My background has been life/health and would like some guidance on a general quesiton regarding retirment. It involves a relative who is now incapable of making decisions and needs 24 hour care. My wife and I have relocated from west coast to east coast to care for him, living in his home. Another sibling has power of attorny.

Background is a 80 year old male, widowed, health is somewhat fragile (but no immediate threat to death), has $130k for investments, a house worth about $180k (paid off), SS income of $1,100 per month, and life insurance of $32k. We do not the exact amount, but the $130k was substantially higher prior to the market crash. We do not know what types of investments were involved.

Current cash needs are about $2,000 per month, but could go down somewhat as we get a better understanding of his expenses and can trim some of them. Our guess is that the expenses could go down a few hundred per month, but no real figures yet.

Our concern is that the cash be preserved. We are looking for professional help from financial planners as what to do.

My question concerns the allocation mix that we are beginning to hear from these planners. Is there a certain type of mix we should be aiming for? One in particular proposed a mix of 25% cash, 30% fixed, and 45% equities. I was a little shocked to hear the mix contained equities at 45%.

Any thoughts or ideas would be greatly appreciated.

A sole proprietor had a SEP IRA plan. She died in 2008, at age 78. Her husband was the death beneficiary and about the first of December requested a payout equal to the 2008 required minimum distribution for his dead wife. The brokerage house refused, saying he must first set up rollover IRA in his name as surviving spouse and take the required distribution from the rollover IRA.

The surviving husband refused to do that, on advice of legal counsel that the 2008 required distribution for his dead wife was not eligible for rollover and if rolled over, would cause a 6% penalty. In addition, the withdrawal from the rollover IRA would not satisfy the 2008 required distribution for the dead wife.

The brokerage house held tight when this advice was explained to its technical compliance and then legal departments. December 31 passed with no distribution being taken, and now a 50% penalty applies.

Should the husband notify the IRS about this situation? Is the brokerage house that refused the withdrawal request responsible for paying the 50% penalty?

Liquidity:

When you look at your investments and wet your pants.

Which code section requires amending the plan for GUST, EGTRRA, 401(a)(9) and 401(a)(31)?

How do deemed earnings figure into 415 limits?

How do deemed earnings figure into 415 and 404 limits??

Terminating a retirement plan; what must one do?

What must one do when one terminates a retirement without restating or amending it to get it qualified? I know one would have to pay early distribution fees and could not do a rollover to a qualified plan or IRA, but what else must one do?

One person plan - corporation

Sole participant at 415 high-3-year salary limit and not accruing more.

12/31/08 Funding Target: $1,000,000

2008 TNC = $0

Trust assets also $1,000,000

Under PPA the minimum is obviously $0 but is the maximum

deductible contribution $500,000? - the cushion amount?

Looking through the proposed regs on assets and liabilities, appears that what we exclude from FT is the benefit guaranteed by the insurance solely based upon premiums paid prior to the valuation date (and assuming no further payments). Let's just say you're starting a plain jane DB plan partially funded through whole life insurance. Appears minimum contribution would still just be the TNC with no special provision for the insurance (i.e., side fund would be TNC less premium paid). Assume that 2nd year would be especially underfunded since your CSV would be close to $0.

What I'm getting at: how does insurance funding work in DB plans post PPA? Just saw a 2008 proposal that made no sense to me (loaded with insurance) wherein their 2008 side fund and premiums were approximately double what the TNC would be on their porported end of year accrued benefit. Any consensus out there how insurance will work in '08 and beyond?

401(k) Plan using safe harbor hardship withdrawal provisions allows participant to take hardship withdrawal to prevent foreclosure.

Validity of financial hardship is not in question however plan administrator approved withdrawal without first requiring participant to take out plan loan.

Maximum plan loan available would not alone have been sufficient in amount to prevent foreclosure but taking out maximum loan was not a "counterproductive action" as it might have been if employee needed hardship withdrawal to qualify for first mortgage. See Treas. Reg. 1.401(k)-1(d)(3)(iv)(D).

