I posted this in the ESOP section, but perhaps the question leans more toward cross-testing?

http://benefitslink.com/boards/index.php?s...st&p=181920

An calendar year ESOP plan has 2 valuations per year, June 30 and December 31. The allocation condition is that you must be actively employed on the last day of the valuation period.

An employee who is active on June 30 gets a June 30 allocation, but if they quit December 15, they do not get an additional allocation for the 6-month period ending December 31.

The plan uses a definition of compensation that passes 414(s). The plan uses a pro-rata allocation method for each 6-month allocation period based on compensation paid during that 6-month period.

Assume all 3 are true:

• some employees get no allocations for the June 30 period because they left before June 30, and
  
• some other employees get allocations only for their compensation paid through June 30th because they left before the end of the plan year but after June 30, and
  
• some other employees get allocations based on full year pay because they were active on December 31.
  

Based on the assumptions listed, does this plan design require 401(a)(4) testing?

Can the safe harbor match be used towards satisfying the top heavy requirements? If so, is it then subject to a ACP test? Greatly appreciated, DN

Are participants who are terminated for cause in the year a partial termination occurs entitled to full vesting?

Rev. Rul. 2007-43 provides that "f a partial termination occurs on account of turnover during an applicable period [generally the plan year], all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts."

This makes me think yes. Thoughts?

Is there a certain format that must be used for a plan sponsor to elect use a COB or PFB to reduce the minimum contribution? If so, does anyone know where I can find a sample?

When an IRA distribution is taken "in kind" and the shares are sent to a taxable account the cost basis on the shares in the taxable acount is the fair market value (FMV) on the distribution date. Could anyone tell me where I can find this in print i.e. IRS Pub or Reg?

I'm wondering if anyone can confirm that (a prompt) filing under the DFVC program is the correct approach given the following circumstances:

-Client recently received a letter from the IRS inquiring about a 2006 Form 5500 filing for "Pension Plan A".

-In fact, no 2006 Form 5500 was filed, because as of 12/31/05, "Pension Plan A" was merged into "Pension Plan B".

The problem is that the "Pension Plan A" 2005 Form 5500 filing was not marked as a final return, and did not show zero assets. (It should have, as the merger date was 12/31/05; the Form Preparer apparently did not follow the correct procedure).

The IRS inquiry letter provides a check box to be checked if the recipient (Client) is eligible for DFVC, and asks for the date on which a DFVC submission was made.

Client is currently talking with their Form 5500 preparer about having a corrected 2005 Form prepared.

What I'm not clear on is whether a corrected Form 5500 (marked final and showing zero assets) can just be submitted (with no penalty) or whether a DFVCP filing (and penalty) are necessary.

My assumptions are that:

1. Client needs to submit a corrected 2005 Form 5500 under DFVCP (with $2,000 penalty) [i'm not certain DFVCP is really required, but I can also certainly see the case that it is; i.e. that an incorrect 5500 is treated as a failed 5500 and must be corrected];

2. That having received the IRS inquiry letter does not make Client ineligible for DFVCP as, per the regulations, it is notification from the Department of Labor that could render an applicant ineligible; and

3. That the DFVCP should be submitted before, or by, the date on which a written response is due to the IRS. (Any idea what might happen if the DFVC submission goes in a few days later than the response to the IRS, so long as that proper date is provided in the response?)

Can anyone confirm that these assumptions are correct?

Of course, IRS response is due soon, so I'm hoping to finalize the response on this asap.

Thanks to anyone with insights and/or who may have faced a similar situation.

We have a plan that currenlty allows for forfeitures to be used to first pay for Plan Admin expenses and then to be allocated to participants per non elective employer contribution formula. If we amend the plan to use forfeitures to reduce employer contributions is there are timing issue? Can forfeitures from this plan year be used for any employer contributions of this plan year? Is it on a prospective basis by plan year or from effective date of amendment? I think it can only be prospective and it would be safer to say forfeitures for next plan year will be used for employer contributions for next plan year but can find where I'm prohibited from using them this year.. Any help would be appreciated.

thanks

An calendar year ESOP plan has 2 valuations per year, June 30 and December 31.

