Owner defaulted on a loan in 2004, but prior administrator didn't do a 2005 1099-R for the deemed distribution. Instead of correcting this failure by doing a 2005 1099-R I am going to do a 2009 1099-R and submit to IRS through VCP to request approval that the failure be corrected by doing a current year 1099-R.

Please keep in mind that I am in the process of revising the 8/31/04 plan year report and will then be doing the administration for the 2004, 2005, 2006, 2007 and 2008 plan years.

Since the loan is a general asset of the plan, I have been told that the deemed distribution must be allocated to all participants. Does this sound right? If yes, do I do this for 2005 or for 2009?

ERISA Section 3(14)(F) and 3(15) provide that a party in interest includes:

"a relative of any individual described in subparagraph (A), (B), ©, or (E)"

where relative is defined as spouse, ancestor, lineal descendant, or spouse of lineal descendant.

There is a corporation with two 50% shareholders.

So the question pertains to the scope of who falls under party in interest.

The definition of relative does not explicitly provide for lineal descendant of spouse. It does address spouse of lineal descendant which is not the same.

So for argument's sake that might exclude an owner's father in law, since he is the lineal descendant of his spouse.

That is, the father in law might not be considered a party in interest.

However, after further review, 3(14)(E) provides that a 50% owner (3(14)(E)) is a party in interest and thus the spouse would also be a 50% owner due to attribution rules and therefore party in interest would include lineal descendants of spouse (i.e. father of spouse).

Does that make sense?

Finally, what if the owner was a 49% owner, than it would seem that spouse would not be a party in interest under 3(15)(E) and thus lineal descendants of the spouse would also not be a party in interest.

Does that make sense?

So in conclusion if the 50% owner is willing to be a 49% owner than the spouse's father would not be a party in interest. Which means that the plan could invest plan assets in the father in laws business without causing a PT.

Make sense?

I'm just trying to verify my interpretation.

Thanks.

We have a 401(k) plan which defines "compensation" generally using the safe harbor definition of

compensation under 1.415©-2(d)(4). That is to say, compensation is defined to include wages as defined in Code section 3401 plus all other payments of compensation to an employee required to be reported under sections 6041, 6051 and 6052.

I am confused as to how income from "disqualifying dispositions" of incentive stock options (ISOs) is handled under this definition. My understanding is that when an employee has a disqualifying disposition of an ISO, the employer is generally required to report the income associated with the disqualifying disposition in Box 1 of the employee's W-2 even though the employer is not required to withhold taxes on the income amount.

Under that interpretation, it seems these disqualifying disposition amounts should be counted as compensation under the safe harbor definition. That is to say, even though they are not wages subject to withholding under 3401, they are other amounts of compensation subject to reporting and seem to be squarely covered.

In looking through various 401(k) treatises, etc., however, I am finding conflicting information. In one, they appear to say that the income amounts from disqualifying dispositions of ISOs are to be included as compensation when using the "wages reported on W-2" safe harbor but should be excluded when using the "wages subject to withholding." That generall seems correct to my basic reading of the definition.

However, I have seen 2 or 3 other treatises and manuals basically say that "amounts realized from the sale, exchange, or other disposition of qualified stock options" are to be excluded from compensation under all the various Code Section 415 definitions / safe harbor definitions. That seems to me to suggest that disqualifying dispositions of ISOs are not counted for compensation purposes under our definition even though the employer may be required to report the income earned on the disposition on Form W-2.

Can anybody verify whether the exclusion of amounts from the disposition of incentive stock options from the general definition of 415© comp carries over to the safe-harbor definitions as well?

I have a plan the is frozen as of 12/31/05. The AFTAP for them is only at 56%. They have sold part of the business and all the employees are now with the new company. All that is left is the owners under the old company. There are still 2 employees that have not been paid out yet do to the low AFTAP. The owners are struggling to keep the company alive and told me they will not be able to make the contribution for 2008 or 2009. They just want to terminate the plan and pay out the employees left and they take what is left over. There is enough money in the plan for that.

What do I do about the contribuiton owed? They will not be able to pay the excess tax if they cant afford the contribution already. There has to be something that can be done to just terminate the plan. They are PBGC covered.

The money that goes into the plan right now is just money that would go back to the owners since the plan has been frozen since 2005. It doesnt make sense to have to struggle to make the contribution and then turn around and pay it back out to the owners. They have enough already to pay the 2 remaining balances for the participants that have been gone since 2006.

Thanks

A key employee contributed deferrals to a top heavy plan which are classified as catch up since they were the only deferrals in the plan and it fails adp testing. If a contribution is a catch up contribution, does it still invoke the top heavy minimum rules?

