A good friend of mine recently won a judgement against a multi employer retirement plan. The credits, amount and time are not in dispute. The question is weather the benefits in arrears by the plan are subject to interest penalties during the time they were not paid to the plan participant (according to ERISA). Also the lump sum payment will bring him into a tax bracket that would not have normally been applied. ie: if paid annually the tax bracket would have been 15% paid in a lump sum he would be in the 28% or higher bracket. Who is liable for the increased burden?

Since the payments were not paid in a timely manner and interest accrued on them benefitrf the coffers of the plan , would they constitute a prohibited transaction and would an individual fiduciary be liable or would the 20% penalty be applicable and against whom?

Thanks

Vinmeister

Does anyone have any insight on the following question:

Under Section 409A, where a company initially adopts a deferred compensation plan (never having had a plan in the past), may members of the group of employees designated as eligible elect within 30 days of adoption of the plan to defer portions of performance-based incentive bonuses pursuant to Reg 1.409A-2(a)(7), or would the initial deferral election provision of Reg. 1.409A-2(a)(8) apply, meaning there could be no deferrals if the plan were adopted during the final six months of the performance period?

Thanks in advance!

Back in 2007, a client (20 or so participants) inadvertently mailed the 5500 to the PBGC. When the IRS notified the client that the 5500 hadn't been received, the client realized the clerical error and immediately mailed the 5500 to the EBSA. A few months later, the IRS issued a notice of assessment of late filing penalties of over $15,000.

The client had submitted all filings by certified mail. We provided the IRS copies of the mailing receipts which confirmed the timeliness of the client's actions. Since the client had a history of always filing timing, the IRS forgave all penalties.

5500 filers will likely never have to demonstrate timely filing. But if they do, having the documentation cements their case.

This is all obvious but you may wish to consider adding to your cover letters that the forms be filed, preferably by certified mail. This blog will self-destruct in 2009 when efast filing is required.

Can a new PS-only plan have a 5 year cliff vesting or does PPA require no worse than a 3 year cliff?

Thanks

Say a client has a terminated employee with a 100% vested profit sharing account of $10,000.

The terminated participant is under age 55 and wants to receive a lump sum in cash.

The name of the profit sharing plan is the "ABC Plan".

Let's say that the plan assets are in Schwab retirement accounts.

My understanding of the logistics is as follows:

The ABC plan makes a check to the terminated employee for $8,000.

The ABC plan makes a check to the IRS for $2,000 (for the 20% withholding).

When the former employee prepares his Form 1040 he declares $10,000 of taxable income, $2,000 of taxes paid and an additional tax of $1,000 (10% penalty) owed.

The former employee completes form 1099R and Form 5329.

Any comments on my above understanding?

If the above is correct, then does the employer instruct Schwab to cut the checks and mail them to the employer for delivery to the former employee and the IRS?

What paper work is provided to the IRS? Does it go to the same address that payroll taxes are sent?

What paperwork is sent to the participant? A check for $8,000 and a note stating that $2,000 was withheld to the IRS and that an additional $1,000 penalty tax is owed?

Get the picture? I need some explanation of the mechanics of what should be an elementary task.

Thank you.

Is anyone using or know of an actuary offshore, or bpo providing actuarial services? We are using an actuary in India right now but she is unable to handle all of our DB and CB plans so we need to find another one.

If you would like to email me directly with the info instead of posting it here, you can send it to:

billybong@gmx.com

Thanks for any info you can provide.

Here is the issue: plan #1 is terminating (and forcing distributions), and employees will become participants in plan #2 (and rolling over account balances, including some designated Roth accounts)...here's the problem....plan #2 does not currently have a Roth feature and will not be able to put one in place anytime soon. Almost all of the participants have MAGI of over $100,000 so can't rollover to a Roth IRA until 2010. Can plan #2 simply separately account for the amounts attributable to the designated Roth accounts and accept the rollovers?

Our 401k plan defines eligible Compensation as "salary actually paid" for a plan year. We have a situation where employees were terminated in the middle of a payroll period but were paid for the full payroll period. 401k deferrals were therefore applied to the entire payroll period payment rather than simply the portion of the period prior to termination.

