Assume a plan has a June 30 PYE. An employee made an election to defer compensation earned between July 1, 2008 and June 30, 2009. Employer wants to switch to calendar year plan year beginning with January 1, 2009. Can the employee make a new deferral election by the end of 2008 with regard to compensation to be earned in 2009 or does their initial election to defer until June 30, 2009 need to run its course?

If a NQDC plan is terminated on or before 12/31/08 but accrued benefits will be paid out under the terms of the plan upon the occurrence of specified events, does the plan document need to be updated to comply with the final regs or will operation in compliance with 409A and the regs suffice - its a phantom stock plan with only a few participants and based on the stock value formula (EBITDA based), the phantom stock has zero value, so its unlikely any participant will receive a nickel unless economic conditions change dramatically.

Any thoughts would be greatly appreciated

The regulations permit discretionary cash-outs of a participant's interest if the account balance is not in excess of the 402(g) basic amount (i.e., $16,500 in 2009). You must aggregate all plans of the same type under the "plan aggregation" rules in applying this rule.

Does it go without saying that you can "disaggregate" two "plans" of different types? Suppose you have one document that provides for both elective contributions and employer-funded non-elective contributions, and separate accounts are maintained for the two types and earnings and losses are separately tracked. If each account is less than the 402(g) limit, but the two combined are greater than the 402(g) limit, can you cash-out both under the discretionary cash-out rule?

The following data is used in the example:

Participant age 55 retiring at 65 and has 5 years of accrual / service. The formula is 100% of high 3 with a valuation date of 1/1/2008.

Compensation

2007 200,000

2006 150,000

2005 100,000

Benefit for funding target

(200,000 + 150,000 + 100,000) / 3 * (5/15) = 50,000

Benefit for target normal cost

(200,000 + 200,000 + 150,000) / 3 * (6/15) - 50,000 = 23,333.33

Benefit for cushion

200,000 * 5/15 = 66,666.67

Therefore, my maximum would be the target normal cost plus funding target plus 50% of the funding target plus the difference between the cushion and the funding target less assets.

Now, a different scenario. A similar plan, however, compensation is only recognized while a participant as it is a new plan.

Benefit for funding target is zero (no compensation)

Benefit for target normal cost

200,000 * (6/15) = 80,000 (however, this should be limited to 1/10 of the 185,000 dollar limit?)

Benefit for cushion

200,000 * 5/15 = 66,666.67

Therefore, my maximum would be the target normal cost plus the difference between the cushion and funding target.

The latter example seems to be a strange result.

Posted this on the 401(k) board but did not receive any response:

I have a Plan that terminated effective 12/18/08 which is the last payroll date for the 2008 plan year which is the calendar year.

Plan fails ADP and corrective distributions are required. Is it ok to make corrective distributions tomorrow with associated gain/loss?

What has me a little confused is that corrective distributions must be made after the end of the plan year and the plan year does not end on the date of plan termination. Is there an exception for terminating plans? If the Plan terminated on January 15, 2008, I would have one year to make corrective distributions but it does not make sense that I would have to wait until after 12/31/08 to make corrective distributions.

Is it necessary to amend the Plan to provide for a short plan year 1/1/08 - 12/18/08? This would seem to reslove any uncertainty but is it necessary?

Would 2008 1099-R's for corrective distributions be completed with the code of 8?

Thanks

Would a substitute teacher over age 70 1/2 be considered actively employed, for RMD purposes, if on the "call list", since there is still an employee-employer relationship, even though they may not have worked any toward the end of the calendar year.

Our client has discovered a situation where an ineligible individual has been participating in a DB plan with mandatory ee contributions... for almost 20 years. I am aware of the EPCRS correction procedure in Sec. 2.07 of Appx. B for early inclusion of an otherwise eligible employee, but this individual is not in an eligible class of employees at all.

Is anyone aware of an EPCRS correction procedure for the inclusion of a completely ineligible employee (as distinguished from an employee that was simply let in prematurely)?? I assumed this would be a common problem but I haven't been able to find anything on it in EPCRS or elsewhere.

I know this is a basic question but I can't seem to find an answer anywhere!

We discovered that we need to amend a 2007 Schedule I (Form 5500). With the original filing, we attached the 5500, Schedule I, Schedule R and Form 5558. For the amended filing, on page three of the 5500, do we still check the "Schedule R" box and not attach the Schedule R (since we're not changing it) or do we uncheck the Schedule R box on page three of the 5500 since it's not being amended? I've seen it done both ways but want to know the "right way" (if there is such a thing). This is a paper filing, not an electronic filing.

