Are the segments applied from the valuation date or from the beginning of plan year. For example, for PY 2008 with EOY valuation date, does the first 5 year segment end 5 years from the valuation date or from BOY?

In general, for an annuity certain, value @ EOY should equal to value @ BOY increased by the first segment rate. But that will not be the case if the segment terms are measured from the EOY (val date).

How are you computing the effective interest rate, short of actually doing a separate valuation and determining a single rate by trial & error!?

Joe - an HCE puts $15,500 into 401(k) in first 3 months of 2008. Joe quits company April 1 and takes full distribution of his account on June 1. Joe rolls entire balance over into IRA.

February 1, 2009 - Plan runs 2008 ADP testing and fails - Joes is required to receive refund of $1000 for failed ADP but he no longer has money in plan.

Investment company has already sent Joe 2008 form 1099 showing full amount of distribution rollover to IRA.

Question - I can notify Joe of his failure & tell him the amount he has to have his IRA custodian pull out of his IRA account but what do I do about the 1099's?

Does origianal investment company have to issue an amended 1099 due to the change or does that original 1099 just remain the same? Does IRA provider have to issue a 1099 for the removal of the funds from the IRA and then just be sure to code it properly with a code P or D and it become the employoees responsibility to handle properly for tax purposes.

What if Joe took cash distribuiton?

Just wondering on what others do in this situation.

With all the recent Wall Street fireworks involving Lehman Brothers, MLynch, etc, a client called and asked if there is any kind of insurance that they can purhase to cover the plan assets in case of a failure involving the investment/brokerage house? The fidelity bond covers fraud and dishonesty, etc, so that would not apply here. I figure you can get insurance for just about anything, so why not this. But I have not heard of anything relating to this before. Plan is small, has about $250,000 and invests in about 6 mutual funds via a broker.

Thanks

Hello. I am 29 years old and recently resigned from my job. I am currently looking for a new FT job and am doing some freelance work for my former employer (just a few hours a week). I have about 20k in a 401k that I would like to rollover into a Roth IRA. Here are my questions:

1. Is a rollover into a Roth IRA the "right" thing to do? Let me add that my salary was 80k and my next job will be in the same range. I am getting married in July of 2009 and my fiance makes about 100k. Since I believe we will be over the Roth IRA salary limit once we are married, is it worth it for me to even open one now since I won't be able to contribute after I am married?

2. If I understand a Roth IRA correctly, you have to be earning money in order to open one and contribute. Since I am unemployed, am I even eligible to open one? What about the money I am earning from my freelance projects, does that count?

Thank you in advance for any advice you can give me. I have tried my best to educate myself reading articles online but came up empty regarding my question #2.

We recently took over a small DB plan (10 participants) that happens to have life insurance. The plan is not exclusively funded with life insurance. In fact total cash value represents about 15% of plan assets.

We noticed that the prior administrator (who sells a lot of insurance) did not include cash value of the policies on the schedule I for all past years.

Is there an exception to reporting the cash value of life insurance on the schedule I? I would think it must be part of plan assets like any other investment.

Plan document client terminated his plan and is attempting to roll the money over to an IRA. Current custodian is insisting that employer provide a copy of the IRS letter that assigned a trust ID number. His accountant prepared and filed the SS-4, but did not retain a copy of the IRS letter or any other documentation to "prove" that the TIN is valid. Is there a process for doing this, possibly similar to getting a copy of an IRS determination letter?

Thanks. Maverick

4 companies are, through ownership, in the same controlled group.

One company insists that it should not be considered a member of the controlled group because it is "just a sub-s corporation" and the company has never been used to control income or accumulate profits.

I have never before heard this type of argument. Is there merit to this argument for not being considered part of a controlled group of companies?

Any tax-gurus available to weigh in?

Thank you, thank you

I have a plan that does an annual safe harbor match. They always file an extension for the plan.

If they dont fund the safe harbor match by 9/15/08 (they are an S-Corp) what are the remifications? Is there any sort of penalty since it is a required contribution? Does the plan have to be tested. They will probably make the contribution in October. What about their corporate taxes - they did use it for a deduction. Thanks

Attached is an article from today's IRS EP Newsletter which states that the IRS will not challenge a 2008 AFTAP certification based on something other than an end of year val if the resulting final aftap based on the end of year valuation does not result in a material change. Not perfect relief since we cannot absolutely rely on numbers at the end of last year or the beginning of this year to coincide with our final year end numbers...but for overfunded plans it removes the pressure a little bit

IRS_EP_Newsletter_0908.pdf

SIMPLE IRA 100 person rule - plan has less than 100 ees in 2005, more than 100 in 2006 and all subsequent years. Plan is eligible in 2006 because of the look-back rule, does the 2-year grace period include 2006 or start with 2007?

