A company is 5 days late in depositing elective deferrals. Participants' accounts were down during the period, thus the actual deposit made was worth more than what the "earnings" would have been.

Is there a 5330 to file in this case? The "amount involved" when considering elective deferrals is the lost earnings due. Since there were no lost earnings, there would be no amount involved and thus no excise tax?

I know this has been discussed before, but how aggressive do you feel it is on say a 1 person plan (new plan) to use an NRA of 62, and a ERA of 55 with the ERB fully subsidized at 55 with a 99.99% funding assumption that the owner will take the ERB at 55. Does this sucessfully weave through the concerns of the IRS on post-NRA distributions being done on a reasonable NRA (in this case 62) but still allow us to use 55 for funding ?

I'd appreciate a few votes. On a scale of 1-10 with 10 being VERY aggressive where do you put this strategy ? I "think" the IRS has verbally offered some support for this strategy, or at least not kaboshed it outright, but correct me if I'm wrong.

I am working on a multiple employer plan. It consists of a number of controlled groups. In the past we have tested (ADP, ACP and 410(b) each controlled group separately. Is it okay to test them together? I've read a lot about aggregating multiple plans of one employer or controlled group, but I can't seem to find anything in which I have multiple employers and one plan.

Thanks in advance.

We are in the process of converting a plan that used to be with a large insurance company, invested exclusively in annuities. I've never encountered anything like this, and I'm wondering if anyone can fill me in on what I'm missing.

According to the insurance company, participant loans cannot be transferred to another provider, and they intend to retain sufficient plan assets to collateralize the outstanding loan balances. They say this is because the plan was previously invested in fixed annuity products that could not be liquidated. Therefore the participant loans were made not from plan assets, but from insurance company assets, and must be repaid to the insurance company.

That sounds to me like a third party loan for which the participant has pledged his or her account balance as collateral, not a true participant loan from the plan. Is this really standard practice for plans with annuities?

Plan has a mandatory matching contribution provision and a last day of the plan year requirement to receive a match. Those who retire, are disabled or die prior to the end of the plan year can recieve an allocation (if they deferred). If we move to a discretionary formula during the plan year, we can avoid making allocations because participants have not accrued a right to receive the benefit (they don't accrue a right to receive unless they are employed at the end of the plan year). I assume those who retire, become disabled or die before or after the adoption of the amendment would be entitled to a match. Is that a correct assumption? I assume those who experienced these after the adoption date would not be entitled.

I've got a potential client that is fortunate enough to be experiencing rapid growth. There are only a handful of employees with 3 or more years of service. They are covered under an existing SEP. There are another 50 employees who have less than two years of service. The employer would like to provide a 401(k) plan with matching contributions. She understands the k feature must be offered to all employees with at least one Year of Service. The question is this:

Can the Employer continue to fund the SEP for those employees who have at least 3 years of service?

As you know, if profit sharing were offered in the k plan, the employer could not require more than a two years of service. Can you stretch this to a 3 year wait by funding a SEP instead of Profit Sharing in a 401(k) Plan?

There is plenty of guidance saying the two plans must be aggregated for 415 purposes. Does anyone know of an issue under 401(k), 401(a)(4), 410(a) or (b) that would prohibit the employer from funding the SEP (with only a few participants) for another year or two?

Thanks very much.

I have a Safe Harbor Match Plan. The ER is terminating all the employees. The employees will then become employees of another company that the owner has no ownership in. The owner will remain as a consultant/broker and will not be an employee of the larger company.

1. Since the employees are being terminated is there any notice required?

2. Plan will fail testing if it terminated now - can they keep the plan in place through the end of the year with the owner being the only employee and getting the SH match to year end and then terminate the Plan.

3. Employees will be doing the same job that they were = but will be filling out applications and will become employees of this larger company. The preious owner will be providing space for the employees. I do believe that the larger company does offer a plan.

Anything I am missing here?

Plan is updated for EGTRRA and PPA.

Thanks

Pat

I have a DB plan with a termination date of 12/31/07, because of many reasons, including not hearing from the IRS, the plan still had assets as of 12/31/08. Must I prepare an Annual Funding Notice instead of a Summary Annual Report? If so, any ideas how I do that without a valuation report?

Hi there -

We are completing the EEO-1 report for the first time this year.

