I have a Sole Proprietor that had no income in 2008 but has a required contribution to his DB Plan.

He is now terminating his plan.

Can the contribution that was not deducted be paid to him with no taxes or must he roll it over to avoid taxes.

He is actually retiring so there will be no future earned income.

Thanks

ABC Corp, owned 100% by John Doe, shut its doors earlier this year. ABC Corp sponsors a 401k plan. There have been no 401k deferrals made since then and all of the employees were let go involuntarily. The Plan has not formally been terminated yet.

DEF Corp, owned 100% by Jane Doe, opened its doors a few weeks ago. Jane Doe is married to John Doe and it is not known if they have any children. Jane would like to start a 401k plan. Most of the DEF employees used to work for ABC.

There may be some bankruptcy concerns with John and/or ABC Corp.

Are John and Jane better off terminating the ABC 401k plan or better off having DEF become the new sponsor of the ABC plan?

A client received a call from a former participant. He requested a cash out of his account balance in the plan. Balance is below $1,000 (about $980).

Can the client cash out the participant without having the ususal participant distribution election form completed?

Thank you.

Kate Smith

We are in the process of taking over the administration of a 401(k) plan that utilizes the basic safe harbor match. When we reviewed the prior year administration reports we noticed that the client is also making a discretionary match equal to 100% of deferrals (not limited to any % of compensation) in addition to the basic safe harbor match.

It is our understanding that any discretionary match in excess of 6% of pay must be ACP tested since the plan is safe harbor; however the prior TPA did not ever perform the ACP test.

Could someone please confirm that the plan must be ACP tested in years where the discretionary match is greater than 6% of pay?

Any input would be greatly appreciated. Thanks!

Hi,

Plan has auto enrollment, if a participant wants to withdraw contributions, do we need to supply the participant with special tax notice, spousal constent?

Thanks for the assistance.

Jason

Are welfare plans subject to the EFAST rules for the 2009 5500 forms?

I am writing the new plan document for a start up plan. It will be a safe harbor plan for 2009. I know to make the effective date by 10/1/09, but does the first plan year have to be a short plan year?

Defined benefit plan terminated effective 1/1/09. Plan recently received favorable EGTRRA determination letter and elected not to file 5310 with IRS. It has now been discovered that plan failed to include about 20 employees in the plan. Plan wants to correct by making a contribution on behalf of said employees. Can this be done under EPCRS?

Defined benefit plan terminated effective 1/1/09. Plan recently received favorable EGTRRA determination letter and elected not to file 5310 with IRS. It has now been discovered that plan failed to include about 20 employees in the plan. Plan wants to correct by making a contribution on behalf of said employees. Can this be done under EPCRS?

What are the tax consequences for a beneficiary (non-spousal) of a ROTH 401(k) account? Can they roll that over into a ROTH IRA and not pay taxes? Can they take a lump sum distribution and not pay taxes either? Is there any circumstance where a non-spouse beneficiary of a ROTH 401K account would have to pay taxes?

Thanks in advance!

Is the max for the entire family? Or could an employee and their spouse (different employer) both elect $5,000 with their own employer. I am thinking it is $5,000 for the entire family (not $10,000).

I deal with a handful of Pennsylvania Governmental Money Purchase Plans.

They are all straight forward plans in that the same contribution % is given to all ee's.

I have come across a new plan whereby the governmental agency as a whole opts out of social security.

However, they are looking into the option of allowing the employees to opt in but then those employees would not receive the same contribution as those that opted out.

Does anyone see a concern in the plan docment classifying the ee's in one of these categories, with those opting in to social security receiving a contribution much less than the other group.

The groups would be:

Class A = Opt IN

Class B = Opt Out

Comments are greatly appreciated.

A DB plan with an NRD=65 has a participant who terminated employment prior to age 65 and is now making application for benefits at age 70. The plan contains retroactive annuity start date language. The NRB is $350 and the lump sum benefit is $64,000. The accumulated life only payments with interest is $28,000. The Plan's AFTAP is 70% so lump sum benefits are restricted to 50%.

Case I.

Participant elects life only benefit, so first payment includes accumulated back payments of $28,000. Whether or not you believe this is a lump sum payment, it is less than 1/2 of $64,000.

Case II.

Participant elects to bifurcase benefit and receive lump sum of $32,000 plus monthly pension of $175. His initial payment is $32,000 (1/2 of $64,000) + $14,000 (1/2 of $28,000) = $46,000. I say no problem since although accumulated back payments are distributed in a lump sum, they do not constitute a lump sum payment (i.e., can't be rolled over).