In such an instance what is the correction under VCP? (Plan must submit for other unrelated operational errors.) Does the sponsor have to back the employee out of the hardship distribution to the extent it could have been processed as a plan loan?

Isn't the more important task to simply demonstrate that the sponsor/administrator has procedures in place to prevent participants from "skipping" the step of taking out a plan loan to the extent doing so is not 'counterproductive'??

Any comments welcome.

This is a good one. A client recently sold his business, but has a two-year employment agreement with the new owners. The client has $2,000,000 in the company's profit sharing plan. As the client still has 12 months to go under his employment agreement, he is not entitled to receive a distribution from the profit sharing plan.

The profit sharing plan does allow participants to self-direct their investments. Additionally, the profit sharing plan allows participants to set up investment accounts at other providers for investment purposes. The client wants to pay cash for a $1.6 million dollar home. The home will be rented so we dont need to worrry about prohibited transations.

Clearly, this would be permitted under a self-drected IRA or a qualified plan in which the individual was the only participant. In the past, I've only considered this issue with self-directed IRAs. Does anyone know of any contacts that would permit a account to hold real estate for a participant in this situation.

Thanks in advance.

Ed

We have a client that insists on restricting access to their benefit plan to only their managers. Assuming it could pass the safe harbor testing, would "managers" be considered a "reasonable" classification based on "valid business criteria" as required by 1.410? I have seen examples using hourly vs salary, geographical location and references to "job category" but I'd like to make sure that "manager" would qualify.

Thanks

May I use any mortality table for cross testing, even if I use SSRA in the test?

How are the transition rates to be calculated for EOY vals? For a 12/31/08 val, date, for example, our sofware provider blends the December 08 segment rates with the January 08 CB rate. Their rationale for using the 1/1 CB rate is that the CB rate is based on 412(B)(5)(ii)(II) which references the "...beginning of the plan year".

The IRS Notices all refer to the "...rates... applicable for (month)", so their position seems to be that the segment rates should be blended with the CB rate for the same month.

Does anyone have a checklist or list of the documents, policies and/or procedures that a Benefit Office (Plan Administrator) should have in its possession? If you were organizing a benefit office, what documents should the Plan Administrator make sure they have in the office?

Thanks

Here's another question that has me stumped (this is getting to be a bad habit) about 409A errors. In this case (with facts modified for clarity), a NQDC plan participant had elected to have his compensation deferred until April 30, 2008, but due to administrative error the plan did not make a distribution until November 2008.

Section 1.409A-3(d) provides that a delayed distribution is treated as paid on the designated distribution date if paid within the same taxable year or by March 15th of the following year. Under the scenario above, because the distribution falls within the specified period, it appears there is a not a 409A failure under the regulations.

The problem arises in determining the amount of the distribution. The plan provides for earnings/losses of accounts by indexing the bookkeeping entries to investments selected by the participants. As you may imagine, the account value in March was much higher than the value in November. As I noted above, section 1.409A-3(d) indicates that the distribution is deemed to be made on the designated date (April 30, 2008). Does it follow that the amount of the distribution should be based on the April 30 account value? And no, the plan does not include language that clearly addresses this situation.

For further thought: If the distribution had been made after 2008, but on or before 3/15/2009, would the distribution be taxable in 2008 or 2009? Although the regulations deem the payment as having occured on April 30, 2008, this is a 409A rule rather than an income inclusion rule (IRC 61 and 451) -- but then, wouldn't the payment be includable in 2008 under the constructive receipt (or economic benefit) doctrine? See, for example, PLR 9337016.

Yet further: If the distribution had been made after 3/15/2009, and it is appropriate to treat the payment as "received" (and taxable) in 2008 (again, because of constructive receipt), should the arrangement therefore be treated as failing 409A? The regulations suggest that this would be the case.

Thanks for any thoughts on this.

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?