Is it possible to reduce the plan's 401 (k) deferral limit mid-year. Currently, a plan has a deferral limit of 80% for HCEs and the employer wants to reduce the limit to 5% for 2009. This would mean a forced reduction of deferrals for some participants for the balance of the year. Would this be a cutback issue?

Good morning, is anyone familiar with a NQDC arrangement that offers a brokerage window for its participants to purchase securities outside of the plan's fund lineup? I can see where it would be a bad idea - 'unfunded' status, constructive receipt, etc but we have a participant asking if this can be done. Thank you for your input.

The individual has sole proprietorship income from a consulting business. He also has 23% ownership in another business and gets a K-1. The CPA tells me that the tax program is including income from both sources when calculating the SEP contribution. I don't think the K-1 income should be included. That business does not have a retirement plan and no one else is getting a contribution. Does anyone disagree?

Looking at possibly taking over a Plan and after reviewing their current document have a question -

Plan was amended to become Safe Harbor effective 1-1-09. The document uses the Enhanced Match of 100% of first 4% for the NHCEEs.

The document also states the "Safe Harbor" Match for the HCEEs will be 100% of the first 3%. That formula obviously doesn't meet the minimum for a Safe Harnbor contribution and I understand the HCEEs aren't required even to receive a S-H contribution in order for the Plan to be S-H and the S-H minimums are what the NHCEEs must receive.

But would this Match to the HCEEs be considered a S-H contribution and exempt the Plan from ACP? Or would this Match to HCEEs have to be tested under ACP - obvious failure. Would the S-H Match made to the NHCEEs and the Match made to HCEEs be taken together to see if (a)(4) is satisfied?

As we are preparing for an IRS audit, we are reviewing the Plan document for our client. One of the required amendments was signed on time. The problem is, I can't find a corporate resolution in my files. The client is searching their files and will hopefully track it down.

This is a corportion. If we can't find the corporate resolution - but have a signed amendment - what impact does not having the corporate resolution have?

Thanks for your help.

Cash Balance Plans

Target Normal Costs generally will not tie out to the hypothetical allocations anymore.

For instance NHCE’s getting 2.5% of compensation. The target normal cost does not equal that amount for each participant. The hypothetical allocations are converted to target normal costs by

1. Being projected to retirement age using a single interest crediting rate, converted to an annuity amount at retirement using the actuarial equivalence assumptions

2. Then the conversion and discounting goes from the retirement age back to current age using the three segment rates and funding mortality assumptions.

So – going forward is using plan actuarial equivalence, discounting back is using the segment rates.

In past years cash balance plans used the 30 year treasury rate for all portions of the calculation, so the normal cost came out the same as the hypothetical allocation. PPA doesn’t allow that any more.

Client put in $139,356.93 into the cash balance plan – which is the 2.5% for NHCE’s and 36% for owners.

When the 2.5% and the 36% were converted to a target normal cost – the amount is lower ($115,061.31).

Even though the vested accrued benefit is each participants account equals the right percentage

On the first year of a cash balance plan there is no room for extra contributions. The minimum due and the maximum due is $115,061.31. The amount to meet termination liability is $139,366.00.

The actuary is saying that the rules that are in place right now does not allow for the company to fund the termination liability amount of $139,366.00 – only up to the maximum contribution amount of $115,061.31.

The actuary suggests that the tax return be amended and the extra $24,304.69 be used for the 2009 plan year.

What do you suggest? If the plan were to close today and they only funded $115.061.31 – they would not have enough to pay everyone out. If they funded the $139,366.00 – then they would. But new PPA rules do not allow for funding that amount.

My question - can you use the termination liability amount for funding the first year? Has there been final regulations?

Here's the situation: Employee initiated loan in Oct. First payment was due in Dec. Due to an administrative error on the Plan Sponsor part the loan deductions didn't start until March. Warning letter went out in Feb. The loan defaulted 3/20. Employee paid delinquent amount thru 3/30. According to the rule I thought the loan defaulted the last day of the calendar quarter that the loan was delinquent? Wouldn't that be June 30th? Furthermore, even if it defaulted in March wouldn't it default March 31st and not March 20th. Please advise.

I recall that I once saw either an old Treasury Regulation or Revenue Ruling that limited to 30% the amount of rental income that could be treated as earned income. However, I can not remember where I saw this. Please forgive me, but my memory must be fading as I'm eligible to make catch up contriutions for the first time this year <frown>

Any help would be greatly appreciated.

Thanks. Ed

Can an employer adopt a plan amendment that expands the kinds of employment that would suspend benefit payments if a retiree would not permanently forfeit the amount of payments withheld during the suspension period?

I'm trying to figure out whether the Heinz decision would apply where there is no permanent withholding of the suspended amount.

It seems a plan was terminated several years ago. Although it was once an orphaned plan it is orphaned no more and the participants are receiving their distributions from the recently rediscovered plan administrator.

There is a problem is with a forfeiture account.

Forfeitures were permitted for contributions in the same year in which the forfeitures occured, but forfeitures were not to be used to pay plan expenses.

There is a balance in a forfeiture account. Because the plan was terminated years ago, there is no plan to amend.

Company would like to use remaining forfeiture assets to pay any fees that may be charged against the remaining ppt accounts in the future, until all distributions are made.

Any words of wisdom will be greatly appreciated.