Any naysayers who wish to argue that accumulated back payments are included with the lump sum when determining the restricted benefit?

Here is my last question for today...lol

I was looking at some of our take over valuations from other actuaries and saw calculations done two different ways...

Let's say you have a calendar year DB ....Valuation date 1/1/08. Using 5.31, 5.92 and 6.43 segment rates. Participant had a NRA of 65 and is currently 45 years old as of the valuation date. When calculating his TNC and Funding Target, you take the present value of the aforementioned benefits as of the valuation date. When discounting back to current age (e.g present value) would you discount back using 5.31 for the first 5 years, then 5.92 for the next 15 or just use 5.92 for the entire period since he is 20 years from retirement and no benefits are assumed to be paid before retirement?

I say you use just 5.92 ..what do you say???

I have another question ....by the way....I love this forum all you guys and gals are great!

Now on to the matter at hand....lol

How many of you use preretirement mortality when calculating the Target Normal Cost and Funding Target?

Most of my DB plans are under 10 lives....we're a small actuarial firm.

I was curious is anybody is still using 83 IAM these days or have you all switched to a more "modern" table?

Would investment management expenses need to be added to the TNC for 2009?

Do you see any issues with the following structure satisfying the 401(k) safe harbor rules.

Plan X provides for two safe harbor formuals. Employees in Group A get a the NEC. Employees in Group B get the basic match.

Does anyone have the Moody's Monthly Corporate Average Bond Yields for December 2007 and December 2008? I've searched this site, but haven't found this exact info. Thanks!

Ok, I'm not sure if anyone is aware but there was a major settlement involving two companies which I believe is going to have a drastic impact on the cost of Rx drugs. A class action lawsuit was filed against First Databank Inc. and McKesson Corporation. The issue was their raising the Average Wholesale Price of hundred of Rx drugs by 5% on an arbitrary basis.

Essentially, from what I gather, a manufactor creates a drug and sells that to a wholesaler. The wholesaler then sells that to pharmacies. The price pharmacies pay are based on a published index called the "Wholesale Acquisition Cost" (WAC). The WAC is set by drug manufacturers and published by companies such as First Databank. Wholesalers will then use the WAC to set the price they charge to pharmacies. The pharmacy is then paid by my (or the participant's) co-payment and a reimbursement from the Rx drug plan. The Reimbursement is based on a benchmark called the Average Wholesale Price which is also published by First Datanbank and other such companies. Simple economics show that the profit a pharmacy receives is based on the price they pay to a wholesaler (based on the WAC) and what they are paid by the insurance co under the AWP. The AWP is not based on what the pharmacy actually paid for the drug, but instead is supposed to be an estimate of what pharmacies generally pay for that drug. Moreover, the WAC-to-AWP spread does include a markup which is historically 20%

The essence of the litation is that First Databank and others arbitrarily raised the WAC-to-AWP spread by 5% on over 400 drugs beginning in 2002 and continuing until this court action (filed in the district court of Mass). From what I gather, the increase was added to the AWP of many drugs. The parties reached a settlement whereby First Data agreed to roll back the "WAC-to-AWP" spread from 25% to 20% on affected drugs.

As you can imagine, Prescription Drug Benefit Managers and Pharmacies are worried because this cuts into their profits. Our PBM has presented us with an amendment to the Rx plan whereby we would continue to use the pre-litigation AWP. Has anyone else received such an amendment? If so, have you executed it and if you have not, what was the consequence? Did the PBM terminate the agreement?

I would imagine that the premiums a plan pays are based on the AWP. Certainly, the Rx plan negotiates with a pharmacy to pay a discounted rate based on the AWP. For example, the rate could be equal to: AWP - 15% + $3.00 dispensing fee.

If the AWP is lowered, the members of the plan should be charged less for a particular drug. I'm asking because I don't see any benefit in signing this amendment other than keeping the PBM (my fear is that they will terminate the agreement). The rep indicated that pharmacies are worried and have indicated that they would terminate their participating network agreements if the new rates were imposed.

I need to advise a client on this and personally, I believe the whole pricing scheme is just that....a scheme. I feel like they should not sign the amendment and force the PBM to use the new AWP and have them fight it out with the pharmacies. What I don't want to do is have an interruption in Rx coverage for plan participants.

Any thoughts on this? Sorry about the length but I felt that background was necessary