Lets say a DB plan's assets tanked in 2008 (big surprise). Plan admin doesn't want to have restricted 2009 Lump Sum payouts and tells Plan actuary "get me to 80%" but it takes "creative" changes in actuarial assumptions from prior year workups. Actuary does so and ... voila .. EXACTLY 80%.

A "smart" group of staff retires and takes their Lump Sums in 2009 (perhaps knowing a cutoff will come in automatically on 4/01/10 unless an early 2010 AFTAP calc again comes in at 80+%)

One, two years later company goes under (bankruptcy) and PBGC takes over plan (with asset shortfall ... obviously), and certain participants get reduced PBGC Payouts.

Now .......... participants' attorney see the the 2009 AFTAP of 80%, and see the changes in assumptions from prior years. Then he sues the Plan actuary to recover 2009 Lump Sum payouts in excess of what RESTRICTED 2009 Lump Sum payouts would have been had the assumptions not been changed and the 2009 AFTAP came in lower than 80%.

I am I too far out there or is this a possible concern (and should I not be posting such scenarios for attorneys to read)?

I have the very helpful EBIA HIPAA manual but could not construe a clear answer to the following questions:

A local governmental entity contributes towards a VEBA trust that primarily provides short and long-term disability and hardship loans (e.g. for medical, funeral expenses) to certain groups of gov't. employees.

All benefits except for long term disability are self-funded; the LTD benefit is insured. Sort of a modern version of "widows and orphans" fund.

A few years back the VEBA was amended to allow up to $500 reimbursement towards the costs of LASIK surgery. The VEBA reimburses eligible participants who provide proof of payment for the LASIK procedure, up to the dollar amount. For purposes of HIPAA compliance (portability, privacy) - is it an excepted FSA? Other type of limited purpose excepted benefit?

Or, if not excepted - is an "opt-out" not available because, though a governmental plan, its not fully self-funded?

We have a 401(k) Plan with a PPA Safe Harbor, and therefore automatic enrollment. So after they meet the eligibility requirements, the participant has roughly 30 days to opt out or they are automatically enrolled at 3%. After that, we give them 30 days to ask for a refund of those contributions.

Lets say that they don't opt out, and the deduction is taken from their checks.

They quit and 6 months later are rehired. Since they have not made an affirmative election to contribute or not to contribute, we auto enroll them again.

The question is whether we can allow them to withdraw those contributions if they request that refund within 30 days of the first payday of the second period of employment, because the regulation says:

Since this request is about 200 days after the first default elective employee contribution, we're thinking they can't have a refund after the second auto enrollment.

Writing all this up got me thinking of a second question. Lets say that the participant askes for a refund of the contribution from the FIRST period of employment. Does this constitute an afirmative election not to contribute?

If an amendment was adopted 10/1/2009 changing the cash balance credit from $500 to $1,000, effective 1/1/2009, does the Target Normal Cost take this into account for the 1/1/2009 valuation? Or am I understanding correctly that the TNC calculation is not forward looking like it was pre-PPA, and the TNC should not take into account the change from $500 to $1,000.

I have a calendar year 401k plan that terminated effective 9-4-2009 due to a takeover. I am preparing the final val and I have a question regarding how to determine the correct 401(a)(17) limit to use. Since the plan did not terminate at the end of a month, I'm not quite sure which is the correct way to prorate the $245K limit. The language reads "If a Compensation Determination Period is less than 12 consecutive months, then the Code §401(a)(17) Compensation Limit will be multiplied by a fraction, the numerator of which is the number of months in the Compensation Determination Period, and the denominator of which is 12. If Compensation for any prior Compensation Determination Period is used in determining a Participant's Plan benefits for the current Plan Year, then the annual Compensation for such prior Compensation Determination Period is subject to the applicable Code §401(a)(17) Compensation Limit as in effect for that prior Compensation Determination Period." What is the correct method of pro-ration? Do I take 8/12ths, 9/12ths or would I actually proprate by the number of days? I'm not quite sure how to proceed on this and would appreciate any feedback. Thank you!

Dr. G owns 100% of his MD PC. He also owns 90% of Company B which is his practice. Company B sponsors a PSP in which Dr G. gets the max contirbution. Dr G also owns 75% of company C. The other 25% is owned by a separate person. Company C performs services for company B but has other clients. Company C also has its own ee's. All three companys operate out of the same location.

Dr G wants to set up a 401k for company C and he wants to contribute the full 16,500 despite maxing out on his psp.

The current TPA said that B & C do not meet the brother sister rules or parent subsidy rules.

