I have a plan client we are auditing, and one of the distributions we have selected for testing is for a terminated participant who has been taking a flat dollar distribuiton each year. This participant is not subject to RMDs and the custodian is not withholding income taxes on the distribution in accordance with the participant's election on a W4-P completed when the plan was with a predecessor custodian. The distribution appears to me to be an eligible rollover distribution and thus subject to mandatory federal withholding. Does anyone know a reason it would not be subject to withholding?

I'm having a senior moment. I seem to recall that something has crossed my desk very recently dealing with administrative delay. Either it was a court case or an IRS ruling, or, I guess, something else entirely. <sigh>

In any event, my recollection is that a participant was entitled to a benefit of some sort and the Plan Administrator delayed, in some manner, the processing of the benefit. The participant either claimed or was allowed to recoup what the benefit would have been had the Plan Administrator not delayed.

Was I just dreaming? Or did something like this circulate in recent times?

Participant received distribution in 2009, wants 1099-R issued now.

Relius software appears to issue only 2008 Forms.

How would you handle this?

Thanks for any help!

A parent would like Subsidiary A to assume sponsorship of Subsidiary B's two pension plans--one for union employees which was frozen years ago and one for salaried employees. It's a controlled group--A and B are wholly owned by the foreign parent.

Beyond drafting a resolution by A and B, and Plan Amendments, are there any other formal notice requirements to participants or to the government?

The PBGC has a 30 day notice requirement, as does the IRS Form 5310, for mergers or consolidations, but the same requirements don't seem to apply in this case.

What is other people's experience? How soon can this be accomplished?

I have a client who currently funds his Defined Benefit Pension Plan. The client also has a rollover IRA wich he wishes to convert to a Roth IRA in 2010 to be exempt from the AGI level. The accountant is advising the client that the Defined Benefit Pension Plan would have to be terminated for the conversion to take place. I cannot imagine this to be true, yet I cannot find any back-up to support my thoughts. Any help is greatly appreciated Thanks

My Roth IRA made a Loan to the 51% owner of an LLC that owns and manages real estate. We want to convert that loan to a purchase. The real estate is mortgaged and the lender is OK with that but wants me to become a "Key Principal". Is that a Prohibited Transaction? (If so, The borrower/seller is willing to remain as the Key Principal, and lender says OK.)

Also, how are distributions treated? Are they UBI? What are the tax considerations? What about if either the LLC or the property is sold; is the gain taxable?

The Custodian Company pushes Roth IRA RE investments but doesn't mention anything about UBI being taxable.

We are auditing the December 31, 2008 financial statements for a defined benefit plan. The plan was formed Aug 11, 2008. The actuary did not do a valuation since the first valuation for the plan will be based on beginning year balances ( 1/1/09 for the period of 8/11/08 – 12/31/08). The report received from the actuary states "Actuarial Valuation for Funding Purposes as of 8/11/08. Does anyone know how to footnote the Accumulated Plan Benefits? Usually, this footnote would state the vested benefits, non-vested benefits and then the changes between valuation periods. Would you just disclose that no valuation was performed?

Should TPAs be using circular 230 disclosure on letterhead/e-mail/fax correspondence?

Happy 4th of July to all. Take a minute to appreciate what a great country we live in.

We have a group of doctors-emergency room docs. They form a corporation (Corp) to negotiate with the hospital. Each doc or his/her corp owns a part of Corp. Hospital pays Corp providing a detail of which doc performed the service. Corp pays this money to performing doc after a small administrative fee. Corp issues 1099 to doc.

I've looked at Sal's EOB and also Watson's "Who's the Employer". The conclusion is that Corp is not A FSO. However, in EOB the last sentence on page 1A.4 and in 6.f.1)a on page 1A.7 there is an aguement that this is not the case.

Any experience or thoughts on this??

If part of the definition of a FSO is that it is "organized for the purpose of providing professional services" does that mean the that Corp has to actually perform the services or is its activity of negotiations etc an act of providing the service?

There are a couple of DB plans involved in this.

If the address listed for the alternate payee (AP) is "c/o J. Doe" and AP is not J. Doe, does this belie the requirement that the QDRO list the AP's address?

Probably more significantly, does the plan need AP to sign a written authorization for the plan to send any information about the QDRO or awarded benefits to "J. Doe" as a representative of AP before the plan can use that address?

Venture-backed client is putting together a cash long-term incentive plan. The basic terms they want are (1) service-based vesting over 5 years, (2) payment upon the first to occur of an IPO or a change in control, with accelerated 100% vesting if a payment event occurs before year 5. The amount of the bonuses will be based on the proceeds received in the liquidity event. CIC will be defined to meet 409A change in ownership of corporation and change in ownership of assets rules.

A few questions:

1. My understanding is that the occurrence of an IPO or CIC may be a substantial risk of forfeiture, if the possibility that these events will not occur and the employee not getting paid is substantial. My concern is that since the service-based vesting would end after 5 years, how can you get comfortable that the 409A SROF would continue until an IPO or CIC occurs (which would seem necessary in order to comply with 409A since IPO is not a permissible payment event). While there is no sale or IPO contemplated, I am not sure you can say that the risk one will not occur in the next 10, 20 etc. years is substantial.

Anyone have any thoughts on when a CIC/IPO is a valid SROF where employment is not required through closing, especially when the corp. is substantially owned by venture capital investors?

Any articles or commentary on this subject anyone is aware of?