We were told that it is recommended that you answer the question of ethnicity and race based on self-identification. However, if you are not allowed to ask these questions on any employment application or other form, how do you get the answer to this question? I'm afraid of making people uncomfortable or for starting a Big Brother type scare by putting out a voluntary survey.

Is this info on any HR or governmental form or document that I missed?

Many thanks.

Does anybody have any suggestions on how to handle an employee who has 2 loans outstanding from a 401(k) plan and has found himself in over his head and cannot afford to make the loan payments? The loan repayments are currently set up as payroll deduct and he is asking for the employer to stop loan payments and he'll accept the loan default. He does have a commission coming to him in January 2010 which he said he'd put $4,000 - $5,000 on the loans, but this won't help him right now. He's currently paying $384.24 every two weeks on his loans! Neither of these loans are at a really high interest rate - one is at 6% and the other is at 9.25%, so even reducing the interest rate by refinancing wouldn't help a lot. I'm looking for ideas to keep him from defaulting on the loans (which really can't happen since the loan payments are payroll deducted). Thanks!

I have my first participant request to roll 100% of her Plan balance into her Roth IRA account where her plan balance contains both pre-tax and roth monies. The plan is with one of the bigger 401k vendors, but I don't see the option for me to code the pre-tax portion as a rollover to the participant's Roth IRA. I have emailed the vendor for instruction, but wonder what others are doing.

Also - I found the info in Pub 590 regarding rolling from a qualified plan to a roth IRA somewhat confusing. Does the 20% mandatory Federal w/h still apply to the pretax portion?

any assistance appreciated.

I haven't been able to research the specifics on this yet, but off the top of your head does anyone know if there is a PT exemption for this?

The sponsor is an insurance company. The plan is invested in funds of the insurance company and the sponsor receives commissions based on those investments. It just seems "wrong".

In 1998, a client sent a letter (I have a copy) to the bank with instructions to make future plan investments into the XYZ Fund. The bank moved current money into the fund, but did not make any future investments into the fund. The client recently realized that his instructions weren't followed.

Aside from the fact that the client should have picked up on this 11 years ago, doesn't the bank bear some responsibility? The earnings loss is significant.

I am exploring general planning issues that need to be considered when you have a physician, employed by a university and contributing to their 403(b), and who also has solo consulting practice and wants to install a Keogh plan to maximize contributions/benefits for the next 5-10 years until age 65. We are looking for more than the normal 49k contribution limits so I am thinking of DB alternatives?

Question: Are there any glaring red flags that would prohibit or substantially diminish the value of a DB arrangement for this individual (no employees, just the owner)?

Are there any publications or articles that discuss features of solo DB plans and when they are suitable vs. when to avoid. Most clients have 403(b) arrangements and may have an old Keogh PS/MPP plan. I thought exploring the DB option for clients who fall into that category would make sense.

Any general advice or guidance, resources, etc will be greatly appreciated.

So the PBGC makes the Blue Book from the annual Enrolled Actuaries Meetings available on its website free of charge. Does the IRS do the same with the Gray Book? If not, is there free online access to the Gray Books anywhere? I suspect that if there were, I would have found it by now, but I thought I'd check with the knowledgeable folks here.

In a defined benefit plan is it okay to have the participant pay the distribution fee out of his/her accrued benefit? For example, if the lump sum was $1,000 and the distribution fee is $100, can the participant only be paid $900? My feeling is that this is not okay since you are now paying the participant less than their accrued benefit.

Does anyone have any thoughts on how to handle uncashed checks from a dependent day care flexible spending account? Specifically, I am wondering whether those funds escheat to the state, and if so, which state's law will apply (the state where the account is located, the state of the payee, the state of incorporation of the payor, the principal place of business of the payor all seem like possibilities).

Facts: Plan's actuary mistakenly changed the formula in a DB plan from a 'step formula' to a richer 'integrated formula' in 1996. Plan continued calculating and paying benefits under old 'step formula' until it discovered the problem in 2002. It then applied for EPCRS correction; the IRS granted it. So in 2003, the sponsoring ER attempted to 'revise' the documents retroactively.

Some EEs, who acknowledged they did not know of much less rely on the error until 2002, filed suit for the richer benefits.

