I understand that FSA plans are "use it or lose it" with regard to balances and that employers cannot refund balances to the employee, but I have also heard that in certain circumstances employees can get money back from their FSA if it is a result of administration error. Any insight on this topic?

2 owner only plan with AFTAP greater than 90% is terminating and would like to "equalize" distributions amongst the 2 owners. Their respective 415 limits would appear to be sufficient to allow this.

Plan Doc: Just states that if insufficient assets then benefits cannot discriminate under IRC 401(a)(4), also has the top 25 HCE restriction language.

Treas Reg. 1.401(a)(4)-5(b)(2) states only the plan cannot discriminate in favor of HCEs upon plan term.

Rev. Ruling 80-229 has allocation of assets approach (using ERISA 4044 allocation priority) but seems to be primarily concerned with discrmination between HCEs and NHCEs (we have no NHCEs).

Any opinions on whether a 2 owner only plan (never has had any NHCEs) can "equalize" distributions if they are within 415 limits ? Does the one with the higher PVAB have an impermissible forfeiture if she takes less than a pro-rata funded share of her benefit ? Grey area ? not Grey area ? Thoughts.....

a current self directed 403(b) plan, which offers 3% qnec across the board as well as employee deferrals, is being told by their provider to shut down the 403(b) and to move to a 401(k). Alternatively, they are saying if they want to stay 403(b) that they will have to close out the current 403(b) that is not pooled and open a pooled 403(b) account and that they have until June to update for new 403(b) regs. Some supervisors are worried about the employees understanding this.

Any thoughts would be appreciated.

I've been asked to do a DB illustration for a new LLC, formed in 2008 and taxed as an S Corporation. The LLC is owned 100% by Mr. W. The accountant wants a small W-2 for Mr. W, and a large ($200k+) pension deduction. Mr. W will be the sole employee/participant, and he's 68 years old.

Complications arise because Mr. W and his wife formerly owned a law firm. Each owned 50% of that entity, but they sold out to other (unrelated) owners several years ago. The law firm used to maintain a DB plan, and Mr. W and his wife each received lump sum distributions of about $600k when the plan terminated several years ago. The lump sums that they received were nowhere near the 415 lump sum limits at that time, although it should be noted that the plan had been very underfunded and the lump sums that they received were only about 1/2 of their accrued benefits.

The law firm is still in existence, owned by unrelated parties, and there is no desire on anyone's part that it should become a co-sponsor of the LLC's new plan.

How should the 415 limits be calculated for the new plan?

1. Take into account salary history, years of service, and years of participation at both the LLC and the law firm (since they had common ownership), and offset by the actuarial equivalent of the prior lump sum payouts?

2. Ignore the prior service and comp, and the prior payouts, and treat the LLC as a brand new employer?

3. Other?

Option 1 makes some logical sense, since Mr. W owns 100% of the LLC and (by attribution) used to own 100% of the law firm. It would seem that aggregation might not only be permitted, but required, since Mr. W received a benefit from the old DB plan.

My concern is that it's going to result in a very large initial 415 limit because (a) the lump sum payout was relatively low, (b) Mr. W had 10+ years of participation in the law firm's DB plan, and © Mr. W had very high salaries at the law firm. This would open the way for Mr. W to take a very low (or zero) salary from the LLC, while making a huge pension contribution. Seems pretty aggressive to me, especially since the law firm is not going to co-sponsor the new plan.

What d'ya think?

TIA.

Hello. We have discovered that a client with a 401k plan has deposited a corrective contribution into the wrong participant's account. We are aware that Section 10.01© of the plan document allows the Employer to withdraw mistake-in-fact contributions within a year after the incorrect deposit. Unfortunately, a little over a year has passed since the incorrect deposit was made. We are trying to determine if the plan document addresses this issue. We have asked the document provider for comment, but no word as of yet. I would think that the participant who received the incorrect deposit is not entitled to the principal, but is entitled to any investment gain. If there is investment loss (highly likely), the principal amount deposited would absorb its share of the loss. But the question is, what happens to the adjusted (in the event of investment loss) principal? According to the plan document, the Employer can't take it back. What are your thoughts in dealing with this issue? The participant in question is requesting a distribution. Thanks in advance for your help.