Lets see, 5 or fewer people do own more than 80% and the same 5 or fewer people own more than 50%. Am I missing something??

To be an EACA, an affirmative election must be in place or automatic enrollment occurs. If a participant signs a one-time election that he or she should never be auto-enrolled, is that permissible? Or does the participant also have to have an election that specifically says (for each year) the amount to contribute (or not contribute)?

It's a subtle distinction. Ideally, people should just be allowed once to say: I don't want auto enroll, and if I don't make an election, just let me be.

The model amendment in 2009-65 seems to indicate that there must be an opportunity for choice after each annual notice, and that automatic enrollment must occur unless the participant makes a choice after receiving the notice. That creates a nightmare if you have to auto-enroll people who you know don't want it, but who haven't responded each year with an affirmative election. Has anyone seen a discussion of this?

2002 client adopts a plan specifying Leased employees are ineligible. But all r&f employees are leased. And client has always ignored this plan provision and let all employees defer immediately.

How to correct this?

If you kick them out 410b fails. So you add them back and give a Qnec?

I am thinking that a VCP filing requesting permission to remove the exclusion back to day one is only clean solution.

Any ideas?

Thank you

If I have payroll deductions for medical and child care under my employers section125 plan and my husband was laid off does the change in his employment status allow me to stop my section 125 deductions mid-year.

401(k) plan with year ending 1/31/09. A catch-up eligible participant elected to defer $22,000 out of his 1/31/09 bonus check, but payroll messed up and did not withhold the deferrals. Because of the error, he had no deferrals withheld for the 2/1/2008 – 1/31/2009 plan year. He wants to defer $22,000 for calendar year 2009. The participant is the owner. There is no match.

Rev. Proc. 2008-50, Appendix B, Section 2.02(1)(a)(ii)(B)(2) says

If the employee elected a fixed dollar amount that can be attributed to the period of exclusion, then the flat dollar amount for the period of exclusion may be used for this purpose.

Then it goes on to say

The missed deferral for the portion of the plan year during which the eligible employee was improperly excluded from making elective deferrals is reduced to the extent that (i) the sum of the missed deferral (as determined in the preceding three sentences) and any elective deferrals actually made by the employee for that year would exceed (ii) the maximum elective deferrals permitted under the plan for the employee for that plan year (including the § 402(g) limit).

He hasn’t actually had any deferrals withheld for 2009 yet, so he should be able to defer $22,000 now. The correction would be deposited as a QNEC, not deferrals.

If he does defer $22,000 this month, I’m not clear about whether that affects the correction. The correction method refers to a limit for the plan year. The correction is for the pye 1/31/2009, so deferrals now would not cause a plan year limit to be exceeded. If you add the 1/31/09 $22,000 missed deferrals to $22,000 deferred now, the total would exceed the 2009 402(g) limit. But, the time period for the 2009 402(g) limit covers portions of two different plan years.

I see two possible interpretations:

1) The reduction is only done if a plan year limit is exceeded. That doesn’t happen here, so there is no reduction. His missed deferrals for the plan year are $22,000, so $11,000 plus lost earnings are deposited as a corrective QNEC for pye 1/31/09. He can also defer $22,000 this month.

Or,

2) The phrase “(including the § 402(g) limit)” means you reduce the missed deferrals if the sum of the missed deferrals plus actual deferrals would cause any year’s 402(g) limit to be exceeded. $22,000 of deferrals this month reduces the missed 1/31/09 deferrals to zero and there is no correction to make.

I'm leaning towards 2). Any opinions?

Does anyone know of any useful studies that looked at the criteria for what makes a great 401(k) website?

I would very much appreciate if someone knowledgeable about qualified retirement plans could please comment whether an owner-employee Profit Sharing Plan (PSP) with 4 Trustees can be continued after the Employer retires without incurring IRS disqualiification. In an effort to be helpful, specific information follows re this Employer and the PSP.

The Employer is a sole proprietor and is the only PSP participant and plan beneficiary (i.e., no other employees). To provide continuity and permanence of administration, the PSP has 4 Trustees who are individually fully empowered to act on the plan and who can continue to maintain the the PSP and Trust after the Employer’s retirement and who can terminate the PSP if the Employer dies and can distribute any PSP assets to the Employer’s designated beneficiary(ies).

The Employer has had a PSP since 1963. His current plan is a self-trusteed Vanguard prototype PSP, maintained since 1992 (including GUST amendment in 2002) with annual filings of the 5500-EZ except in 2007 and 2008 since the PSP assets were less than $250,000. He has taken annual Required Minimum Distributions since age 70-1/2 and is now retired.

