thinking it is $5,000 for the entire family (not $10,000).

I deal with a handful of Pennsylvania Governmental Money Purchase Plans.

They are all straight forward plans in that the same contribution % is given to all ee's.

I have come across a new plan whereby the governmental agency as a whole opts out of social security.

However, they are looking into the option of allowing the employees to opt in but then those employees would not receive the same contribution as those that opted out.

Does anyone see a concern in the plan docment classifying the ee's in one of these categories, with those opting in to social security receiving a contribution much less than the other group.

The groups would be:

Class A = Opt IN

Class B = Opt Out

Comments are greatly appreciated.

A DB plan with an NRD=65 has a participant who terminated employment prior to age 65 and is now making application for benefits at age 70. The plan contains retroactive annuity start date language. The NRB is $350 and the lump sum benefit is $64,000. The accumulated life only payments with interest is $28,000. The Plan's AFTAP is 70% so lump sum benefits are restricted to 50%.

Case I.

Participant elects life only benefit, so first payment includes accumulated back payments of $28,000. Whether or not you believe this is a lump sum payment, it is less than 1/2 of $64,000.

Case II.

Participant elects to bifurcase benefit and receive lump sum of $32,000 plus monthly pension of $175. His initial payment is $32,000 (1/2 of $64,000) + $14,000 (1/2 of $28,000) = $46,000. I say no problem since although accumulated back payments are distributed in a lump sum, they do not constitute a lump sum payment (i.e., can't be rolled over).

Any naysayers who wish to argue that accumulated back payments are included with the lump sum when determining the restricted benefit?

Here is my last question for today...lol

I was looking at some of our take over valuations from other actuaries and saw calculations done two different ways...

Let's say you have a calendar year DB ....Valuation date 1/1/08. Using 5.31, 5.92 and 6.43 segment rates. Participant had a NRA of 65 and is currently 45 years old as of the valuation date. When calculating his TNC and Funding Target, you take the present value of the aforementioned benefits as of the valuation date. When discounting back to current age (e.g present value) would you discount back using 5.31 for the first 5 years, then 5.92 for the next 15 or just use 5.92 for the entire period since he is 20 years from retirement and no benefits are assumed to be paid before retirement?

I say you use just 5.92 ..what do you say???

I have another question ....by the way....I love this forum all you guys and gals are great!

Now on to the matter at hand....lol

How many of you use preretirement mortality when calculating the Target Normal Cost and Funding Target?

Most of my DB plans are under 10 lives....we're a small actuarial firm.

I was curious is anybody is still using 83 IAM these days or have you all switched to a more "modern" table?

Would investment management expenses need to be added to the TNC for 2009?

Do you see any issues with the following structure satisfying the 401(k) safe harbor rules.

Plan X provides for two safe harbor formuals. Employees in Group A get a the NEC. Employees in Group B get the basic match.

Does anyone have the Moody's Monthly Corporate Average Bond Yields for December 2007 and December 2008? I've searched this site, but haven't found this exact info. Thanks!

Ok, I'm not sure if anyone is aware but there was a major settlement involving two companies which I believe is going to have a drastic impact on the cost of Rx drugs. A class action lawsuit was filed against First Databank Inc. and McKesson Corporation. The issue was their raising the Average Wholesale Price of hundred of Rx drugs by 5% on an arbitrary basis.

Essentially, from what I gather, a manufactor creates a drug and sells that to a wholesaler. The wholesaler then sells that to pharmacies. The price pharmacies pay are based on a published index called the "Wholesale Acquisition Cost" (WAC). The WAC is set by drug manufacturers and published by companies such as First Databank. Wholesalers will then use the WAC to set the price they charge to pharmacies. The pharmacy is then paid by my (or the participant's) co-payment and a reimbursement from the Rx drug plan. The Reimbursement is based on a benchmark called the Average Wholesale Price which is also published by First Datanbank and other such companies. Simple economics show that the profit a pharmacy receives is based on the price they pay to a wholesaler (based on the WAC) and what they are paid by the insurance co under the AWP. The AWP is not based on what the pharmacy actually paid for the drug, but instead is supposed to be an estimate of what pharmacies generally pay for that drug. Moreover, the WAC-to-AWP spread does include a markup which is historically 20%

The essence of the litation is that First Databank and others arbitrarily raised the WAC-to-AWP spread by 5% on over 400 drugs beginning in 2002 and continuing until this court action (filed in the district court of Mass). From what I gather, the increase was added to the AWP of many drugs. The parties reached a settlement whereby First Data agreed to roll back the "WAC-to-AWP" spread from 25% to 20% on affected drugs.

As you can imagine, Prescription Drug Benefit Managers and Pharmacies are worried because this cuts into their profits. Our PBM has presented us with an amendment to the Rx plan whereby we would continue to use the pre-litigation AWP. Has anyone else received such an amendment? If so, have you executed it and if you have not, what was the consequence? Did the PBM terminate the agreement?

I would imagine that the premiums a plan pays are based on the AWP. Certainly, the Rx plan negotiates with a pharmacy to pay a discounted rate based on the AWP. For example, the rate could be equal to: AWP - 15% + $3.00 dispensing fee.

If the AWP is lowered, the members of the plan should be charged less for a particular drug. I'm asking because I don't see any benefit in signing this amendment other than keeping the PBM (my fear is that they will terminate the agreement). The rep indicated that pharmacies are worried and have indicated that they would terminate their participating network agreements if the new rates were imposed.