A former employee left the firm to take another job. He left no resignation letter just said he had another job.

The company esop sent his his put option papers and He now says he retired from the company. He was in the plan for 6-years, was fully vested and had reached retirement age when he left. When does the ESOP have to begin making payments? The company would like to wait 5 years.

We are starting to sell financial planning services to our 401k participants for a monthly charge. I'm trying to figure out if it would be a good and safe idea to deduct from participant accounts.

Any thoughts would be helpful.

With market tanking, is there anything on the horizon that may provide relief to an underfunded DB plan?

Thanks

I was curious about how many governmental plans (especially those for local muncipalites, etc. where the current document is a series of ordinances) are actually applying for IRS determination letters. If so, under Cycle C or are you delaying to Cycle E? And is anyone converting to an actual plan document?

For HSA's, some other forms of health coverage are allowed to exist alongside the HSA/CDHP format. I've attached what the IRS says on their website below. Is there a list of specific diseases/illnesses allowed? If so, could you direct me to that list. As for the hospitalization insurance, is it just hospitalization or insurance classified as "hospital indemnity"? Some hospital indemnity policies carry reimbursement for outpatient surgeries. What about a surgery done at a hospital that does not require "hospitalization"? Clarification would be great.

Here is what the IRS says:

http://www.irs.gov/publications/p969/ar02.html#d0e174

Other health coverage. You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan.

You can have additional insurance that provides benefits only for the following items.

* Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of

property.

* A specific disease or illness.

* A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

* Accidents.

* Disability.

* Dental care.

* Vision care.

* Long-term care.

Can you tell me if you put this language in a document - do you need to make the document an individual drafted document - or is there something in the prototype document that accounts for this. We use corbel. The plan sponsor wants this language.

Definition of Employee: An individual qualifies as an Employee only if the Employer treats the individual as its employee for payroll purposes by reporting his or her compensation on a Form W-2 reflecting Employer's Employer Identification Number. Individuals not so treated by Employer are to be excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors. Notwithstanding anything to the contrary in this paragraph, also excluded from the term Employee and from Plan participation is any individual (i) who enters into an agreement with Employer to perform services as a sales consultant and/or to solicit sales of sales-consulting services on behalf of sales consultants, or (ii) who is subject to an agreement with Employer that the individual has signed, which provides that the individual has no right to participate in any benefit plans or programs that Employer maintains for its employees.

I have been doing some thinking about the ADP/ACP testing for plan years beginning on or after 1/1/2008 and I think I have come up with something interesting based on the current status of our economy (at least for this testing season).

Let’s say ADP testing is being performed on a 2008 calendar year plan on 4/1/2009. When I process the test, I find that one HCE (not CUC eligible) is due a refund of contributions of $5,000. When I calculate the earnings (through 12/31/2008) on the refund, I come up with -$2,500. Now I know that gap earnings are no longer required on ADP refund distributions, but they can be optional based on how the documents are written. Therefore, in this case, if the document supports the option for the calculation of gap earnings utilizing either methods, I think that I could use the safe harbor method. If I do so, I take 10% of the earnings for every month. If I wait for ten monthly periods, I will have gap earnings equal to -$2,500. If I add this to the earnings previously calculated (-$2,500), I have total earnings of -$5,000. When I add this to the contribution amounts to be refunded, the refund amount is $0 ($5,000 - $5,000). (I hope I have written this so that it makes sense.)

Does this sound correct? I think it is, but I am trying to see if anyone can poke any holes in this. Any comments would be greatly appreciated.

(Please note that the plan sponsor will still have to pay the 10% excise tax.)

I am the TPA on a PSP that is scheduled to have their 2006 plan year audited by the IRS. The plan sponsor is a member of a controlled group of corporations (2 companies) and both companies participate in the plan and make profit sharing contributions. I just realized that the plan document does not provide for participation by one of the companies. The document says an affiliated employer may participate in the plan if it adopts the plan, but it does not appear that this was ever done. Also, the document says the sponsor is not a member of a controlled group (which is obviously incorrect).

