My father passed away recently and although he had married within a year of his death, he still had his father listed as the beneficiary of his retirement account. I helped my grandfather complete the beneficiary paperwork and sent it in along with my father's death certificate. My grandfather received the disbursement of benefits (appx $108,000), but I am now worried about his potential liability since I have just learned about ERISA.

I fear that my father's new wife is automatically considered the beneficiary under ERISA stipulations, although my grandfather was listed as the beneficiary. I don't want the wife to come along and sue my grandfather to recover these funds. So where does the responsibility here lie when it comes to recovery: with the beneficiary or with the plan administrator? My father's death certificate clearly listed his marital status as well as his spouse's name, so it's not as though the plan administrator is unaware of his marriage.

If the wife were to sue, would she sue the plan administrator? Could my grandfather be named in a suit? If she were to file suit and ultimately prevail, would the plan administrator have responsibility to pay her claim (ultimately paying it twice) or would recovery come from the benefits that my grandfather received? And is there a statute of limitations as to her opportunity to file suit?

I appreciate any help. I do have an attorney, but he doesn't seem to be well-versed with ERISA.

I'm covered up with EPCRS submissions among other things, and I received a quick email from a tax colleague.

Can a closely held corporation (owned 51% by wife, 49% by husband) put in place a NQDC plan to benefit themselves? They are the sole directors and officers. They are both employees of the corporation. They are also the sole owners, directors and officers of other related corporations that employ between 100 and 200 employees.

Is there an issue of not having an independent board voting to put into place a NQDC?

Many thanks -

My wife received a letter from her employer a couple of days ago which says they are going to limit her contributions to their 401k plan to 6%. The reason given was that she was a Highly Compensated Employee.

My question is, is there another way to sock away pre-tax Dollars for retirement savings? She isn't high enough in the management structure to be able to participate in a Deferred Compensation Plan.

Thanks.

Two participants in a 401(k) plan have rolled over IRA accounts into the plan. The rollovers consist of employer securities of the plan sponsor. With these rollovers, the employer securities make up more than 10% of total plan assets. I do not believe this is a problem since the plan is a participant directed plan. However, the only actual direction I find, has to do with deferrals.

As long as the plan allows, is this situation okay?

Thank you.

I've never had to do a 5500 for a Money Purchase government plan I have. Have any of the rules changed? Do I need to start doing one?

Thanks

If 401(k) plan fails ADP test due to excess HCE contributions and SBJPA distribution amount plus allocable income is distributed to the HCE's, is the plan deemed to have passed the ADP test and be in compliance or will it need to use a correction method under SCP pursuant to EPCRS to be compliance?

I have a calendar year DB plan that an AFTAP was never completed as of 4/1/08. It's an EOY val date, so until further quidance is issued, I cannot do the 2008 AFTAP. However, I do have the information now to do the "lookback" AFTAP that should have been done by 4/1/08.

Plan is currently restricted due to failure to issue the lookback AFTAP by 4/1/08. Can I do the lookback AFTAP now, and be deemed unrestricted?

Thank you.

Do you think it is permissible in a Cash Balance Plan to only credit compensation as a participant (from date of entry) in the first year a participant joins the plan?

Generally this rule is only used for DC Plans and is not used for DBs, especially final average pay DBs. But since a Cash Balance Plan accumulation formula is commonly based on each year's pay, and since the 401a4 Regs clearly allow testing comp to be done this way, I believe it should pass muster.

Any thoughts?

In applying the restriction against lump sums while sponsor is in bankruptcy (no lump sum unless at least 100%), if a plan is 98%, but is 105% under the deemed election, does the actuary certify 105%, so as to prevent a lump sum restriction in case the sponsor enters bankruptcy that year? Or would another certification be required after the restriction trigger, or would the certification at 98% be adjusted (and if so, by who?)

I am thinking that the original certification would be at 105%, but the answer is not crystal clear under the Code or prop regs.

The below post was submitted on the 401k board as well.

An employer sponsors a 401k plan and a profit sharing plan.

The plan has two HCEs and 5 NHCEs.

2007 was the first plan year.

No 401k deferrals were made by any employee and no employer contributions were made to the above two plans for the HCEs.

1 of the NHCEs terminated during 2007 after the completion of 1000 hours and had met the plan's eligibility requirements at the time of plan inception (1/1/07).

The challenge is addressing the 1 terminated employee.

The employer contributed 3% of compensation for the 4 active NHCEs to the 401k accounts and 4.5% of comp for the 4 active NHCEs to the profit sharing account.

The profit sharing contribution can clearly exclude the terminated employee due to the last day requirement.

The 3% that went into the 401k plan is allegedly a QNEC.

Can a QNEC be made even if not needed to pass ADP test?

If the answer to the above question is "yes", then the terminated employee would not need a QNEC to pass non discriimination and thus would not receive a contribution.

If the answer is "no" then does the 3% QNEC need to be transferred to the profit sharing plan and deemed an additional non elective profit sharing contribution?

And finally, can a QNEC impose a last day requirement, like the profit sharing contribution can?

Of course a 401k safe harbor non elective contribution cannot impose the last day requirement.

Come to think of it I believe the former employee could just be excluded from the plans as long as tests are passed.

Thank you.

An employer sponsors a 401k plan and a profit sharing plan.

The plan has two HCEs and 5 NHCEs.

2007 was the first plan year.

No 401k deferrals were made by any employee and no employer contributions were made to the above two plans for the HCEs.

1 of the NHCEs terminated during 2007 after the completion of 1000 hours and had met the plan's eligibility requirements at the time of plan inception (1/1/07).

