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?).

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