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?

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?