We have a 1 person/owner takeover DB plan. The prior firm did not certify to the AFTAP by 4/1/08 so the plan is "deemed" to be restricted in accordance with section 436, ie, no benefit accruals after 1/1/08 and no lump sums allowed.

The problem is that the plan is close to being overfunded and we need to distribute assets as soon as possible. The AFTAP would have been well over 90%(-10) to allow for no restrictions if certified timely. We are in the position now to certify the 2008 AFTAP at this time, which is also well over the threshhold for benefit restrictions.

Questions:

1. If we certify to an AFTAP now for 2008, how does the plan become "unfrozen" and allowed to accrue and payout? For a deemed freeze on 4/1/08, is there an amendment required to reflect this? If yes, do I now do 2 amendments, one for the freeze on 4/1/08, and one for the "unfreeze" now?

2. Can his payout after the new AFTAP reflect a benefit accrual retroactive for 2008 year, and the 2008 COLA?

Any comments would be appreciated.

Thank you.

A participant in a PS/401k plan has requested a hardship distriution for medical expenses. Upon questioning her, participant stated she has financed her outstanding medical bills. Can she still receive a hardship distribution for the unpaid amount of the medical bills?

A person is very young but making $350,000. I want to install DB & DC Plans. If the DB contribution is 25% or greater I am pretty clear that she can contribute another 6% under the Profit Sharing Plan for a total of 31%.

If the person is so young that the DB contribution is, say, 20% can you then contribute 11% to the PS?

IRS Notice 2007-28 (basically, I think) says to ignore the first 6.00% of Profit Sharing contributions. So can she make 6% of ignored contributions and then 5% to get to 25% (11% total to the Profit Sharing?)

Or is the extra 6% available only if the DB contribution is 25% or more?

Thank you

This may be a dumb question but I haven't seen a definitive answer out there...

Can a 409A plan provide for different payouts upon different events. for example, you get 100% of amounts that we set aside if you leave because of disablity or age 65 retirement, 90 % if there is a change in control, 80% if you we fire you for no good reason and 20% if we fire you because you were a rotten employee?

Would the answer be different if the agreement just said you get 100 k for disability or retirement, 90k for change of control, 80k for term w/o cause and 20k for term with cause?

Also, could you have different payout schedules for each of these occurrences (eg lump sum for disability, 5 year installment for disablity, 10 year for term w/o cause and 15 year for term w/cause)?

Thanks.

I don't have all the facts on this one yet, but the business owner and his wife have failed to deposit amounts withheld for their personal Simple IRA contributions and employer match "for several years". Apparently they have had a couple of employees over the years and have deposited those employee's contributions and matches, just not the owner's and wife's.

Does anybody know if this would be considered "misuse or diversion of plan assets", making this error ineligible for any correction program?

If so, any ideas as to how to proceed?

A client with a June 30 year end for health insurance has a medical reimbursement cafeteria plan on December 31 year end. He asked me if he should change the 125 plan to June 30 to match.

I can't think of a reason they need to match. Am I missing something?

Is it possible for an employer (hosptial) to sponsor both a 403b and 401k at the same time? There is one HCE that will be severly limited in the 401(k) for deferrals. (I don't the think they want to add the safe harbor to the 401(k))

Would it be permissable to set up a 403(b) in addition to the 401(k) so that the HCE could put max out his deferral in the 403(b)? Additionally, if we set the 403(b) as a deferral only plan, can we avoid having to do the 5500?

Obviouisly I don't know much about 403(b)s. Any input would greatly be appreciated!

Thanks!

We have a husband and wife that each own their own businesses. The wife owns 100% of a medical practice and the husband owns 100% of an executive search firm. The husband is barred from owning a mediacl practice due to the lack of an MD; would these two businesses still be considered a controlled group?

Ok Tom I need your assistance...

I have a client that is a PEO and has 80+ divisions (employers). There is a crystal report I modified that gives me the list of divisions, however it will only list the divisions for which there are employees in the database. When I add new divisions (prior to adding any of the corresponding employees) I like to review a listing of the divisions to be sure I have them all and entered all the new ones.

Can you think of a way I can get the report to print all of the divisions and not just those with associated employees or is that not an option?

Thanks in advance

Under the 401(k) regs, an employee who takes a hardship withdrawal may not contribute to any other plan of his/her employer for 6 months following the withdrawal. But, under Section 423's universal availability rules, all employees must be able to participate in a company's ESPP (with certain exceptions).

So, if an employee take a hardship withdrawal on a 401(k) plan and then cannot participate equally his/her employer's ESPP for 6 months, does that violate the ESPP's universal availability requirements?

I'm assuming that Congress wouldn't set up a safe harbor for 401(k) hardship withdrawals that would directly conflict with another code section (i.e., 423). But does anybody know of any authority on this issue that essentially says that complying with 401(k)'s hardship withdrawal safe harbor does not result in a violation of 423's universal availability requirement?

Thanks in advance.

We are considering adding a plan imposed limit on HCE deferrals for a plan we administer. Has anyone seen an instance where the actual percentage limit is not specifically written into the plan? Can it be stated as a formula (i.e. "the actual deferral percentage of the NHCE group from the prior plan year, plus 2%"), or even as "an amount to be determined each plan year by corporate resolution"? Would any elective deferrals over this limit be able to be re-classified as catch-up contributions?

Can a MPPP merge into a 403(b)? I see that assets can be rolled from 401a into 403b but we are specifically looking to merge.