Our practice has always been to only submit the amended schedules and attach a copy of the 5558 if one was submitted with the original filing.

Any thoughts would be greatly appreciated.

Thanks!

Defined Contribution Plan has a rule that a participant must not have more than a 60% debt to income ratio to receive a loan. If loan proceeds were used to pay off participant's debt, he would meet the 60% debt to income ratio. Participant is willing to assign loan proceeds to creditors to pay off debt.

1.401 (a) -13(e) allows for voluntary assignments of benefit payments. See below. My only question is whether there is a reason for treating loan proceeds different from a benefit distribution for purposes of this rule?

1.401 (a)-13(e)

Special rule for certain arrangements—(1) In general. For purposes of this section and notwithstanding paragraph ©(1) of this section, an arrangement whereby a participant or beneficiary directs the plan to pay all, or any portion, of a plan benefit payment to a third party (which includes the participant's employer) will not constitute an “assignment or alienation” if—

(i) It is revocable at any time by the participant or beneficiary; and

(ii) The third party files a written acknowledgement with the plan administrator pursuant to subparagraph (2) of this paragraph.

(2) Acknowledgement requirement for third party arrangements. In accordance with paragraph (e)(1)(ii) of this section, the third party is required to file a written acknowledgement with the plan administrator. This acknowledgement must state that the third party has no enforceable right in, or to, any plan benefit payment or portion thereof (except to the extent of payments actually received pursuant to the terms of the arrangement). A blanket written acknowledgement for all participants and beneficiaries who are covered under the arrangement with the third party is sufficient. The written acknowledgement must be filed with the plan administrator no later than the later of—

(i) August 18, 1978; or

(ii) 90 days after the arrangement is entered into.

Just need confirmation. 2008 calendar plan year: I'm looking at 2007 compensation to determine if participant is HCE in 2008. Is the threshhold $105,000 or $100,000?? Thanks.

Here are the facts...

The plan is a 401(k) Plan with a June 30th year-end

In January 2006 the sponsor transmitted the deferrals for a particular payroll period to the custodian. The custodian received the money but never credited them to the participant accounts. The amount of the deferrals was a little over $6,000.

The plan changed custodians at the end of December 2006.

In early 2007, when the plan was audited for its 6/30/2006 year-end the custodian's error was discovered and disclosed in the notes of the financial statements as employee contributions receivable, with a description of the error. The old custodian was contacted and subsequently sent the money, which had been sitting in limbo, to the new custodian.

The new custodian received the money in July 2007 and applied it to participant accounts. An analysis was done of missed earnings and these were paid by the old custodian and applied to the participant accounts. It was a little over 550 days from the time of the error to the time of correction.

So, the participants have been "made whole" as of July 2007. My questions are about paying the excise tax due and whether the steps we are taking will prevent further penalties or more severe actions.

I know that the initial error is considered a prohibited transaction, and each subsequent plan year that it goes uncorrected is another prohibited transaction. Will what I am going to file correct all of the problems, or do I need to explore one of the voluntary correction programs? (Or is use of the correction programs negated by the fact that we went beyond 180 days before correction?)

We are filing a Form 5330 for the year ended 6/30/2006 to pay 15% on the earnings missed between January 2006 and June 30, 2006 (calculated at the applicable federal rate).

We are filing a Form 5330 for the year ended 6/30/2007 to pay 15% on the earnings missed for the year ended June 30, 2007 (including compounding).

We are filing a Form 5330 for the year ended 6/30/2008 to pay 15% on the earnings missed for the few days from July 1, 2007 until the correction later in July 2007.

We will list the amount of the delayed contributions on line 4a, Part IV of Schedule H of Form 5500 and attach a schedule listing the amount of the delayed contributions as a prohibited transaction.

Thanks to anybody with advice to offer.

I've got a rehire who was formerly employed in a class of employees that were ineligible to participate in the 401(k) plan. Now she's rehired in a class of eligible employees. Had she been in a class of eligible employees when she was employed previously, she would have entered the plan at that time (i.e.: she had at least 1000 hours of service). She was gone for fewer than 5 years. Does she enter the plan immediately upon rehire, or can we make her wait until the next entry date? DO we count that service for purposes of vesting?

The plan document does not cover this scenario, so I'm trying to figure out what's required under ERISA.

