Hello all,

Some of our clients pay their TPA fees directly (we are the TPA), with the exception of distribution fees. If a participant's vested account balance is $500, and the distribution fee is $100, the participant receives $400 and that is what is reported on their 1099R.

Now, the investment platforms don't typically break out that $100 in their annual reports. In the foregoing situation, they would show a distribution of $500.

The question is whether the $100 fee is a plan expense or a participant expense. I feel that because the participant never sees the money, nor does the taxable amount include the $100, it is really a plan expense and should be reported as such on the Schedule I.

Does anyone feel that this doesn't need to be reflected as a plan expense? All points of view welcome!

Also posting this on 5500 board.

Medusa

Hello all,

Some of our clients pay their TPA fees directly (we are the TPA), with the exception of distribution fees. If a participant's vested account balance is $500, and the distribution fee is $100, the participant receives $400 and that is what is reported on their 1099R.

Now, the investment platforms don't typically break out that $100 in their annual reports. In the foregoing situation, they would show a distribution of $500.

The question is whether the $100 fee is a plan expense or a participant expense. I feel that because the participant never sees the money, nor does the taxable amount include the $100, it is really a plan expense and should be reported as such on the Schedule I.

Does anyone feel that this doesn't need to be reflected as a plan expense? All points of view welcome!

Also posting this in Distribution board.

Medusa

Hi,

We have a plan that acquired a division of a larger plan. They are not transferring the assets to our plan. They are not looking a compensation prior to acquistion for HCE purposes. However they are crediting prior service for eligibility and vesting. My question is for determining the otherwise excludables, do we use the acquistion date (3/1/08) or do we use original hire date?

Hello - Looking for advice on an eligibility question.

A safe harbor 401k with a discreationary match receives three new participants in a plan year. Two new participants (Bob1 and Jeff1) that became eligible on 1/1/2008 and one new participate (Suzy7) that became eligible on 7/1/08. Bob1 started contributing 1/1/08. Jeff1 never completed enrollment paper work until 7/1/08. Suzy7 completed enrollment forms and started contributing when she became eligible on 7/1/08.

Ok. The year has ended and the employer has decided to make a discreationary profit sharing contribution. Should the contribution formula use a full years salary for Jeff1 and Suzy7?

The reason I ask is I have an employee that thiks she is being shorted.

Thank you for your response.

Does the law stilll allow a vesting schedule that starts at 20% in the third year of service? If the law does not allow this, when did it stop allowing such a vesting schedule?

Can they get used for EGTRRA, GUST, 401(a)(9), 401(a)(31), etc.? Can one use them for some but not for others? Do some of these absolutely require amendments signed and executed by the taxpayer?

Can costs associated with the refinancing of a primary residence be taken as a hardship under a 401(k) plan if the participant is otherwise eligible for a hardship and the refinancing is not needed to prevent a foreclosure? I don't believe so, but was wondering if any recent guidance had come out to help participants even if they are not in financial distress.

Since gap earnings are not applicable for 2oo8, how would you figure out earnings on an ADP refund in this case:

HCE puts in full $15,500 deferral from last paycheck of the year. Pay date is 12/28 and the deferrals are on the 2008 W2. However, the deposit to the plan is not made until January 5.

HCE is due a gross refund of $3,000. How do you figure out the earnings on that? None whatsoever, since everything was deposited in '09, after the plan year ended?

[Hypothetically.]

AFTAP=100%. HCE age 62 has accrued monthly pension payable at 65 of $120,000 annually. Because he has completed 30 YOS, the Plan allows him to take it unreduced at age 62. Plan's lump sum factor is 12.50 which assumes 5% interest; minimum PPA is 11.75. So, lump sum is $1,500,000 (120,000 x 12.50).

The plan's actuarial equivalence for non-lump sum benefits produces an actuarially equivalent benefit of $84,000 annually at 62.

(1) Is amount that can be distributed under 401(a)(4) $120,000 or $84,000? I.e., can subsidy be included?

(2) Let's assume we can distribute $120,000. At the end of year 1, the undistributed balance is

(1,500,000 - 120,000) x (1+i).

Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan?

(3) Suppose plan lump sum factor is 11.50, so that lump sum is 1,410,000 determined using the PPA 11.75 rate. At the end of year 1, the undistributed balance is

(1,410,000 - 120,000) x (1+i).

Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan?

(4) Presumably, the remaining balance is used for liability purposes for 401(a)(4), 404, 430, 436, PBGC variable premium, and FASB. Any disagreement?

Employer since 2001 permitted eligible employees to commence deferrals immediately upon hire instead of making such employees wait until the plan's dual entry dates. The employer can't use self correction because this error goes back more than 2 years and presumably is

significant. What is likelihood under VCP that the IRS will let the employer correct with a retroactive amendment providing for immediate eligibility?

