In 1996 a small employer (actually he's not short ... he's about 6' 2') .... told his personal life insurance agent that he wanted to establish a retirement plan for his employees. The insurance agent, who of course knew nothing about rertirement plans, immediately smelled a commission. And before the small employer could say "who's looking out for me" ... the agent had hooked him up with an insurance company's prototype plan.

The agent loaded him down with all kind of forms to fill out, gave the employer the 800-phone number of the insurance company's customer service department ( located 2000 miles away) and then ran home and waited for his commission check to arive in the mail.

The insurance company was completely automated so the employer delat with them via phone and by visiting their website. Sometimes the would call the ins agent and ask him to explain things like .... "Buba quit yesterday and his wife is down here at the shop wanting to know about Buba's retirement plan .... what should I tell her?"

To make a long story short, the insurance company has performed all IRS & DOL compliance requirements for the plan except two things 1) no discrimination testing & 2) no 5500 preparation.

At the present time, the IRS & DOL do not know that the plan exists, because a 5500 has never been filed (not ever).

The lady, who prepares the employer's corp tax return , recently went to a tax seminar and accidently learned that a 5500 is required. Neither the employer nor ins agent knew what a 5500 was (although this 401k plan has existed for the past 12 years). The employer has contacted me (an outside accountant and preparer of small 5500's) to determine what needs to be done regarding 12 years of delinquent 5500s. I was recently told by the insurance company that ... the insurance company does not prepare 5500s and that the employer should have hired a TPA firm 12 years ago.

By the way, the insurance company does not have much in the way of plan records prior to 2004.

I'll bet all hell is going to break loose when IRS & DOL receives the 2007 Form 5500 that I just prepared that has a plan effective date of 01/01/96. No records exist prior to 2004 to prepare 5500 for plan years 1996- 2003.

Any suggestions on how to deal with penalty notices that are sure to come ?

My client has just informed me that they have amended their vesting schedule effective 1/1/2007. The previous schedule was a 3 year cliff and they have changed it to a 5 year graded (20% per year). This new schedule applies to all contributions made to the plan after 1/1/2007. Is this permitted? My concern is that it is possible for someone to be 100% vested (who has worked 3 years) by 1/1/2007 in all amounts made prior to that date and then be 60% vested going forward.

My client has failed both ADP and ACP testing for 2006 and is past the Correction Period. They will be responsible for funding a QNEC to all non-highly compensated participants as part of the correction method. The question I have is can they use forfeiture as the plan does not allocate and uses to reduce employer contributions. I have found other questions on the database that say yes to a QNEC regarding missed contributions and earnings but I want to be clear that in a testing failure situation this rule would still apply.

Say a plan provides for voluntary lump sum payment upon termination of employment and lump sums are calculated using the GAR94 and 4% [assume 415 does not apply]. So, in determining the FT, we calculate the lump sum and then discount using the appropriate single segment interest rate.

When we calculate the effective interest rate "i," it appears appropriate to calculate the lump sum as before using the plan rate and discount at "i." Under current segment scenarios, "i' might be 6%. Does anyone see this calculation any other way? For example, does anyone believe it is appropriate to recalculate the lump sum at "i" so that perhaps "i" then is closer to 4.75%?

Employer has option under employment agreement to not make deferred comp payments (payable in equal set amounts over 5 years) if, at time of payment, the payments violate any law or the corporate bylaws or cause the corporation to be insolvent. Any reason to think this violates 409A?

A plan fails ADP in year 1. There is one HCE making $115k that defers the max and upsets the apple cart.

For year 2 I want to have the plan adopt an administrative limit on HCEs.

What would be the deadline to adopt?

Can't find anything except Sal seems to say it can be during the year in talking about something else (catch up availabiltiy)

I think it would have to be before the person defers in excess of what will be the limit for the year - otherwise it is a cutback.

Sound right?

I'm having trouble finding this answer, so thought someone here might know.

