A plan has always used permitted disparity to allocate the profit sharing contribution. When the plan was restated for GUST, a pro rata allocation method was selected (prototype). The administrator continued to apply permitted disparityas provided for in the pre-GUST document. We were recently retained as TPA and found the error.

1) Can the problem be corrected by retroactive amendment filed under VCP? My initial response was "sure, why not". However, it concerns me concern is that the NHCEs would have received higher allocations under pro rata, which the document required. It can be argued that the rectroactive amendment will benefit only HCEs. Will this be ok with the IRS?

2) Is the answer to #1 is yes, can the streamlined application procedures be used?

I have been researching potential correction alternatives for discounted stock options and am having a difficult time finding recent guidance. In particular, I am concerned with discounted options granted last year that have not yet vested. Correction under the discounted option provisons in Section V (E) of Notice 2008-113 does not appear available because (1) some options were granted to "insiders" and no correction was made in 2008, and (2) all options were granted under a plan / agreement that did not expressly require options to be granted with exercise price at no less than FMV (i.e., the plan says the Board can determine exercise price of NSOs). Both of those seem prerequisites for correcting under 2008-113's express provisions regarding discounted stock options in Section V(E).

Because the express correction provisions for discounted options under 2008-113 do not seem available, we are looking at whether there are other possible alternatives for correcting or modifying unvested discounted options at this time in order to avoid or limit 409A liabilty. Our general theory being that since the options have not vested, they have not triggered taxes for 409A or other purposes yet and there should be something that can be done prior to vesting to avoid 409A issues. Some possible considerations include:

1. Is it possible to correct the discounted options under Sections VI and/or VII of 2008-113 if the options otherwise qualify even though the options do not qualify for correction under Section V(E) of 2008-113. Unlike Section V(E), correction under Sections VI or VII would result in a 20% penalty / excise tax on some amount. What would this 20% tax be assessed on in such cases--20% of the spread between the exercise price and what the exercise price should have been on the date of grant, 20% of the spread between the exercise price and the FMV on the date of the correction, or something else?

2. Could we argue that since the options have not yet vested, under 2008-115 and the proposed tax regulations that we should be able to amend the awards prior to vesting to comply 409A (e.g., by simply increasing exercise price to what it should have been on date of grant or maybe leaving the exercise price but requiring the options to be exercised upon a 409A-defined change in control)? (Seems that would only have chance of working, however, to the extent the amendments could be made prior to the beginning of the year the options otherwise vest. Unfortunately, many of our options will vest in 2009 so it may be too late to amend unvested options?)

3. Could we cancel or terminate the discounted stock options prior to vesting and then simply regrant participants new restricted stock shares to make up the difference (or alternatively arrange for an option exchange program prior to vesting to swap out the discounted options for restricted stock)? Would this constitute a prohibited modification of a stock right under the 409A regulations or otherwise subject the replacement stock grants to 409A and 409A excise taxes?

In short, I am confused about whether the limited provisions in Section V (E) of Notice 2008-113 addressing correction of discounted options is the sole correction alternative for discounted options such that if you do not qualify under that, there is no other fix. If 409A tax event does not occur until discounted options actually vest, can you do something outside of the express discounted option correction procedures outlined in 2008-113 to fix them?

Plan compensation definition excludes bonuses, overtime and commissions (does not meet compensation ratio test). When testing ACP with any other 414(s) definition, the test fails. Since this is considered the general test for matching contributions, would the following be true:

1. Plan Compensation would need to be amended to a definition that meets 414(s) - for example, the definition is amended to include bonuses and the comp now meets 414(s). Additional contributions would need to be made to participants.

2. I need to re-test ACP, now to include the additional contributions.

I know this issue has been covered with respect to testing comp, but I could not find any discussion with respect to a failed ACP test under these circumstances.

Thanks!

Plan permits in service distributions at age 65. Plan also provides for annuities. Must a spouse consent to a participant's request for in service distributions?