The challenge is addressing the 1 terminated employee.

The employer contributed 3% of compensation for the 4 active NHCEs to the 401k accounts and 4.5% of comp for the 4 active NHCEs to the profit sharing account.

The profit sharing contribution can clearly exclude the terminated employee due to the last day requirement.

The 3% that went into the 401k plan is allegedly a QNEC.

Can a QNEC be made even if not needed to pass ADP test?

If the answer to the above question is "yes", then the terminated employee would not need a QNEC to pass non discriimination and thus would not receive a contribution.

If the answer is "no" then does the 3% QNEC need to be transferred to the profit sharing plan and deemed an additional non elective profit sharing contribution?

And finally, can a QNEC impose a last day requirement, like the profit sharing contribution can?

Of course a 401k safe harbor non elective contribution cannot impose the last day requirement.

Thank you.

This is the first year this charitable foundation will be required to make payments to an executive through their 457(f) plan. The plan appears to be written in a manner to comply with 409A. For 2008 W-2 reporting, in addition to Box 1, Box 3, Box 5, and Box 11, does the amount he becomes vested during 2008 get reported in Box 12 as Code Y? Code Z? At all?

I'm really unsure about when Box 12 is required. I thinking it is only when 409A failures occur and not when normal vesting occurs after 5 years of substantial risk of forfeiture.

I'm trying to find out what most EB professionals advise their clients to do if it is unclear whether an arrangement is a listed transaction. Do you advise filing a Form 8886 "just in case" even though it is likely to trigger an audit? Or do you advise against filing a Form 8886 and plan on asking for an abatement if the IRS ever imposes a penalty under 6707A? (If it helps, this relates to a 412(i) plan.) Thanks in advance.

The software that we use to complete rate-group testing allows us to pro-rate a mid-year entrant's full year compensation to determine their post-entry compensation to use in the nondiscrimination testing.

Personally, I am not comfortable with this and want my employees to determine (and if necessary, request from the client) actual compensation from date of entry through the end of the year. Apparently we have been using this feature for many years and there is a general belief that since the testing software allows it, it must be legal.

Does any one have any thoughts, comments or even references as to the legality of simply pro-rating the full-year compensation to determine post-entry compensation versus determining actual post-entry compensation?

My real issue is that with the availability of 100%+ loans (OK, maybe not as many as there were 6 months ago), how does a participant "prove" that they have no other way to finance the house? The participant may not want to take a 103% loan, but since it is available, does the Trustee have to acknowledge it somehow? Thx.

I have frozen DB plan that is affected by the restrictions on LS to the Top 25 highest paid employees. Sponsor does not want to put more money in right now.

At issue here is how to determine that list

Do super duper highly paid employees hired after the plan freeze date take a place on this list or is it frozen, limited to current and fomer plan participants?

I find it hard to believe that this is a backdoor way of T25 participants getting ls distributions.

Thank you in advance.

GaryGaryGary

Disclaimer -- I have done no research on this issue, but I thought I'd start here in case anyone has dealt with a similar claim.

Plan has 7 year scheduled vesting, beginning with 20% after 3 years service. E/ee quits after only 2 1/2 years. Asks for full e/er contribution so she can roll it over into IRA. When told she is 0% vested, she claims no one ever told her about vesting requirements and she'd been under assumption that 100% was hers from Day 1. Further claims that at 1st and 2nd year annual performance review, supervisor had gone over pay package and told her that $x was being contributed to her account, with no reference to the vesting.

I understand that the plan can't just waive the vesting requirements b/c of a misunderstanding with this e/ee; however, I wonder if she might have a valid contract claim that she was to receive the contribution and never told that the vesting was a requirement? Has anyone dealt with a claim like this before?

TIA!

New client has a 2002 FDL. Client should have filed for an FDL in January 2008 (Cycle B) but did not. We will file an off-cycle FDL application in the next few weeks.

Question: For what period of time is the 2002 FDL effective:

a) Can the client rely on the 2002 FDL until the expiration of the remedial amendment period in January 2008 or

b) because the FDL application was not submitted in a timely manner has the 2002 letter been voided altogether, or

c) Can the client rely on 2002 FDL only through the date of issuance in 2002, but not after 2002.

An example, lets say there was an operational failure in 2007. In order to correct under EPCRS client needs a current FDL. Can the client rely on 2002 FDL to correct the 2007 operational fail ?

I am confused how the 401(b) rules interplay with the new remedial amendment cycles.

(Note: Not my first post, I had to re-register for some reason)

One of the funds in the 401(k) fund line-up had a small pricing error. The total amount of the error is $1700. Several hundred participants in the plan invest in the fund, so the correction amount is going to be less than $10 per participant. Could the entire amount of the correction be placed in forfeitures instead of actually calculating the amount due to each affected participant? For this plan, forfeitures are used to offset employer contributions. Thanks.

What are the proper channels of correction if a participant refuses to repay an improper hardship distribution?

The auditor preparing the financials for the 2007 Form 5500 discovered a participant had requested and received a hardship distribution but did not disclose it was for expenses paid in 2006. The participant did certified that the hardship was for post-secondary educational expenses but not for when they were paid.

The proposed solution is to send a letter to the individual requesting the return of the funds plus any applicable earnings. The plan administrator does not think the participant is in a position to restore the funds. The participant is under age 59½ and does not qualify for an in-service distribution or have sufficient funds for a loan.

From a taxability stand point for the participant a corrected 1099-R will need to be issued and the early withdrawal penalty will apply. However, in the event the funds cannot be restored what are the consequences to the plan?