An individual turns 70.5 in 2008 and dies prior to the RBD of 4/1/09. Is the RMD for 2008 required to be taken out by named IRA beneficiaries? I know this is the case on or after RMD date, but I think I've read that death prior to RMD does not require that the first RMD actually be taken, even though the decedent may have taken part or all of the RMD by the date of death.

Thanks

BruceM

Does anyone have any experience with requiring an employee to pay a surcharge if the employee's spouse is eligible for coverage under another plan (and waives that coverage and enrolls under the employee's plan)? Is the surcharge deducted on a pre-tax or post-tax basis? (I think it can be done either way but I am looking to see what common plan designs are.) Thanks.

Has a model notice been issued? How are your clients treating the requirement to distribution pension statements?

From : http://www.plansponsor.com/pi_type11/?RECORD_ID=43488

IRS’ Architect Dispels Myths about 403(b) Regs

October 17, 2008 (PLANSPONSOR.com) – Sponsors of and advisers to 403(b) plans recently got some clarification regarding compliance directly from one of the “architects” of the new regulations.

Information Sharing

The biggest sigh of relief came after Architect's response to those who think that if they do not have an information sharing agreement (ISA) in place with every vendor under the 403(b) plan by 1/1/2009, they will fall out of compliance. Architect told Symposium attendees that the regulations do not say that ISAs have to be in place by January 1.

Further, Architect pointed out, Chapter 10 of the new regulations, which replaces Revenue Ruling 90-24 on contract exchanges, says unless there will be new service contract exchanges between approved vendors and non-approved vendors going forward, sponsors will not need ISAs with the non-approved vendors. In addition, Chapter 3 of the new regulations says the plan sponsor and vendor may assign responsibility for monitoring 403(b) transactions and does not require a formal ISA, according to Architect.

All this is very good news to those sponsors worried that a vendor that will no longer be used going forward will not sign an ISA.

So why does almost everyone else and their mothers think that the ISA must be in place by 01/01/2009?

From what I gather from reading the regs and the Rev proc, an ISA must be in place by 01/01/2009- at least for runaway accounts. The rest I am still trying to figure out.

Hello

Wondering if someone might have an update on this.

Last April, the ASPPA announced proposed regulations for a 7 day safe harbor for employee salary deferrals beyond the normal wage payment date, for the deferral to be posted to the employee's account. This proposal would only affect employers with fewer than 100 EE plan participants.

Did the DOL ever publish a final reg on this? I can't seem to find anything on it. I've found a number of web sites outling the proposal, but can't find anything final

Thanks

BruceM

An employer maintains a pre-2005 deferred comp plan. The plan is currently grandfathered due to no material modification. The employer desires to terminate and liquidate the plan, but the document does not provide for distribution upon termination.

Can the employer amend the plan to provide for distribution upon plan termination, subject to the restrictions in 409A? This would be a material modification that would cause a loss of grandfathered status, but the employer is ok with that. As long as the distributions upon termination are made within the time period allowed under the regulations, this seems to work.

Similarly, it appears that the plan could be amended to allow participants to elect a new time and form of payment election. Participants could then elect to receive distribution as early as 2009. This would be a material modification but seems to work provided the plan otherwise complies with 409A.

I welcome any comments on these scenarios, particularly any problems that I am not recognizing. Thanks

Terminating 401(K) Plan

Participant dies before benefits are paid. There is no spouse.

A beneficiary was named, but no address or social security number was obtained at the time the participant enrolled into the plan which was many years ago.

The balance left is $210.22.

We'd like to roll the money over into an approved IRA (which is what the doc says to do when there is a lost participant), but I don't think we can do that unless we tell the beneficiary...how can we though, when we don't know who it is, their social, or their address?

Any suggestions?

I have an account with 2 separate S corps where 2 of the 3 Owners have a controlling interest in both S corps. Can they file one 5500 form for the Section 125 plan that covers both S Corps?

