Hi, I work on several 401(k) plans and review the 5500's from recordkeepers (TPA's). I know that starting for 2008, the FAS 157 is now required - does this apply for both large and small plans? From what I have read, I can't tell if this disclosure applies to large plans only (as these would be required to be audited) or if this also applies to small plans. The TPA's have only provided the 5500, but are they required to also provide the FAS 157 disclosure or is this something that the plan sponsor has to provide? Has anyone else had an issue with this? Thanks

Our plan docs are being restated and we have the option to elect the ACP split testing method. I understand the basics of it, but can't find any good info on the pros and cons. For example, if I elect this method of ACP test, can I change it every year? Thanks.

We have a Safe Harbor New Comparability 401(k) Plan that was recently audited by the IRS. Upon completion of the audit, the only problem found (and they looked at a lot!) was that the 2005 Interim Amendments was signed late. The amendment was signed on 10/16/2006 and there was no extension to file the 2005 corporate tax return - so the amendment was signed roughly 7 months late.

In September 2005, the human resources manager from the company had retired and a new employee was hired. This new H/R manager was not aware of the deadline to have the amendment signed. We included the deadline date in our cover letter - but clearly, our office should have followed up and so, the error falls on both of us.

I handled the audit as far as I am qualified and feel that negotiating with the IRS is out of my area of expertise. A senior member of our Firm will handle this from here on out.

Is there any advice anyone can offer? I am concerned because although this seems like a minor error, the fee listed under Rev Proc 2008-50 Correction on Audit is listed as $7,500 for a plan with 71 participants. The IRS agent told me to expect the sanction to be double this amount - so $15,000. This seems so severe for a plan that is being run so well. So many things where checked and not one other problem was found.

Any advice would be appreciated. Like I said - I am passing the next phase of this on to someone with more experience dealing with IRS negotiations but would like to offer some pointers.

Thank you!

While thinking about the implications of freezing a DB plan to new participants (accruals will continue for current participants) an idea was suggested that we could give existing participants the option to cash out the lump sum value of their DB benefit provided they rolled it over to a 401(k) plan, concurrent with an election to choose to participate in the DC plan in lieu of the DB plan. While the DB plan currently has a lump sum option, that suggestion seems problematic on several issues: immediate, potentially heavy cash drain on the plan that could trigger higher required contributions, how to value early retirement subsidies, spousal consent issues, can that choice be offered without a distriubutable event, and would that trigger a partial termination in the eyes of the PBGC are just a few questions that come to mind immediately.

Does anyone have any experience in doing what I have described? Is there another critical issue besides the questions I identified above that I am missing?

If a sponsor wants to change from 6month to 1 year waiting period, is a notice required and if so, how far in advance. The hope is to amend that anyone hired on or after July 1, 2009 will have a 1 year wait. The argument is that when the amendment is made it will affect no one who is currently employed and therefore it would be more of an announcement than a required notice.

It just seems to me that everything should have an official notice at least 30 days ahead of time.

Any thoughts?

Jimmy

We are in the midst of rearranging our health benefits at our company from an FSA to a HDHP HSA. We have received conflicting information as to whether or not this can be accomplished in mid year. Our plan is to stop the FSA and then implement the HSA without overlap. Can this be done?

I have a borderline top heavy plan that is thinking of going to a safe harbor match only for 2010. This plan hovers in and out of top heavy. They have the following idea.

In November, 2009 notice goes to all employees about the safe harbor match;

In February, 2010 we prepare the top heavy calc as of 12/31/2009;

If the plan is top heavy all goes on as planned. If the plan is not top heavy they (with proper notice) stop the top heavy match and revert to ADP/ACP testing. They would fund the match up to that point.

So far - I'm with them -- but they are talking about applying this procedure year after year. I'm wondering if there is a problem with this. Too frequent changing of method?, Too many amendments (assuming they keep bouncing in and out of top heavy?).

Also, I have researched the following on The ERISA Outline book but would like any contrary opinions:

a) You cannot exclude statutory ineligibles from the safe harbor match and maintain the exemption from top heavy (deferral eligibility is immediate);

b) You can exclude certain HCE's - even if not key - from the safe harbor match.

Thanks for any and all thoughts

S

Participant wishes to insure his spouse. I believe that this would be a violation of the "exclusive benefit" rule and possibly some other rules. However, I cannot find a specific citation for this particular scenario. Can anyone help?

Under 1.401(k)-1(d)(3)(iv)(E) a distribution is deemed necessary to satisfy an immediate and heavy financial need if "the employee has obtained all other currently available distributions..." and is prohibited from making elective contributions for the following 6 months.

Does anyone see a problem with structuring a plan to provide that a participant may not take an in-service withdrawal from his or her profit-sharing account until he or she takes any available 401(k) hardship withdrawal? In some ways this seems to be drafting around the 401(k) rule that provides that other distributions (like profit-sharing distributions) should come first. However, the 401(k) rules say that all other "currently available" distributions must be taken first - so if the plan doesn't permit profit-sharing withdrawals before 401(k) withdrawals, then the profit-sharing withdrawal isn't "currently available" when the participant is seeking a 401(k) hardship withdrawal.