I am new to health and welfare benefits practice (main focus has been pension plans). If an employee who becomes disabled uses up all sick pay, vacation pay, and then remaining STD benefits, and then becomes covered under an employer sponsored LTD plan, at what point (if any) is there a separation from employment with the employer? Thanks in advance for any quidance.

someone asked me this and I don't deal with IRAs, but anyway:

"I have an IRA that consists of an auction rate bond that I cannot sell. The bond does not pay enough interest to to meet the min distribution I am required to withdraw. What should I do?"

I guess, in other words, if you have all assets tied up in non liquid assets, how do you pay a min. distribution.

8 companies merged into one new company almost 9 months ago. Each of the former entities continued to operate their insurance plans while we rolled up the 8 companies. It was decided that the new organization would engage a PEO to hande our benefits and payroll administration since there was no infrastructure at the new corporate level at all (finances being managed by Excel and Quickbooks - $20m/year company - need I say more?) All insurance plans were to termiante 4/30 and all would go live with the PEO benefits on 5/1. Employee meetings were held 4/9-16 and at that time notices were sent to the insurance companies regarding plan termination. One insurance company required 60 days notice for termination therefore they could not terminate the plan until 5/31 and they were "working with us." There was one former employee enrolled in COBRA under this plan. The PEO sent COBRA paperwork reflecting a 5/1 start date that the person returned effectively enrolling them inthe new plan with the PEO. They had paid their premium for May to the former company and then requested a refund for their May premium so they could pay it to the PEO. THe former insurance company denied the request and they are now asking for the PEO to begin their COBRA coverage on 6/1 or for us (the employer) to pay their May premium.

I am at a loss. I think we may have mishandled the employee communication aspect but I don't know that we actually broke any law that would cause serious issue with the DOL.

I do fear that we had an obligation to officially notify this former employee of the termination of her original COBRA plan as soon as we became aware the plan would terminate. (I found out 4/7 that I would be implementing these new benefits and payroll relationship beginning 4/9 at the same time we were reducing headcount from 180 to 85.) I failed to do so. The COBRA coverage she had under the prior company was not sponsored by the merged company but was sponsored by the prior employer which effectively no longer existed (the asset purchase agreement bought all the assets of hte company) so it wasn't even on my radar at the time. The employee feels that the new company made a poor decision that affected her personally and that we must "make it right or face the consequences." I say it is bad timing and while we may be guilty of making poor decisions on bad timeframes, we did not break any law.

She has threatened to go to the DOL which is not on my top 10 hottest issues at the moment. Anything I should be prepared for or know? I want to make sure senior managemetn is fully aware of the potential exposure but am not sure I know myself!

Any advice, comments, thoughts, etc.?

Small C Corp is having financial problems, really cash flow problems and the CEO (sole shareholder) wants to help by not taking salary. He does not want to give away the benefit, he wants to delay being paid until cash flow improves in about 8 months when payments on job contracts start to come in. The company will accrue the salary liability on the books until paid.

Is this a deferred compensation arrangement/plan subject to 409A?

Is it subject to anything else?

When is FICA etc due ?

If you have seen anything like this and can point me to wording for such an agreement, I would greatly appreciate it.

I've been searching through old posts and not finding a clear answer. Forgive my ignorance, but tax law is a bit of a challenge for me.

Re: incidental death benefits:

I understand 100 x monthly benefit.

I understand 50% whole life, 25% term/ UL for a DC plan.

Can the 50% rule be used for 412(i) plan based on the actual contribution? It sounds like that's not valid, but I'm seeing some 412(i)'s with life insurance premium = annuity premium, indicating the originators thought that was an acceptable test.

In IRS Publication 6392 (Rev. 12-2006) III line f, it says "In applying Rev. Rul 74-307 to defined benefit plans the maximum premiums for ordinary life insurance may be no more than 66 (33 if term and/ or universal life) percent of the theoretical contribution." The theoretical contribution is based on the individual level premium method. The next paragraph says, "In addition to incidental death benefits under the above application of Rev. Rul. 74-307, preretirement death benefits under a defined benefit plan will also be considered incidental if: (1) the cost of the death benefit for any individual does not exceed 25 percent of the total cost of the individual's benefit..."

Does that last sentence mean I can take the Table 2001 rates multiplied by # 1000's net amount at risk and compare it to the normal cost? That makes is much easier to pass the incidental death benefit test, so I assume it's not acceptable, but where can I find clarification?

Most of the life insurance policies I'm seeing are intended (not guaranteed) to be 5-pay, so the premiums are much larger than a regular whole life premium, making it particularly challenging to meet the 66% test using premiums.

mwyatt referred to FSA 1999-633 and merlin referred to Jim Holland's letter regarding the 2/3 ILP calculation. May I get copies of those?

Thanks to anyone willing to get back into the 412(i) mess.

Can an employer require employees to make a specified percentage of deferrals to its 403(b) Plan as a condition of employment? Would this violate the CODA definition?

Same plan - the employer makes an employer contribution on behalf of all participants. If the above is acceptable (i.e., mandatory deferrals permitted as a condistion of employment), would the employer contribution be considered a Match because only received if deferrals are made or would it not be considered a Match because all participants receive the employer contribution, it's just you have to make deferrals to even be employed and a plan participant?

I have a family owned business 401(k) Plan.

Was husband and Spouse. Now hired 16 year old child to work and they have no age or service eligibility for the plan.

16 year old is going to defer and get Profit Sharing.

It is my understanding that once the 16 year old is hired (summers and Part time during School year), plan is now subject to ERISA, can no longer file 5500EZ.

I think a ERISA Bond would now be required, unless their is something I am missing about a minor child in this situation.

Am I missing anyting thing???

Thanks

Pat

Is it possible to set up allocations based on a taxonomy of a participant's classification? In place of a state allocation formula?