Y'all, I am having such a hard time finding what I need by "Searching" these forums. I know that's a whole nother topic, but I wonder if I'm the only one?!? I get very few, very old results that come up...

Anyway, I have as a client a small dental office who uses a payroll company. There is a distribution that requires 945 w/h, and the payroll company won't do it. (Don't ask me why, I don't know). So we sent this client an 8109 to fill out and take to her bank with a check for the withholding. She just called back to say that her CPA told her the IRS may impose a penalty (!!!) for her using a non-electronic form of payment!

Has anyone heard of this, and if so, what is this client's option to get the 945 paid? The only remedy I could think of was to wait and send it with the 945 at the end of the year. But there'd be a penalty for that, too, right?

Thanks for ANY advice!

Trying to research any restriction on DB Plan Lump Sum payout rerstriction on highest paid employees .... I seem to recall a restriction on higest paid 25 (or top 5?).

Can someone summarize restriction and direct me to the source information (ERISA ... US Code Title 29, Chapter 18 version) or in specific IRS Section(s)?

Thanks.

Say you have a money purchase plan with a 25% formula. Granted that most people amended out of these, there are still some who have them because it is old and comfortable, like an old shoe, or because of employee or union situations where a mandatory contribution is desired or required. Like an old shoe, however, it may also be nasty and smelly.

The employer, for 2007, misses minimum funding deadline and undercontributes by $50,000. Understands penalties on the 5330 for missing minimum funding. However, under 404(a)(3)(A)(v), a money purchase plan is subject to the 25% deduction limit, rather than being able to use the 404(a)(1)(A) methodology (which they did use pre-EGTRRA). So, first, the employer must contribute the $50,000. Then must contribute the 25% under the formula - which is the maximum deductible. So there's a required contribution of $50,000 which cannot ever be deducted! Furthermore, there are arguably penalties every year for a non-deductible contribution of $50,000.

Now, they can amend the formula downward to use this up at some future date. They could also argue that the $50,000 isn't nondeductible, but is merely not currently deductible, and thus not subject to the penalty tax. It just seems completely unreasonable to have to take these approaches.

Anyone run into this before? Had conversations with someone at the IRS who actually knows something about it?

We've got a wierd situation...the accountant filed a "final" 5500 for 2008 for a terminated plan, but three participants had not yet taken their distributions. Those assets were still in the plan and reported on the "final" 5500 (the three participants were reported as well). Clearly we'll have to do another "final" 5500 for 2009, but must we amend the 2008 return? What will the Department of Labor do when it sees the return as filed?

Many of the 401(k) plans we service use contracts that have the account recordkeeping done by the "asset vendor". Examples would be the very popular "annuity contracts" made available for 401(k) plans by institutions including Guardian, ING, John Hancock, Hartford, Fidelity, Oppenheimer, Transamerica and T. Rowe Price (and others).

Under these contract you will find a fund selection naming funds of Neuberger & Berman, Fidelity, etc... You will also find proprietary funds that are offered by that institution. It has been my understanding that this type of arrangement does not result in self dealing, etc... and does not represent a transaction with a "party in interest".

Am I wrong? If so, why and how would this impact 5500 Reporting?

As always, thanks for your comments.

A 401(k) Plan currently has a 6 year graded vesting schedule for the Profit Sharing Contribution.

The Plan Sponsor wants to amend the Plan to read "Employees hired prior to and including 12/31/06 are 100% vested in the Profit Sharing Plan".

Is this allowed?

I am out of my element with health care stuff but am not getting much response from the vendor. If a company currently has a cafeteria plan that includes health care reimbursement accounts AND may have Health Saving Accounts added as one of the options next year, exactly what $ amounts need to be included in the Section 129 testing for the contributions and benefits testing?

Everyone has an equal opportunity to elect any options under the plan and the employer contribution/employee cost would be the same for any given option. So I think they are okay with the eligibility testing. However, it's the benefit availability/utilization testing that I am confused about.

Thanks.

PAL

A plan sponsor implements a new Db plan combined with a new 401k/PS plan.

The plan sponsor decides to give each employee up to 5 years of past service when implementing the DB plan and the 401k?PS plan starts contributing allocations from date of participation.

So in other words the employees potentially receive past service credit with the DB plan and not with the DC plan.

In checking the non discrimination on an accrued to date basis is it reasonable to determine the DB accrual based on the total accrued benefit divided by total credited service after the first year of the plan and test the DC plan accrual based on the accrual rate over the one year, since the allocation is only for the one year?

That is, both plans are being tested on an alleged accrued to date basis, but the service can be as much as 5 when testing the DB accrual and is only one when testing the DC accrual.

Thanks.

We are considering converting an ESOP to a profit sharing plan and redeeming all the employer stock in the plan for cash. Is there any reason why this would not be allowed under section 409? After the conversion of the ESOP to a profit sharing plan and the redemption of the employer stock for cash, the employer would like to amend the plan to eliminate the option to receive distributions in employer stock. Would this violate the section 411(d)(6) cutback rules or does Reg. sec. 1.411(d)-4 Q&A-2(b)(2)(iii)(A) provide an exception to the cutback rules that would be applicable in this situation? Does an ESOP that converts to a profit sharing plan continue to be subject to the section 409(h) distribution requirements?

are they? I know they are exempt from federal with holding but not from FICA. What about FUTA and SUTA? I don't think they are.