If I have determined that a distribution needs to be done under an RMD- how to do determine what the taxable amount is? For instance if someone has an account balance of $100,000 and 15,000 was post-tax contributions and 85,000 was pre-tax contributions and considering the factor tables and if the RMD ends up being let's say $17,000 for the current. How do you determine the taxable amount on the $17,000? Do you have to allocate the taxable amount for instance- would 15% of the $17,000 be non-taxable and 85% of the $17,000 be taxable? or Can I use the $15,000 and its nontaxable and $2,000 would be taxable.

Hello 401k experts,

I have a question regarding past 401k amendments. I was looking through some old files and found 2 401k amendments which had not been signed or adopted into our plan. One is the Amendment effecting the in voluntary distributions and the other is the 415 amendment. Both amendments should have been signed back in 2005 and 2006.

Does anyone know if we can ask the board to approve them now even though its been over 3 years? I have no intention of back dating them but want to make sure that if we can, we get in compliance quickly. In addition for the 415 I believe we needed to do something with our tax returns is that correct?

Thank you!

If a married couple's employers both offer an FSA, may each of them make a $5,000 max contribution to their own respective FSA's for dependent care = $10,000 annual total, assuming their qualifying childcare costs for the year are at least $10,000?

Thanks

BruceM

What are the consquences of an employer who fails to pay their portion of matching contributions of 3% against employee earnings? Payment was submitted for 2006, but not for 2004, 2005, 2007 or 2008. The employer never changed their election to anything other then the 3% match. They were provided the payment schedules for these missing years by the 401K sponsor after computing against the salary census. However, due to money constraints, the company never made the payments. Are they liable for this and if so, are they liable for potential earnings against these monies owed?

In a health care reimbursement FSA plan, can an employer limit a terminated participant's reimbursements to the amount the participant contributed to the plan? For example, Jane pledges $1000 to her FSA and terminates employment mid-year after contributing $400. Jane incurred $1000 in medical expenses prior to her termination of employment. Can Jane now seek reimbursement for the full $1000 or can the employer limit her reimbursement to $400?

I can't remember when the Volume Submitter DB restatement cycle begins though I think it is in 2010. Anyone know ?

Have a client who wants to designate his spouse as the primary beneficiary of his 401(k) account. No problem.

Next, he wants to name his daughter as contingent beneficiary if she is age 18 or over at the time of his death. Otherwise, benefit would go to a trust established for the daughter's benefit.

Anyone have issues with this?

Has anyone seen or willing to admit understanding how to value 415 lump sums when segmented interest rates are involved?

For example, assume the interest segments are 4.5%, 5% and 5.5% (funding). Now, a 62 year old retiring at 65 has a maximum benefit and the stream of payments begins discounting using the 4.5% for 2 years commencing at 65, 5% for 15 years and then the 5.5% for the remainder. The 415 lump sum limit is computed using 5.5% for all years. Which present value stream is adjusted OR am I missing something??

Is this requirement satisfied if the participant receives an annual or quarterly benefit statement or do they still need to receive a separate "Notice of Deferred Retirement Benefit"?

Thanks!

Does the Creditable Coverage determination have to be made by an Actuary?

For a non-calendar year PS plan with annual valuations on say 7/31, if the RMD is paid after 7/31, we generally subtract it from the 7/31 balance before calculating the next year's RMD amount.

Consider a regular calendar year plan and a participant reaches age 70 1/2. Say participant is paid next yr prior to 4/1. For RMD calculation in next yr, do you subtract that first RMD paid after valuation date, similar to example above?

Example:

Balance 12/31/08 = $100,000

2008 RMD paid 2/1/09 (based on 12/31/07 balance) = $3,000

2009 RMD calculated as:

Option A: $100,000 - 3,000 = $97,000 / 26.5 = $3,660

Option B: $100,000 / 26.5 = 3,774

Under ERISA Sec. 101(l)(1)(B), which I believe was added by PPA, the plan must disclose to a participating employer an explanation of how estimated WDL was determined, including "the actuarial assumptions and methods..., the data regarding employer contributions, unfunded vested benefits, annual changes in the plan's UVB..." Two questions: how much detail do plans generally provide for the "explanation"? and does the reference to "the data regarding" refer to employer contributions only, or to UVB and other items mentioned? In particular, does an employer have a right to all participant data to attempt to reproduce the plan's calculation of UVB?

I"m having a hard time understanding what a DC plan is allowed to do for a terminated participant who has left their account balance which has been greater than $5000 since terminating in the plan and the participant reaches the later of age 62 or normal retirement age. Can a plan distribute a balance at that time that exceeds $5,000 involuntarily at that age?

If a Profit Sharing plan (with no other contribution types) has not made any contribution whatsoever for at least 3 years, is it considered frozen and all participants would become fully vested? What if Forfeitures only have been allocated in that period?

What must laws must one amend a retirement plan after 12/31/06?

Actually, of course, the Pension Protection Act comes to mind.

http://www.irs.gov/retirement/article/0,,id=165131,00.html

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

If anyone recalls matters regarding the finer points of these amendments, feel free to reply.