An employee is a participant in both a single employer DB plan and a multiemployer plan. Both are PBGC insured. Unlikely scenario, but he wants to know if both plans should terminate, would the PBGC pay full guaranteed benefits under each plan or "carve out" some or all of the benefits? I would think the plans would be treated as completely separate, subject to their own PBGC maximum benefits, but wanted to run it by somebody. I couldn't find any guidance on point.

Thank you!

I've seen FMV defined as the difference between the pre-DP coverage election and the post-DP coverage election. That could be single/two person, single/family (if kids are involved). The IRS has been silent, but I think we're headed for a fall.

Here's my argument: Let's say I drive a Buick worth $30,000 and you drive a Cadillac worth $50,000. You give me your Cadillac to drive and I wreck it. I offer you Fair Market Value. You agree, and I give you a check for $20,000. Are you happy, or were you expecting a check for $50,000?

Another point: What if Pre-DP and Post-DP status are the same? I had a case like this. Both DPs came to the relationship with children, so both were in family status (two-tier plans). If there's no difference in cost, is the FMV defensibly zero? I don't think the IRS would think so.

In my mind, the IRS is looking to impute income on the value of the benefit that the person is now receiving by virtue of being a domestic partner. The "difference" scenario doesn't make this happen.

Thoughts? Thanks!

This is a one-person DC plan (doctor). He is paying life insurance premium from plan for term life policy. Is this acceptable? Don't I need to report

the premium paid on a 1099-R as taxable?

Does lines 14-15 of the 2008 Schedule SB want your "actual" 2008 AFTAP which was sent to the client (which may have used 2007 data if EOY val) ? or do we just strictly follow the line-by-line instructions and use the 2008 data for these lines which essentially is the 2009 AFTAP numbers (for EOY vals using prior year data).

My question is I have a family on COBRA coverage because the father terminated his employment. There is a college dependent on this family's plan and he will graduate. Do I need to send him COBRA again for an extension and make him get his own COBRA policy or can he remain on the family plan with his father? Thank you for your input.

Any idea if a DC plan can purchase life insurance on the lives of participants as an investment only? In other words, any proceeds would simply be allocated to participant accounts & not paid to the insured's beneficiaries.

Questions in my mind:

• What about PS 58 costs? Are they allocated to all participants?
  
• Is there an insurable interest under state law?
  
• This happens to be a governmental plan. Any special issues (other than whether state law permits that type of investment)?
  

Any other thoughts, issues, questions?

Our plan is included (the one page it consists of) in our employee handbook. Does the Plan need to be in an actual separate document or does the fact that it has a separate section in the plan called Education Assistance cover this requirement from reg. 1.127-2(b)? Any insight would be appreciated.

thanks

I don't have much hope for this inquiry, but I'll give it a try anyway just in case anyone on these here interwebs has figured out how to split the atom.

I am working with a non-profit entity that is struggling a bit to come up with a sensible way to provide some long-term incentive compensation to its executives. One of the entity's projects involves making investments in techie start-ups. The entity does not have anything close to a controlling interest in any of the start-ups, each of which are operated independently. However, the entity's executives do have specialized technical and managerial expertise, and they help the start-ups fairly extensively and usually over a period of many years. As is the natural order of things, most of the start-ups fizzle, but every once in a while, one will knock it out of the park. Ideally, the entity would like to be able to allow the executives to share in the upside potential of the start-ups they work with.

Due to the nature of the entity's investment in the start-ups (and some funky securities law issues), we can't just grant stock options or other "real" equity to the executives. In the for-profit world, we'd cook up some sort of phantom equity arrangement and be done with it. Since we have 457 to deal with, things are more complicated.

I am aware that the accounting firms used to market something called a "KEYSOP" (or similar) to the unsuspecting tweedy types in the non-profit world. I gather that the product was designed to look like Section 83 property so as to avoid Section 457. There seems to have been some skepticism about whether these products actually accomplished their intended result, and the IRS was none too happy about them, apparently leading to their premature demise.

