Plan is a Safe Harbor 401(k) Plan that uses the basic match allocation.

The document provides for the safe harbor basic match to be allocated to HCE and NHCE.

Only the HCE (owners...husband and a wife) contributed deferrals in 2006, 2007 and 2008.

The have about four other rank and file employees, but none of them have deferred.

Everything I've read, says that the plan is a safe harbor plan even if there are no rank and file EEs deferring, as long as the safe harbor contributions are being made to all that defer, and the notice requirements are met in addition to all the other safe harbor requirements.

Now: The plan is terminating in 2009, and the employer cannot afford to put in the safe harbor match for 2008 (it would only go to the owners). The plan was not amended before the 2008 plan year to provide for safe harbor contributions to NHCE only.

What happens now?

Is Top Heavy now an issue because the safe harbor match cannot (won't) be funded?

ADP test must be run?

Neither of these will pass because NHCE have not been deferring for quite some time...

What is the plan had been amended before the plan year to omit the HCEs from receiving a safe harbor match? This means that HCE would defer...just not get a match. NHCE are not deferring, so they don't get a match...is the plan still a safe harbor plan?

I'm thinking that in order for the plan to keep it's safe harbor status, and to have that free pass on Top Heavy, the HCE must be allocated that safe harbor match contribution.

right?

I have a two person plan that has been in existance for about 4 years.

The employees are in their mid to late 30s with NRA of 55.

Under the pre PPA rules the minimum funding ($0 credit balance) was close to 23,000. Low due to the many years that the funding can be spread under the individual aggregate funding method.

Under post PPA the minimum funding was close to 70,000.

Due to the difference in the funding method, i.e. individual aggregate to a unit credit it is not surprising to me, but have others found such a dramatic increase from pre PPA to post PPA in some cases?

It can be a bit overwheliming to a client.

And lastly, I read in a summary of the Worker, Retiree and Employer Recovey Act of 2008 that under 415(b) the mortality table for adjustments is the 417(e)(3) table. Does this mean that instead of GAR94 the 417(e)(3) table is used for both pre age 62 early retirement adjustments and for maximum lump sums?

Thank you.

Cross-Testing, Corbel document, using Relius Software. Does the Mortality Table you use in cross-testing have to be consistent from year to year. I don't see table defined in document, so if i get a better result using a different table than last year is it ok to use the different table?

Here is the situation. S Corporation esop distributes shares and cash balances to terminated participants the year after termination. Shares must be put to the corporation and are immediately redeemed. The participant of course never actually sees the shares. If a participant elects a rollover, the entire balance of plan cash and cash from the stock sale is rolled. (Not clear yet if that is via a esop trust check and a corporate check or one corporate check.) The 1099R from the plan indicates a rollover of the cash amount. No NUA indicated. Are there any problems with rollovers being accomplished this way?

Rev. Proc. 2004-14 goes into detail about allowing the esop trust to roll shares to an IRA as long as they are immediately sold back. If so, the S election is not blown. However in the above scenario shares are not rolled so I don't think that applies. However, the answer to the above question may be that shares should be rolled and the IRA trustee be the one who exercises the immediate put. In which case 2004-14 would apply, but only to affirm that the S election is safe.

My feeling is that the employer's method above gets the participant and employer where they want to be at the end of the day. However, I'd like to be convinced that it is truly okay. Obviously there is no real problem with the rollover of the cash portion of the participant's esop account. However, the participant does for a split second "receive" the shares from the esop, then puts them to the company, "receives" cash from the sale, and rolls the cash. So is it correct for the plan to report a single cash rollover. Or should it report both the cash rollover and the share distribution. If the share distribution is reported, then NUA is invoked and when the participant sells, he could have capital gain issues, unless he rolls the proceeds (which may still be considered a distribution from a plan?) within 60 days of "receipt" of the stock. Of course there is the side issue of whether paying capital gains now and not rolling is smarter than rolling and paying regular income tax when distributed from the IRA. But I won't go there.

