Am I correct in my understanding that the excise taxes under Code Section 4975 do not apply to a 403(b) plan?

A 403(b) plan is not among the types of arrangements specifically listed as a "plan" under 4975(e)(1). It is also not listed in the instructions to Form 5330 as a plan subject to Code Section 4975. The Internal Revenue Manual also does not list a 403(b) plan as being subject to 4975. However, I have been unable to find anything that affirmatively states that 4975 does not apply to a 403(b) plan.

My specific issue is whether the excise tax applies for late remittance of participant contributions to an ERISA-covered 403(b) plan. Certainly, the ERISA penalties (20% under ERISA 502(l) and 5% under ERISA 502(i)) could apply, but it looks like the Code Section 4975 excise tax does not.

Any thoughts?

Thanks.

I have a control group of 2 plans. One is a SH NE Plan and the other is tested on Current. They pass 410b, do I have to combine both plans when doing the ADP test for the group that is not SH?

An employee has an HSA...and the employee and her dependents continue to be covered by a HDHP. The employee's husband (one of the dependents covered by the employer plan (HDHP) of his wife) has an IRA with a small account balance. No IRA rollover to the employee's HSA has occurred. May the husband's IRA be rolled over to the HSA of the wife/employee in a trust to trust transfer subject to the employee's maximum annual HSA contribution amount based on the type of HDHP coverage (single or family) at the time of the rollover? The issue is that the IRA is that of the husband...not the wife/employee. I can somewhat read the guidance to allow this but I couldn't find such explicitly stated...don't know if there is other guidance on this matter or if there is general interpretation of the guidance to allow/disallow this type of rollover. Thanks.

I have a small Retirement plan that has 5 participants with a 2008 decretionary contribution of $62,000. Isn't this over the $46,000 415 limit? What are my options to get back to compliance? Can some contributions be considered for 2009?

client owns 100% of S corp 1 and he, wife and 2 kids own 100% of S corp 2 , which does minimal business. S corp 1 has 2 plans, money purchase and profit sharing. both now have combined assets of about 120K. he has filed 5500s in prior years, does he still have to file based on the asset value of 120K? I think the answer is yes because of the controlled group situation......any way around this? He filed late last year and I was looking for a way for him to get around the penalty by not actually being required to file. ($775 penalty for each plan x 2).

Construction company currently sponsors a 401(k) Plan for the benefit of its non-union employees, as well as contributes to a bevy of various "union" plans for the benefit of its union employees.

A couple of former union employees reached their NRA under the union plan and are now receiving pension benefit payments from same. These same employees are continuing to work for the company - but now as non-union employees (i.e., the employer is no longer making contributions for these individuals to the union plan).

There are other former union employees who are also now "company" employees and are covered under the "company's" plan - but have not as yet reached NRA under the union plan and are not receiving pension benefits from the union plan.

The company would like to consider (unless it's more hassle than it's worth) excluding the "former union-now company" employees who are receiving benefits from the union plan from the company plan.

Definition of the "excluded class" would be something like: "Any employee who is currently receiving retirement benefits from Union Local 000 Pension Plan".

Their exclusion will not create a "minimum coverage" issue.

Just trying to see if this definitional approach for excluding these individuals sounds o.k. to those of you with more experience than I with such matters.

All comments, concerns, etc. most welcome.

Thanks!

OK, so I know there is no prohibition on having a -11(g) amendment add the lowest paid NHCE to the allocation first, and so on until coverage testing is passed.

My question is, are there any additional restrictions for -11(g) amendments on prototypes in terms of reliance on the pre-approved document? Or would this be OK?

With so much going on during this "economic downturn", I admit I have not been able to stay "current" with the all of the goings on coming out of Washington.

Does anyone know if there has been any "waiver" (authorized or proposed) of the 10% pre-mature distribution penalty on cash distributions to participants (under age 55) who have been terminated due to an employer's "downturn in business"?

What about a "hardship withdrawal" to prevent foreclosure on a mortgage?

Thanks!

This is a small town. The town bank serves as a trustee to a company's pension plan. The company is borrowing money from the bank/trustee and will be paying no more than a commercially reasonable rate on the loan.

Is this a prohibited transaction because both entities are plan fiduciaries? If so, is there an exemption?

Will the answer change if the bank knows that the company is going to use the loan to fund the plan, even though the plan sponsor, not the plan, is taking the loan? We are all very confused!

Thank you very much!

IRC 430(h)(4):

"For purposes of determining any present value - - - - , there shall be taken into account-

(A) - - - ,

(B) any difference in the present value of such future benefit payments resulting from the use of actuarial assumptions, - - - , which are different from those specified in this subsection."

For a Cash Balance Plan, with

i) the accrued benefit equal to the Hypothetical Account Balance, and

ii) 100% probability of the benefit being taken as a lump sum,

I want to use actuarial assumptions that result in the TNC being equal to the Contribution Credits, and the FT being equal to the Hypothetical Account Balance.

Does IRC 430(h)(4)(B) provide leeway to do that?

What do the words that I left out mean: "in determining benefit payments in any such optional form of benefits" - particularly where the benefit is the Hypothetical Account Balance?

Has the IRS issued any guidance for calculating 2009 AFTAP for EOY valuation?

In the absence of guidance, do we continue with the "good faith compliance" calculation in line with what was done for 2007 & 2008?

