IRS ISSUE 1: Disallowance of first year’s premium. The IRS actuary says "In general, a qualified plan does not exist unless a corresponding trust also exists. When a qualified plan is first established, the trust must be in existence no later than thel ast day of the initial plan year for the plan to be in existence with respect to that plan year. Within the context of a plan described under IRC section 412(i), the insurance policies and annuity contracts that are used to fund the retirement benefits function in the same manner as a trust functions with regard to a traditionally funded defined benefit plan. Therefore, if the policies are not in effect and if no premiums were actually paid until after February 28, 2000, not only does the plan fail to be a plan described under IRC section 412(i) in 1999, but also the plan itself does not exist in 1999. Therefore, the deduction for 1999 (or 2000 depending on how the tax year correlates to the plan year) should be disallowed."

The client made the 1st year contribution within 8 1/2 months of the plan anniversary. How do you argue with the IRS actuaries assertion? Funding the 1st year contribution after the 1st plan year end in a 412(i) is a very common practice. Anyway, how can they take away an eight year old deduction? What happened to the statute of limitations.

Thanks, much help needed on this one.

Does anybody know what the deadline was for amending a plan to provide for non-spousal rollovers in 2008? I seem to recall that the provision could be implemented during 2008 at the option of the plan sponsor, but that there was a remedial amendment period. Or was it necessary to amend the plan by the end of the 2008 plan year?

Thanks!

Can the Plan Sponsor pay distribution fees from the Plan? For example, if the lump sum is $500, can there be two checks written from the Plan - one for $500 to participant and one for a $100 processing fee for the distribution? Or do the fees have to be paid outside of the Plan?

We have a failed roth conversion. If we inform the IRA provider that the IRS is taking the position that we have a failed conversion, will the IRA provider simply allow the taxpayer to move the assets out of the Roth without issuing a 1099? Do they report anything to the IRS?

If a company whos main office is located in Kentucky has various other locations in other states, WV, FL, IN, etc....they put a cafeteria plan into place and offer to all employees eligible in all locations, is the cafeteria plan governed by ky law since that is the main office or do all of the states apply and you need to find out how the states differ to manage the cafeteria plan?

Does a 401-k plan that is not eligible for Form 5500-EZ have to file a 5500 if they have less than $100,000 in assets? They have never had over that amount (a new plan started 01/01/2008)?? I'm thinking they do, but not 100%.

I've searched for info on this topic to no avail and am hopeful someone can lead me to more information.

I have a client that pays severance benefits from its over-funded pension plans (yes, they do exist!), both DB and Cash Balance plans. My contacts at the company (in Treasury) have been unable to give me details on the mechanics. My vague understanding (perhaps incorrect) is that an employee is given an option to receive a severance benefit in a lump-sum, or to take it as an addition to their retirement account or ultimate pension payments. (most take the lump sum, of course).

Can anyone who is familiar with this arrangement lead me to more information?

Another, related question: Can a Supplemental Unemployment Benefits Plan (SUB Plan or SUB Pay) Trust under 501©(17) be funded with Pension distributions?

Thanks,

Joe

I know this is asking for the obvious, but does anyone have any authority for the position that 1.401(a)(4)-4© only requires that a benefit right or feature be available on a non-discriminatory basis, and that there is no requirement that any NHCEs actually take advantage of the BRF, as long as it is available to them and they knew about it?

We have a situation where self-direction was available to all participants and it was in the SPD, but no NHCEs took advantage of it, so we're getting heat from the reviewing IRS agent.

Can the effective rate be outside the range of the interest segments??

For example, a plan has a 5%, 5% Applicable actuarial equivalence and the sole participant is 62 retiring at 65. There is no effective rate within the range (assuming a 1/1/2009 valuation) of interest segments that will work.

Another PPA anomaly???

A client is converting a 412i plan back to a regular DB plan. The primary issue appears to be that the PPA valuation reflects 100% lump sums. However, the proposed regulation method which uses the interest segments and the plan PVAB are producing a funding target less than the current lump sums in the policies. Is it acceptable to set the funding target equal to the grandfathered lump sums (knowing these are not moving and will disappear over a period of years)??

This could also create the problem where although there are benefits accruing that the normal cost is zero because the minimum lump sums have not been reached.

DC Plan client (I'm the TPA) forwarded a presumably "proposed QDRO" to me for initial review and input. First and foremost - I do not even begin to presume or purport to have the knowledge and/or experience to deem whether a "DRO" is qualified or not - but can usually point out any "glaring" issues - and then recommend forwarding "to counsel" for review and opinion.

Apparently, the participant's now ex-spouse (trying to save a few bucks) attempted a "do-it-yourself" QDRO and was able to get her attorney to file it with the court.

The proposed QDRO appears to me - at first blush, anyway - to contain language more pertinent to a DB Plan than to a DC Plan. I am posting this just for general feedback from the more learned and experienced of you out there.

Following is some of the language contained in the proposed QDRO (all "emphasis" has been added by me):

The Alternate Payee's award is payable for "the duration of the Participant's lifetime".

The Alternate Payee's interest in the Plan is to be determined by the following formula: A marital fraction multiplied by 50% and then multiplied by the Participant's "accrued benefit at benefit commencement".