I've searched the forum for this issue and there is a post by Janie 6/2/03 that is very similar to my question. QDROphile noted that it is possible that cash will be delivered to the IRA as a courtesy so it looks like a direct rollover, but didn't indicate if that was okay under the code. Sorry for going on so long. I'd appreciate any help as the company will be doing 2008 distributions soon and also wants to know if there are issues with prior distributions that should be corrected.

I would appreciate any input the forum might have on this subject.

Situation /Circumstances: 1) The employer is an LLC (with 3 owners)

2) The company has purchased a High Deductible Health Plan (HDHP)

3) They have implemented a MERP--a simple deductible reimbursement plan. After the employee pays the first 1,500 of deductible, the MERP will pay

up to the next 1,000 of deductible expenses to meet the carrier's 2,500 deductible.

4) The MERP is not funded. Claims are paid from the employer's general assets as needed.

LLC owners are specifically not allowed to participate in an HRA, per IRS Notice 2002-45. However, the authors of EBIA's HRA manual state that "we wonder whether one

could rely on Code Section 104(a)3 to argue that self-employed individuals should be able to participate in an HRA on an after-tax basis (i.e., the self-employed individual is

taxed on the value of the HRA coverage, perhaps using the COBRA premium without the 2% add-on as its value), since it seems to contemplate that result for a self-insured

plan." [Footnote referencing Code Section 104(a)3].

Questions: 1) If it could be argued that the self employed might be able to participate in an HRA (on an after tax basis, per above), how much stronger is the case for their participation in a MERP? Is it a "slamdunk", or is there the same ambiguity as for an HRA?

2) Would the MERP Plan document claim it's authority from Code Sections 104, 105, 106?

Many thanks for your help!

I am trying to help a client who currently has a 401k new comp plan. They also have director's fees from a foreign subsidiary that they own 78% of. Would they be able to shelter any of the director's fees in a SEP, Keogh, etc.? I have been told that the 415 limits apply but I thought that only related to the deferral limits and profit sharing amounts in a defined contribution plan of a non controlled group. They plan on maxing out in the new comp plan between the profit sharing portion, employer match, and elective deferral. They are over 50.

Would the be able to set up a SEP or Keogh Defined Benefit Plan to shelter some of the directors fees?

We have a client whose employee has family coverage with premiums taken out pre-tax through a cafeteria plan. The employee's spouse is now eligible for her benefits and he wants to terminate his coverage and go on hers. The employer is not allowing him to terminate his coverage since it is pretax but is allowing her to terminate off the coverage since she had a change in status. The employee is not happy with this decision and needs something in writing. The employee provided the Regs and the employee is stating it is all in their interpretation of the Regs. Any suggestions?

Client has a loan policy that say loan payments after default are allowed (payments not payoff) before a deemed distribution. The promissory note only allows for a payoff after default. Which would control? I am tending towards the promissory note since it is more specific and is signed by the participant. I am getting caught up on the fact that when dealing with a discrepency between an adoption agreement and a summary plan discription, even with language saying the adoption agreement controls, the courts usually find in favor of th summary plan discription. (we are in the process of getting the documents to line up, but there are existing loans that are effected)

DB plan with less than 100 lives. 204h notice issued 9/30/08 saying benefit accruals will cease 10/31/08. Plan amendment says benefit accruals cease and plan will terminate 12/31/08. What are consequences of different dates. Since participants were notified of accrual freeze, can another notice be issued saying the freeze is 12/31/08, not 10/31/08??

Do you know of any way to obtain an IRS Affilliated Service Group determination with respect to a 403(b) plan?

Let's say that a DC plan, in which the only form of payment is a lump sum, states that vested account balances of $1,000 or less will be cashed out as soon

as administratively practicable following termination. There are participants in the plan whose vested account balances exceeded $1,000 when they terminated

employment but, thanks to investment losses, now have vested account balances that are $1,000 or less. Can the employer now amend the plan to state that

vested account balances of $1,000 or less at the annuity starting date (the date of distribution because only form of payment is lump sum) will be automatically

cashed out as soon as administratively practicable following the annuity starting date and apply that rule to pay out these participants whose vested account

balances exceeded the cash out threshold when they terminated, but whose vested account balances do not exceed the cash out threshold now, without this violating

the anti-cutback rules?