That is the 2009 AFTAP = adjusted assets/(Adjusted FT + Target NC) where assets, FT & NC are taken from the 2008 Sch SB and adjusted for balances, transitional FT % etc.

In that case, for EOY, the AFTAP shown on line 15 of 2008 Sch SB is of no consequence and is misleading as it does not apply to 2008 or 2009!, and one need not worry if the % is less than 60% - correct?

Where does the FTAP on line 14 come into play? Is it of any consequence?

What is affected by the FTAP % to be reported on line 14 of 2008 Sch SB?

I need to decide the amount of credit balance reduction (aka how much credit balance to burn)? Reduce enough so FTAP is at least x%(?) or reduce enough so AFTAP is at lease 60% and don't worry about FTAP?

Plan's FTAP & AFTAP are less than 80% even if the credit balance is reduced to zero. So the question is, should I worry about keeping only the AFTAP 60%+ or does the FTAP also has to be x%+ for purposes other than S436.

(AFTAP is greater than FTAP because FT for AFTAP is multiplied by the applicable % (<100) and assets are not reduced for credit balances.

Suppose that a sole practitioner professional P.C.-type entity wishes to create a 401k plan for protetction of assets.

Practitioner doesn't have any ee's but could use some office help. Practitioner decides to hire minor child after school for bona fide employment purposes such as filing, and other tasks suited to the ability of the child. Assume no hazardous work / no violation of child labor laws. Assume work tasks are documented as well as the job description in writing and that a fair market hourly rate of pay is paid to child, with W-2 issued at year end, all proper payroll tax filings made, payroll taxes paid etc.

401k plan is safe harbor, offering 3% mandatory contribution. Plan complies w/ all applicable laws, written trust document, notice req'ts, filings, contribution deposits, the whole nine yards.

Child is young (not too young to perform bona fide work) and works about 5 hours a week (assume plan offers immediate eligibility).

Although everything about this situation appears to be legal and bona fide (and I know to be true based on the person who actually asked me this question) - has anyone ever seen someone (like IRS, an attorney, etc) try to and / or succeed in asserting that the plan is actually a one person plan and therefore not subject to ERISA (eg throws out the validity of the child hire)?

Thanks for any input.

Can you terminate a profit sharing plan that is under DOL audit? If it is under IRS audit you need a no change letter, and then the plan can be terminated. What about a DOL audit?

Please let me know where I can access further information on this topic.

Is there any reason why an employer who currently has a large plan could not seperate his employees into 2 plans, in order to do away with the annual audit? There is no desire to be discriminatory, they just don't want the expense of the audit.

Thank you.

Since 3/15/09 falls on a Sunday, are ADP/ACP refunds due on Saturday or Monday? Opinions differ in my office and I can't find anything official on this. Providing a link so I can print something official for my files would be great.

2/3 plans of a control group has a hard time passing coverage, because the bulk of the NHCEs that benefit are in this 3rd plan (which also happens to not have any HCEs). The three plans cannot be permissively aggregated because that 3rd plan that has all the NHCEs is a safe harbor match plan while the other two are not safe harbor plans. The 401(k) regs say that in order to be permissively aggregated, they all have to have the same ADP testing method, which is not the case here. The remedy might be to amend the plans to match each other's testing method. But in the meantime, what's the remedy for prior years -- is there no recourse except that the HCE portion of the plan is disqualified and they have to include their accrued benefit as income per Code § 402(b)(4)? How are coverage failures fixed under VCP?

Can someone explain to me Otherwise Excludable Employees in the ADP test?

I have a Plan where the Eligilibilty Requirment is Age 21 and 1 year of Service, with Quarterly Entry Dates.

For example, an employee was hired on 7/1/2007, and they worked 1,000 hours from hire date to anniversary date.

For the 2008 ADP test, can I exclude them due the the Otherwise Excludable Employee rule and why?

Thank you

I have a 401K plan that does NOT include bonuses or commissions in the comp definition for purposes of deferrals or employer matches (The match is capped at 6% of comp using the comp definition above). There are no Profit Sharing contributions.

When I ran the ADP/ACP Tests using a "safe harbor" definition of total comp under 1.414(s), the ADP failed (the ACP Passed) and the employer agreed to contribute QNECs calculated based on total comp at a level that would make the test pass.

In this instance, is it also necessary to run a separate non discrimination test under 1.414(s)-1(d) or does the passing of the ADP/ACP tests using Total Comp. render the 414s test unnecessary?

Employer has two plans covering the same group of people - a 401(k) PS plan and an ESOP. As of 1/1/08 the 401(k) PS Plan was merged into the ESOP plan but this question is more about the 2007 plan year. The ESOP's loan is fully paid off so any contribution is treated like a PS contribution. In 2008, Employer made a contribution for 2007 into the merged plan. Unfortunately, I'm not clear if this contribution belongs to the PS or ESOP.

The reason I think it matters is that prior to their merger, they had different plan entry dates and eligibility requirements for contribution. ESOP allows entry after 1 year of service and then 1000 Hours & last day worked for contribution. Other plan allows entry at BOY in which 1000 hours worked and then does not require last day worked. Since both plans define eligible compensation as from date of entry, it makes a difference which one gets the allocation for new participants, and terminated participants are also treated differently.

Would it be acceptable to treat the contribution as from the ESOP in which case new participant's comp only counts from DOE and terminated participants are not eligible?