I’m really out of my element here, but am trying to help a client – would appreciate any help you can give! If I should post on another board, please let me know.

Several years ago, a fire fighter’s local union set up a post-retirement benefit trust under Section 105(e) for the purpose of helping to pay for health and life insurance benefits for retirees for the period between when they retire at age 55 and the time that Medicare starts at 65. After they attain age 65 they’re no longer eligible for the benefit.

The plan reimburses the retirees (annually) for a portion of the out-of-pocket cost for health, dental and term life insurance premiums, up to an annual limit. The trustees determine the amount they will be reimbursed based on fund performance, health costs and the number of eligible retirees that year. The trust is funded by an annual payment made by the City. The firefighter’s union agreed to this payment in lieu of a 1% pay increase that would have started the year the plan was set up.

Questions –

1. How would you go about terminating this type of plan and have each employee who contributed to it (indirectly) be treated equitably? You have varying categories of employees based on their age, how long they’ve “contributed” to the plan, and whether they’ve retired or not and starting receiving benefits. The plan has also had significant investment losses in the last couple of years.

2. Could the assets be “split” and allocated to some type of account for each retiree and pre-retiree based on age and how much went into the plan for their benefit?

3. If so, could some type of individual account be set up for each employee to manage on their own?

4. Any way any of these assets could be transferred into a qualified plan for the employees?

5. What type of plan is this ?!?

Thanks in advance for any input on this!

Found a provision in an EGTRRA volume submitter doc that requires a participant who alleges failure to implement investment direction to file a claim within the earlier of 60 days after the mailing of a document from which the error can be discovered or 1 year from the date of the related transaction error. Claims filed outside that period will be limited to the benefit determined if the claim were timely filed. What allows them to put this timing restriction on claims? Does it have to do with the calculation of the claimed loss?

I am confused as to the IRC limit for defined contribution plans. According to IRC 415©(1), the limit is the lesser of 1) 40,000 (indexed for inflation) or 2) 100% of participant's annual compensation. However, with respect to 2), the IRS website states the limit is 25% of participant's annual compensation. I am considering a money purchase plan and want to know if the limit is 25% or 100% of annual compensation. Can anyone refer me to the code?

http://www.irs.gov/irm/part4/irm_04-072-007.html

http://www.irs.gov/retirement/article/0,,id=108949,00.html

We have a Safe Harbor 401k plan with a 3% NE contribution - no match. One of the participants called today to see why there was no 401k coming out of her check. The payroll service they used stopped her 401k deduction in early January 2009 with no reason. The participant is just now noticing on her paycheck that no 401k has been withheld since January.

The payroll service said they have no idea why they stopped the 401k deduction. They are asking what they can do to rectify the situation. I'm not sure what the payroll service can do.

Any ideas?

Our 5500 preparer is telling us the following:

Question 8 (amendment increasing value of benefits): Check INCREASE. This response is required for all plans that base benefits on compensation, where the 401(a)(17) compensation limits increase every year as published by the IRS.

Is that really true? The instructions to Line 8 say to check "increase" if an amendment was asdopted during the plan year that increased the value of benefits in any way. This includes an amendment providing for an increase in teh amount of benefits or rate of accrual, more generlous lump sum factors, COLAs, more rapid vesting, additional payment forms, or earlier eligiblity for some benefits.

While, I will concede that an automatic increase under 401(a)(17) is a cola, we didn't amend the plan this year to make that increase.

Thanks

I have a DB plan document that defines AE as the pre-PPA 417(e) basis for everything, lump sums and converting to optional forms. It defines the Applicable Interest Rate as the 30 Year Treasury Rate and the Applicable Mortality Table as the prevailing commissioner's standard table per Code Section 807(d)(5). The plan pays full lump sums upon termination of employment.

I have read Revenue Ruling 2007-67 and IRS Notice 2008-30 and particularly per Notice 2008-30 Q&A 18 it seems clear that the plan sponsor can switch to the PPA 417(e) basis for both calculating lump sums and for annuity conversions without grandfathering anything.

Agree or disagree?

Here is the situation:

Company A & B are part of a controlled group. They performed coverage testing in 2006 (with just the 2 plans). In 2005, Co. B acquired a new company (Co. C). They want to rely on the transition rule for 2005 & 2006. In 2007, Company A&B still want to rely on the 2006 test results and not complete coverage for Company A&B. The demographics of the plan are Co A&B have about 15,000 with 3,000 or so HCEs. Company C has about 100 ees, with 75 HCEs. Obviously, Company C has coverage issues. Company C is to complete coverage including Co A&B as nonexcludable, not benefiting.

Can Company A&B use the2006 Coverage Test still in 2007 since members of the controlled group changed? Any thoughts would be greatly appreciated.

The gap period income distribution requirement is gone now for returns of excesses due to ADP/ACP testing and going over the 402(g) limit, but can I continue to distribute gap period income if I choose to (and leave it in my plan)? What are most people doing?

I have been completing 5310's and have some general questions.

1. On 15a, should the Current Plan Year always end with the plan termination date, or current date? I have a plan that terminated 8/31/08. Would I use 8/31/08, 12/31/08, or 12/31/09?

2. Number 18(b) - For each year, do I provide the amount of forfeitures that was forfeited from employees accounts during the year, or do I provide the amount of forfeitures that was reallocated to the participants during the year. Since it is in a section with contributions and rollovers, I would think they want the amount reallocated. However, since the 5310 instructions say "If these forfeitures resulted from a cashout for a year not listed on 15a..." it makes it sound like it wants the amounts actually forfeited from the participants for the year.

