Client wants recordkeeper to make a deposit directly into the plan for an error that was made. My understanding is that the recodkeeper cannot make a deposit directly into the plan account. The client is disagreeing.

1) Please confirm that I am correct.

2) Either way, please provide a cite for me to present to the client.

Thank you in advance.

The ERA of ought eight now allows the infusion of an assumed interest rate [3rd segment rate] into the determination of average value but it does not appear the corridor has been expanded. Thus, if assets lost 30% from A_t-1 to A_t, the maximum average value would be 70% x A_t-1 x 110%. or 77% of A_t-1. In short, you're still in the toilet, because you're down nearly 30% (the loss plus what you were expected to earn). Conclusion: Rah!

Any disagreement?

Here is a tidbit you may have not realized, but the possibility does exist that the plan limits could actually drop next year. (I know, that quite a ways off, but it is food for thought)

The CPI factors have dropped so much the last few months it is a real possibility.

The 2009 limits were based on the following factors:

July 219.964

Aug 219.086

Sept 218.783

The most recent limits are well below those:

Oct 216.573

Nov 212.425

A participant in a 401(k) plan terminated employment and filled out distribution forms. The employer accidentally paid the terminated participant from the corporate checking account rather than the trust. The former participant still has an account balance at the investment company, and has also been paid the equivalent of her account balance from the checking account.

No 1099-R or 945 was filed because as far as the investment company was concerned, no money left the plan in that year (2007).

What is the proper way to proceed to correct this error?

Thanks!

Help! Client wishes to freeze future contributions to an account balance NQDC Plan. To avoid future administration costs, client wants to "terminate" the plan. Client maintains other NQ Plans so would not meet the requirements to distribute accounts upon "discretionary" termination (as opposed to termination by operation of law). Under the 2007-86 transition rules, can the client amend the plan to freeze future contributions and also provide that all accounts will be paid in lump sums by say, 3/15/09 regardless of any prior employee elections?

Alternatively, in lieu of a unilateral ER mandated time and form of payment, can the client allow participants to make elections to receive distribution of their accounts as early as 1/2/09, as long as the elections are made by 12/31/08?

Thoughts and comments are most appreciated.

We have been laid off at a five mins notice. we are told we have to return to work to work for our severance pay. is this legal? which means we are on unemployment insurance for three weeks but have to return to work just to earn our severance pay?

Ronnie

If the plan doc provides that forfeitures will be used to reduce employer contributions and pay administrative expenses, is there any reason why a plan sponsor couldn't pay for them out of pocket up front and then get reimbursed from the forfeitures account at the end of the plan year? Any thoughts are appreciated. Thanks.

Just found out a participant in a plan for the last 5 years is illegal. She has taken a loan out. The plan does not allow for illiegal aliens.

What do you do with the deferrals and match that has been deposited for her? Do they have to make her whole outside of the plan and forfeit the money? Do you treat it like an ineligible participant?

What if her social security number is fake? If you give her money outside fo the plan - how does it get reported to the IRS - with her fake SS #? She will probably be fired - and I dont think they will want to give her more money outside of the plan.

Thanks

Private corporation provides medical insurance coverage to all employees. It has contractually agreed to continue to provide the same medical insurance coverage received by other executives to its current CEO executive and his family after his retirement and until his death. Only the CEO has this retiree medical benefit and none of the other executives will receive it upon retirement.

Is there any reason why the payment of insurance premiums by the Company to provide this medical coverage to the CEO and his family upon retirement would not be excludible from income under Section 106 of the Internal Revenue Code?

Beginning 1/1/09, can an individual self-certiy that he/she has a disability?

The situation is this: Plan of a small sole proprietor is being wound down as the sole proprietor has retired. One of the assets it holds is life insurance on the sole proprietor, a plan participant. Normally, the sole proprietor's spouse ignores the premiums on the life insurance when they come due, simply allowing the premium to be assessed by the insurance company against the investment portion of the policy.

Spouse is out of town when a quarterly premium statement comes to their home in 2007. The sole proprietor simply writes out a personal check for the quarterly premium to the insurance company. There are no earnings for 2007, so there can be no 'contribution'. And it was not claimed in any way as a contribution.

Looks like a prohibited transaction, personal assets of a disqualified person being used to benefit the plan being an "extension of credit", and anticipating (a) repayment (with interest) and (b) filing a Form 5330. Section 6.09 of Rev Proc 2008-50 provides that PT's cannot be corrected using EPCRS.

Anyone else dealt with a similar situation?

Comments and suggestions regarding this situation will be appreciated.

Folks:

We were discussing recently whether an excecutive who was 85 years old could voluntarily waive his retirement benefits.

Can someone direct me to that discussion?

The reason I have an interest is a paper I am reading on whether employees who have been misclassified as independent contractors can sue for lost benefits, even though they signed up as (misclassified) independent contractors who voluntarily waived the benefits?

In one of the IRS or DOL rulings, as I remember, it stated something to the effect that voluntarily waiving a contracted for retirement benefit was not an option for the employee.

Don Levit

Can you retroactively change the Plan's definition of compensation to the beginning of the plan year for a plan using safe harbor match? Doesn't seem right since participants should know by January 1 what compensation will be used for purposes of the cap on the match.

I know that there are no regs for maximum deductions under PPA, but I have an interesting situation.

A one man DB plan is significantly overfunded. Selected results as follows:

Target Normal Cost: $12,000 (because of significant credit balance, TNC is only partially offset due to funding surplus).