I need to advise a client on this and personally, I believe the whole pricing scheme is just that....a scheme. I feel like they should not sign the amendment and force the PBM to use the new AWP and have them fight it out with the pharmacies. What I don't want to do is have an interruption in Rx coverage for plan participants.

Any thoughts on this? Sorry about the length but I felt that background was necessary

Hi. We are terminating our DC plan. We have a suspense account with forfeitures. We want to distribute the forfeitures to the participants. The plan document is silent as to how to allocate the forfeitures. Is there a rule? How is this normally done? What proportion is proper?

Yes, there is a rule: no duplicate posts. Everyone see here - http://benefitslink.com/boards/index.php?showtopic=43194

I have a financial institution with an existing account for a participant in a deferral only, non-title 1 plan. The financial institution is no longer an approved vendor and does not have an ISA with the plan so they have stopped accepting deferrals from the employer. They have inadvertently been accepting contributions directly from the participant as non-deductible contributions (no plan involvement in this decision). They are going to distribute the contributions with earnings as an excess contribution. Do these incorrect contributions contaminate the entire account, or are the assets received prior to the ISA requirement fine? Is there anything else the institution should do? Thanks for any assistance you can provide.

We are terminating our DC plan. We have a suspense account with forfeitures in it that we want to distribute to participants. The plan document is silent as to how to do this. What is the rule in how to allocate the forfeitures?

Thanks.

I'm working with an individual who is wanting to explore the option of taking substantially equal periodic payments under Code Section 72(t). He has two investment accounts - a mutual fund account and a variable annuity. Can he take the payments all from one account until that account is exhausted? For example, he would like to take the payments from the mutual fund account and leave the variable annuity untouched for now. As long as the correct amount of distributions are taken, is this acceptable? I haven't found anything to say that it isn't, but wanted to see if you ladies and gentlemen have any thoughts.

Thanks!

I would appreciate any thoughts on this proposed administrative technique in trying to avoid the possibilty of a year end match true-up on catch-up contributions.

Situation: Safe harbor plan, permitting catch-ups, matching the first 6% of any combination of employee deferrals, after -tax contributions or Roth 401(k).

Safe Harbor plans are required to match (true-up) employee elected catch-up contributions at year end if these contributions along with the employee's other contributions turn out to be less than 6% of eligible compensation.

Since the catch-up section in the plan document allows such contributions to be made in accordance with rules adopted by the Administrative Committee, I am proposing that admin committee adopt a policy that requires employees to first make a minimum 6% contribution election before being allowed to elect any amount of catch-up contribution.

Any comments or guidance on this thought would be appreciated.

Thx's EEC

Hi everyone,

I've been searching the posts and couldn't find anything that quite answered these two questions, so any help from the experts here would be greatly appreciated.

#1 - I have a single employer, small DB plan which, before PPA, defined the applicable interest rate as the 30-treasury rate on the first day of the plan year, with the stability period being the plan year.

Can anyone tell me if applying 417(e)(3) rates for lump sum distributions in 2009 (no actual amendment adopted yet) changes the "time for determination" of the applicable interest rate and therefore we need to meet the 411(d)(6) requirements by offering "better of" distributions as described in 2008-30?

#2 - We have a certified AFTAP this year of 79%. Can that be recalculated or re-certified to get it above 80% so that full lumps sums can be distributed this year?

much appreciated

Does anyone really think that the 16,500 will be reduced to 16,000 due to deflation???USA Today - In 2010 IRS could cut 401(k) contribution limit to $16,000

A client wishes to satisfy the ADP and ACP safe harbors so that all of the HCEs may max out their deferrals (and any match is OK too).

The client wants to use a multi-tiered matching in order to satisfy the "safe harbor contribution requirement". Here's how the match would work:

Under the first tier, all eligible participants (NHCEs and HCEs) receive the "basic match", i.e., $1 for $1 on the first 3% of pay deferred plus $.50 for each $1 deferred on the next 2% of pay. Nothing strange or out of the ordinary with that. It will also satisfy the ACP safe harbor rules.

Under the other tiers (which apply only to NHCEs), the employer will designate participant-by-participant who gets what so that, for example, Jim may get an additional match of 300% of every dollar deferred in excess of 5% and Jerry may get 600% of every dollar deferred in excess of 5% and so on. There would likely be 4 or 5 participants (again, all and only NHCEs) that would receive extraordinary matches in addition to the "basic match". No HCE would receive a match greater than the basic match described in the previous paragraph.

The client's attorneys says no problem since only NHCEs will receive the "enhanced match".

The client is thinking that it can use the safe harbor to benefit certain HCEs by making bonuses and letting the HCEs defer some or all of the bonuses (up to the 402(g) limit, of course). At the same time, the client can benefit some of its "key" employees (I don't mean that in the technical sense) who are NHCEs (many on the verge of being HCEs through pay) by making extraordinary matches that are not counted as income, thus pushing their pay over the HCE pay threshold.

Any comments about whether such a design satisfies the ADP and ACP safe harbors?

A number of our clients have started receiving checks from a court settlement for a number of former participants who have been gone in most cases for more than 5 years. The question has come up as to whether we can "force" these out to a rollover vendor if the account balance at the time of distribution years ago was over $5,000 or will we have to treat these checks as if they were part of the original distribution, get consent to distribute or wait until the former PR is over age 62 to do a mandatory distribution?