Does this just boil down to risk tolerance -- in other words, to avoid any risk, only pay on CIC and not IPO?

2. If I can get past the first hurdle, it would seem necessary to require payment either within the short-term deferral period after the IPO/CIC or on a fixed schedule tied to the IPO/CIC. It appears that I could not use the "transaction-based compensation" payment rules on a CIC. Is this correct?

Thanks for any help that can be given.

Sole proprietor establishes a safe harbor 401(k) plan in 2007 for which we are the TPA. While reviewing the 2008 Form 5500 the trustee calls us to say that we have used the wrong EIN on the form. After further questioning, it seems that the client became an LLC in February 2008, but never mentioned it to us until now. The LLC has never been added as a participating employer, but it issued all of the 2008 W-2s, including reporting salary deferrals. The LLC also made the SH match contribution.

This is a tiny plan with 4 participants (including the owner and his wife) and less than $10,000 in assets after almost 2 years. Any suggestions about a fix it that won't cost more than the plan is worth?

Mr. Rigby was kind enough to point out that their are PPA act sections that for some reason were not included in the revisons to the IRC and were not noted in WRERA. Act Section 115, for example, provides relaxed transition (e.g., 90% rather than 92% of FT in 2008; 92% rather then 94% in 2009; etc.) under certain circumstances for employers engaged in interurban or interstate public bus transportation. You will not find reference to this treatment in IRC Sec. 430©(5). Not a biggie unless your client just happens to be one of the affected employers.

The point is not to get too comfortable relying just on the IRC and regulations. It also begs the question of whether or not the act should be followed to the extent it has not been codified in the IRC. Clearly, technical corrections should address this.

Company A maintains a NQDC plan subject to 409A. Company A is the sole member of LLC B. LLC B is a "participating employer" in the NQDC plan. The Plan's relevant payment trigger is a separation from service.

LLC B is a disregarded entity for most federal tax purposes and is treated as a division of Company A.

Company A sells its membership interest in LLC B to an unrelated Purchaser. For Company A's tax purposes, the transaction is treated as an asset sale.

Question: Do the LLC B employees who participate in the NQDC plan have a separation from service under 409A?

Zero guidance on this issue in the final regulations and the preamble to same and no commentary to date on the topic.

In the qualified plan world, I'm always leery of disregarded entities, e.g., if a parent with a 401(k) plan wants to extend the plan to the employees at the disregarded entity level, it's a safe practice to have the disregarded entity adopt the plan, etc.

Thanks.

What is the difference between a merger and a consolidation?

Hi,

Question regarding auto enrollments, if participant is auto enrolled and then opts out and receives distribution, I am assuming that they are considered as 'to never have deferred' for ADP purposes, so they are zero for tests?

Also, since it was auto enrolled, then opted out, a contribution will show going into/ out of trust. How is this reflected on the 5500? Do they negate one another and therefore not shown as a contribution or as benefit paid?

Thanks,

Jasofk

A small employer with only 3 participants in a PSP goes ot of business. Each of the three participants still have an account balance in his/her PSP account.

The business no longer exists, the former owner has moved to Flordia, and the three plan participants have found employment elsewhere.

I realize that plan still exists because it has assets. The three participants seem to have no desire to request a distribution. And the former owner (who is also the sponsor/ administrator) tells me that he does not have to file any more 5500's because the business no longer exists.

Can anyone tell me the consequences to the owner (fiduciary) if he fails to continue to file 5500's for the PSP, as long as the PSP still has assets? I want to inform (scare) him into realizing that just because his business has closed, he still has fiduciary duties.

The owner tells me that the plan automatically terminated when the business closed. He is wrong, isn't he ?

Also, would the $1,000 per day penalty for not filing have to be paid personally by fiduciary or from the plan's assets?

Thanks

A corporation is dissolving and terminating the plan July 31st due to substantial business hardship. They currently have an end of year 3% non-elective safe harbor feature.

Since the plan is terminating due to a substantial business hardship it is my understanding they can eliminate the 3% non-elective contribution and use the ADP test.

Does anyone see a problem with my analysis?

DB plan has employee contributions. Participants wants to receive monthly employer benefit and withdraw employee contributions+interest and then rollover only the interest portion. In that case, no part of the cashout will be taxed now, however, am I correct that since taxes are spread out between cashout and monthly payments, the basis is different from the rollover amount in this case? Here is a simplified version of the calculation:

Post tax employee contributions 10,000 Already taxed

Interest 20,000 Not yet taxed

Total 30,000

Monthly Benefit

EE Part 500

ER Part 1,500

Total 2,000

# payments 210

Excludable from tax 2,500

Taxable 27,500

Total 30,000

Excludable from tax (10,000 - 2,500) / 210 = 36 (of monthly benefit)

So, although $20,000 is rolled over, only $2,500 of that is actually taxable upon withdrawal?

A small employer has a calendar year. They have never had a plan and want to adopt a safe harbor 401(k) plan for 2009.

1. It is our understanding that if the plan is actually adopted 7/15/2009 as a new plan, safe harbor notices can be provided just before that date.

2. Must the effective date be 7/15/2009 or can it be 1/1/2009 with safe harbor provisions effective 7/15/2009? In this case SH NEC's would be based on salary for the entire year.

3. If the plan is adopted 7/15/2009, must comp limit and 415 limit be pro-rated for the short year?

Thanks a million!