Carry over balance: $138,000

Undeducted contributions from 2007: $56,000

404(o) maximum: $0 (this is from the TNC + FT + cushion amount less assets

If I don't use the credit balance to offset my minimum required contribution under 430, and I made the $12,000 contribution, it would be deductible. So even though I have undeducted contributions in my plan, I still have the ability to contribute and deduct a $12,000 contribution? If I didn't offset the minimum by the credit balance, I would have an obligation to make a contribution under 430, so there's no way for me to apply any of the undeducted contributions towards meeting this minimum.

Am I going crazy, or is there something that's just wrong about this situation?

May an employer stop Automatic Enrollment Safe Harbor contributions during the Plan year with adequate Notice and amendments? They can with a regular Safe Harbor Match. I haven't seen anything written specific to the Auto Enroll Safe Harbor Match. Can someone offer assistance???

I have a client with a Safe Harbor 401(k) plan where we're still testing a select population of employees. I've spoken with a friend in the industry who thinks there's away around this testing, and wanted to bounce it off of people here to see what the reaction was...

Plus, it's a fun little thought exercise.

Plan Facts:

401(k) Deferral: immediate eligibility

Match eligibility; 1 year of service

Match Formula - Assume statutory minimum safe harbor amounts, 100% of first 3%, 50% of next 2%

Eligibility service measured by elapsed time.

Matching Contributions calculated on a payroll basis

Current Testing Treatment

Group 1: Satisfied 1-year eligibility requirement prior to commencement of current plan year. They are elgiible for the safe harbor match for the entirety of the current plan year. Thus, no testing is performed on this group.

Group 2: Hired during the current plan year. They will not satisfy the 1-year service requirement by the end of the plan year, thus are statutorily excludible. These employees are tested, albeit separately in their own group with no HCEs (because none have any prior year compensation).

Group 3: Hired during prior plan year. These employees will attain 1-year of service during the plan year. Thus, by the end of the year, they are non-excludible and must satisfy testing. Further, because their matching contributions were made for only part of the plan year, they do not satisfy the safe harbor design and must be tested.

Each year, we test group 3 separately, and invariably there's always one or two employees who were hired early enough in the prior plan year to earn enough to reach HCE status. This testing regime was built into the plan document, as well, so any deviation on a go-forward basis would require a plan amendment.

The Proposition

The fix proposed by my friend is to, for the sake of testing each participant's matching contribution against the safe harbor standard, to look at deferrals of compensation where compensation is defined as only compensation while elgibible for the match. So, a participant hired 10/1/07, for example, would be excludible for 2007. In 2008, he would receive a matching contribuiton starting 10/1/08. When we look at matching made on deferrals of compensation for the period 10/1/08-12/31/08, the rate would meet the Safe Harbor formula, and no testing would be required.

The Authority

The closest thing I can find on this topic is Treas. Reg. 1.401(k)-3(b)(2) which, for safe harbor purposes, allows you to define compensation as compensation only during an employee's period of participation. The potential problems I see with this are as follows:

1) 1.401(k)-3(b) pertains specifically to nonelective contributions, and I'm unsure if we could apply it in the case of this plan which uses a matching safe harbor contribution.

2) The language merely says "period of participation." My initial reading of that provision (and all examples I've seen on the subject) interprets this to mean participation in the plan as a whole, which in this case would be triggered at hire as eligibility for deferral purposes is immediate. This provision seems to be addressing the case where all participants are eligible for the contribution, but participation in the plan requires 1-year of service. In those scenarios, paricipation in the safe harbor contribution and the plan as a whole occur at the same time. By contrast, in the plan at issue, participation in the plan, generally, precedes the match participation by a year. I haven't seen anything specifically permitting carving up participation on a benefit-by-benefit basis for this purpose.

Any thoughts? Does this proposed interpretation make sense, or is my friend halucinating regulations that don't exist? Would it be possible to treat this transition group as satisfying the Safe Harbor requirements, or is a plan being punished for extending participation for deferral purposes to excludible employees?

Thanks for the feedback.

IRS proposed reg. 1.430 (august 31, 2007) described the requirements for waiving, and documenting, a credit balance. I saw nothing in the recent legisation (Worker, Reitree, and Employer Recovery Act of 2008) that would impact the possible waiver and documentation. Anyone agree or disagree?

Our nongovernmental 457(b) plan suffered an operational failure where one participant contributed in excess of $15,500.

This has been caught by the IRS on audit. The IRS is stating that the Plan will be disqualified for this small operational error.

Voluntary compliance is not available under EPCRS, do you guys know of any way to correct this error without disqualifying the plan?

I have a small law firm client that just made a guy a non-equity partner. All I can find is that he is treated as a self employed person (which coincides with what they are telling me that he will take draws).

Is this guy a Key EE?

Is he a 5% owner (of his own Schedule C?) making him a 5% owner and making it an affiliated service group somehow?

Is this guy an HCE? I can't figure how he is an owner but if he is he would be HCE regardless of income, which was not that much last year, and not part of top 20%.

Thanks for any comments.

I got a call from a participant who is trying to put together his election for the upcoming plan year. His chirporactor told him that if he provides the patient with a note of medical necessity, that it may be able to be run through his flex plan.

This sounded fine at first, but then I asked around the office and it became more complex. It was noted that maybe a home appraisal before and after the hot tub is put into the property may be required. I do not know if he owns or rents. Any thoughts on this?

Thanks

(We're a TPA)