FYI- my conclusions so far are 1. immediate eligibility and 2. count all service for vesting purposes, but I'm just trying to see if I missed something...

have a client that had all of the pension money with madoff. Small business, no ee's. The two owners were the only participants.

their BOY assets were 1 mill. EOY assets are 0.

Should I carry the mill as a receivable? Or should I carry it as a lesser value.

In an acquisition, the target sponsors a SIMPLE IRA which will be terminated pre-closing. The transferred employees will participate in buyer's 401(k) plan post-closing. The joint DOL/IRS document entitled "Simple IRA Plans for Small Businesses" states under the heading "Terminating the Plan" that "[Y]ou must also notify your employees that the SIMPLE IRA plan will be discontinued." Where is this requirement in the law and is there a minimum notice period that must be satisfied.

Thanks.

ASPPA's ASAP says that minimums for 2009 for qualified plans would be waived under the pending legislation. Reading the technical summary from Congress seems to limit this to DC plans. Is the ASPPA ASAP wrong (call it incomplete or misleading if you wish), or did I miss something about DB minimums?

I represent an employer that is being pressured to join a multi-employer plan is endangered under the PPA. Because of the potential exposure, the employer is likely not to join, but wants to make an informed decision. What information about the plan besides the plan document, Form 5500's, actuarial reports, and the information referenced in ERISA 101(k) should this employer request.

It's my understanding that the IRS will publish (separately from its annual Cumulative List) a list of so-called "interim amendments" which document sponsors and, potentially, adopting employers, must adopt by the applicable RAP--generally, the date the adopting employer's tax return is due for that year (including extensions).

On 12/19/2005, the IRS released Notice 2005-95 in IRB 2005-51 which contained its list of interim amendments for the 2006 plan year. In a "Special Edition" of its "Employee Plans News" newsletter (released in August 2007), the IRS released its list of interim amendments for the 2007 plan year. Ok, fine.

What about its list of interim amendments for the 2008 plan year? I can't locate it anywhere and can't seem to find any statement that it isn't being published for such and such a reason. What am I missing?

I can see the value of Information Sharing Agreements for a plan with more than one participant, but I'm restating a plan for a one-man not-for-profit. Does he need to get one of these signed for each vendor he uses for his plan assets? He doesn't have a loan or hardship provision in his plan.

By the way -- since our firm is restating his plan, do we need to have an Information Sharing Agreement with him, too?

I have a Plan that terminated effective 12/18/08 which is the last payroll date for the 2008 plan year which is the calendar year.

Plan fails ADP and corrective distributions are required. Is it ok to make corrective distributions tomorrow with associated gain/loss?

What has me a little confused is that corrective distributions must be made after the end of the plan year and the plan year does not end on the date of plan termination. Is there an exception for terminating plans? If the Plan terminated on January 15, 2008, I would have one year to make corrective distributions but it does not make sense that I would have to wait until after 12/31/08 to make corrective distributions.

Is it necessary to amend the Plan to provide for a short plan year 1/1/08 - 12/18/08? This would seem to reslove any uncertainty but is it necessary?

Would 2008 1099-R's for corrective distributions be completed with the code of 8?

Thanks

We have a new client for a 2007 401(k) plan audit. From 2003 when they put their plan into place, through 2006 when a new TPA informed them of their error, this client had more than 20% leased employees but improperly excluded them from plan participation. They amended the plan to exclude all HCE's, allowing them to exclude the leased employees thereafter because they now automatically passed the minimum coverage ratio percentage test. SOMEONE - and so far we haven't uncovered who it was - advised them to make a QNEC on behalf of the excluded leased employees. They were not able to locate or identify all the improperly excluded leased employees, and the PEO's were not cooperative when it came to releasing employee data - preseumably because of HIPAA privacy considerations. I would gladly ignore whether the QNEC was properly calculated or whether it covered who it was supposed to cover as issues presumably resolved prior to our involvement - except that the QNEC was posted as a liability of the plan at 12/31/2006 and was paid in 2007, the year under audit, so I can't ignore it. There is no evidence of any involvement by an ERISA attorney. Can anyone give me guidance on 1) what disclosures, if any, I need to make in regard to this issue, and 2) how IS the corrective QNEC calculated in thse circumstances? I assume it would be at least a safe-harbor percentage centribution for what they could have contributed if made eligible, plus the associated match, plus appropriate earnings, but I have not encountered this situation before and I'm not sure what to do.

Thanks as always for the help -

Jack Point