Guy has a PS Plan Trust and put almost all of the money in a Mortgage Pool.

Pool is now in Chapter 11 and assets are frozen.

He does not have enough accessable money to meet RMD. What to do?

Only things I can think of are:

1. Take what cash he can, 1099 on full RMD, take rest of money when pool is unfrozen. (If it unfreezes at $0, amend the 1099 to the actual amount taken? But required amount didn't change...)

2. Take what cash he can, 1099 that amount.

Thanks for any ideas on this.

are COLA's allowed to be cutback?

what about if there is an unreduced pension at age 62 with 30 years of service -- can we eliminate that if we have an unreduced pension at age 55 with 10 years of service?

The 5300 instructions (which haven't been updated for years) require that if there have been 4 or more amendments, a restated document is required. The 5307 doesn't have this requirement - merely asks you to list the number of amendments, and if more than 4 you attach a separate sheet.

In the old days, when we used to file for determination letters for every plan, we routinely restated after 4 amendments, but I see no need for anything like that now. Anyone have any other thoughts on this?

Hello. I am new to VEBA's so if you can please bear with me...

1. Are there different codes to exclude the interest income, dividend income, gains/(losses) but the income is still not taxable - it doens't seem like it is excluded under Section 512? VEBA's do not have to pay tax on this do they? If they do, how do they report it?

2. You are supposed to report the information from all of the plans, correct - so each 5500 that is filed?

Thank you very much!

A profit sharing plan will maintain two vesting schedules - the old 5-year cliff schedule for pre-2007 contributions and a 2/20 schedule for PPA on contributions for years after 2006. For the 2007 year no contributions were made, however, a forfeiture was reallocated. Section 904©(1) of PPA says that the accelerated vesting requirement is effective for contributions made for plan years beginning after December 31, 2006 and doesn't specifically mention forfeitures. Also, the forfeitures that were reallocated in 2007 were derived from pre-PPA contributions. I'm not entirely sure whether the PPA vesting schedule should be applied but am leaning towards doing so, erring on the side of caution - interpreting sec. 904 to also apply to forfeitures no matter what year the contributions they came from were for. Is this the correct way to handle this situation? All help is greatly appreciated.

I was talking to a not-for-profit prospect whose always-under-100 participant pension plan (effective in 1986) has consistently been audited and filed Schedules C & H. The Plan is turnkey (pure 3rd party administration) through a reputable life insurance company. I noted from the Schedule C the auditor was socking them close to $11K. The reason they say they undergo the audit is because they thought someday they might have 100 participants and thought it would simply be easier if the plan was always audited.

Yes, Beulah, this is hard to fathom.

My question is would it be considered an incomplete or untimely 5500 filing not to file the required schedules? I.e., is there jeopardy for filing the wrong forms even though this is all in good faith. The instructions to Schedule I indicate, "Schedule I (Form 5500) must be attached to a Form 5500 filed for pension benefit plans and welfare benefit plans that covered fewer than 100 participants as of the beginning of the plan year."

How many people still do EOY valuations for DB plans? What are you doing for the 2008 plan year on EOY vals? What about the AFTAP's that have to be done by 4/1/09?

It is a real headache to switch them to BOY. Is that something you see we will be having to do? All of our plans are under 100 participants.

Just wanted other peoples comments on this. I hear so much about BOY valuations - and I dont know how other TPA's or firms are handling EOY valuations. Thanks

When a Roth IRA accepts a rollover of non-Roth money from a 401(k) plan is there any special recordkeeping requirements (e.g., special source to house the non-Roth 401(k) plan rollover)?

Are there any special rules for the non-exclusion period? It is my understanding if designated Roth 401(k) contributions are directly rolled over to a Roth IRA that has not met the 5-year non-exclusion period, the non-exclusion periods is redetermined.

Example 1:

Roth IRA opened in 2003 (end of 5-year period is 12/31/2007)

Roth 401(k) rolled over to Roth IRA in 2008.

Roth IRA owner is age 59-1/2 or older, can take a qualified distribution anytime

Example 2:

Roth IRA opened in 2006 (end of 5-year period is 12/31/2010

Roth 401(k) rolled over in 2008 (end of 5-year period is 12/31/2012)

Roth IRA owner is age 59-1/2 or older, can take a qualified distribution beginning in 2013

Are my examples correct? Do these same rules apply to the rollover of non-Roth 401(k) money? Thanks!

A plan has a QACA feature with a minimum 1% default deferral percentage and a maximum of 6%. If an employee is automatically enrolled into a plan on 7/1/2008, under the regulations the participant must be increased to 2% on 1/1/2010 (unless elects otherwise). Can the plan be drafted to increase the participant on 1/1/2009?

Thanks!