Anybody know what kind of sanctions we might be faced with? Also, is there a way to include the other company in the plan at this point in time?

Thanks in advance for any assistance.

My client is a closely held corporation with one shareholder who runs the business. It had 18 employees. He has apparently been telling employees he planned to retire, and encouraging them to take other job opportunities if they came up. In 2007, fifteen of them did so and were not replaced. He came to me recently to discuss terminating the profit sharing plan and dissolving the corporation, and I told him the IRS would likely look at 2007 as a partial termination, requiring the departing employees to be 100% vested. He has already cashed them out at their place in the vesting schedule as of 12/31/2007. The obvious problem is that given the market issues, he no longer has the funds in the trust to cash these people out at 100%, to say nothing of the remaining participants, which include himself.

My sense from reiewing the law is that we could argue that these were voluntary terminations which did not constitute a partial termination but it would be our burden to demonstrate the terminations were voluntary. Does anyone have experience with this issue?

My other issue is I cann't find out what happens when a defined contribution plan does not have the funds to meet its obligations. Obviously that isn't supposed to happen, but it did here. Any suggestions would be appreciated.

Does anyone know if a plan takes the automatic 5-yr extensions for the charge bases in the 2008 valuation, if they would be permitted to take another automatic 5-yr extension on bases created in the 2009 valuation (investment losses)

In other words, can you keep taking the 5-yr extenstion on new bases every year or is it "one and done" kind of thing?

I didn't see anything saying I can't keep taking the exentions, but then again I didn't see anything that said I could.

we are taking over a large non profit organization profit sharing plan. The plan excludes certain divisions. As I set this up on Relius I want to make sure that I am coding employees in that division properly as far as category/eligibility so that they are counted correctly for coverage.

I did look on the Relius support site for guidance but couldn't find anything relative.

Thanks in advance.

Suppose a TPA is hired by a plan whose asset holder (TPA is independent) pays asset-based fees to the TPA. TPA normally would offset those payments against the invoice TPA would generate for testing, Form 5500 etc.

For various reasons, TPA and client part ways before any work is done. TPA has received payments from asset holder and wants to return them because no services were rendered.

Investment holder will not accept the money.

What is the best way to approach this - send it to the new TPA who is providing services? Send it to the client and instruct them to put it back in the plan as earnings (not sure the asset holder can accommodate a deposit that is earnings and not a contribution).

Any suggestions? Predecessor TPA is not entitled to the funds and does not want to keep the money. No invoice rendered to client thus no billing available to offset. Thanks for any help.

OMIT

DB/DC combo plans are being aggregated for 401(a)(4).

The aggregated plans do not pass under the "Annual Method". So the next option is to use the "Accrued-To-Date Method".

Can one use the following approach?

1) Compute the DB plan's Normal & Most Valuable annual accruals (NARs & MVARs) using the "Accrued-To-Date method", and

2) Compute the DC plan's Equivalent annual accruals using the "Annual Method" (to avoid having to collect data required for the "Accrued-To-Date Method").

Then add the DB & DC's annual accruals and compute the accrual rates therefrom.

Suppose you have plenty of FSCOB and AFTAP supports its use.

E.g., as of 1/1/2008, FT =2,000,000; Assets = 2,500,000; FSCOB=1,000,000, 2008 TNC=300,000, and contribution of 300,000 made. Quarterlies ared due in 2009 because of PPA convoluted rule of backing credit balance out of assets to test funded status. It is now 2009 and we find FT=2.300,000; Assets=2,500,000 (diversified in matress in 2008); FSCOB=1,000,000; TNC=300,000. Since net assets = 1,500,000 < 94%FT, 2009 contribution = 300,000 (TNC only; no amortization) and quarterly contributions of 75,000 due.

Employer does not wish to make contributions in 2009. To apply FSCOB to quarterlies, we think we must elect a priori.

But, can't we just wait until we file Schedule B to have plan sponsor elect to apply FSCOB at 1/1/2009 to reduce year's contribution?