The Alternate Payee's benefit shall be paid to the Alternate Payee in such form "as elected by the Participant" (?!) at the Participant's benefit commencement.

In the event of the Alternate Payee's death, either prior to or after the commencement of the Alternate Payee's benefit, the Alternate Payee's benefit "will revert to the Participant". (Sounds like a CSI - Pension Crimes Unit plot/motive to me!)

In addition, there are other references to "standard actuarial assumptions", "early retirement factors", "post retirement increases" - all of which lead me to believe that this is "way off base" for a DC Plan QDRO - or am I?

Thanks for any and all comments.

Does a lump sum distribution mean one complete distribution of the account balance? Participant is terminated and only wants to take part of his account balance. Can he do this if the plan only allows for lump sum distributions? If the Plan were to add installments as a form of distribution do they have to take so much money for so many years? We certainly don't want to offer the annuity option.

According to an employer's payroll practices (not covered in the plan document), payroll taxes, court ordered payments, loan repayments (etc) are deducted from a participant's paycheck before elective deferrals to the participant's 401(k). Recently, the employer has encountered the situation where there is not enough money in the participant's paycheck (after the above listed deductions) to cover the 401(k) deferral elected by the participant. The plan document states that "the amount which the employee elects or agrees to be contributed to the plan shall be the amount by which the employee's compensation is reduced."

Is there any guidance on what the employer should do here (may the employer skip the deduction altogether (with no opportunity for make-up) or must any available amount be deducted and a corresponding contribution to the 401(k) be made)?

This topic was discussed in the April 2008 thread "401(k) elective deferral hierarchy," but no consensus was reached. Any advice would be greatly appreciated!

Thank you!

New Comparability calendar year plan has two allocation groups, each with an allocation % defined in the plan document. No hours requirement or last day rule to receive an allocation, basically if you work an hour of service you're entitled to an allocation. Employer would like to amend plan to remove the fixed allocation percentages and make contribution amount discretionary and only provide defined contribution amounts up to the plan amendment effective date. Can this be done during the plan year? It has been my understanding that once a participant meets the requirements for an annual allocation he/she must receive the allocation amount in the document at that time. Thanks.

How long are participant distribution election forms valid for? We have been using 180 days, but I want to confirm that is correct. Also, would that really mean if a distribution was processed and some time later the former participant receives more money (funding safe harbor or psp contributions in next plan year, etc) would you require a new distribution election or can you act on the original instructions even if it is older than 180 days?

We operate in a daily valuation environment and quite often have people take distributions and then get more money later and are trying to figure out the best way to handle the second distribution. In some cases there could be a year or more in between distributions - participant terms early in plan year and takes distribution but was due safe harbor or profit sharing that is not even computed until Feb/March of the next year and not funded until September. Is it ok to use the original form?

We are also trying to figure the best way to indentify these people. Those with small balances are easier to find because we run lists to determine who is under $1000 for mandatory distributions, but again, should we be paying them according to their original instruction or expect a new one and if none is received pay them in a lump sum? We use Relius Administration and there is a terminee w/residual balance report, but it seems to pick up rehires that have balances again and not always terminees with balances after a distribution has been paid. I'm going to work on a custom crystal report to add the "termination distribution processed" field to a report we use now with employee balances and term dates.

Thanks for the feedback!

While doing the 2008 5500 I discovered that Form 5500 was filed for 2005, 2006 and 2007 using the employer's old EIN which was changed in 2005.

If I amend 2005-2007, do I include just the Form 5500 showing the new EIN or should I include the Schedule I for each year and Schedule P (for 2005) since the EIN is on these forms. Nothing else has changed on either schedule.

Want to get DOL everything they need and don't want client to have to see all the schelules and panic if they are not necessary.

Thanks for any input

I've set up a lot of 401(k) Plans that give each participant their own brokerage account, be it Schwab, Morgan Stanley, etc. The accounts are titled in the name of the plan FBO the participant. The participant invests as (s)he sees fit.

Monthly statements go to each participant's home, as well as to the trustee and the TPA.

I can see some merit in the required DOL safe harbor statement regarding diversification and furnishing the link to their website. I have a big issue with furnishing what is essentially a boiler-plate notice QUARTERLY. It strikes me as entirely paternalistic, time and tree wasting. Change your underwear, don't talk to strangers, look both ways and diversify! QUARTERLY?

Does anyone administer this type of arrangement and have an artful way of selling this need to the sponsor (other than the DOL says you have to)?

Does anyone stick this stuff on the Summary Annual Report for non-participant-directed plans?

Can anyone make a recommendation for a company that issues buyer's and seller's bonds under Section 4204 of ERISA? I am having trouble finding a company that underwrites such bonds. Thanks. Brian

As a small non profit are we required to have a vesting schedule for our 403(b)

( 1yr, step down, 2yr 100 %) or can we immediately vest employer contributions?

I work for a broker of 401(k) plans - we have a client with a late contribution from 2008 (about $7K) - I used the VCFP calculator to calculate the lost earnings ($150) and the client will be sending in the contribution and earnings to the trust. My question is this - is there a disadvantage to going through the VFCP program (and filing the application) versus just self-correcting (and not going through the VFCP)? This is the only late contribution and there are no other compliance issues with the plan. Can anyone else who has been thorugh the VFCP process let me know whether this causes more issues for a plan (like bringing about an audit)?