The allocation condition is that you must be actively employed on the last day of the valuation period.

An employee who is active on June 30 gets a June 30 allocation, but if they quit December 15, they do not get an additional allocation for the 6-month period ending December 31.

The plan uses a definition of compensation that passes 414(s). The plan uses a pro-rata allocation method for each 6-month allocation period based on compensation paid during that 6-month period.

Assume all 3 are true:

1. some employees get no allocations for the June 30 period because they left before June 30, and
   
2. some other employees get allocations only for their compensation paid through June 30th because they left before the end of the plan year but after June 30, and
   
3. some other employees get allocations based on full year pay because they were active on December 31.
   

Based on the assumptions listed, does this plan design require 401(a)(4) testing?

Wow, I'm not sure I know enough about the securities world to even ask the question right, but here goes.

Edit is because I've cleared up the terminology that I should be using, which may make the question less confusing.

Suppose you have Mr. A, who is a registerd representative with Merrill Lynch. So apparently, if he sells a client some mutual funds with, say, Fidelity, it is through Merrill Lynch as his broker-dealer. Let's say the commissions payable by Fidelity equal $10,000, and are paid to Merrill Lynch. Merrill Lynch takes a cut of $500.00, and pays the balance of $9,500.00 to Mr. A.

When it comes to reporting this on the Schedule C, is it acceptable to merely list Merrill Lynch for $10,000? Or should Merrill Lynch be listed for $500.00 and Mr. A for $9,500.00? I'm finding this very confusing. The DOL FAQ's didn't clear up this question for me, but that's possibly because I understand so little about how the securities world really works.

Second question - suppose a TPA has an alliance with an outside mutual fund company, which also has a recordkeeping platform. The client puts 1 million with the mutual fund company. The mutual fund company then pays the TPA some sort of finders fee, or asset based, fee, whatever, of $1,000.00. But the TPA must turn around and pay the mutual fund company $800.00 for recordkeeping services. Does the Schedule C show:

a. $1,000 to the TPA

b. $1,000 to the TPA and $800 to the mutual fund company

c. a net of $200 to the TPA and $800 to the mutual fund company

d. $1,000 to the TPA and $800.00 to the mutual fund company

e. other

b & d both seem wrong, as they seem to double up and show an artificially high amount. I'd lean towards a. Thoughts?

We just had a participant email regarding a hardship request. They claim a medical hardship, but do not wish to provide the medical bills for privacy reasons. The participant claims that HIPPA affords her that right. Anyone ever dealt with this before? I'm not very familiar with HIPPA and this seems like it may have some validity.

For now, we suggested the care be covered/blacked out so that only the amounts remain on a document that is clearly a medical bill/invoice. This practice should offer the protection the participant wants while still providing meaningful documentation to the sponsor/Trustee.

Any thoughts?

An employee is a participant in a 401(k) plan that excludes union employees. Last year, the employee changed to union status. The union employee is clearly not able to take a distribution (no distributable event), but is he eligible to take out a loan? Does his union status preclude him from this feature? The plan document only addresses "Change in Status" with respect to Years of Service, Years of Vesting service, and eligibility upon a subsequent status change.

Thanks for any help!

Wes

According to EPCRS, Section 13.04, "If the Service and the Plan Sponsor cannot reach an agreement with respect to the correction of the failure(s) or the amount of the sanction, the plan will be disqualified........"

Is there an appeals process that can be initiated at that point?

Hello,

I have a plan document that states integration formula is 4.3% and $20,000.

With 2008 SS wage base at $102,000...this puts the $20,000 below 20% of TWB.

Is this formula still appropriate? and if not, how do I correct it? ignore doc and run at 5.7%?

Thanks so much for answers!!

I have an employer that wants to stop the current match. The match is discretionary and is deposited each pay period. However, they want to amend the Plan to allow for a match at year end and apply a last day rule. My concern is that employees have already accrued the benefit. They are laying off employees near the end of the year and I feel this could pose a problem if they are not given the match. Any suggestions?

