We have a situation for which we need your suggestions.

Our client, Elizabeth a 100% owner of an S corporation, husband is the only employee, sponsors two plans.

One Defined Benefit Plan effective 01/01/2006 and a 401(k) Safe Harbor effective 01/01/2007.

Elizabeth has entered into a partnership around July 2007. The partnership currently has three employees along-with the current partner. The current partnership sponsors a 412(i) plan.

Elizabeth does not wish to be part of the 412(i) plan.

Please let us know what options we can put forward to Elizabeth.

Would she have to discontinue any of her current plans?

I have a client that insists they read this somewhere, but I haven't found anything:

She said all small 401ks and 403b will be subject to annual audit effective 2011 - Not just plans with 100 participants.

The company may adopt a SIMPLE because they are tired of all the rule changes, etc. Their HR person tries to stay on top of everything. So when the DOL issues an opinion or statement, I get an E-mail. Every time she hears a rumor..... well you know.

I don't mind. It's part of the process, and she's a very pleasant person.

Anyone heard anything about this?

Thanks,

Fender

www.401ktest.com

www.projectedfinancialstatements.com

This is a pretty basic question but we run across so few of these anymore, I always get confused! Please bear with me.

Calendar year 401(k) PSP, client's tax year ends 10/31. Form 5500 is on extension until 10/15/08 for PYE 12/31/2007. Must the client make the ER contribution deposit for PYE 12/31/2007 by 10/15/08 (due date of 5500) or do they have until 1/15/09 to make the deposit?

Any input you have on this would be great.

Thanks!

Say we have a privately held company that has 5 employees, including the owner.

They want to design the plan with basic eligibility provisions of 21&1.

They want to include an additional employee who works less than 1000 hours and is age 17 (i.e. their son).

Is there a problem with adding an additional provision to include the son?

Of course we can just have the plan provisions be immediate entry for all employees, but just wondered if there is an explicit problem with the specific provision. There are no other employees that are not 21 & 1. But what if there were? Could it still be an acceptable provision or does the group not 21 & 1 need to be tested separately for the coverage tests?

Thanks.

We have a client with a balance forward (calendar year) profit sharing plan. Due to the adverse market conditions, and the fact that a participant whom they dislike needs to be paid, they want to revalue the plan at this time. Of course, they have never done this when the market was up. While we have advised them against this, does anyone have anything specific that would help me convince them that this is not a good idea?

In re-reviewing the 2007 regulations set to take effect 1/1/2009, I note that the requirement for a plan document is one imposed as a condition for tax-deferred contributions to a 403b contract. That is at least how the regulatory language reads.

I did not find where in the 2007 regs there is an affirmative duty placed on the employer to establish a plan document, even as to an employer that has to date operated a non-ERISA 403b program without a document. Nor did I find anywhere in the 2007 regs where it requires of an employer that might choose to adopt a 403b plan document which 403b contracts the employer must include in and maintain under its 403b plan.

Re-reviewing Rev Proc 2007-71, section 8.01 speaks in terms of the circumstances under which a 403b contract not maintained under an employer's 403b plan yet satisfies the requirement that the 403b contract be maintained under a 403b plan document. That provision is odd in that it assumes generally that a 403b contract not receiving contributions needs to be maintained under a 403b plan document, but the 2007 regs only require such to keep contributions going into the 403b contract tax-deferred.

There is one provision of Rev Proc 2007-71 that suggests that an employer must have a 403b plan document and what 403b contracts be included. Section 8.02 provides "a §403(b) plan will not be treated as failing to satisfy the requirements of §1.403(b)-3(b)(3) if the plan does not include terms relating to those contracts" of employees if by 1/1/2009, the employer is a 'former' employee and no more money goes into the 403b contract. However, no part of Treas Reg § 1.403(b)-3(b)(3) specifies the an employer must have a 403b plan for the 403b contracts of its employees that must be included in an employer's 403b plan.

Again, the only requirement of the 2007 regs seems to be that a 403b contract needs to be maintained pursuant to an employer's 403b plan in order to shield contributions from current taxation.

The 2007 regs permit an employer to stop future contributions, i.e. to freeze its 403b plan. The 403b contracts would not be receiving contributions in 2009 and beyond, and thus not need to be maintained pursuant to an employer's 403b plan. The 403b contract of an employee would simply be a matter administered between the vendor and the employee, per the terms of the 403b contract between them. (It would behoove the vendor and the employee, the parties to that 403b contract, to take whatever steps may be necessary--other than that to be maintained pursuant to an employer's 403b plan--that the 2007 regs otherwise require.)

I'm hoping someone can point me to authority, if there is any, that prohibits an employer that has operated to date (and perhaps through 12/31/2008) a non-ERISA 403b program without a document from simply stopping contributions on 12/31/2008.

I am looking for authority to explain the treatment of severance pay when determining final average pay. Plan language definition of annual comp is w-2 wages plus elective deferrals. This would include severance pay. That result seems wrong. What am I missing? Thanks.

I apologize in advance if this is not the right forum...

I'm so confused by this issue, I'm not sure where to turn. The employer is a sole proprietor, no other employees. He had a DB plan which was terminated at the end of 2005. For a few years, 2003-2005, the contributions required to meet the DB minimum funding standards exceeded the amount that was deductible, so he was making required contributions that weren’t deductible (for a sole proprietor, the maximum deduction is limited to earned income minus ½ se tax). He was able to deduct some of those contributions in subsequent years, subject to the deduction limitation in those subsequent years. After the 2006 tax deduction, he still has about $60,000 of contributions that were made that have not yet been deducted. He now has a 401k profit sharing plan. For 2007 he has earned income minus ½ se tax of about $200,000. He’d like to get the maximum deduction possible, using both as much of the $60,000 plus as much current 401k and profit sharing contribution as possible.

The question is, can he deduct some/all of the $60,000 PLUS make deductible 401k and profit sharing contributions for 2007? If so, how much? Or, if he makes the maximum $50,000 401k/profit sharing contributions (he’s over age 50), is that $50,000 the maximum deduction allowable for 2007, and he’ll have to continue to carry forward the $60,000 for deduction is some future year? Or is the deduction subject to the DB/DC combined plan deduction rules, even though the DB is not currently in existence and there is no current contribution to the DB.

Thanks in advance for any insight!!

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?