Is this treated like a taxable distribution (i.e. regular income tax plus 10% penalty applies) but no upfront withholding is required?

Thank YOU

Has anyone looked at the interaction of a 401(h) account and the Medicare Part D subsidy? Specifically, does the subsidy have to be "returned" to the 401(h) account to avoid a theoretical reversion?

If an Employer discovers that an employee has submitted fraudulent claims and the employee has been reimbursed for these expenses, is their any tax implication to that employee?

Plan has partial termination in 2007. Only "employee" with balance at end of 2008 is owner. No other employees are covered under the plan. Form 5500 was filed in 2007. Qualifies to file Form 5500EZ in 2008 based on requirements. Can you go back to a Form 5500EZ once you have filed a Form 55500 in the past?

Plan has been operating for several years under plan terms that were supposedly modified by an amendment. Problem is that amendment should have changed allocation requirments to no conditions, but did not. Plan languange still says 1000 Hours and Last Day required to receive allocation. Operationally, the plan allocated to all participants, regardless of hours and employment status. While this was exclusively a benefit for the NHCE, it was still an operational failure. This went on for over 5 years! How should this be corrected?

Thanks for any and all comments.

I have a plan with a plan year beginning 12/31/2008 and a 12/31/2008 valuation date. My reading of the 3/31/2009 EP News is that I can use the November 2008 full yield curve for the 2008 valuation. They mention January 1, 2009 but it appears to be as an example. Agree?

Are there any restrictions on assets that may be used for an unforeseeable emergency? That is, can earnings on employee deferrals, employer contributions and earnings thereon be used for this type of distribution?

Company has two plans that cover all the same people except the 401(k) plan excludes "Associates" and the Profit Sharing plan does not. The 401(k) Plan has immediate vesting for all contributions. The profit sharing plan has a 3 year cliff vesting schedule. The plans are required to be aggregated and are top heavy. Plan documents indicate the top heavy minimum should be made to each plan. Everyone except assocaites has an account in the profit sharing plan and their top heavy minimum is deposited in the profit sharing plan. A rich enough profit sharing contribution more than covers the top heavy minimum contribution on most employees. Can the associates get their top heavy minimum deposited in the 401(k) plan and be subject to full vesting and everyone else who is in the profit sharing plan get their top heavy minimum in the profit sharing plan and have to wait 3 years for vesting? If so does the plans need to be tested for benefits, rights and features?

I've always been in the habit of filing a final schedule B along with a plan's final return. In the case where the plan had an EOY valuation date, the B would be all zeroes (except for the BOY RPA entries) since the plan would be fully distributed before the last day of the year. For plans with BOY valuations, I would do a regular valuation just like every other year except the projected benefits would equal the accrued benefits with 100% vesting. The half dozen or so actuaries that I've worked with over the years never indicated any problem with either of these approaches, regardless of whether the plan termination date was in the final year or the prior year.

Recently, a well-respected peer with 20+ years of experience pointed out that it's never a good idea to file a B with all zeroes, so a plan with an EOY val date should change it to BOY. With a BOY val, if the plan termination date occurs during the final year, a B should be filed. However, if the term date was in the prior year, a B should not be filed. Incidentally, I'm hoping this approach is OK since I have a plan that would "work out" if this was the case (barring keeping the EOY val date). My concern, other than filing a 5500 for a DB plan without a B, is, wouldn't one have to do a val just because a val date has elapsed? Is it not necessary because a val is being done within a year of the distributions? Using actual dates for a plan with a 12/31 PYE, consider a plan term date of 11/15/08 and a val being done as of 12/31/08. A val is then not done on 1/1/09 (after change to BOY), all assets are distributed 6/1/09 and a final return is filed without a B. Has anyone on this board handled a terminating DB plan this way?