Leaving aside the technical niceties, the entity would really like to hand out phantom awards with nominal current value. The value (or not) of the awards would be determined over time based on the performance (or not) of the start-ups. The awards would be subject to a time-based vesting schedule, and following vesting, employees could retain the awards for exercise (i.e., conversion to cash) at an opportune time. It seems like a 457(b) plan could be designed to accomplish some of these goals, but the limitations associated with a 457(b) plan obviously make the whole deal less attractive (although better than a 457(f) plan probably). Since we can't grant real equity, it seems like the Section 83 route is foreclosed, and it is difficult to see how phantom equity would be provided through anything other than a deferred compensation arrangment. With apologies to Henry Ford, we may have our choice of legal regimes here as long as our choice is 457.

In any event, it occurred to me that the non-profits who are especially interested in executive compensation matters (i.e., hospitals and private colleges and universities) might have confronted and resolved similar issues, although danged if I can find any useful descriptions of such alchemy on the net. That led me to wonder if any of the denizens of this fine establishment might have any insights, however small, into this general issue. It may be that we are stuck with the "457 vs. 83" choice, but before I run up the white flag, I wanted to see what I could find out here.

All input is welcome and appreciated.

N.B.: I am aware that the IRS is paying more attention to non-profit compensation matters these days, so my desire to get cute with dubious interpretations of 50 year-old cases and rulings (cf. the KEYSOP) is limited.

Here are the facts:

Employer maintains a single employer 401k plan. Employer decides to transfer all of its employees, effective January 1st, to a PEO (unrelated employee leasing company) and those employees (who are now employees of the PEO, technically speaking) are eligible / enroll in the PEO's 401k. The employer elects to merge the single ER 401k plan into the PEO multiple employer 401k plan, also effective January 1st. Unfortunately, the actual transfer of assets does not take place until February 1. Of course, all of the affected employees (now employees of the PEO) are leased by the single employer. There was no plan amendment to the 'old' plan to terminate, only an election to merge.

Question: Does the 'old' single ER 401k Plan file a final 5500 for the one month period ended February 1st, and is that plan considered officially terminated? Or is is considered merely suspended or frozen?

Company A acquires Company B in a stock acquisition in July of 2009. Both are public companies and Company B will remain after the acquisition. The NQDC Plan of Company A uses the 415 defaults in determining compensation. In figuring out the specified employee's for the effective date on December 31, 2009, how is compensation for the employees of Company B determined, i.e., is its employees compensation based on the entire 2009 year or only after the date of the acquisition? Example: Company B employee X made $300,000 in 2009, but only $150,000 was after company B was acquired, what is his compensation for determining specified employees on December 31, 2009?

One more question regaridng one of the questions on the sample test:

Q. 24: Based on the following information, determine the maximum allowable monthly benefit for a participant in 2008 who has never been in any other plan of the employer:

Average monthly compensation $500

Years of service 5

Years of participation 4

Maximum Dollar Limit for 2008 $185,000

A. $200

B. $250

C. $333

D. $417

E. $500

A: B

The percentage of comp limit is 5/10*$500 = $250 while the dollar limit is $185,000*4/10 = $74,000 per year of $6,167 per month. The maximum monthly accrual is the lesser of the two or $250.

Why doesn't the answer taken into consideration the $10,000 deminimus?

$10,000/12 * 4/10 = $333

I am studying for the 2009 DB exam and have come across a couple items on the sample practice test that are confusing me.

Q. 13: Based on the following information, determine the monthly accrued benefit for a non-key employee at a certain age:

The plan has always been top-heavy

The employee was hired at age 25.

The employee became a participant at age 26.

The employee’s current age is 37.

The plan’s NRA is 65

The employee’s current average monthly compensation is $3,500.

NRB is 2.5 percent of average monthly compensation times years of service maximum of 25; fractional accrual method based on years of service.

A. $656

B. $700

C. $840

D. $963

E. $1,050

A: B

The formula accrued benefit is (12/40) * (.025*25*3500)=$656 since projected service for accrual is 40 even though only 25 years of service earn a benefit.

However, the top-heavy minimum is .02*10*3500=$700.

Q. 15: Based on the following information, determine the participant’s annual accrued benefit at age 36:

The participant was hired at age 25

The employee became a participant at age 25.

High 5 year average pay is $50,000

High 3 year average pay is $60,000

NRA is 65.

The plan has always been top-heavy.

The participant is a non-key employee.

Benefit formula is 50% of high 3 year average pay accrued fractionally on service.

Normal form of benefit is a life annuity.

