Plan just amended to allow for inservice Distributions as long as the money has been deposited for 2 years. Participant took a loan from the plan for 1/2 the money, now wants to basically take the "rest" of the money in a inservice distribution. Since the loan is secured by 50% of the balance, all that will be left in the plan is the loan. Participant Directed accounts so does not affect other participants. I don't think this is a problem as the loan was secured at the time of the loan, am I correct?

Also says no distirbution can come from funds that are or were subject to Code Section 412. This is a PS/401(k) plan so I an wondering what is meant by this also????

Thanks for you comments.

Pat

Hi. I am working with a profit sharing plan that was not updated/amended to comply with changes in the law over the last 10 years. Upon preparing the EPCRS filing (VCP), we discovered that 5500s were not filed during that 10 year period either. I am torn about whether to go to the DOL first (using their DFVCP program) to get the 5500s straightened out, and then file the VCP with the IRS. Or whether I should skip the DOL and just file the VCP filing with the IRS and ask for the mercy of the IRS on the 5500s.

Any thoughts?

Company wants to add a 6% salary match to their nonqualified plan, but in order to receive it, the participant would need to contribute 6% of comp to both nonqualified plan and 401(k). Am I missing something, or does this violate the contingent benefit rule?

The proposed IRS regs provide an example of actuarially increasing the benefit rate (from 45 to 65) to satisfy the regs.

IRC Sec 404(o)(4)(A), however, provides that in determining the cushion about for HCEs in small plans, Target Liability (TL) attributable to benefit increases occurring with the last 2 years are to be ignored.

Clearly, the accrued benefit is increased under the proposed method. However, the intent of the increase was strictly a value preserving measure and not an increase per se. That is, TL is at least in theory unchanged. My presumption, therefore, is that no amendment has occurred that cause a portion of the TL not to be counted as a result of IRC Sec 404(o)(4)(A).

Any comments?

In a plan, when one unique individual is both a participant (in his/her own right) and a person receiving either pre-retirement survivor annuity payments (or eligible for such) or the survivor annuity from a joint and survivor annuity (e.g., the spouse of a deceased other participant), in terms of the participant counts (item 7.a, 7.b etc.) is that individual counted as one or two participants for 5500 participant count reporting purposes. The 5500 instuctions doesn't seem clear on this matter and I get different "opinions" from other sources. Thanks.

Only a PN (pension nerd) like me (or maybe also some others who frequent this board), while listening on the radio to the terms of Thursday's plea bargain agreed to by Detroit's Mayor, would be wondering about the legality of those provisions which assigned his future pension payments from his State of Michigan pension to the City (see Item 4 of: http://www.freep.com/uploads/pdfs/2008/09/0904pleadeal.pdf ). Then I realized that it's a governmental plan, by golly, and ERISA Section 206(d)(1) (see ERISA Section 4(b)(1)) and IRC Section 401(a)(13) (see flush language at end of 401(a)) do not apply.

My, my . . . ERISA is a living document after all . . . Ain't life grand!

I know several employers who sponsor a 401(k) plan in addition to an ESOP. If an ESOP contribution puts a member over the 415 limit, then the plan language usually directed the 401(k) plan to refund elective deferrals back to the member. I suppose this is in the member's best interest so they can get the full benefit of the employer contribution (the ESOP). Anyway, this practice happens year after year and the correction was always handled by doing what the plan said.

Nevertheless, the Final 415 regulations now instruct plan sponsors to use EPCRS to correct 415 failures. Plan sponsors can still use the refund method to correct the failure and return deferrals from the 401(k) plan - but is there a concern if they do this year after year?

I know that the EPCRS says that when you self correct a failure then you should put procedures in place so it doesn't happen again.

Thoughts?

I have a client whose group insurance benefit is different for different classes of employees. The classes are based upon hours worked for the previous quarter. Most of the employees work under short-term government contracts so their hours can vary widely quarter to quarter. The employer has determined they are going to place employees in the class they estimate they would be under. What are the penalties for non-compliance with the plan docs? What is the remedy they will have to employ?

The IRA names the Marital Trust as beneficiary. The Trustee wants the IRA to "Rollover" the IRA into the name of the surviving spouse. Fine. The result is a 1099R from the IRA to the Trust; and then a 5498 from the new IRA to the Spouse. This creates an issue with reconciliaitng the two tax payer ID numbers, the 1099 uses the Trusts taxpayer ID number and the 5498 will use the Socical Security number of the surviving spouse. Does anyone have any other solutions or avenues to consider? Other thoughts or input welcome.

I've been asked to review the documents setting up a new 401(k) plan for a non-profit. One of these is a custodial agreement with a bank. I know the Code permits such a funding arrangement in lieu of a trust for qualified plans, but in practice I've seen it used only for IRAs and 403(b) accounts. I assume the bank would prefer to be a custodian, and not a directed trustee, to avoid fiduciary liability, although I'm not sure that works in all cases. Other than that, why use a custodial account instead of a trust?

Does anyone have a copy of the Code Section 401(a)(9) final regulations interim amendment that CIGNA would have adopted in 2003 for its Basic Plan Document No. 03? I have an IRS auditor asking for a copy of it.

