1. A small plan has a 12/31/08 val date. The participant is projected to receive the maximum benefit as limited by the 415 dollar limit at NRD. He/she is accruing over 15 years on a participation/participation basis. This is the 5th year. He/she will take a lump sum upon retirement, so we assume that. AEQ is 5%, but of course the max LS is based on 5.5%.

Obviously, the participant has not accrued the current 415 max, but the AB he/she has accrued projects to be part of a benefit that will be limited to 415. So, do we use 5% or 5.5% for post-retirement funding?

2. Same idea. In a plan such as the one described above, in determining the portion of the accrued benefit that is used to determine funding target (and thus is based on prior years), should the 2008 415 dollar limit be applied to prior service? Or should the 12/31/07 AB be used without applying the 2008 increase?

Strange but true. 2 potential new clients failed to file their 5500's for recent years. They are non-EZ filers...

One last filed for 2000 and the other last filed for 2001. Neither has ever received a notice from IRS or DOL for non-filing. Is it possible they just fell off the DOL/IRS tracking system?? Just curious, how could this have happened??? Has this ever happened with anyone else?

Obviously we are having them submit under the Voluntary Compliance program and pay $1,500 each to get them back on track.

Plan uses the elapsed time method for eligibility, with a more liberal requirement than a 1 year period of service. For ADP testing using either disaggregation of otherwise excludables or the early participation rule, do you think it is possible to apply the statutory requirement of one YEAR OF SERVICE and 1/1, 7/1 entry dates? This seems to be in conflict with the document provisions.

To make a long complicated issue short I have a client who sold an auto franchise back to the manufacturer and is opening a used car lot at the same location. They are experiencing partial plan termination but want to allow the participants who will be staying on with the "used lot" to take a distribution.

We are looking at the options this client may have as far as allowing participants to take a distribution. I have read up on the 'same desk' rule and concluded that there has been no separation of service for these employees. I am unsure of how Rev Rule 2000-27 changed this rule. In your opinion would the closing of a franchised car lot and the opening of a used car lot constitute a 'separation of service' for participants who remain employees of the "new business" if the plan remains in tact?

Thanks!

I'd appreciate input on whether or not I am interpreting the new rules correctly. This is my interpretation:

A non-spouse bene may roll over the death benefit, but it must be done within one year of the participant's death. The non-spouse bene is still required to either start distributions within one year based on his life expectance or else take the entire amount out as a taxable distribution within 5 years.

I have a person who wants to roll over the distribution to an IRA and not take distributions until he reaches 70 1/2. My interpretation is that he cannot do that.

Is that right?

Hi All,

We seem to run into this topic every few years. March 15th falls on a Sunday in 2009. I seem to recall this is one of the few deadlines that does not get extended to Monday. So that means all distributions would need to be processed by Friday, March 13th.

Does this sound correct?

Thanks for your input!

Is the 92/94/96/98% phase in mandatory, or optional? I keep seeing the words "may" and "available" but I don't think those words are accurate.

If a plan that was not subject to 412(l) in 2007 established an unfunded base for 2008 equal to the unfunded target liability using 100% of target liability, the minimum must now be revised, right?

This seems to be a mandatory change retroactive to 1/1/2008. Is that right?

Employer is correcting 2003 and 2004 failed ADP test using VCP. This can be corrected either with QNECs or with the "one-to-one" method (distribute then contribute). Are the corrective contributions in the one-to-one method treated as QNECs, in which case they could go toward satisfying the top-heavy minimum contribution (also failed in 2003 and 2004)?

The Rev Proc does not use the term "QNEC" in its description of the one-to-one method, but I've seen commentaries that refer to the "one-to-one contribution" as a QNEC.

Any thoughts or cites?

Thanks.

Participant is not at early or normal retirement age, and dies. Plan has a death benefit equal to 100% of PVAB. Lump sum is permitted as a form of distribution. Plan has AFTAP of 73%. PVAB is in excess of $5000 (really about $33,000).

1. Spouse is beneficiary - I believe spousal options are annuity or 1/2 annuity and 1/2 lump sum.

2. Non-spousal beneficiary - (children, parents, estate or other) - I think lump sum must be paid.

I am interested in other opinions as I didn't catch this kind of detail in what I see in the regs.

Thanks all.

Hello:

I received a certified letter from my employer ( a non-profit hospital) stating that as of June 30, 2009 I must liquidate my 457B that is invested through a private brokerage (Schwab). The letter states that I will then have to move the assets to funds that the hospital has set up through another brokerage account.

The hospital allowed me to elect to move my investments to the Schwab account, now they are saying that they may be in violation with the IRS and I must liquidate.

As it stands right now, that would equate to about a $5,000 loss. Who knows what the market will be like in June?

My questions are:

1) Is it legal for the hospital to force me to liquidate my 457 and move it into there funds as they stated?

2) If I do not comply, can they remove the funds from my Schwab brokerage account without my consent?

3) Is there any way to recoup the paper loss when the forced liquidation occurs?

Any help in this matter would be greatly appreciated. The next call is to the tax attorney :angry: .

