I have limited experience with VEBAs but a client under IRS audit has come to us for guidance. The IRS is stating that based on the assets in the LTD plan, the plan is over funded. I know in the past they were concerned that these vehicles did not become a way for companies to hide money away in a tax deferred vehicle.

Does anyone have references to regs that address the overfunding issue?

Thank you

If an employer that sponsors an individually-designed plan switches to a prototype, are there any employee notification requirements analogous to the notice to interested parties? Assume, for example, a Cycle C filer switches from an IDP by adopting a newly-approved prototype by January 31, 2009. Obviously, the switch eliminates (generally speaking) the requirement to file a determination letter request, but I'm concerned that I not overlook any notification requirements that go along with the switch.

Thanks.

What happens if a key EE is the only one who defers in a safe harbor match plan? Would this mean he would have to allocate the top heavy minimum to all NHCs, since the plan is top heavy?

When would a retirement plan not need to amend for 401(a)(31)? Does it refer to involuntary distributions?

Can anyone recommend a reference for more information on reimbursement for expenses of establishing and administering an ESOP under Code Section 409(i)? I find very little on it and unfortunately many searches turn up materials on 409(l) rather than the actual (i).

409(i)(1) provides that, "as reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan [up to 10% of the first $100,000 the employer transfers to the plan plus 5% of the excess]."

We represent an individual who is selling his entire ownership in the company to a new ESOP. He would like to get some of his costs involved in this process paid by the ESOP or the company and we are trying to use 409(i).

An indirect way would be to negotiate with the company that it can take advantage of 409(i) to contribute less to the ESOP and so, since it has more money available to it, it can pay some to the seller to offset its costs. I am hesitant however to have an agreement directly tying the amount paid to the seller to the amount the company holds back from the ESOP. Do I need to be so concerned?

The statute includes the parenthetical, "(or the plan may pay)". I'm more hesitant to use money coming directly from the plan. I haven't done a thorough prohibited transaction analysis, but my initial thought is that a payment from the plan to the seller, even after he no longer owns any of the company, could be a prohibited transaction. Likewise, a payment from the plan to others on behalf of the seller seems problematic (both prohibited transaction and exclusive benefit concerns).

Any thoughts on how to get a payment to the seller or where to get additional analysis on 409(i) would be appreciated.

While we are still catching up on our 1/1/08 valuations, we thought it would be both efficient and fun to do some 1/1/09 valuations at the same time. For 2009 valuations, if there is a 2008 receivable, then only its discounted value is included in the 1/1/09 assets.

Even if we know exactly how much a company will contribute, it seems that we can't do a valuation without knowing exactly when they will actually contribute it. Are we stuck not doing any 2009 work until our clients scrape together enough cash to satisfy 2008 funding?

I have a plan that is top-heavy. The plan is a Safe Harbor 401(k) Plan with a 3% Safe Harbor Nonelective contribution. The plan document allows for the plan to exclude compensation paid during the determination period for ALL contributions.

My question is this because the plan is top-heavy must I give someone who enters half way through the year the 3% SH contribution on a full year of compensation or can I allocate the 3% SH contribution based on compensation paid from the employee's date of entry to the end of the plan year.

My thought is that if the answer is I allocate the 3% SH contribution based on compensation paid from the employee's date of entry to the end of the plan year I would then need to allocate a special Top Heavy minimum contribution so that the eligible employee does receive a total of 3% in total contributions based on a full year of compensation.

Anybody who might have knowledge to this type of situation please let me know. I am not sure how to handle this situation, honestly I don't like that the document allows the plan to exclude compensation paid during the determination period for ALL contributions.

Has anyone handled a situation like the following?

A 401(k) plan participant named a trust as his beneficiary under the plan. The participant deceased and no records of the trust can be found. No bank or institutional information, really no way to locate the trust. All we have is the name of the trust, which doesn't help much at all. Anyone know what to do in this situation?

Thanks

CL

I have a client who limits its HCE's to $8,500 before catch-up. It is not in the document, but an administrative practice.

That said, the plan has two HCE's who went over the limit, and are not eligible for catch-up.

Can I pull the overages from the ADP test? And how (can?) we correct the participants? I wouldn't think it's an operational defect since the limit is not written into the plan.

Your thoughts are appreciated. If I cannot cut these people back, then the ADP test will fail.

DB plan is restricted from paying any lump sums for 2008. Administrator at TPA firm goes on vacation in October '08 and in his absence a lump sum payment of $2800 is mistakely made to a plan participant. The plan has a $1000 threshold for involuntary cashouts. They are trying to get the funds back from the participant but it seems unlikely. What happens now?