I am setting up a new plan that we originally were going to use 10/01/08 as the effective date. Since the employer currently maintains a SIMPLE IRA for 2008 we need to change the effective date to 01/01/2009. The plan docs have already been processed with the 10/01/08 date. No contributions have been accepted or anything I just need to change the effective date. I have looked for an amendment form to make the change but have not had any luck.

I would appreciate any guidance. I'm new at this. Thanks!

I'm doing something of a compliance review for a client on a 401(k) plan of theirs, and before I talk to them and put the screws to them, I wanetd to get a sanity check to make sure I wasn't being too harsh.

The basic issue is that they don't appear to have adopted some required amendments. Specifically, they're missing 401(a)(9) RMD changes and they still have a $5,000 involuntary cashout rule without the required rollover for amounts over $1,000. We actually alerted them of this problems last year, but oh well.

There are a couple of mitigating factors, but the Code Nazi in me doesn't care; I just wanted to bounce these off of the crowd here and get a consensus. For the sake of argument, let's assume that they've been in full compliance in operation, and that our only problem is documentation.

Prototype Adoption

From the plan's original effective date, it was individually designed. However, effective 1/1/07, they have adopted a prototype plan. The prototype sponsor has kept it up to date, and I don't have any concerns going forward. However, my understanding is that with respect to this specific plan, none of the prototype amendments would have been effective prior to 1/1/07, and there is still a gaping complaince hole for the period between the required amendment date and the prototype adoption. I'm afraid that client is going to resist correcting the missed amendments by relying on this new prototype.

Also, what effect does this have on the IRS determination process? Surely if they had applied for a det letter using a new individually designed restatement, the IRS would have requested the interim amendments and discovered the oversight. However, given that they're likely relying on the prototype's opinion letter, now, is there any way the IRS would be able to identify this error short of a random plan audit?

Lost Documentation?

The client has been able to provide us with the cash-out amendment for a sister plan that was timely adopted. Given their administration, I find it likely that they would have adopted a similar provision for the plan in question at the same time. However, they have yet to produce it. My question then is whether, from a compliance standpoint, there is any difference between having never adopted an amendment at all and adopting it, only to lose it to the nether of space 30 seconds later?

Thanks for the feedback. I sometimes get a little too excited about shuttling clients off to EPCRS and sometimes like to check my gut against a 3rd party.

We are a small company with just two employees - one FT, one PT. A TPA completed our 5500 and in the process they reviewed our plan document and determined the PT employee, who was less than PT for 3 years, was actaully eligible for contributions. What happened is I asked Vanguard to make the plan matching (put in 3% to get 6%) and available to FT employees. The plan was established before the employee was even hired or prior to us even thinking we'd be hiring naother employee. Vanguard said no problem they'll send a document all I need to do is sign it and return it. I did that and made the mistake of not reviewing it. I have no background in HR so it is all greek to me. Turns out they did not put any of the details I asked for and it immediately vested all employees regardless of hours worked. Now we are faced with how to handle this. The employee said they are willing to sign something waiving participation because he did not expect, nor would ever expect to participate as a PT employee and further he has his own Roth account he contributes to. The business' benfits package clearly states the matching contribution policy and the employees contract clearly states he is not a benefitted employee. He has been an employee since 2004 and worked less than PT for all years except 2007, 08.

What are our options?

Can partners make deferrals during the year from the guaranteed payments made each month? Maybe I'm not understanding the concept, but the guaranteed payments themselves are not the earnings from self-employment.

MDVIP is a Boca Raton, FL based firm which signs up physicians tired of having too many patients. Each physician takes on 600 patients who pay $1,500 to $4,000 depending on the locale. The "fee" guarantees patients timely access as well as a complete physical annually.

Is the MDVIP "fee" reimbursable federal income tax-free from an HSA?

Citation(s) please.

Thanks

Is there any issue with plan providing for employer to make discretionary contributions to participant's account in NQDCP in such amount as employer determines if contributions are subject to 3 year vesting and are to be paid out with participant's elective deferrals upon occurrence of statutory distribution events (death, disability, change in control, etc. )?