I have an owner (HCE) that put in approx $7K in employee deferrals. When his taxes were prepared, the CPA put all of the income on his wife's return and he had negative compensation. The husband and wife own serveral companies.

I will return $2k in employee deferrals, but can I allow the $5k for catch up?

In a question I posted yesterday in this forum on 403b plans, I noted that I'm advising an ER that has received a 240-day correction letter from EPCU (employee plans compliance unit) of the regional IRS Center. The EPCU correction letter notes that some excluded EEs perhaps should have been included, and for this a lost-opportunity contribution is required during the 240 day period.

The EPCU letter is silent on how far back in time this lost-opportunity contribution ought to be made. It simply states that "a contribution to the plan on behalf of each eligible employee for each year the employees was improperly excluded from participation" may need to be made. The EPCU letter also notes: "A violation of the universal availability requirement puts a section 403(b) plan at risk for losing its tax-favored status, resulting in the loss of the retirement savings and tax benefits provided to its participants."

If the ER did not have a valid 403b program because of the universal availability violation, then those EEs that did make 403b elective deferrals, it could be argued by the Service, had taxable income in the amount of the 403b elective deferrals.

For those EEs that did have the opportunity and did make 403b elective deferrals, the statute of limitations on their Forms 1040 would be 3 years from later of date filed or due date of return (as perhaps extended), unless more than 25% of taxable income was not reported--then it is 6 years. Since it is possible that some of the EEs 403b deferred amounts that equaled or exceeded 1/3 of what they did report as taxable income for a year, I think the correction should go back at least 6 years, picking up 2003-2008.

The ER does not pay income taxes, so deductions are not an issue. It is a public school and does not file any return other than payroll ones. For Forms 941/945, the instructions to the correcting form, Form 941c, provides:

No Forms 5500 have been filed (nor required). So statute of limitations on a year of the plan likely has no statute of limitations period triggered to run.

What are the arguments for going back to years earlier than 2003?

I have a takeover end of year cash balance plan with a maximum formula for an owner in his low 40s. We are doing the first year of the plan. The owner's contribution credit based on the plan formula is $90,000, however, his maximum 415 limit for his age is $75,000. What would his maximum hypothetical account balance be?

Is his hypothetical account balance limited to his 415 maximum,

or

can his hypothetical account balance be more than his 415 limit (except that we could not pay out more than the 415 limit upon distribution)?

Client has a 401k plan and several welfare plans. The plan sponsor has changed its name (from "Inc." to "LLC"). EIN stays the same. Does this require a plan amendment changing the name of the plan sponsor for all its benefit plans?

A db plan was totally frozen as of January 1, 2005. The services provider has indicated to the client that if the AFTAP falls below 60%, the Plan may not pay any restricted payments. I have reread the code and August 2006 proposed regulations and do not get this interpretation. I.e., there would be no prohibited payments except possibly to HCEs.

Do I need to go for an eye examination?

If a cash balance plan specifies that the lump sum is equal to to the value of the hypothetical account balance, then is the 2% top-heavy minimum benefit subject to 417(e) rates?

Are plan sponsors amending their 457(f) plans now or waiting for issuance of regulations? Eliminating deferrals? Eliminating noncompetes? Adding materially greater benefits?

An accountant called to tell me not to process his clients RMD yet, because he thought there might be relief on the RMD rules for 2008 -

Does anyone have any idea what he's read? It seems hard to believe that any relief would be in line for 2008, since so many RMD's have already been processed?

Perhaps the relief will be to allow them to adjustment for investment losses?

Back in June the employer who sponsored a collectively bargained single-employer plan sold its assets. All non-owner employees were terminated and distributed lump sums. Remaining are two owner employees (the corporation remains open) who had transferred from the union long ago.

Their total lump sums are small and total under $50,000. The two owners wish to terminate the plan and distribute their benefits immediately to avoid carrying this plan into another plan year. There is absolutely no risk to the PBGC.

This cannot be done and still respect the PBGC 60-day formal notice requirement. Tacitly, they gave themselves the 60-day notice requirement.

Has anyone experience with the PBGC or thoughts in this regard? I.e., would the PBGC revoke the termination? This would be not-good since the owners are under NRA and therefore would have taken an impermissable distribution.

For a small plan, can I change the 2008 valuation date from 1/1/2008 (BOY) to 12/31/2008 (EOY) without seeking approval? See 1.430(g)-1

This question pertains to the universal availability rule.

For many years, IRC § 403(b)(12)(A) has permitted the exclusion of students performing services in the employ of a school in which enrolled and regularly attending classes and "employees who normally work less than 20 hours per week."

The 2007 regulations set to take effect 1/1/2009 provide, as part of the universal availability rule, that if the 403b plan allows any employee normally working fewer than 20 hours per week (or such lower number of hours per week as may be set forth in the plan) the opportunity to make 403b elective deferrals, then all employees working that number of hours per week or more must be given the opportunity to make 403b elective deferrals. Similarly, if any such students are permitted to make 403b elective deferrals, then all such students must be permitted to do so. For each of these two categories, such students and <20 hours/week, it's an all or none proposition under the new regs. Treas Reg § 1.403(b)-5(b)(4)(i).

I've been contacted by a public school district that answered the EPCU letter about universal availability that the district excluded substitute teachers and district students that worked in the summer months. None of the substitute teachers or district students worked, or was expected to work, 1,000 or more hours in any year. However, all <20 hours/week employees were not excluded.