As an alternative, does anyone have a name and contact information for someone at Prudential (the successor to CIGNA) that might be able to provide me with the document?

Employer has a 401(k) and DB plan - both 1/1 plan years. They freeze the DB plan effective 6/30/08 and agree to increase the match on deferrals to the 401(k) plan effective 7/1/08. Does this create any testing or nondiscrimination issues? Does it create the need for a current availability test?

For example - assume the match on 1/1/08 was 50% up to 7% of pay. And on 7/1/08 it's increased to 55% up to 7% of pay. If someone contributed $15,500 during the first 6 months of the year - then they will not benefit from the match increase. But if someone contributes $1250 per month, then they will be able to receive the bump in match from 7/1/08 to 12/31/08.

Any thoughts?

I have a deferred comp plan that pays different amounts based on the type of separation from service (cause, no cause, etc). The time and form of payment is same for all specified types of separation (payment within 90 days following separation and payment in lump sum). I think I'm compliant with the single time and form of payment rules, am I not?

We administer a defined benefit plan that has term life insurance on participants. Per the document, beneficiaries can receive the larger of either the value of the life insurance or the present value of their accrued benefit. We have recently had a participant die and the present value of the accrued benefit is larger than the life insurance and they have elected a lump sum payment. The beneficiary is the spouse.

The plan was suppose to be the beneficiary of the policies. We are now having some problems with the insurance company who wants to pay the proceeds to the beneficiary.

What is the tax treatment of a lump sum payout for the participant if the insurance is paid to the plan? And what is the tax treatment if the insurance is paid to the participant and the balance paid from the Plan?

We are in the process of performing a VCP, and we are using outside legal counsel for this project. My question is, can we use our forfeiture account funds to pay their legal fees for helping us with our VCP? Please note, I am aware that we cannot use those funds to pay any fines or penalty interest, we are just curious about the fees the ERISA atty is charging us.

Any thoughts?

I am not familiar with DB plans so bear with me...

We have a DB plan where participants receive a monthly periodic payment. One of the participants is in a nursing home and apparantly on Medicaid. Her daughter has been calling us and requesting that we send her periodic payments from the plan not to her mothers bank account, but to the nursing home's bank account.

At first blush I just thought this was nuts. The plan document says there are no assignment of benefits allowed, so that was one thing. But even aside from that, I was thinking how would the 1099s and the taxability of this work?

But then the story got more strange...

One of the department of finance heads from the nursing home called. She explained to me that I did not know how Medicaid "worked", that all the residents of her home had always had their payments go directly into the nursing home's bank account. Then, Medicaid actually pays the difference between what was deposited into the nursing home from each resident and what the bill is from the nursing home. The finance head told me that was "par for the course" and "how Medicaid worked".

I asked who the 1099-R was mailed to, and she told me she did not know, but that none of her residents filed taxes at all. Then I asked why they didn't file, and she said they had no income. I kept asking about the taxability of these payments, but she kept spinning my head in circles saying that by the time she got the money from her residents, the taxes were already paid. But the whole not having income thing...what about all the income from the periodic payments from this pension plan?

We have gone round and round for weeks...not only do I not know anything about DB plans, (dont worry, we have someone who does...Im just trying to help him out researching this weird question), but I know nothing about Medicaid.

Sent the question to TAG who said they had never seen anything that said Medicaid rules pre-empt a plan document rule, and they thought it would violate 401(a)(13).

Any thoughts on this? I decided if this was actually the way it DOES work, than I think I will find a way to get my employer to pay my bills FIRST, then give me a W-2 that says I made no money. I dont have to file tax returns and things would be grand.

This makes zero sense to me, but we have to answer the participant, who is very persistant...

thanks for any help.

Participant has a whole life policy inside of a retirement plan.

Participant's balance is currently $350,000. Cumulative contributions are $300,000. Participant is going to withdrawal $300,000. My only question is when appyling the incidental benefit rule can plan sponsor still base the 50% limit on $300,000 or is the limit reduced due to the distribution? My understanding is that the limit can still be based on the $300,000, but wanted to double check.

Thanks in advance for any guidance.

Under PPA, a non-spouse designated beneficiary, as defined in S401(a)(9)(E), is eligible for direct rollover to an IRA.

Per S401(a)(9)(E), a "designated beneficiary" is any individual designated as a beneficiary by the employee.

A participant died without a surviving spouse and without designating a beneficiary.

Under the plan provisions, default beneciaries are the deceased participant's children.

Are they considered "designated beneficiaries" for Inherited IRA rollover purposes?

I don't think so, because in this case the employee did not designate the beneficiary(ies), but I wanted to confirm my conclusion.

Hello all! Does anyone have instructions for the years 1988 & or 1989 form 5500 ScheduleB.

Thanks

Larry

Can a service provider who provides HSA debit cards and other HSA administrative services be a business associate of a group health plan under HIPAA? Practically, the answer should be yes, but is the service provider providing payment or health care operations on behalf of the plan? I'm not so sure.

[CROSS POSTED TO HIPAA BOARD]