Background: We have a client that has a 401k plan in which the only trustees are the owner of the company and the CFO. It is a discretionary trust that has its investments (mutual funds) with American Funds. American Funds will not ceritfy the investments as being complete and accurate and thus we are not able to do a limited scope audit. American Funds states that they are only the recordkeeper of the plan and not a trustee. They only issue certification letters were they are acting as the plan's directed trustee.

Question: If plan is going to go through a full scope audit and investments are going to be tested what will the trustees of the plan (owner and CFO) have to provide? They have no records of investments besides what american funds provides in their trust report. Whose interal controls would be tested, the trustees or american funds?

I have a plan that changed the vesting schedule from a 3 year cliff to immediate in 2004. There is an employee that was hired in 2004 prior to the vesting amendment. This employee did not meet the eligibility requirements to enter the plan until 2009. Now that she is in the plan, she is 100% vested, correct? I am having one of those Tuesdays that I seem to be questioning everything I think I know.

Suppose you have a DB with a flat excess benefit formula that provides 25% of FAC plus 18.75% in excess of covered comp all multiplied by YOP / 35 years.

The maximum disparity percentage is the lesser of the base % or 35 multiplied by a factor from a table based on the participant's SS retirement age.

This amount is further reduced if the normal form of benefit is anything other than a straight life annuity. For example, life + 20 yr certain has an adjustment factor of 78%. Does anyone know what the adjustment factor is for a 100% J & S normal form? I seem to recall 66%?

I have a client who has a preliminary FTAP as of 1/1/09 of less than 94%. If I recommend that they make an addtional contribution to get the FTAP to 94% how does this contribution get reported on the 2008 Schedule B? Does it make a difference if it goes to the prefunding balance or should it be designated to directly increase the assets and not be counted in the prefunding balance?

What options does an employer have if a participant (i.e. either a current employee or a COBRA person) refuses to complete an application. Say a small employer wants to shop carriers but an individual refuses to complete the carrier's application. The carrier will not provde a quote unless everyone completes an application. So what can the employer do in this case? It does not seem right that one person can hold the employer hostage in this situation but, again, the carrier will not provide a quote unless everyone turns in an applcaiton. Does anyone have a good solution to this situation?

Thanks.

I have a control group situation that causes an employer to fail 410b on their K source. Debating on weather running and passing ABT is acceptable to pass coverage for the K source. Comments on that?

Trying to avoid retro-active amendments and QNECS.

A plan allows for loans to participants and beneficiaries. The sole plan participant has died, it will take some time to settle the estate and other affairs, the spouse beneficiary wants to take a loan for $50K against the death benefit. She expects to be able to make quarterly payments and ultimately repay the entire amount before rolling the death benefit over to an IRA, but there is a possibility that she might end up defaulting on the loan.

If she were to take a distribution directly from the plan, it would be taxable but exempt from the pre-59-1/2 penalty as a death benefit. What happens if she takes the loan now, and then defaults on it later? It would be a deemed distribution for taxation, would it still be exempt from the penalty since it is a deemed distribution of a death benefit? Or might the penalty apply?

Assume a Participant should have entered the Plan on March 1, but was not given the opportunity to defer until much later. If the Participant elected to make no deferrals when they were given the opportunity is there still a need to make a corrective contribution reflecting the "missed opportunity" deferrals? No matching contributions were made under the plan for that plan year.

I have a plan client we are auditing, and one of the distributions we have selected for testing is for a terminated participant who has been taking a flat dollar distribuiton each year. This participant is not subject to RMDs and the custodian is not withholding income taxes on the distribution in accordance with the participant's election on a W4-P completed when the plan was with a predecessor custodian. The distribution appears to me to be an eligible rollover distribution and thus subject to mandatory federal withholding. Does anyone know a reason it would not be subject to withholding?

I'm having a senior moment. I seem to recall that something has crossed my desk very recently dealing with administrative delay. Either it was a court case or an IRS ruling, or, I guess, something else entirely. <sigh>

In any event, my recollection is that a participant was entitled to a benefit of some sort and the Plan Administrator delayed, in some manner, the processing of the benefit. The participant either claimed or was allowed to recoup what the benefit would have been had the Plan Administrator not delayed.

Was I just dreaming? Or did something like this circulate in recent times?

Participant received distribution in 2009, wants 1099-R issued now.

Relius software appears to issue only 2008 Forms.

How would you handle this?

Thanks for any help!

A parent would like Subsidiary A to assume sponsorship of Subsidiary B's two pension plans--one for union employees which was frozen years ago and one for salaried employees. It's a controlled group--A and B are wholly owned by the foreign parent.

Beyond drafting a resolution by A and B, and Plan Amendments, are there any other formal notice requirements to participants or to the government?

The PBGC has a 30 day notice requirement, as does the IRS Form 5310, for mergers or consolidations, but the same requirements don't seem to apply in this case.