I just became aware of this process. I'm concerned we've been allowing elective deferrals for the portion of the payroll period that occurred after termination. That looks to me essentially like post-termination severance compensation (ie, not for services performed prior to termination) and I read that as not covered by the Plan.

Is this a clear SCP (assuming the amounts involved are nominal since we're talking about deferrals relative to a 1-2 week period at most)? How far back do I have to look to see when this started?

We have a controlled group (company A and company B each have a money purchase pension plan and a profit sharing plan). They do not have the same plan year.

Should test controlled group as a single employer. However, since they do not have the same plan year, I can't permissively aggregate the 4 plans for 410(b) testing so that would mean I have to test company A's plans separately from company B's plans.

1. Is this correct?

The results of the testing: company A's plans failed the ratio percentage test and company B's plans passed.

Company A's plans would be disqualified unless they pass the average benefits test. (Note: there is no one to bring in to pass the test; HCE is the only participant and the remaining employees are union employees).

2. Is this correct?

Treas Reg 1.410(b)-7(3) does not require plans in the average benefit percentage testing group to have the same plan year. Since company A's plans are relying on the ABP test, all plans must be included in the ABP testing group.

3. Is this correct?

I am curious if anyone else has encountered this situation:

Employer offers a self-insured medical reimbursement plan pursuant to 105(h)(6). (This plan is not part of a cafeteria plan.) The terms of the plan are relatively straightforward: Once an employee pays the first $500 toward their health insurance deductible, the employer will pay the next $1000. The employer's goal is to pay the balance of the deductible after the employee pays the first $500, so in this example the deductible is $1500.

The plan operates on a calendar year. The problem I am encountering is this: the health insurance renews on 9/1 at a higher deductible, but the deductible operates on a calendar year. In my example, the employees have a $1500 deductible for 1/1/08 - 8/31/08. Then on 9/1/08 the deductible increases to $2000 meaning the employees have an additional $500 deductible to meet starting 9/1/08 and ending on 12/31/08. On 1/1/09, the $2,000 deductible starts anew.

My problem is how to address this in the context of the plan. The only solution I can think of is to have a series of short plan years whenever the deductible increases.

I don't think changing the plan year to coincide with the renewal period will work because of the fact that the deductible starts over every calendar year.

I have received a suggestion to amend the plan to provide that the employer will pay the balance of the deductible after the first $500 is paid by the employee (the plan currently states that it will pay a specific dollar amount of the deductible).

Does anyone have a suggestion?

I have been unable to find a site to tell a administrator when the SAR is reqired to be sent to a participant. Does anone know where I can put my hands on this quickly?

Thanx!

If there was an error on the TPA's part where a participant's vesting schedule was not applied correctly and there was an overpayment of the distribution to the participant in the amount of $2,500.00 - the TPA is going to cut a check including earnings to the plan's forfeiture account as they cannot obtain the overpayment back. Does this warrant going through a formal submission to the IRS or would this fall within the self correction program? Thank you.

Employer's 401(k) plan provides for immediate eligibility but administrator improperly applies a 90 day waiting period for allowing new employees to make elective deferrals. The employer is prepared to make corrective contributions in accordance with the safe harbor under EPCRS, which provides that the amount of a corrective contribution is reduced to the extent that it would cause an employee's elective deferrals for the year to exceed the 402(g) limit. Since 402(g) is determined with respect to all plans in which the employee participates during the year, does the employer making the corrective contribution need to determine what the employee's elective deferrals were under his prior employer's plan? If the answer is no and the error which occurred in 2007 is being corrected now (i.e., after the due date for distributions of excess elective deferrals), isn't this putting the employees into a potential double tax situation with respect to the corrective contribution? On the other hand, if it's not the correcting employer's obligation to make this determination and there is no tax reporting requirement with respect to the corrective contribution, it doesn't appear that the IRS would know that the 402(g) limit was exceeded.

Any thoughts on how this issue is handled under SCP?

the beneficiary wants monthly installments. the plan allows for monthly, quarterly or annual installments. generally speaking (because i know plan documents are different), can an employer make and administrative decision to limit the installments to annually?

