After reading IRC Sec. 416©(1)©(iii) I understand that the TH min benefit stops accruing once a plan is frozen, but it also seems that vesting also stops since years of service are to be disregarded - is that correct?

Going on to 416©(1)(D), even though it appears that YOS may be disregarded under subsec. ©, comp from such disregarded years can still be used for the high-5 average. So, it would be possible for a frozen benefit to actually increase due to a new, larger high-5 that occurs after the plan's benefits are frozen? This can't be right, can it? All help is greatly appreciated.

We know the stimulus bill allows individuals covered by group health plans (GHPs) who pay in full out-of-pocket for covered plan services to bar providers from disclosing PHI to the GHPs. Do these new restrictions apply if the source of funds for 100% payment is pre-tax (e.g., FSA, HRA, HSA or 401(k))?

If an individual takes K-1 distributions from the S-Corp, no W-2 income, would he even be eligible to make an IRA contribution based on this income?

I work primarily with 401(k)s & ESOPs, but was trying to help my kids' private school set up a 403(b) plan for their teachers. We recently established a garden variety salary deferral ERISA 403(b) plan with a major mutual fund provider, and everything is good. Four teachers are participating. I recently learned that another teacher has been making contributions to a 403(b) account that she established when she worked for another school. It is not an employer-sponsored plan in any sense of the term. She prefers the investments under "her" plan, rather than those in the "new" plan, although I believe it's more a matter of intertia than anything else. She has the opportunity to participate in the new plan, but simply would rather not do so. Can she continue to make contributions to that 403(b) arrangement, or must we put her contributions in the new plan? There are no HCEs at the school. Many thanks, Joe

As we redoc our 401(k) plans, up until now, we have filed a Form 8821 with the IRS submission package. On the 8821 we had been reporting the plan sponsor & plan sponsor EIN in the Taxpayer section until one IRS agent called our office and told us we should be entering the plan information & trust ID number on the 8821.

Now we have an ERPA on staff so we are completing 2848’s going forward. But we want to make sure we are reporting the correct information in the Taxpayer section. Are we supposed to enter the plan sponsor & plan sponsor EIN on the 2848 or the plan name & trust ID number? Or maybe it depends on the IRS agent reviewing the plan?

Any thoughts on this would be greatly appreciated. Thanks!

OK, this is picky. If there is already guidance on this point, please point me to it.

I have not found any direct guidance on this, so I'm suggesting some:

Section 101© or WRERA amended IRC 436(d)(5) by adding this sentence:

"Such term shall not include the payment of a benefit which under section 411(a)(11) may be immediately distributed without the consent of the participant."

411(a)(11)(A) reads"

"If the present value of any nonforfeitable accrued benefit exceeds $5,000 a plan meets the requirements of this paragraph only if such plan provides that such benefit may not be immediately distributed without the consent of the participant."

The WRERA summary by the Congressional Research Service, http://assets.opencrs.com/rpts/R40171_20090129.pdf,

and the Technical Explanation by the Joint Tax Committee, http://www.jct.gov/publications.html?func=...own&id=1252,

both refer to "$5,000".

However, many plans have been amended to change the default payout limit from $5,000 to $1,000.

Once can read the statute very "tightly" and suggest that the 436 restriction applies to the dollar limit in the plan, even if less than $5,000. Alternatively, one can read the committee reports and suggest that Congress meant $5,000, even if the plan uses a lower limit.

I suggest the latter approach. Any thoughts?

I recently took over a plan from another administrator in our office and have sound that apparently a QDRO was done for this 401(k) plan that covered the owner and his spouse (now ex). A distribution for the alternate payee was processed in Novmeber, and apparently no 1099-R was issued for her, and no 945 was submitted. She took a lump sum and a tax check was submitted to the government.

I figure we need to get her a 1099-R asap so that she can file or refile her 2008 tax return.

In regards to the 945, is there another form that needs to be submitted, since it's late? As far as I know, the company has not received anything for the government about the taxes paid, but i want to try and get this taken care of asap.

Thansk for your thoughts on this mess!

PS: does anyone else here use TAG Data? We submitted three questions to their service last week and haven't heard back. We call and only get their voice mail. We have not received a daily update since 7/14, and our account is current.

I have a 48 year old professor who makes annual contributions to his university sponsored 403(b). He also operates a consulting business organized as an LLC, which I assume for retirement plan purposes will be treated as a sole proprietor. He would like to make a maximum contribution to his solo-401(k). His Schedule C net income will be about $40,000 for 2009. His university job (he's a department head) pays $108,000.

I know to reduce his employee 402(g) maximum contribution to his solo-401(k) by the amount he contributes to his employer sponsored 403(b). But because he already maxes out his 6.2% Social Security contribution from his employement income, can the maximum solo-401(k) employer contribution be modified to

.20 X (net SE income - 1/2 (.029 X SE income)) ?

And another thing I've always wondered about......(this does not apply to this professor, as he has a group helath plan through the University)....for SE individuals who deduct their health insurance premiums, would this ATL deduction also have to be added to the 1/2 SE tax, and then this sum deducted from the net SE employment per the above equation?

thanks

BruceM

looking for commentary on a loan for a participant in a plan which allows loans for foreclosure. However the foreclosure notice is in the spouse name becuase the loan is in the spouse name. However they have the deed which lists both names.

The plan sponsor is holding back allowing the loan becuase the foreclosure does not name the participant?

Does the deed suffice for supporting documentation to provide a loan to prevent foreclosure?

Individual is 90% partner in LLC

Plan sponsored by LLC is 401k Plan with dferrals and match only.

K-1 for this partner shows box 4 guaranteed pmts of $240,000 and box 14A self employment earnings of +$240,000.