The EPCU wrote back giving the district 240 days to correct with 'lost opportunity cost' contributions by the District equal to either the lesser of 1.5% of pay or 1/2 of the NHCE ADP of the district.

My question is whether the 'all or none' interpretation given to the two exclusion categories that is in the 2007 regs for 2009 and later is an interpretation of IRC § 403(b)(12)(A) that the IRS has given in any formal guidance that applies before 2009? If so, then a lost opportunity contribution will be required. If not, then no lost opportunity contribution will need to be made. Your thoughts and comments are appreciated.

A few years ago we lowered the vesting requirement in our DB plan from 5 years of service to 3. I don't remember why but I vaguely recollect we HAD TO to stay in compliance with law.

Now I run across a small company's fairly new SPD wherein they state they still have 5-year vesting. Is 5-year vesting still allowed (0% vested before 5 years, then jumps to 100% at 5)?

The intention is to make distributions to a terminating Plan shortly -- say January 1, 2009. Plan assets have been invested in a money market fund. Excess plan assets will be allocated to the participants by increasing benefits. The election package will state this fact but will communicate the benefits without regard to any possible increase since the exact amount is not known. The Plan, indeed, will have excess assets.

Participant Molly Potts has a lump sum of $4,850 based upon her formula benefit. After allocation of excess assets, her lump sum is expected to be around $5,100. I.e., less than the consentual limit before excess asset allocation and greater than the consentual limit after excess asset allocation.

Question: Should election package require spousal consent even though lump sum based upon non-increased benefit is less than $5,000? This, of course, is a "damned if you do, damned if you don't" situation. Comments from the peanut gallery?

Does anyone know if there is a requirement that:

IF the plan provides that to share in an allocation the participant must be employed on the last day of the plan year,

THEN the plan must also provide that if a participant dies, retires, or becomes totally disabled in a plan year the last day of the plan year requirement does not apply.

I thought it was a requirement, but I can't find any authority on this.

Thanks!

Elizabeth

I wrote this in the Government plan section, but I figure it might get more play here (and I will take analogs for how things play out in the private sector (reemployment with own employer) and in the multiemployer setting -- thank you!):

There is a state retirement system (which covers most of the state and municipality entities).

If one retires from one part of the state government, and then is employed with another instrumentality of the state, do any suspension of benefits rules kick in?

Does it matter whether the new job is from a different hiring office?

Does it matter that the former and prospective job is under the same state retirement system?

I know ERISA § 203(a)(3)(B) and the Code § 411(a)(3)(B) are the analogs to the governmental situation. But do the rules for governmental entities track ERISA §203(a)(3)(B)(i) ("other than a multiemployer plan") or ERISA § 203(a)(3)(B)(ii) ("multiemployer plan")?

In other words, if a person retires from one instrumentality of the state on Friday, can she pick up and work for another instrumentality of the state on Monday, and still be retired from the former entity she worked for on Friday -- even though the retirement system is the same?

Does the "same trade or craft" rules apply like in the multiemployer context, or is disqualifying employment based on the retirement system itself? What way is disqualifying employment classified in the state government context?

I guess another analog would be -- if someone retired from the U.S. DOL on Friday and was eligible for retirement payments, would he still be considered retired if he picked up and worked for the IRS on Monday? They would still be part of the same system (FERS).

Any help would be appreciated, with any relevant authorities. Thank you, once again!

BL

Situation: Participant (my client) is not is pay status in ERISA DB plan which permits either a separate interest or shared payment QDRO. Former Spouse was awarded 40% of the accrued benfit. Participant wants shared payment. Former Spouse wants separate interest. I have found no case law (anywhere) to the effect that the QDRO must be written one way or the other. Does anyone know of any?

If a plan has a funding deficiency from 2007 wouldn't it just roll over and be part of the required minimum funding for 2008 ? is there anything new in PPA 06 funding rules that would suggest something different should happen ?

I have a new client who sponsors a PS plan for himself (no other employees). The assets have always been under $100,000 so he's never had to file a 5500, but his accountant had done so anyways. The accountant missed the 2005 filing (but did one for 2006 and 2007 as well as for years prior to 2005) and an IRS letter was now sent following up on the 2005 filing.

1. Even though the plan filed 5500's for all years before and after 2005, he was not required to file for 2005 and so, a correct reply to the IRS would be that one was not required, correct?

2. The owner then mentioned "oh by the way, I also have a SEP". Do SEP plan assets count towards the $100,000 threshold?

3. The owner then mentioned that he owns other small companies (no employees). I am waiting to hear if he has any retirement plans through these other companies. If not, then we're OK. But if he does, I believe that those plans must be aggregated to determine whether the $100,000 has been exceeded, correct?

Finally, a general question. The threshold was raised to $250,000 in 2007. Does that apply to assets at the end of the year, or at anytime during the year? That is, if a plan had over $100,000 in early 2007, do they have to file a 2007 5500 even though the limit was raised to $250,000 in 2007?

Thanks

Does anyone know of an outline of what the ERPA tests will cover?

Also, are there any study materials, anywhere?

A Plan has a Safe Harbor option in it. The client is worried about falling non discrimination testing but is not completely sold on the Safe Harbor route.

Can someone explain to me the Safe Harbor "Maybe" Notice and what is required? I understand that it cannot be the Safe Harbor Match and can only be the Safe Harbor Non - Elective.

What is the timing involved and does a follow up notice have to be given if the Safe harbor Contribution is made?

Thank you in advance.

ALEX