Here is why I THINK this is permissible:

1.411(d)(4), Q&A 2(b)(2)(v) states that a plan amendment that provides for involuntary distributions that are permitted under 411(a)(11) and 417(e) do not

violate 411(d)(6)

417(e) states that a plan can provide for cash out of amounts not in excess of cash out threshold prior to annuity starting date

So if the annuity starting date is the date that distribution is made for a lump sum only plan, then it presumably would not be a 411(d)(6) violation to amend the

plan to provide for cash out distributions as soon as administratively practicable following the annuity starting date. Do you agree or disagree? (Note that

participants are 100% vested so no forfeitures occur when participants are cashed out.)

Thanks!

A client with a safe harbor 401(k) (3% employer nonelective contribution) wants to terminate the plan. I have several questions related to this termination:

1. Can the plan be terminated mid year?

2. If so, is the nonelective contribution made through the termination date? That would seem to violate the 12 month safe harbor rule. Or is the nonelective contribution based on full year compensation? If the nonelective contribution is made through the end of the year, how do you do the termination mid year? Would it be easier to wait until year end?

3. If the termination is done during 2009, does the Plan still have to be restated for EGTRRA? Or can we escape the EGTRRA restatement if we terminate prior to April 30, 2010?

Thanks.

Have an employee that has regular wages, ST disability wages, and LT disability wages all in the same calendar year.

Plan states that comp is W-2 wages and that employer contribution will be made for the year, if the only reason that you were not employed at end of year is due to disability.

My question, is how much of the disability payments do I actually count as compensation?

I have no problem with including ST disability in income b/c it covers "temporary" absences. However, LT disability seems like it would be compensation earned after a termination of employment.

FYI. Company pays all disability premiums to insurance company so benefits are taxable. The agreement with the insurance company requires the employer to pick up the disability payments on the W-2s and pay FICA matching.

Any thoughts would be greatly appreciated! I'm talking myself into circles now.

A 401(k) plan has an auto enrollment feature starting with a 1% deferral rate for new participants, plus annual increases of 1% up to a maximum of 5% of pay.

A newly eligible participant is auto enrolled at 1% during 2007 and terminates employment later in the year. The individual is gone for all of 2008 and is returning to employment in 2009.

The document is silent and I haven’t found any guidance in the regs as far as at what deferral rate he should be set-up with upon rehire: 1% as a first year participant, 2% as a second year participant, or at 3% as if he never left?

Is it a requirement to restate a plan that terminated and paid out all participants prior to 2009? If the plan received all the amendments from the document sponsor and is in compliant, it would seem that plan restatement would not be necessary and that the sponsor would not want the added cost of restating the plan.

Thoughts?

We are changing health ins. carriers on 2/1/09. In looking at the In-Network level of benefits, under our current and proposed new plan there is an unlimited lifetime maximum. I would like to now limit that to either the same as the out of network benefit OR make both the in and out of network lifetime max something like $2m or $5m. We are a medium size company of 115 employees and we will get hammered with a single high claim. What amounts are some of you using as lifetime max?

I've been talking to a prospective client and apparently he has a profit sharing plan where no Form 5500 has ever been filed. The plan document that was forwarded to me was executed in 1996 (and has never been updated). Is there a statute of limitations for non-filing or will the TPA need to file 5500's going back to the time the plan started? Thank you.

WCJ

I have a plan where it was discovered that an employee made an election of 20%, but the company's payroll system did not deduct for all of 2008. Employee never noticed that the money was not coming out.

Does the employee have any ability to make up those contributions? Or is the only fix through the company making a QNEC equal to 50% of the missed opportunity plus match?

Also, is there any time period in which the employer's liability is capped, meaning that they are responsible for 6 months since the employee did not notice their deferrals were not being taken out?

I could not find anything that states an employee is or isn't allowed to make up contributions for their own purposes to get a deduction.(again, not sure if they even could now that 2008 has passed).

Withdrawn

Does anyone know how to caclulate the Maximum Deductible for two Partners (50/50) with salary below the compensation cap for 2008? Both have DF Max and 4% Safe Harbor. I would greatly appreciate any help you can provide. Thanks.