We have a plan document that states In-Service distirbitions of ER Profit Sharing dollars are permitted once an employee has reached age 59 1/2. Some how the Employer allowed an In-Service distribution for a participant earlier this year (2009) when they were only age 58. What is the easiest way to correct for this operational failure? I believe they can qualify to use SCP for significant operational failures and correct by plan amendment. Appendix B Section 2.07 of Rev. Proc. 2008-50 has a similar example using Hardship Distribution Failures.

The only part I am having trouble with is under Section 9 (Self Correction of Significant Operational Failures) .03 states "Correctionby Plan Amendment. In order to complete the correction by plan amendment (as permitted under section 4.05), the appropriate determination letter application must be submitted before the end of the plan's applicable remedial amendment period described in Rev. Proc. 2007-44.

If we are using a Prototype document is a Determination letter necessary or can we rely on the option letter received with the Prototype document?

S Corp has looked at reshuffling allocated shares, but such reshuffling still does not allocate enough shares to newly-hired employees. So S Corp would like its ESOP (wholly-owned S Corp) to allocate shares of retiring participants to be based on compensation. However, the amount shares of retiring participants is expected to be greater than the amount contributed to the plan during a single year. Thus, S Corp would like to spread the allocation of shares of retiring participants over a few years. Because of this, instead of exchanging shares for amounts in the ESOP’s cash accounts, S Corp would like ESOP to obtain a loan and purchase the retiring participants’ allocated shares with proceeds thereof. Loan would be secured by shares acquired. S Corp would then contribute an amount sufficient to repay loan over term. As loan repayments are made, shares would be released from encumbrance under a share release formula (based on principal and interest) and allocated to participants’ accounts based on plan year compensation.

The Plan only permits distribution of cash. If the ESOP, however, allowed stock to be distributed, ESOP could repurchase the stock with an exempt loan and easily accommodate S Corp’s desires.

However, because stock is not actually distributed, we are concerned that the loan to the ESOP is not technically an “exempt loan” under 4975 because the loan proceeds are not used “to acquire” employer stock or repay a prior exempt loan. Despite this, we believe the ESOP could still obtain the loan, purchase the shares, and provide a security interest to the bank in the shares. The only unusual aspect of the loan (at least in our experience) would be that the neither the S Corp nor any other disqualified person could guarantee the loan (otherwise it would be a prohibited transaction without the benefit of the statutory exempt loan exemption).

Any thoughts about the loan being exempt, and therefore, S corp being able to provide a guarantee?

I was wondering whether a profit sharing plan, which was converted from a money purchase pension plan back in 2004, is required to offer a Qualified Optional Survivor Annuity (QOSA). I wasn't sure if that was the case since plans that are subject to 401(a)(11) are required to offer a QOSA per Section 417(a)(1). Technically, I would think the QOSA would apply to this plan. Since the plan was converted from a DB plan, Section 401(a)(11)(B)(iii)(III) would seem to apply.

Essentially, this section reads that 401(a)(11) applies a DC plan if the plan (or a participant's benefit is transferred from such plan) is a direct or indirect transfer of a DB plan or DC plan subject to Code Section 412. In my situation, the DB plan was amended to become a P/S plan, but monies were not separately accounted and the DB distribution rules (i.e., no distribution until separation from service, disability, or retirement, AND QJSA normal form of distribution) were retained going forward.

Any thoughts on this? I'm reviewing a restatement of a Plan for Cycle D submission and the restatement does not make any mention of a QOSA. Shouldn't that have been included in the Plan?

Thank you to anyone who responds.

It was my understanding that Health & Human Services had until mid-August to issue guidance on individual notices of protected health information breach and other aspects of the new HITECH requirements included in ARRA. Has anyone seen anything on this guidance yet? (Other than what came out in April)

I am reviewing a prior administrator's Schedule H for a Master Trust and reading the instructions and seem to have a conflict. The prior administrator left the Expenses section completely blank. However, the instructions list items not to complete which do not include every item in that section. Should we be filling in line i for the Expenses? Interestingly too is that the accountants only reported net investment income in their FS and did not list out the expenses. Also, the accountant report is not included with the Master turst submission, but should the Schedule H follow their itemization? Thank you for any thoughts.

Can a disabled employee continue to make 401(k) salary deferral contributions to a 401(k) plan? If so, what is the proper citation for the legislative/statutory/regulatory authority permitting this?

Thanks!

I posted this question to TAG, but I'd like to hear what other people think...

Balance Forward Plan. A participant turned in distribution request to the employer in 2008. The most recent valuation date was 12/31/2007. The employer paid out the distribution from his corporate account in error. Jump to 2009. In reconciling the 2008 assets, we noticed that no distributions were paid from the trust account, which is how we discovered the error.

We've now passed another valuation date, and during 2008, the participant's account lost 40% due to investment losses.

We understand that the plan still needs to pay her a distribution, and that the owner essentially paid her a bonus by paying her out of the corporate account.

My question is how much do we distribute now? The current value of the account? or the amount she was quoted back when she filled out her distribution forms?

Thanks!

Is the right to elect to defer reciept of a distribution until the 70 1/2 rule kicks in a protected benefit or could I eliminate it?