What is other people's experience? How soon can this be accomplished?

I have a client who currently funds his Defined Benefit Pension Plan. The client also has a rollover IRA wich he wishes to convert to a Roth IRA in 2010 to be exempt from the AGI level. The accountant is advising the client that the Defined Benefit Pension Plan would have to be terminated for the conversion to take place. I cannot imagine this to be true, yet I cannot find any back-up to support my thoughts. Any help is greatly appreciated Thanks

My Roth IRA made a Loan to the 51% owner of an LLC that owns and manages real estate. We want to convert that loan to a purchase. The real estate is mortgaged and the lender is OK with that but wants me to become a "Key Principal". Is that a Prohibited Transaction? (If so, The borrower/seller is willing to remain as the Key Principal, and lender says OK.)

Also, how are distributions treated? Are they UBI? What are the tax considerations? What about if either the LLC or the property is sold; is the gain taxable?

The Custodian Company pushes Roth IRA RE investments but doesn't mention anything about UBI being taxable.

We are auditing the December 31, 2008 financial statements for a defined benefit plan. The plan was formed Aug 11, 2008. The actuary did not do a valuation since the first valuation for the plan will be based on beginning year balances ( 1/1/09 for the period of 8/11/08 – 12/31/08). The report received from the actuary states "Actuarial Valuation for Funding Purposes as of 8/11/08. Does anyone know how to footnote the Accumulated Plan Benefits? Usually, this footnote would state the vested benefits, non-vested benefits and then the changes between valuation periods. Would you just disclose that no valuation was performed?

Should TPAs be using circular 230 disclosure on letterhead/e-mail/fax correspondence?

Happy 4th of July to all. Take a minute to appreciate what a great country we live in.

We have a group of doctors-emergency room docs. They form a corporation (Corp) to negotiate with the hospital. Each doc or his/her corp owns a part of Corp. Hospital pays Corp providing a detail of which doc performed the service. Corp pays this money to performing doc after a small administrative fee. Corp issues 1099 to doc.

I've looked at Sal's EOB and also Watson's "Who's the Employer". The conclusion is that Corp is not A FSO. However, in EOB the last sentence on page 1A.4 and in 6.f.1)a on page 1A.7 there is an aguement that this is not the case.

Any experience or thoughts on this??

If part of the definition of a FSO is that it is "organized for the purpose of providing professional services" does that mean the that Corp has to actually perform the services or is its activity of negotiations etc an act of providing the service?

There are a couple of DB plans involved in this.

If the address listed for the alternate payee (AP) is "c/o J. Doe" and AP is not J. Doe, does this belie the requirement that the QDRO list the AP's address?

Probably more significantly, does the plan need AP to sign a written authorization for the plan to send any information about the QDRO or awarded benefits to "J. Doe" as a representative of AP before the plan can use that address?

Venture-backed client is putting together a cash long-term incentive plan. The basic terms they want are (1) service-based vesting over 5 years, (2) payment upon the first to occur of an IPO or a change in control, with accelerated 100% vesting if a payment event occurs before year 5. The amount of the bonuses will be based on the proceeds received in the liquidity event. CIC will be defined to meet 409A change in ownership of corporation and change in ownership of assets rules.

A few questions:

1. My understanding is that the occurrence of an IPO or CIC may be a substantial risk of forfeiture, if the possibility that these events will not occur and the employee not getting paid is substantial. My concern is that since the service-based vesting would end after 5 years, how can you get comfortable that the 409A SROF would continue until an IPO or CIC occurs (which would seem necessary in order to comply with 409A since IPO is not a permissible payment event). While there is no sale or IPO contemplated, I am not sure you can say that the risk one will not occur in the next 10, 20 etc. years is substantial.

Anyone have any thoughts on when a CIC/IPO is a valid SROF where employment is not required through closing, especially when the corp. is substantially owned by venture capital investors?

Any articles or commentary on this subject anyone is aware of?

Does this just boil down to risk tolerance -- in other words, to avoid any risk, only pay on CIC and not IPO?

2. If I can get past the first hurdle, it would seem necessary to require payment either within the short-term deferral period after the IPO/CIC or on a fixed schedule tied to the IPO/CIC. It appears that I could not use the "transaction-based compensation" payment rules on a CIC. Is this correct?

Thanks for any help that can be given.

Sole proprietor establishes a safe harbor 401(k) plan in 2007 for which we are the TPA. While reviewing the 2008 Form 5500 the trustee calls us to say that we have used the wrong EIN on the form. After further questioning, it seems that the client became an LLC in February 2008, but never mentioned it to us until now. The LLC has never been added as a participating employer, but it issued all of the 2008 W-2s, including reporting salary deferrals. The LLC also made the SH match contribution.

This is a tiny plan with 4 participants (including the owner and his wife) and less than $10,000 in assets after almost 2 years. Any suggestions about a fix it that won't cost more than the plan is worth?