Any thoughts or links to guidance would be greatly appreciated. I didn't see any PLRs on point, but if someone knows of one, I would love to have the cite.

Many thanks!

Investment oriented institutionally priced life insurance (ILI) is now available for personal ownership if an employer validates the role and compensation of the employee. ILI is only available to mid-upper income white/gray collar employees. Hence, just as you can't buy retail life insurance without your doctor validating your health, you can't buy ILI without your employer validating your employment and compensation to qualify for the ILI GI risk class. Employers have no costs or administrative requirements ... simply validate employment.

Is an employer legally obligated to validate employment, role and compensation if an employee requests it, or merely a convenience?

If convenience, if employer refuses to validate thus denying coverage, is the employer at risk if the employee becomes uninsurable while employed? Obviously the employer has a credibility problem, but do they have a legal problem?

Thanks.

If a plan allows a participant to defer receipt of his benefit past normal retirement age - - - assume he quits before NRA, and does not work on or after NRA at all - - - and the participant affirmatively, voluntarily does so by electing to defer until age 68, must his benefit be actuarially increased for the delayed payment? My understanding of 401(a)(14) and 411 is that the payment must be increased, but I wasn't sure whether his affirmative election to defer somehow eliminates that requirement.

Thanks.

If a participant becomes eligible for COBRA as a result of a reduction in hours (he is reduced to part-time status) does his subsequent involuntary discharge trigger subsidy rights with respect to the remaining 9 (or fewer) months of COBRA coverage, counted from the date of his involuntary termination? I would assume so, but couldn't find anything explicitly on point.

Thanks very much.

A plan sponsor whose 2009 FTAP is well below 80% has opted to fund the minimum required contributions. 2009 actual contributions and 2010 quarterly estimates are as follows:

7/15/2009 $ 52,000 (for 2009)

10/15/2009 52,000 (for 2009)

....................=======

....................$104,000

1/15/2010 $ 52,000 (for 2009)

4/15/2010 80,000 (for 2010)

7/15/2010 80,000 (for 2010)

9/15/2010 107,000 (for 2009)

10/15/2010 80,000 (for 2010)

...................=======

...................$ 399,000

In such situations, it is important to stress that the client should not contribute any of their 2010 estimates in 2009. In such case, they would not be able to use the PB that arises from 2009 excess contributions to reduce their 2010 obligation. Consequently, they would only get the immediate value of the reduction in shortfall amortization -- about 1/6 of the contributions. For example, suppose the client decided to make the entire $399,000 in 2009. They would add $240,000 to their PFB which they couldn't use to reduce 2010 contributions (because the 2009 FTAP<80%). The excess would reduce the shortfall by $240,000 which would reduce the amortization by let's say $240,000 / 6 = $40,000. This would reduce each 2010 quarterly installment by $10,000 so they would still have to come up with additional $70,000 for 4/15/2010, 7/15/2010, and 10/15/2010, or $210,000. And the plan sponsor thought they were doing the right thing, which they did, except they forgot that "no good deed goes unpunished."

So much for encouraging plan sponsors to accelerate funding their plans!

I work in Human Resources, so I don't know all the financial lingo and could really use some help.

Last year on January 1, my company acquired another. We each had a 401k plan. The first few months after the merger, we ran both 401k plans (and were told we could do so until the end of the year following the merger). In revieiwng the plans, we actually liked their 401k plan better, so we worked with their provider to terminate our 401k plan and trasnfer the assets in their plan. We took all of the steps we were told to do, including having a blackout period and informing all of the employees in advance. We sent a termination letter to our 401k provider and to our TPA and they worked with the new provider for the merger of assets. It all seemed ok. I thought the final step in this process was to file the final 5500 for the terminated plan, within 7 months of the termination. Then, later in 2009, to file the 5500 for the existing plan.

However, our auditors are telling us that there wasn't really a merger and we still have 2 active 401k plans. I keep asking what more we could have done to terminate the plan, but no one can give me a response. Was there something more we needed to do? And what can we do now? The auditors won't process either 5500 because the existing 401k provider gave all of the information together and the auditors want it separate as if it is still two plans. Help!

Current Fidelity Bonding Requirements for retirement plans: What amount must one have for the bond?

Fidelity Bonding Requirements for retirement plans; what happens if you have two distinct plans? Say a money purchase plan and a profit-sharing plan.

There is a debate raging in our office, and I'd appreciate some input from others.

If a participant, who has made Roth deferrals and has a loss on his or her account, elects to take a distribution partially in cash and partially as a rollover, can they choose how to allocate the loss between the cash and rollover?

The Erisa Outline Book says that gains must be prorated, but apparently some of our Compliance people believe that does not apply to losses. I'm struggling to understand why losses would be treated differently than gains, but I do know that logic and IRS rules are sometimes mutually exclusive.

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?