Many of you are old enough to remember the IRS's "actuarial audit project" from the early 1990s. At that time the Service opened audits almost all small defined benefit plans which had NRAs prior to age 65 and attempted to disallow deductions for the "excess" deduction (over the amount allowable if the NRA had been age 65). The benefits community (including the then-ASPA) banded together to fight the IRS. IRS lost the first 2 court cases and immediately dropped hundreds of audits that had been opened.

A similar thing is happening now. IRS has opened hundreds of audits of clients in various welfare benefit arrangements. We have known of IRS's dislike for these arrangements for some time (at least since 1995 when Notice 95-34 was issued). Then IRS upped the ante by labeling some of the plans as "listed transactions" [419A(f)(5) and (6) arrangements].

One welfare benefit plan stood up to IRS, hired a former IRS litigator and pressed for a court date. The IRS blinked and dropped the whole case.

Another plan, whose promoter IRS officials dislike intensely, is scheduled to have 3 cases go to court this June. Recently the IRS made a very reasonable settlement offer to avoid going to court.

Apparently the IRS is afraid that they will have to drop the whole project if they start losing cases in court. So they are avoiding court in hopes of intimidating taxpayers into paying taxes they don't owe and keep the audits going as long as possible.

IRS auditors are desperately trying to make up excuses why amounts in the welfare benefit plans should be taxable today. For example, for a client who made contributions in the 1990s but nothing in the past 7 years, the IRS offered to treat the plan as a split dollar arrangement (although our WBP has nothing in common with a split dollar arrangement), making the accumulation value of the insurance taxable to the client in 2005.

Is anyone else having experience with these arrangements?

I have only a passing familiarity with Corbel's documents, but have a question involving a plan using such documents at this time.

On Monday, the Supreme Court issued its decision in Kennedy v Plan Administrator of the DuPont Sav. and Investment Plan, Docket #07-636, settling a Circuit dispute as to whether a waiver of benefits violates the anti-alienation rule. The Court said no, it does not, provided that the plan document permits it, the waiver is made per the plan procedures, and the waiver does not designate who the successor beneficiary will be.

In my brief review of the Corbel document identified, I have found no spot where there is provision for waivers of benefits.

Does anyone know definitively if there is or is not?

PPA and proposed regs provide that benefit restrictions if a plan's AFTAP is less than 80% apply to benefits in excess of "the monthly amount paid under a single life annuity (plus any social security supplements)". Does a Social Secuirty Level Income Option that is elected by the retiree satisfy the exception of "social secuirty supplement"? Can a plan with an AFTAP between 60% and 80% pay this without comparing to the lesser of 50% or the PBGC guarantee?

Related but separate, for the first 3 months of the plan year, before the AFTAP certification is prepared and before the plan is subject to restrictions, can an otherwise restricted benefit where payment is delayed for administrative reasons until after the first 3 months (but the annuity starting date is during the first 3 months) be paid?

Late last year, we revisited a pension plan whose 2008 retirees were not offered the 75%J&S option. We offered them the option to elect the 75% and the difference from original election would be reconciled. A participant originally elected to not withdraw employee contributions and take the 50%. Now participant would like to elect 75% and withdraw ee contributions. Would there be an issue with this?

Is the Cycle C deadline to file an application (e.g., postmarked with the post office) this Saturday or next Monday?

Client previously had traditional defined benefit plan using a standardized prototype document. Plan is converting to a cash balance plan using an individually designed document. Client is in Cycle C.

1. Do the EGTRRA good faith and Mandatory Distribution amendments, whcih were adopted by the prototype sponsor, have to be readopted as part of the restatement to a cash balance plan?

2. When submitting the cash balance plan for a determination letter should all prior prototype adoption agreements be submitted or just the most recent (GUST) adoption agreement with the IRS Opinion Letter?

I have a plan that is cross tested/Safe Harbor. Several participants do not meet the last day hour requirement and have been given an addtional percentage to meet the gateway. The client wants to move one of these employees to another group with a higher percentage. Can they? My thought is that he is ineligible and is only receiving the minimum to meet the gateway.

My firm prepared to meet participant disclosure requirement regs and service provider disclosure regs the DOL was supposedly going to finalize before 12/31/2008. Now both are on hold. What are others doing? Still doing the disclosures? Wait until when and if new regs are issued? I am interested in hearing from others!

non profits who maintain a 401(k) are subject to full Non Discrimination testing, correct? If so, then what is the benefit of having a 401(k) as opposed to a 403(b)?