In the 2009 Vanguard Plan Adoption Agreement (to amend the plan for EGTRRA), the box was checked for a “Frozen Plan” after which is printed: “The Employer has discontinued all further contributions to the Plan. The Employer and the Trustee will, however, continue to maintain the Plan and Trust in accordance with the requirements of the Internal Revenue Code.” As part of continuing plan maintenance, the Employer is about to submit the Vanguard PSP amendment for the Pension Protection Act of 2006 and the Heroes Earnings and Assistance Relief Tax Act.

Recently, he was told by a compliance officer at Vanguard that (1) the IRS considers any plan without an Employer currently operating a business to be an “orphan plan” and that a plan needs to have “continuity and permanency” (which I would think may be met by having several plan Trustees) and (2) that the IRS has often ruled that a PSP whose contributions are frozen is effectively disqualified since there are no longer “substantial and continuing contributions” (and yet Vanguard offers a choice of “frozen plan” or of discretionry contributions in its PSP adoption agreement).

This Employer would like to keep a PSP for several reasons, including that his beneficiaries can choose to take their distributions as either a TIRA or RIRA, that he can include a survival contingency feature not available on an IRA, and that reasonable plan expenses can be paid by the PSP.

Thank you for your comments re if this owner-employee can continue using a PSP after retirement without disqualification risk If so, he would adopt a master and prototype plan or volume submitter plan with the curent 4 Trustees since Vanguard is discontinuing its PSP.

In addition to the COBRA Initial Rights Notice, is there a HIPAA Initial Notice that must be distributed to all employees who enroll in a health plan? Can the HIPAA Notice requirements be included in the COBRA Initial Rights Notice?

Note: I'm not referring to the HIPAA Privacy Rules notice that must be distributed every 3 years.

a 58 year old part in a ps plan received a $30,000 distribution from his 3 participant plan. He is not terminated and the plan does not allow for loans or in service distribuitons or have early retirement provisions.

Suggestions?

I have a client who wants to move their SARSEP assets from one financial institution to another. It is my understanding a SARSEP requires either a prototype from the institution or IRS form 5305A-SEP form along with a 5305 SEP form.

The receiving financial institution does not have its own prototype SARSEP plan, so the hope is that the employer can simply use the existing one if it's not a prototype from the current institution (I am assuming they would prohibit use of their prototype without the assets).

I don't know if the client can simply adopt the receiving financial institution's 5305-SEP form and keep their existing 5305A form, or whether they must execute a new 5305A-SEP form. Does it depend on whether they used a prototype from the old financial institution? And, are there any limitations on the employer's ability to require all employees to move their SEP IRAs to the new institution.

Thanks in advance for feedback!

When a DB (not cash balance) plan terminates, who gets 100 vested due to the termination:

Actives with less than 100% vesting

Terminated participants - who have not been paid out - with less than 100%

Does anyone that has been paid out or deemed paid out because of terminating with 0% vesting get "vested up" at plan termination?

Did anyone else understand that Marty Pippin indicated in the IRS teleconference on 10/28 that if a person is first eligible for an RMD in 2009 and he decides not to waive it but takes it in 2010 (prior to April 1) that he will NOT be able to roll it over, whereas if he takes it in 2009 he can roll it over?

I can't seem to find any information on this now but my recollection is that Marty felt like WRERA only amended the code to allow rollovers for distributions taken DURING 2009, so an RMD for 2009 taken in 2010 couldn't be rolled.

A business owner in the US owns a small company and maintains a 401(k) plan. He also owns a European company in which he is the only employee and sole shareholder. Other than the fact that the owner is a US citizen and lives in the US, there is no US presence for that company. He reports the income from the European company on his US 1040 tax return. Can the income from that business be included when determining his contribution to the plan? The accountant says that the income from the European business is reported as salary on his 1040.

I

Employee in the "restricted employee" category separated from service 2 years ago. Employee received but never returned paperwork regarding his pension benefit.

DB Plan terminated effective 1/1/09 and plans on making benefit distributions in early 2011.

Employee now wants a lump sum distribution of his benefit.

DB Plan is not 110% funded.

My question relates to the restriction on distributions from pension plans. Do these restrictions apply in the normal operation of the plan or during plan termination? I read Treasury Regulation § 1.401(a)(4)-5(b)(2) as restricting the benefits paid to certain “restricted employees” upon the termination of a defined benefit plan. However, I am being told by pension professionals that this rule only applies during normal operation of the plan and not during plan termination.

Any help is appreciated.