My company was listed in BrightScope (www.brightscope.com), a new company that ranks mid-to-large 401(k) plans based on plan costs, investment fund quality, employee generosity etc. My company ranked poorly, and in my opinion and that of our investment advisor, unfairly. I was able to submit updated data to them (data was as of the 2006 5500) and we improved, but I still disagree with several of their scores.

You may want to check out their site to see if your plan is mentioned. You may be surprised with the results.

Wondering if anyone has worked with them. Their business model is fee-for-service, advising plan sponsors on what they can do to improve their plan. Most of the data they use is public but they also use some proprietary data and in-house analysis to arrive at their scores.

Just received a question and I would like someone to speculate on why an organization would consider taking a particular action that has been recommended by a hired consultant.

Would some smart and experienced accountant please tell me why an organization would ask whether a cost basis can be changed without actually selling/buying securities. The one making the inquiry would like to establish a new cost-basis.

This seems very odd. Does the consultant's suggestion seem sound?

To me, not having an accounting background, it seemed that the only way to re-set a cost basis would be to buy or sell securities.

Also, what would resetting the cost basis do to a book value?

Thank you.

My least favorite topic - compensation. I would appreciate any help.

1. If a plan is using W-2 wages per the adoption agreement, and the employer is taxed as a partnership where the partners only receive K-1s, do I have an issue with the partners receiving an allocation?

2. Doctor leaves the practice and is receiving trailing income which they are calling "continuing compensation". It will be reported on a K-1. This is a standardized DC plan, he is eligible for an accrual at year end. Would I include the continuing compensation when calculating his contribution? One attorney told me this would be "deferred compensation" and excluded under the 415 amendment but I can't come to that conclusion.

3. Generally speaking, the final 415 amendment clarifies/modifies the definition of 415 pay. 415 pay is used for various nondiscrimination tests and top heavy. However, if plan is using W-2 pay for allocation purposes, how do I justify looking to the 415 amendment for issues on severance pay, last few weeks rule, etc. for purposes of pay used for contribution calculation?

Thanks!!

Hi - I don't know if anyone can advise me but thought I'd give this forum a try.

The company I used to work for (call it Company A) was bought out 2 years ago this July 1st. At that time I was 100% fully vested and the ESOP was bought out at 3X the stock price if I remember correctly. We were told that the IRS had to review the sale of the company before any ESOP checks would be disbursed (at least that's they way I remember it being explained to me, I'm no financial genius). Any time I asked the HR dept at Company A they just say the IRS is still working on it and don't have any other information. I find it hard to believe that it would take almost 2 yrs for this to be reviewed/approved.

Who would I call/email/mail at the IRS to get some information on this and what sort of information will they need me to provide?

Thanks!

Client terminated a 412i plan and rolled the Life Insurance policy and an Annuity Contract from the 412i into a brand new the 401(k) PS. The client is the only participant, and there are no other monies in the 401(k) Plan.

According to the ERISA Outline Book (2009 version Volume 2, page 3b.75). There is an exception to the incidental benefit rules if the insurance policy is purchased only with seasoned contributions--with the idea being that the plan can allow seasoned contributions to be distributed immediately.

The client intends to use the cash value from the annuity contract to pay premiums for the Life Insurance Policy.

I know that rollover monies are not the same as seasoned profit sharing contributions, but if the plan allows for the distribution of rollover monies immediately does the same logic apply.

I submitted a question to TAG on how the incidental benefit limits work on a rolled over insurance policy, and they said that the incidental benefit limits still apply to all insurance policies regardless of whether they were rolled over or not.

Anyone thoughts (even better a lead to some reading material) would be greatly appreciated!

Would it be permissible for an employer to add a Prevailing Wage (davis bacon) source to a plan but only use that source for some of the davis bacon employees? For example, if the employer has several offices in different states, could they only put the davis bacon fringe for the workers of 1 state in the plan and simply pay the fringe in cash to the davis bacon workers in the other states. I don't see a reason why they could not do this but not sure.