A loan policy permits a max of 2 loans outstanding. Due to a pay-off with a NSF check, a third loan was permitted to a participant.

One of the loans must go. Which one?

Is this a default situation where the plan must wait for a quarter before defaulting?

Or, can this be corrected immediately and, if so, how? Could a distribution of a one of the loans be made...... and, if so, which one?

OH MY!!! (because controls have been added this will not happen again, but the situation at hand must be corrected)

How have others handled this? I've examined EPCRS and it seems silent as to this type of problem.

Hello,

I come to you for advice.

I, and a partner, are owners of a small business that is an LLC filing as a partnership. All income is pass-through. Each partner has a 50% stake in the venture. We have 7 employees/contractors. During the 2008 year, business made a large-ish profit where tax exposure is quite considerable. During that time partner A was paid lets say $40k (straight cash - no tax withheld or declared to IRS assuming all will get calculated in April) and partner B got $0 (nothing). Neither partner is on W-2. All profits were re-invested back into the business.

We are looking to diminish our tax exposure for the year by creating 401k accounts and contributing to it to the maximum. Is this allowed based on tax law. We are getting conflicting advice from various sources. Our accountant states that as partners we are not w-2 but as K-1, and since we are not w-2 and get "guaranteed payments" instead of salary, are not allowed to contribute to 401k. Fidelity, ING, and other phone support people beg to differ and want us to contribute full amounts with their institutions. They are claiming that LLC is same as anything else and can write off 401k contributions from the K-1, for partners, employees or whatever and we can contribute regardless.

Please share your experience in this matter. Links to relevant supporting documentation would be greatly appreciated.

A client has one IRA. Since 12/31/08 the stock held in the IRA has become worthless. The RMD calculation, based on the 12/31/08 account balance is greater than the IRA value, which I understand to be zero at this point. Nothing to distribute. Is there a regulation or other official guidance that addresses this situation?

I feel like I'm missing something that is probably quite obvious to most - Guidance is appreciated!

ER has a 'private' investment account with brokerage house where ER also has a profit sharing plan. The day before the due date for the ER's income tax return, ER gives written instruction to broker to sell $30,000 worth of the investments in the 'private' account and add them to profit sharing plan account. ER takes a $30,000 deduction for the contribution.

Later, it is discovered that the brokerage house liquidated shares in the private account, raising $30,000 that automatically were money market funds under the private account. The brokerage however failed to move the $30,000 to the profit sharing plan account. This failure was not discovered until 45 days later, well after the due date for and the date that the ER's tax return was filed claiming the $30,000 deduction.

Is the deduction proper? May the brokerage house now remedy the situation simply by moving the $30,000 into the plan's account?

I am looking for suggestions on the appropriate handling of a somewhat hypothetical situation.

What if an employer processed an electronic funds transfer (e.g. ACH) for contribution purposes and the recordkeeper immediately invested the contribution (per its normal procedures) as instructed by the employer. However, two days later it turns out there was insufficient funds to cover the ACH and the custodian demands reimbursement. In the meantime the recordkeeper sells the exact shares that were purchased by the insufficient funds "Buys" but because the market has dropped the proceeds are less than the value of the initial purchases.

Let's say the Service Agreement(s) are silent about such an event. Is there an implied right of the recordkeeper or the custodian to liquidate additional plan assets in order to reimburse the shortfall on behalf of the custodian? What options are generally available to the recordkeeper or custodian to collect the shortfall?

Thanks in advance.

Can reload options be exempt from 409A if they are designed in the same manner as exempt NQSOs? My concern is that in order for a NQSO to be exempt, the number of shares subject to the option must be fixed on the date of grant and this isn't the case with a reload. However, the formula used to calculate the number of reload options would be fixed. Any thoughts would be appreciated.

Employee has a post-2005 employment agreement with deferred comp provisions. He and the employer have agreed to terminate the agreement (with no deferred comp being paid out) before 12/31/08. Does the plan need to be amended to comply with IRC 409A?

I've been given conflicting advice on how to administer the 55% average benefits test for a Section 129 dependent care assistance program. One argument is that collectively bargained employees are completely excludable, the other is that only those unions who have not negotiated coverage in the plan are excludable.

I read Code Section 129(d)(9) to say that eligible collectively bargained employees should be included. I'd appreciate any of your thoughts on the matter.

Also, is anyone doing this test? I can't find any real world discussion about it, and I'd expect there to be some.

Excess Roth 402(g) of $1,000, loss of $100, net distribution equaled $900 and distribution took place before plan year end.

Am I coding the 1099R correct?

Box 1 Gross Distribution $900

Box 2a Taxable Amount $0

Box 5 Employee Contributions $1,000

I think box 1 and 2a are correct. My biggest concern is box 5.

ERISA outline book states when there is a loss only one 1099R is required, amount reported in gross box and taxable amount box is the amount of the distribution (provided a pre-tax contribution), with a separate statement instructing participant on proper reporting of deferrals and loss on personal tax return.

Thanks in advance for your imput.

Through a payroll audit a large multiemployer defined benefit plan discovered that a participating employer was making improper contributions to the plan for several years. It appears that the employer was requiring employees covered by the CBA to "elect" to participate in the plan and then was taking money from those employees' checks on an after tax basis to make contributions to the plan. The plan does not allow for acceptance of any kind of after tax contributions.