A. $8,250

B. $10,000

C. $11,000

D. $12,000

E. $13,200

A: B

The top heavy accrual based on 5 year compensation is 10*.02*50,000=10,000. This exceeds the accrued formula benefit of (11/40)*(.5*60,000)=8,250.

In both of the above questions, (#13 and #15) why is only 10 years of service being multipled by the 2% top heavy minimum? Why aren't the actual years of service being used? I can't find anything in the DB study guide or the DB Answer Book that instructs to use 10 years of service if the ppt's years of service are over 10 (I'm assuming that because in the sample question #4 at the end of chapter 4 in the study guide, the actual years of service are used but that actuals years are less than 10.

Employee's child lost state CHIP health coverage on March 1.

Employee applied for coverage for the child and herself under company group health plan in April (more than 30 days but less than 60 days after loss of CHIP coverage).

Does the special 60-day enrollment period under CHIPRA apply if the loss of coverage occurs before April 1, 2009?

Haven't found any official guidance yet. All comments are welcome. Thanks.

Need your help ........

Assume the employer has a roughly 50% subsidized (but frozen $ subsidy) retiree health plan which can be taken in lieu of Cobra, but that the retiring employee does NOT (per the Retiree health Plan Documents) have the option to FIRST take Cobra and THEN switch to the subsidized Retiree Health plan. Also assume that the retiree decides to go with the Retiree health plan (because he needs health coverage to age 65 .... longer than can be provided via Cobra). Then suppose that (say) 6 months after he retires (having entered the Retiree health plan) that the employer unilaterally ENDS the RETIREE health plan (but NOT the health care plan for those still employed).

Must the employer offer the retiree and his dependents Cobra at that time ..... keeping in mind that he has only had 6 months of post-retirement health coverage so far, far shorter than that he could have taken under Cobra?

Specifically, does the ENDING of a "retiree health plan" trigger eligibility for Cobra ?

Any case law or regulatory decisions applicable ?

Thank you !

Is it permissible to write the following in a plan document under the Discretionary Contributions:

Participants entitled to share in an allocation of Discretionary Contributions, if any, shall be those NHCE Participants, and may include HCEs at the employers discretion, who have completed a Year of Service for such Plan Year.

We had one employee who was erroneously excluded from a profit sharing contribution from 2006. (He was a rehire and his previous service and participation was not taken into account upon rehire.) The total contribution is a fixed amount each year and it is allocated as a percentage of compensation with adjustments made for highly compensated employees. All employees who receive a contribution also recieve a share of forfeitures, allocated the same as the annual contribution. Our plan document says correcting omissions can be done through an additional contribution and/or using any available forfeitures.

We have read Rev. Proc. 2008-50 but it is still unclear on how to fix this and if any further action (amendments to returns, changes to others' balances, etc) will be necessary. This does seem like an insignificant operationsl failure but we are not sure.

Any advice?

The 401(k) plan is aggregated with a DB plan for meeting the coverage test. The 401(k) is safe harbor match and NHCEs get an additional 7.5% contribution to satisfy the minimum gateway for testing the DB and DC plans together.

Question: Can the 401(k) plan amend the safe harbor formula mid-year to become a 3% nonelective and then make a 4.5% additional contribution to satisfy the gateway? I think it would be OK to do this as of the beginning of a plan year, but I am uncertain about whether it can be done mid-year.

Thank you!

IRS Notice 2007-28 Q&A 9

Assuming the DB contribution exceeds 25% of compensation, in an owners-only DB/DC situation, is the maximum total deductible contribution for 2009 equal to:

1. the maximum DB deductible under 404(o), plus $16,500 employee deferral, plus $5,500 catch-up (if possible), plus 6% employer match, or

2. the minimum required DB contribution (but not less than the 430©(4) Funding Shortfall), plus $16,500, plus $5,500, plus 6%?

If the answer is 2, is the normal approach to eliminate the 6% match, so that the total maximum is the maximum DB deductible under 404(o), plus $16,500, plus $5,500?

Anyone seen a government draft or final release????

A client of mine, we just recently discovered that we had been filing Schedule B for 10 years with an incorrect Plan Number, though EIN was correct. The client prepares their own Form 5500, and so it look like it is only the Schedule B plus PBGC Form 1/Schedule A that had been filed with the incorrect PN. Do we need to file amended Schedule B for 10 years? How about PBGC Form 1/Schedule A?

Hope somebody have had the same experience dealing with the issue.....