Do many of you prepare Forms 1099R for your small plan clients?

I am faced with about 100 clients in such a situation.

Thanks.

My father passed away, somehow my brother (executor of estate), convinced insurance policies that I was not able to locate. It took me years to get beneficiary money from my father's main life insurance company. But it was there just sitting there. Since I was not able to have access to any documents (he did not have a will), I don't know what else might be "just sitting there". How can I find out if I was on my dad's retirement account?

I know that in the past a person who was a "2% S-Corp Owner" (direct or indirect with 318 attribution) was precluded from participating under a Section 125 Plan. I have a new client (401(k) Plan) that has a 125 Plan, and the spouse of the 100% Owner (S-Corp) is buying health insurance under the 125 Plan -- which actually covers the 100% Owner. While I know that there was an exemption for the spouse of a sole proprietor, I do not believe this is possible with an S-Corp. Is there some way that this is possible with an S-Corp? I note that I no longer work with 125 Plans so any recent changes would be unknown to me.

We know that we are no longer required to figure Gap earnings on ADP/ACP failures, however, what about 402(g) and 415 refunds? Has anyone seen anything about this?

Thanks!

If a plan currently has their involuntary distribution threshold set at $1,000 cash out (no automatic IRA for amounts from $1,000 - $5,000), can the plan be amended to have involuntary IRA rollovers if the amounts are between $1,000 - $5,000? Are there any protected benefit rules that are applicable?

Thanks

What is the correction if a Plan is failing 414s and the Plan is a Safe Harbor Match? They are not allocating a PS contribution but they do exclude bonuses as their compensation definition for the Safe Harbor Match. They do not have a bonus deferral election.

We have a construction company plan that normally has layoffs in the beginning of the year with most people being rehired mid year. We have two participants who became eligible for the plan 1/1/2008. Both were given paper work to enroll 1/1 but did not return that paperwork because they were layed off and nor recalled until March. Both signed enrollment paperwork for the 7/1 entry date. I beleive that compensation from 1/1 to 12/31 should be used for the ADP test not compensation from the date they enrolled.

For the same company, two employees also became eligible 1/1/2008, did not return paperwork, were layed off and eventually terminated as of March. Neither earned any compensatin in 2008 but were paid for their earned vacation and sick time. Should they be included in the testing for 2008.

Appreciate your thoughts on these two scenarios. I cannot find anything in the document that speaks about this.

I am a newbie to EB. Here is my elementary question ("I'm not worthy, I'm not worthy!")

Is it possible to structure a single-member ESOP for a manager in a management buyout/lbo? The company has other employees. I would ideally like to do a leveraged ESOP to give both seller (shareholders) and buyer (manager) the tax benefits of an ESOP. I'm assuming I cannot do this due to ERISA's general non-discrimination provisions and ESOP coverage limitations (as well as a host of other reasons: the MBO would be seller-funded, raising conflict of interest issues, and the distributions to the manager would probably exceed the maximums allowable under the ESOP qualification provisions). Another wrinkle to this problem is that the purchase envisioned by the letter of intent is a kind of vendor-funded purchase for the manager that will likely encumber the company's assets after closing.

I know there are many other laws that intersect here, but right now I'm concerned about whether an ESOP is even available in this single-member context (i.e., only the manager would be a beneficiary under the ESOP). I'm guessing the answer is a resounding "NO!" for the reasons discussed above.

My understanding is that one can claim medical, dental, or vision expenses if incurred outside the USA so long as such is not otherwise a violation of federal law in the USA even if legal in the other country. Correct?

Hi,

I am totally confused. We just had training in compensation testing, and the facilitator said that the compensation difference between HCEs and NHCE must be no more than 3% EVEN IF THE COMPENSATION FOR THE NHCE GROUP IS HIGHER. In her example, if the HCE group average was 95% and the NHCE group average was 96%, then the plan would fail compensation testing BECAUSE THE NHCE AVERAGE IS NOT GREATER THAN 3%, even though it is higher. This is exactly opposite of what I have been taught. I have been taught that if the NHCE average is equal to or greater than the HCE average, the compensation testing passes. The only time you have to take into account a de minimum amount (3% is what I've been taught) is if the HCE average is greater than the NHCE average.

Right now I'm so confused I just want to leave this business altogther -- probably not a bad idea. Could someone please clarify this issue for me? And a reference site would be sooo appreciated, whether I'm right or completely wrong.

Thanks!