The 4th Circuit held that the ER had not put on any evidence of the EEs' intentions at the time of the scrivener's error, and therefore mutual mistake (a contract law doctrine) would not apply. For a unilateral mistake, there had to be some fraud by the other party. The mistake was not mutual; the EEs did not make the same mistake. The mistake was unilateral by the ER, but there was no fraud by the EEs.

The 4th Circuit rejected the ER's claim that the IRS approval per EPCRS ought to allow the ER to reform the plan documents:

the IRS determination that inclusion of the Integrated Formula in the 1996 plan was a scrivener's error, thus justifying an equitable reformation of that provision. Put simply, however, the IRS determination is neither helpful nor controlling in this appeal. A primary purpose of the IRS program—and the only purpose of the IRS ruling on the 1996 plan—is to authorize an ERISA plan to amend its provisions without losing the tax exemption provided for by 26 U.S.C. § 501(a). Notably, such IRS proceedings are ex parte, predicated only on the submissions of the ERISA plan seeking relief. The IRS determination thus only resolves issues between the IRS and the ERISA plan—it is not a formal adjudication, and it does not impact on the relationship between an ERISA plan and its beneficiaries. Even though the IRS may decide whether to tax an ERISA plan, it is not entitled to alter the contractual rights of a plan beneficiary. Although we accord great deference to the IRS with respect to tax policy and regulation, the judiciary retains its dominion in ERISA civil actions.

The appeals court gave great importance to what the documents actually provided (error or not) because of the congressional intent behind ERISA that each EE "may, on examining the plan documents, determine exactly what his rights and obligations are under the plan."

So it appears that a scrivener's error correction, even if allowed by the IRS, will not save the day for an ER facing claims from EEs. An ER wanting to put the matter to rest completely might want to consider a declaratory judgment action, which would require notice to all the affected EEs. Alternatively, giving the benefits as erroneously promised will solve the matter as well (with an EPCRS filing because the greater benefits were not provided when specified under the plan).

Cross v Bragg, 4th Cir Docket ## 07-1699, 07-1755 and 08-1190, 7/24/2009.

For a governmental 457 plan, is the employer likely to find a plan administrator willing to do the hardship/unforseeable emergency determination?

This employer a) doesn't like privacy issues which often turn up due to information contained in the requests for hardship distributions, and b) would prefer to have a third party making decisions to avoid any perceived favoritism or differences in treatment.

I’m posting this to get some input on behalf of a client.

He has a defined benefit plan which was opened in 2001. This is a small plan (5 participants) and the client is a dentist. The plan was opened and administered by the same actuaries company. He is now terminating the plan and received the paperwork to begin the process. Notice was already given to the participants (15 days before the proposed termination date), amendments were signed, etc.

Here is the question:

With his termination papers he was given an option to terminate with or without an IRS letter of determination. While the paperwork stated that the optional determination letter process is expensive and lengthy, it suggested that he would have to accept some significant responsibility if he elects to avoid the letter process and then gets audited. He discussed this with them, and they basically told him that they discuss the determination letter option as a matter formality, but (off the record) they don’t really advise it due to the additional costs and the fact that the determination letter is basically an audit, so if he gets audited later he would be in the same position as if he elects for the determination letter now. But he may avoid the random audit, if he forgoes the letter, and save some money.

He asked for my opinion and I suggested that he pays the additional fee (roughly $2,500) to have the determination letter since the cost would be tax deductible and he has nearly $900k in the plan, most of which will be going to him and his wife.

He sent in the termination paperwork to the actuary, and was shortly contacted by them to see why he would like to pursue the letter. He explained his concerns and was told that it’s a waste of money and that 99% of theirs client opt not to get the letter. He asked them if there is anything wrong with the plan, they replied that to the best of their knowledge everything is perfect and was signed off by the actuary.

He just called me again asking for guidance on whether to pursue the letter or not. This latest follow-up by them is actually making me more concerned about having him to waive the letter and basically assume future responsibly if it gets audited and some problems with the plan are found.

It seems to me that if there are problems found with the plan during the determination letter process, the actuary would be held responsible, but I don’t have experience with this regards.

Any input would be greatly appreciated, particularly with regards to whether a letter of determination is advisable for him to obtain and with who is responsible should issues arise during the determination letter process vs. forgoing the letter.

Thanks for your time,

J