I have a plan with 2 year eligibility.

I have a key who terminated in 2008 and worked 1000 hours. He took an immediate distributions.

He now is planning on returning in July,he will be working full time but will not be a shareholder or officer.

My questions are these

1) is he a still a key?

2) when does he reenter the plan?

Thank you,

Andrew

I have a plan where Discretionary non-elective contributions were never expected. The document has everyone in their own group. The owner is very young so cross testing will not work.

Can I use the same permitted disparity that would be allowed if the document said integrate at $50,000?

I understand the rules for the ability of a plan to permit proxy or pass-through voting of employee stock, but is anyone aware of any DOL or Treasury rules that mandate a particular procedure for collecting and effectuating participant votes? For instance, would it be appropriate to merely send paperwork to each participant or is there a particular procedure or specific guidelines that must be followed? This is fairly urgent, so any immediate feedback would be very helpful. Also, please provide citations if possible...

EDIT: typo

ok -I have my first ING plan that I need to import to Relius.

When I went onto ING to use the TPA download feature...it created files with an *.FI1 extension. Does anyone know what's up with that? My computer won't read them and Windows said it doesn't even recognize the file extension. Am I doing something incorrectly?

My boss advised that ING does know that we use Relius, so I'm at a loss.

Any help appreciated.

A plan is facing lump sum restrictions under 436(d)(5) when the 2009 certification is made (surprise!). The plan has mandatory employee contributions but does not pay out in excess of the $5,000 limit unless it is an employee contribution refund. Does the restriction apply to limit the refund of the employee portion of the accrued benefit?

For example, if a participant is not vested they would be entitled to an employee contribution refund only which would obviously exceed 50% of the present value of the $0 vested benefit. Even vested participants with short service may find that the employee contribution portion exceeds 50% of the pv of the total accrued benefit.

A local attorney says the restrictions seem to apply. Doesn't make sense to me, I can't see my client telling their employees they can't get their money back.

What say ye?

Participant took a loan in March 2008. Although payments were supposed to be withheld from paychecks, it didn't happen and no one noticed until the plan changed recordkeepers in December 2008. The original recordkeeper defaulted the loan in June 2008 and issued a 1099-R to the participant in January 2009.

It appears that the employer still has an obligation to institute the loan repayments from payroll.

Questions:

1. Is it possible to void the 1099-R, i.e. taxation to the participant, since this could be argued that the employer was at fault? If so, is it recommended?

2. Are there any prescribed methods of correction from IRS in this situation?

Is anybody aware of a rule that would limit the ability of a volume submitter sponsor to maintain BOTH a DB and DC plan on a VS platform and rely on both advisory opinions (and, of course, not have to file either plan for an individual determination letter)? In other words, there is no rule that says that a plan sponsor can only maintain EITHER a DB OR a DC plan on a VS, is there? I can't find this issue addressed in the 2009 Rev. Procs.

When I first saw this language I thought we were going to have to amend the Plan documents to reflect this change.

Now that I've reread it many times, I've changed my mind. I'm wondering if my take on this is the same as everybody else's?

1. This is not optional. The Plan Sponsors must operate and administer their Plans according to this rule effective April 1, 2009.

2. The length of time the Participant has to inform the Plan Sponsor of the change is not a variable. In other words the Plan Sponsor can't pick 40 days or 70 days. The rule states 60 days. Correct?

Thanks in advance

Christopher

In year's past we could make post PY amendments (before 2.5 months) to lower a contribution if we were using IA.

Now that ER's are now coming to the realization they can't make their 2008 contributions, they don't understand why they can't still make those same elections.

What can be done (if the current formula is low enough) is to amend the plan to increase benefits for service through 12/31/2007 to create a funding shortfall and reduce the TNC for 2008 and freeze the plan. We don't reduce the AB below what it is now.

One of the 436 restrictions is that, if the AFTAP is <80%, benefits can't be increased. This is also true if the AFTAP would be < 80% taking into account the benefit increase. However, under 436(g) this limitation does not apply if the plan is less than 5 plan years.

Therefore, for a plan with >100% AFTAP at 01/01/2008, it seems as if there is no reason that the employer couldn't adopt an amendment to create a 75% FT at 01/01/2008. Anyone disagree?

How about this (which I do not think we've yet discussed, believe it or not) . . .

Employer selects NEC as the SH contribution (in prototype document), and selects that ALL employees will receive the SH contribution. Employer, in mid-year, wants to eliminate the SH alllocation for HCEs on a prosective basis.

Since, in order to comply with SH regs, only NHCEs need to receive the SH contribution, and the HCE SH allocation is therefore not part of the plan's SH provisions, I think that you can make the prospective change the employer wants in this case without violating the 12-month rule of Treas. Reg. Section 1.401(k)-3(e)(1).

Thoughts?