A plan provides for lump sum distributions. The plan has a COLA and for purposes of lump sum distributions, 3% is assumed. The regular actuarial equivalence is 71GA and 7% interest. The plan has been amended to allow for inservice retirement on or after age 65. Upon the employee's later termination of employment, the plan stipulates to calculate the accrued benefit and offset it by the actuarial equivalent of the distribution received. The obvious question is what is that? My recommendation is to have the plan define how the adjustment is made rather than simply saying "the actuarial equivalent."

Assume an employee takes a lump sum at 65 and later terminates employment at 70, it would appear that an appropriate way to handle this is to calculate the accrued pension at age 70 and offset it by the age 65 pension increased by 3%.

Now, assume the employee takes a monthly pension at age 65 and later terminates employment at 70, it would appear that an appropriate way to handle this is to accumulate the monthly payments with 7% interest and determine the offset by dividing this acculation by an annuity factor at age 70 computed using 71GA, 7% interest, and the assumed 3% COLA. Clearly, if the employee elects a lump sum, there is a whipsaw effect.

Any suggestions?

When FAS 87/88 first came out, a few accounting firms at the time came out with well written guides - PWC and Ernst&Whinney are a couple that come to mind - is anyone aware of something similar for 158 ?

Any suggestions are appreciated--

Client is a sole proprietor, age 70 1/2, who is expected to die within the year. He has no current income, but he does have $2M in a defined benefit plan that may be overfunded by about $150,000 (actuary isn't certain). He'd like to settle his affairs now and leave things in the best order for his wife.

He has an estate planning attorney, but she has not worked with DB plans before. I've worked with DB plans, but not often with solo plans and not lately with overfunded ones!

Is there a way to avoid some of the reversion tax on the overfunding?

Our client is a business Corporation whose employees are anesthesiologists and CRNA's.

A not-for-profit hospital owns 79% of the stock of this Corporation. The remaining 21% is owned by an unrelated person who is neither a licensed anesthesiologist nor a CRNA.

The employees of the Corporation (the anesthesiologists and CRNA's) provide anesthesiology services to patients of the hospital.

QUESTION: Are the hospital and the Corporation part of an Affiliated Service Group?

Any insights are appreciated!

The stock of Corporation A was purchased by Corporation B earlier in 2008. Corporation A is being maintained as a wholly-owned subsidiary of Corporation B. The employees of Corporation A are continuing on the payroll of Corporation A.

Corporation A currently sponsors a 401(k) Plan. As of January 1, 2009, it is expected that Corporation A will adopt the 401(k) Plan established by Corporation B which currently covers the employees of Corporation B and the employees of the other wholly-owned subsidiaries of Corporation B.

Have the employees of Corporation A had a “severance from employment”? Based upon my reading, I would say “No”.

If there has not been a “severance from employment”, what are the options for the Corporation A 401(k) Plan?

(A) Merge the plan into the Corporation B 401(k) Plan?

(B) Freeze the plan and make distributions when the participants incur a distributable event (age 59.5, termination of employment, etc…)?

© If the plan is terminated, am I correct that the part of the account balances attributable to salary deferrals (including safe harbor & QNEC’s) cannot be distributed until a distributable vent occurs (same as in B above)?

Other???

Thanks for your input -- I am hoping for an alternative that is better than what I have currently discovered since each of them has a negative aspect for the current plan participants or for Corporation A.

I need some thoughts on making a Partial Plan Termination Determination.

I have a plan that had two divisions. A and B. B was sold in August.

There were 25 total employees for the year. (Including 2 new participants in A -3 month serv req)

3 participants voluntarily left A before B was sold and had nothing to do with B.

2 voluntarily quit B prior to knowledge of sale of B Feb,Mar

6 voluntarily quit B after knowledge of sale even though they were guaranteed a job with the new employer. (Had six months notice and were told that their jobs would continue with the new Employer)

2 participants stayed to the end and then the new company took over their employmentl upon completion of the sale.

Partial Plan Termination?

Who would vest 100%?

Thanks

Pat