We have a client with a safe harbor 3% 401(k) plan. The safe harbor is based on plan year compensation and in the past has been contributed after the end of the plan year along with their profit sharing. They would now like to begin depositing the safe harbor as the year goes along. They have monthly pay periods and after the 1st quarter 2009 is calculated, they will begin depositing the SH along with their deferrals. This is a new comp plan and only the NHCE's receive the safe harbor. The profit sharing can offset the safe harbor so the HCE's get their contribution, just as a profit sharing instead of safe harbor. And they would like to fund for themselves as well each month. The profit sharing has a last day of the year and 1,000 hour requirement. We talked about going ahead and funding the PS for the 2 HCE's (both 50% owners), but now are realizing that they have 2 other HCE's. It is a little tougher to count on everyone being there at the end of the year when 2 of the HCE's are non-owners. We would like to consider changing the safe harbor to be allocated to everyone, but I'm hesitant to make that change mid-year. There would be no one harmed by this change, but the SH notice that was issued last November stated that only NHCE's would share in the contribution. I haven't been able to find anything written that discusses this specific situation.

Any thoughts about making that change to the plan mid-year?

Tim

A 401(k) Plan is made up of four companies that sponsor the Plan. Three of them are in a control group. The other company X is not part of the control group. Company X wants to stop it's participation in the Plan. If they do this, then do the participants from company X have a distributable event? Or, would company X need to spin off into their own Plan and then, terminate that Plan so that the participates have a distributable event?

Profit sharing plan terminated in 2002. Everyone paid out, determination letter issued by IRS, etc...

Now years later, one of the mutual funds sends the Trustee a check for a little over $300.00, due to some settlement for something they did wrong - whatever.

What the heck is done with this? It would cost many, many times the three hundred bucks to attempt to locate, allocate, and pay all these former participants, which is ridiculous. What would y'all do?

A small (2 person) calendar year profit sharing plan made $20,000 contribution for the 2008 plan year. In 2008 there were 3 new participants for a total of 5 as of 12/31. During 2008 and on the advice of his new book keeper, the owner, a chiropractor, drew no W-2 earnings and reported all of his earnings as dividends. Well, the plan defines comp as w-2 earnings only. Therefore, he gets nada for an allocation. However, he does not want the other particpants to get such a large contribution. He has already filed his 2008 corporate tax return. What can we do, if anything, outside of allocating the contribution to those who had w-2 earnings? Refund it back with an amended tax return? Hold in suspense? None of the above, I am thinking other than to allocate.

(he never consulted his Advisor or TPA when he switched from w-2 earnings to dividends)

Does anyone know whether an insurance carrier is required to provide a [former] policy holder with a Form 1099 upon a policy surrender? (Specifically the surrender of a BOLI or Split Dollar policy). I'm trying to get that issue sorted out and have heard from some carriers that they do not provide 1099s when a policy is surrendered. This seems to conflict with the Instructions for Payers to Form 1099-R, which indicates that the form should be provdied by the Payer to the Recipient by Feb. 1. If they're not required to provide this form upon the surrender of a policy, what is the reason it is not required? Thanks in advance

We currently have a prototype SH plan that defines eligible employees as anyone who is 21 (no service requirement). We would like to change the service requirement to 3 consecutive months of employment (plus 21 years old) and have enrollment start the first day of the quarter following such eligibility. Will this change only apply to new employees? Can this apply to current employees who are not yet 21 years old (would be a small number since we're only talking 3 month change). When can we make the change (is this a mid-year change that isn't permitted under SH rules?) The 401(k) regs don't seem to address this. Or is it simply - as long as we change to an "approved" SH eligiblity requirement (no more than 1 year service and 21) - we're ok even if we're making eligiblity more restrictive....

any insight would be appreciated.

thanks

Submitted an ESOP restatement for Cycle A on January 30, 2007; received IRS acknowledgment letter dated February 7, 2007. No word until last week, until we got request for potential amendments dated April 21, 2009 (almost 2 years, 3 months to the date of original submission). Is anyone else experiencing this type of delay (and if so, can't imagine when Cycle E letters would be issued - 2014?).