Thanks

My mom lives in San Diego, CA in a duplex that she owns outright. I live in Northern California and I don’t get the chance to see her that often. She is getting older, and I am worried that if she dies, I won’t get any share in the duplex that she owns; which I helped her to renovate 10 years ago.

I have a sister and brother and we haven’t talked about this yet. They live in Arizona and New York but I am guessing all would be based on California law.

“The best education in the world is that got by struggling to get a living.” - Wendell Phillips

I'm in the process of assuming a case, the actuarial work of which was peformed on the Datair system. I do not use nor am I familiar with Datair. I note that for a distribution in 2009, the display sheet I received specified the 2008 Applicable Mortality Table whereas I believe it should apply the 2009 Applicable Mortality Table. Any comments?

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If you mail in the 5300 before the 10 day period ends, what's the best way to confix the problem. Call and ask the Form 5300 not to be filed until the 10 days is up? Thanks for the help.

FYI

As you are considering a dependent eligibility audit and student verification processes for this year, make sure and pay attention to existing state law and the new legislation called "Michelle's Law". “Michelle’s Law” will go into effect in October of 2009. This law prevents a group health plan from removing coverage from a “dependent child” due to a “medically necessary leave of absence” before the earlier of: (1) one year after the first day of the medically necessary leave of absence; or (2) the date on which the coverage under the plan would otherwise terminate.

You can read more about it here: Michelle's Law: A New Consideration for Dependent Audits

I have a participant who currently has 2 outstanding loans and the plan does not allow for a third nor would he qualify if the plan did allow. He does qualify for a hardship and his "need" exceeds the balance in his account. He has also deferred more than is currently in his account so he would in theroy be able to take 100% of his account balance. I wasn't able to find anything in the plan document addressing this issue but it seems odd to me that he could wipe his account out yet still have 2 outstanding loans. Would we also have to consider the loans as defaulted or could he continue to repay them? And can he really take 100% of his account balance since then there would be nothing securing the 2 outstanding loans??? (The trustee doesn't want to get into using outside assets to secure the loan). Thx

A plan is being terminated and payments are being accelerated under 1.409A-3(j)(4)(ix)©. That section generally prohibits payments within 12 months of the plan's termination, but requires all payments to be made within 24 months of the termination. Does the termination amendment need to spell out specific payment terms within that 12 month period? In other words, should the amendment say that payments to participants will be made in a lump sum on date "X" (for example)? Could we simply include a provision that mirrors that in the regs saying payments will be made no sooner than 12 months and no later than 24 months after termination and leave it up to the employer to decide how and when to make payments within that time period?

We have a plan that was terminated at the end of 2007, and a number of annuity contracts were purchased at that time for the distribution of plan benefits. The annuity starting dates of these contracts have not yet passed and benefit payments have not begun. Accordingly, are these contracts subject to the new QOSA requirements of I.R.C. 417 (75% J&S optional form), which are applicable to distributions from a plan that is subject to I.R.C. 401(a)(11) with annuity starting dates in plan years beginning after December 31, 2007? Is the plan (although long since terminated) responsible for amending the contracts to offer the QOSA option?

Client's 401(k) excludes bonuses from the definition of compensation, and because the usually HCEs get larger (percentage-wise) bonuses than NHCEs, there is not a problem with a discriminatory definition of compensation. However, a couple of years ago, because of a downturn in business, the client did not pay bonuses to the HCEs, but paid the NHCEs as usual. So it looks like the definition of compensation for this year is discriminatory because now "compensation" for HCEs = total compensation, whereas "compensation" for NHCEs is less than 100% of total comp. The client does not match or otherwise make nonelective contributions.

Has anyone come across this type of situation? Any ideas of how to correct it?

In preparing the Section 402(k) compensation of non-employee directors, is it necessary to include disclosure of directors who departed in the previous fiscal year? How about directors who departed after the end of the fiscal year but before the date of the proxy statement?

The reg and instructions don't seem to address this.

We recently established an ERISA 403B plan. We also have a 401-K plan. My question is this: Do contributions to the 403b by HCE need to be considered in 401K ADP/ACP testing? We have HCE's contributing to both plans, receiving a company match in the 401K up to the company limit for match and then contributing additional pretax contributions to the 403b to reach their annual limits of $16,500 plus $5,500 catch-up if eligible.

We have an employer who has indicated that they will pay us "net 120." This is an ERISA plan, can they do this if participant contributions are used to pay for the benefit? Or would this be in violation of ERISA/fiduciary duties?