Obviously, the plan can no longer accept these contributions. My concern, however, is what the plan is required to do with those contributions it has already received from the employer. Can the plan simply refund the contributions to the employer and notify the participants about what happened and inform them they have not accrued any benefits under the plan? Should the plan approach the IRS regarding the proper correction procedure?

Any thoughts would be greatly appreciated.

If a participant applies for early retirement prior to the plan being certified as critical but the benefit payments would not start until after certification (notice of critical status), can the benefit be cut? No cutback can be made when the participant/beneficiary is already receiving the benefits, but what if the benefit has no yet started payment?

Thanks

A client wants to offer a 401(k) Safe Harbor (3% Non Elective) with a 7% Profit Sharing Contribution.

Is any non discrimination testing required on the 7% Profit Sharing Contribution?

I would not think so because the company is giving it to everyone in the Plan (HCE's and NHCE's).

Any input will be appreciated.

ALEX

I believe we have no Cash-Balance safe-harbor fixed interest rates to my knowledge. I know I can use the 3rd segment rate as a safe-harbor per proposed regs which under transitional rates (this plan went in for 2007 so eligible for transitional rates) the 3rd segment rate is 6.23%.

We're thinking of amending the interest credit rate up; currently using a 10 year treasury bond rate of just above 4%.

How aggressive do you think it is to go with a fixed rate of 6% for 2008 (via amendment) ?

It's lower than 3rd segment rate, higher than various Treasury Bond index rates, but ultimately not a safe-harbor rate at this point.

FWIW, there are only HCEs in this plan. Main goal is higher interest credit for accrued benefits and softer funding whipsaw impact on minimum required contribution.

Individual expects to receive $12,000 of self-employment income for 2008 and is considering adopting a Solo-k Plan by year-end in order to shelter all - or as much as possibe - of same. Was wondering how FICA is handled or interacts in determining the "net" amount that can actually be deferred?

Thanks!

I am trying to get my head around VEBA nondiscrimination testing.

BigCompany has a retiree medical VEBA and excludes key/highlycompensated employees. BigCompany acquires littlecompany and its retiree mendical VEBA.

What happens to the participants who were highly compensated/key in littlecompany but no longer are?

When do we run the test?

What do we do with the separate accounts under 419A maintained for the old key ees in littlecompany?

Since this is retiree medical, what relevance has reg. sec. 1.416-1 which says a former employee is a key employee if he was a key employee when he retired or separated from service.

Remember, the nondiscrimination rules are under 505 which involves highly compensated employees as defined in 414(q), not keys under 416.

Help.

After hours of research I seem to still be having trouble finding a solid answer to this question:

If an educational institution sponsors BOTH a 401(a) plan and 403(b) plan, is the participant able to maximize his/her 402(g) contribution to the 403(b) plan, and still have the employer contribute the max permitted under 415 to the 401(a) plan? Stated another way, are there two 415 limits? Could the participant potentially have 46k plus 46k contributed to these two plans with one employer?

Thanks for feedback!!

I see in EPCRS that there is a de minimis of $75 for corrective DISTRIBUTIONS (EPCRS section 6.02(5)(b)).

But is there a de minimis for corrective CONTRIBUTIONS? More specifically, I have a plan that needs to do some true-up amounts for a profit sharing. Client believes the $75 de minimis applies for people who have terminated and took their money. (The true-up is for 2006).

Does EPCRS allow for de minimis exclusions of corrective contributions? If so, where.

Thanks in advance.

Plan goes top heavy in 2006 triggering a TH contribution for 2007. TPA does not provide information to client until 6 weeks ago. Client did not extend tax return so corporate tax return due date was March 15th. TPA provides an allocation for the TH 3% contribution and also provides an allocation for a match contribution of 25% up to 4% of pay with the additional contribution due to satisfy the TH requirement so the client can make a choice.

It is my understanding that the due date of the TH contribution is vague. Based on the ERISA books one should use the deduction deadline (March 15th in this case) or the 415 deadline (April 15th in this case).

It is my belief that the contribution is late and that the client should contribute lost earnings on the deposit. The contribution would be deducted on their 2008 return, not the 2007 return because it was not timely deposited for that deduction. It is also my belief that the client should just do the 3% contribution and not the match with the additional amount to satisfy the TH requirement. Correct me if I am wrong but I believe that because the match does have a definite due date and they did not deposit the match by that date they should just do the straight 3% contribution. It would have been a different story had they already deposited the match and just had to make up the difference for the TH requirement because match can be used to satisfy TH requirements.

I recently spoke with someone who is dealing with an ESOP plan document that has not been updated since 1995. Surely there must be some amendments that have been required since that time (and no, the plan is not terminated although I don't know if there are current allocations). I am familar with the IRS cummulative list but this goes back so far and sometimes there are exceptions for what ESOP's must do, does anyone know where I can find a good list for ESOP amendments only?

Hello:

I have two plans that are aggregated for coverage and ADP/ACP testing.

The question I cannot seem to answer is whether the Top Heavy test can/must be done in the aggregate, or must it be done for each plan separately?

Thanks in advance for any feedback that might clarify the top-heavy application whne plans are aggregated.

Andmik