3. Number 15a(6) - are they asking for all participants who terminated with less than 100% vesting, or all participants with less than 100% vesting who took a distribution? I know it says number of participants who terminated, but then 15b has you list those people, along with the amount and date of distribution. The people who didn't take a distribution obviously wouldn't have that, so I didn't know if they needed included in 15a(6). Also since those people are made 100% vested if they don't take a distribution by the plan termination date, they may not be the people the IRS is interested in.

4. Number 4e - Is this participants as of the plan termination date, or some other date?

Thanks.

A Plan erronously deposited 401(k) employee deferrals into a few particicpants accounts and shorted other participants.

The over contributions will be removed from the affected participants accounts with earnings, but what is the correct way to handle the participants who were shorted?

Here is my question...

I have several clients that are "one man" DB plans. Some are over 250K in assets and need to file an EZ form. Some are way under 250K and do not need to file an EZ for 2008.

Well, if I'm not preparing a 2008 EZ form, do I still need to prepare and "send" the client the Sch B for their records?

Thanks !

Can employees defer to a money purchase plan or are the contributions strictly limited to the amount the employer provides to the Plan?

I have a plan with an age 65 normal retirement age with a benefit formula of 2.4% x YOS (max 10) x High 3. There is an active participant in the plan who is fully accrued (was by age 65), is age 70 and has yet to begin receiving benefits. Up to this point, his benefit has been actuarially increased due to his late retirement. The plan provides that the late retirement benefit is the greater of the actuarially increased benefit or the NRB taking into account any accruals after attainment of retirement age.

The plan is amending the benefit formula from 2.4% per year to 5% per year.

Would the increase in benefit formula be considered an accrual after retirement age, i.e. would his benefit at age 70 be 5% x 10 x High 3 or would it be 5% x 10 x High 3 adjusted from age 65 to 70?

at 12/31/2008, the plan was 90% funded.

The owner passed this week. In terms of pvab, his lump sum payment would have left the plan with zero in the plan. The plan allows lump sums to the spouse. He was at NRA. Can his spouse take the qjsa until there is enough money to pay out a lump sum? or must she continue the qjsa until her death or plan termination? Also, she is also a participant in the plan not at NRA.

Side question, assume the same thing as above, but the owner was taking RMDs. How would that be handled?

A company is 5 days late in depositing elective deferrals. Participants' accounts were down during the period, thus the actual deposit made was worth more than what the "earnings" would have been.

Is there a 5330 to file in this case? The "amount involved" when considering elective deferrals is the lost earnings due. Since there were no lost earnings, there would be no amount involved and thus no excise tax?

I know this has been discussed before, but how aggressive do you feel it is on say a 1 person plan (new plan) to use an NRA of 62, and a ERA of 55 with the ERB fully subsidized at 55 with a 99.99% funding assumption that the owner will take the ERB at 55. Does this sucessfully weave through the concerns of the IRS on post-NRA distributions being done on a reasonable NRA (in this case 62) but still allow us to use 55 for funding ?

I'd appreciate a few votes. On a scale of 1-10 with 10 being VERY aggressive where do you put this strategy ? I "think" the IRS has verbally offered some support for this strategy, or at least not kaboshed it outright, but correct me if I'm wrong.

I am working on a multiple employer plan. It consists of a number of controlled groups. In the past we have tested (ADP, ACP and 410(b) each controlled group separately. Is it okay to test them together? I've read a lot about aggregating multiple plans of one employer or controlled group, but I can't seem to find anything in which I have multiple employers and one plan.

Thanks in advance.

We are in the process of converting a plan that used to be with a large insurance company, invested exclusively in annuities. I've never encountered anything like this, and I'm wondering if anyone can fill me in on what I'm missing.

According to the insurance company, participant loans cannot be transferred to another provider, and they intend to retain sufficient plan assets to collateralize the outstanding loan balances. They say this is because the plan was previously invested in fixed annuity products that could not be liquidated. Therefore the participant loans were made not from plan assets, but from insurance company assets, and must be repaid to the insurance company.

That sounds to me like a third party loan for which the participant has pledged his or her account balance as collateral, not a true participant loan from the plan. Is this really standard practice for plans with annuities?

Plan has a mandatory matching contribution provision and a last day of the plan year requirement to receive a match. Those who retire, are disabled or die prior to the end of the plan year can recieve an allocation (if they deferred). If we move to a discretionary formula during the plan year, we can avoid making allocations because participants have not accrued a right to receive the benefit (they don't accrue a right to receive unless they are employed at the end of the plan year). I assume those who retire, become disabled or die before or after the adoption of the amendment would be entitled to a match. Is that a correct assumption? I assume those who experienced these after the adoption date would not be entitled.

I've got a potential client that is fortunate enough to be experiencing rapid growth. There are only a handful of employees with 3 or more years of service. They are covered under an existing SEP. There are another 50 employees who have less than two years of service. The employer would like to provide a 401(k) plan with matching contributions. She understands the k feature must be offered to all employees with at least one Year of Service. The question is this:

Can the Employer continue to fund the SEP for those employees who have at least 3 years of service?

As you know, if profit sharing were offered in the k plan, the employer could not require more than a two years of service. Can you stretch this to a 3 year wait by funding a SEP instead of Profit Sharing in a 401(k) Plan?

There is plenty of guidance saying the two plans must be aggregated for 415 purposes. Does anyone know of an issue under 401(k), 401(a)(4), 410(a) or (b) that would prohibit the employer from funding the SEP (with only a few participants) for another year or two?

Thanks very much.