US corp wholly owns foreign sub and maintains an ESOP (US co is an S Corp). Can the ESOP cover one nonresident alien of the foreign corp? Although an S Corp can't have a nonresident alien as a shareholder, it is the ESOP that is considered the shareholder and not the participants, correct? Also, the ESOP can be written to prevent distributions in the form of stock, so the nonresident alien will not get stock or become a shareholder. Does this work???

A participant in a DC plan purchased a large insurance policy (2nd to die) with his plan assets. The beneficiary of the policy is an Irrevocable Life Insurance Trust. The plan is the owner of the policy, but not the trust. When the participant dies, would those assets be part of his taxable estate?

I am new to this area, so please excuse me if the questions I have below have been answered in other threads, but here is the situation I have. A client is a C corporation with a fiscal year ending June 30th. It established a SIMPLE IRA Plan several years ago and made proper matching contributions and proper employee withholding contributions through July of 2008. Beginning in August of 2008, neither the amount withheld from employees' gross compensation nor the corporation's matching contributions were transferred to the Plan. The employer has the fiscal means to make these contributions at the present time. In accordance with Rev. Procedure 2008-50, is this the type of situation that is correctible under SCP or VCP? If so, which one? I would think VCP given that it affects all of their employees, but I am looking for the opinions of others. Is this the type of situation that is not correctible under the EPCRS program because it is considered a failure relating to the diversion or misuse of plan assets?

If it is correctible, how should the employer go about correcting it? Is a separate correction required under Dept. of Labor rules? Finally, does the employer need to amend any tax returns?

Like I said, I'm new to this area, so please excuse my ignorance. All help would be appreciated. Thanks.

The plan sponsor adopted the 415 amendment which excludes severance payments from definition of compensation. How should severance payments paid BEFORE termination of employment be treated? The employee signed a severance agreement and was supposed to be terminated on Jan 31, but his termination date was changed to Dec. 31. Meanwhile, his severance payment was paid in February, shortly after he signed the severance agreement. I think severance payments made purely on account of a termination of employment can still be included in plan compensation, so long as it is paid while the employee is an active employee. Any thoughts?

I have a 401(k) plan that uses W-2 as the definition of compensation for 401(k) deferral purposes, which would include imputed income such as GTL over $50,000. Technically, I believe based on the definition chosen in the plan document, deferrals should be allowed on imputed income, since it is included in the defintion of compensation. So, if a participant elects to defer 10% of compensation, the 10% should be calculated based on compensation that includes imputed GTL income. Practically speaking, how are deferrals taken from imputed income? Do most employers impute GTL income on a payroll by payroll basis, so that deferrals are made on the correct compensation?

We are a cpa firm who in the past has completed an audit on a client who is now bankrupt, so no employees, no company or anyone who could sign our engagement letter. The assets are held at a bank and they have sent us the usual audit package - looking for us to complete (as usual). I have searched the website here and the dol/irs website but can not find any cites to clarify the filing requirements in this situation. I believe the plan is now called an 'orphan plan'.

We're not sure if the bankrupcy court has made provisions to assign a qualified termination administrator. We actually have very little info., but we want to ensure we are not overlooking our duties.

Can any one offer any guidence, opinions of what to do or what they would do in this situation? any help greatly appreciated!

Does the new NYS mandate for insured health plan coverage apply to dental insurance issued in New York State?

A cash balance plan was adopted by my client in late 2008. EIN ends in 3 so deadline for filing for a D-letter was 1/31/2009. They were sent the signature pages for the submission and, between one thing and another, it fell through the cracks. Client never sent back the pages and we did not keep an eye on the deadline.

What options do I have? If I read the guidance correctly, I can file off-cycle now but will not have reliance for the first plan year. If the plan had been adopted for 2009 I would qualify as a "new" plan - unless there is some special rule that I can't find that extends the deadline for new plans adopted right at the end of the cycle?

What would you do?

Thanks for your thoughts.

I have a client who wishes to amend their 401k PS plan for their next plan year beginnning 9/1/09 from an integrated PS plan to a cross-tested PS plan. Part of the changes would include switching from a SH Match contribution to a SH Profit Sharing contribution. Is it too late to fix the PY beginning 9/1/09? A SH Notice was distributed in July letting them know of the match, but if we did the amendment before the beginning of the plan year, could we somehow amend the SH Notice?

Tax exempt entity sponsors 457(b) plan. Due to administrative error, plan sponsor processed a distribution request for a retired participant who should not have received a distribution for another 3 years, because participant had elected upon retirement to defer commencement date. The distribution was rolled into an IRA. Any ideas on the proper way to correct? Recoup from the IRA with earnings? I know that EPCRS is not available for nongovernmental plans. My take is that the distribution constitutes a failure that would make the plan ineligible, given that the 457 regs provide that an election to defer commencement date is irrevocable.

ER sets up a calendar plan year, safe harbor NEC 401k PSP on 6/20/2009, with the PSP effective as of 1/1/2009 but the 401k not effective until 7/1/2009.

EE had service (and age) sufficient to enter the PSP on 1/1/2009, but quit on 4/23/2009. Thus, EE was never eligible to make elective deferrals. So it would follow that EE is not entitled to the 3% of pay SH NEC, even though he is eligible to share in a PS contribution for 2009. Is this correct?

I know that plain vanilla profit sharing plans can permit in-service withdrawals. Can they also permit loans and hardships? this question has never arisen before. I know money purchase plans cannot, but a profit sharing plan could provide for all three, could it not?