For purposes of my plan compensation calculation, i believe i add box 4 and 14A together. It just seems odd that they are identical and have been for many years. (As an asided, prior TPA used box 14A for plan comp).

Thanks.

Employee incurs dental expense in December 2008, but not paid until January 2009. Out-of-pocket costs exceed balance in 2008 Limited FSA. Employee has balance in HSA at the end of 2008 (and the full further addition in 2009) and wants to use the HSA to reimburse the out-of-pocket dental expenses that exceeded the amount available in the 2008 Limited FSA.

Further complication is that the company switched from using PayFlex as the 125/HSA third party administrator in 2008 to WageWorks in 2009.

WageWorks has twice denied the claim on the basis that the plan can "only reimburse expenses that are incurred during the coverage period." Prior brochures from PayFlex explicitly state that once the Limited FSA is exhausted that further claims may instead use the HSA balance and the employee relied upon this representation.

Any IRS reference on this question? Suggestions?

Company X sponsors a 401(k) plan for its employees. Employee M was hired in 2004 and did not elect to contribute to the 401(k) plan. A few months later, M is called into military service. In July, 2009, M returns from active military service. Is M entitled to contribute make-up deferrals even though s/he had elected not to contribute to the plan prior to going on leave?

I have a copy FASB 2004-02 which deals with finding (or, trying to find) lost participants in a terminated plan. Is there anything out there on finding lost participants in an existing plan? I'm thinking much of the methodology would be the same.

Employer fails to make timely deposit of deferrals as employer did not take the funds from employees paycheck.

Is this just an operational failure for the failure to take the money out of the employee's check or

is it also a late deferral deposit because it was corrected three weeks later?

I had a client contact me on Tuesday about a distribution that was done in November of 2007. Apparently the participant is questioning the distribution code. Here are the facts:

EE's DOB = 11/4/1949

EE's DOT = 7/13/2004

Lump Sum distribution was processed 11/12/07 with a distribution code of 1

Was the correct code used? She was 54 at the time she terminated, and it was a lump sum, as she did not elect to rollover the account balance and she did not have the option for an annuity (this is a 401(k) Profit Sharing Plan). If I researched this correctly, the code is ocrrect, due to her age at DOT. I have been waiting for TAG to get back to me since Tuesday afternoon, but I still haven't heard from them.

Thoughts?

We already know that their elective deferrals can vary, but when it comes to the profit sharing contribution their expectations are all over the map. We're considering the following arrangment, although we realize that it's probably more work than it's worth. Extra work aside, I'm wondering if it will work for plan purposes.

The doctors have set up separate S-Corps for themselves. Then they set up a management entity for the staff and other overhead expenses. The management entity has a 401(k) plan and the S-Corp doctors will be participating employers in that plan. Then the doctors will decide on a profit sharing contribution, let's say 10% of comp. Then, each doctor will adjust his/her own W-2 compensation so that he/she will get 10% of a lot, or 10% of a little. Is there anything about this type of arrangement that the IRS would find fault with?

Employer X maintains a 401(k) plan for its employees. Due to the fact that payroll is decentralized, when there was a change at one of the locations, HQ put the employees onto a new payroll system resulting in deferrals being taken from their compensation but not deposited into the plan. After a few participant complaints, the problem was discovered and the amounts were credited to the affected participants' accounts and credited with earnings at a stable value fund rate (which was higher than the VFC online calculator rate). In preparing a VFC application for this, I read the rules for the class exemption and learned that to get out of the notice requirement, the employer could credit the amount of the 4975 excise tax otherwise due to the affected participants' accounts. Another part of the class exemption states that in lieu of calculating the excise tax, the plan could use the online calculator amount of interest and contribute that. It seems to me that the employees who are impacted by this would be getting double credit for interest, first to make the necessary correction and then to comply with the exception to the notice requirement under the class exemption. Am I missing something or is this what is intended? Thanks.

A new comparability plan is not top-heavy and each participant is their own rate group. The owners are getting maximum allocations, the NHCEs are getting 5%, and certain non-owner HCEs are not getting any allocations. I'm thinking this is OK if all the testing passes but wanted to ask since it looks kind of strange. In the same vein, if the plan were top-heavy, these HCEs could be allocated only 3% and not be subject to the gateway rules, correct? All help is greatly appreciated.

436(j)(3) discusses how the AFTAP transitional rule allows for plan years 2008-2010 to calc the FTAP without a reduction for the credit balance if greater than a certain transitional % instead of the normal 100% rule (2008=92%, 2009=94%,2010=96%), but ONLY if each preceding plan year was not less than the applicable percentage (emphasis added on this last part).

Was there anything in the technical correction bill (WRERA) that modfied and soften this "preceding plan years ALL must also be over the transitional % for those years" ?

I thought I remember something being modified on this preceding years requirement via technical corrections, but I could easily be wrong, or maybe there was something that only applied to shortfall gain/loss calculation. Thoughts/opinions appreciated. thanks.

We have a client that made late contributions 4/06 and 10/06. The contributions were made but they did not include the earnings missed. The missed earnings are $20.52 and $112.55 and have been added to accounts this week.

I understand that they need to file a 5330. I believe that they only need to complete line 3a and schedule C.

It is my understanding that they will need to file a 5330 for 2006, 2007, 2008 and 2009. Would you agree?

Now the big question. How should I calculate the tax? I think it should be 15% of the prohibited amount. (20.52 plus 112.55 times 15%.) Would it be the same calculation for all years?

Also, what description should I use under the "Description Of Prohibited Transaction"?

Any guidance would be appreciated. As you can probably tell, I have never completed a 5330.

Thanks in advance!