We went through Annual Enrollment in November, with a January 1, 2009 effective date. Now we have exec mgmt wanting us to increase the deductible amounts across the board for all plans. They want this effective for March 1.

My question is this -- are we required to have a special enrollment, allowing everybody the ability to enroll, change, waive? Or do we just allow those that are currently enrolled to make changes? Or do we only allow those that are currently enrolled to cancel?

Management only wants to allow those that are currently enrolled in a medical plan the option to cancel. I think we have to allow everybody the ability to change. Thoughts?

I know this topic has been out here before but I wanted to get everyone's current thoughts...

A compnay that sponsored a small 401(k) plan (30 participants) was puchased in an asset acquisition. All employees were terminated on the date of acquisition. When the (prior) owner authorized that the assets be distributed to the terminated employees, the bank trustee refused and said it was their internal policy to require a determination letter on the termination. The owner states that the plan does not have any compliance issue: 401(k) and 5% employer contribution for all, deposits made timely, plan document updated correctly (including amendments to terminate plan and distribute assets), 5500's filed properly, all annual testing done as required.

Since the company no longer exists there is little desire to go through the added expense of a determination letter and the participants all want their money since they are now unemployed. The owner is considering setting-up a new trust account, transferring the money and making the payments himself (including doing the tax withholding and 1099). The current trustee is fine with this. The question is what are the draw backs in not getting a determination letter? Are you at higher risk of IRS audit? How would the IRS even know that you terminated the plan without getting a determination letter since I don't see that question on the 5500 anymore? Finally, what is the trun around time for getting a determination letter?

Thanks in advance for your thoughts on this.

PAL

Plan improperly distributes $150 of employer contribution as part of an in-service withdrawal. Discovered three years later. Participant is currently employed and remains a Participant in the Plan. Unfortunately, the amount at issue is over the de minimis threshold.

Of course, Rev. Proc. 08-50 would say take reasonable steps to have the overpmt (adjusted for interest) returned to the Plan, notify the P that it was not eligible for favorable tax treatment, and, to the extent that there is a shortfall b/w what is returned and the amount necessary to make whole the Plan, the ER contributes the difference.

My question: If the Plan notifies the P that the amount wasn't eligible for favorable tax treatment, can the ER just go ahead and make the contribution? ER doesn't want to request the overpayment if necessary.

When terminating a DB plan we have been terminating the plan and freezing benefits. The idea being that if the plan termination somehow did not happen, benefits would not continue to accrue. Although we have not found anything on this, we heard that excess assets cannot be allocated to participants once benefits have been frozen. Is this the case?

I probably could find this, but figured I'd spin my wheels and thought it would be easier to ask here. Can a MPPP allow an in-service distribution at attainment of early retirement age, or only at normal retirement age?

I asked this question earlier in a convoluted sort of way, so I'll try again. I keep going around and around on whether this arrangement is 409A-safe. Some of the facts have been changed for simplicity.

An executive has been awarded a stock option to purchase several thousand shares under the company stock option plan, and the award is structured in such a way that it clearly satisfies the stock-based compensation exemption from 409A. The option will vest in two years if he is still employed at the time. The executive's employment agreement provides, in addition, that if he does not exercise the option for 1 year after the vesting date, and if he is still employed at the time, he may, during a 1-month window period, surrender the option in exchange for a cash payment of $X.

My ultimate conclusion is that this arrangement is compliant with 409A, because the regulations (or at least the preamble) provides that 409A does not apply if the employee may choose between two or more types of compensation, none of which are subject to 409A. In this case the executive may choose to be compensated by the stock option (which is not subject to 409A), or he may choose to receive the cash payment, the right to which does not vest unless he is still employed at the time of the 1-month window (and is not subject to 409A under the short term deferral rule).

I have some reservations about this conclusion. I would appreciate any thoughts on this arrangement.

I don't know why an employee wouldn't want to use up the prior year's first but the question is asked if an ee incurrs a claim in this plan year but the incurred date is still within the extension, can they opt to choose which plan year to make the claim in or are they forced to claim for the previous year while they still have money left there?

We sponsor a prototype document and many clients have adopted our plan over the years. Now that we are gearing up for restatements, we have written letters to all the clients on our plan list, and we've requested a reply. Of course, there are a handful of clients who have ignored our first and second letters. Our third letter will tell them that we will no longer sponsor their plan in accordance with Rev. Proc. 2005-16, Section 10. The last sentence of that section says that we must also notify EP Rulings and Agreements. My boss thinks that requirement is no longer applicable. I wondered what other sponsors are doing in a similar situation.

Has anyone figured out how to deal with quarterly contributions for an EOY valuation?

Advance contributions are increased at the effective interest rate to the EOY. However, if they are not made timely, it would appear the increase is lessened to cause a larger contribution (similar to a BOY valuation).

I'm still getting more details on this, but a SEP plan was overfunded for 2008. Is the correction of this problem the same as with a qualified plan? Take out the excess, pay a 10% tax, file a 5330?

Thanks