409(o)(1) requires distributions not later than 1 year after the close of the plan year in which the participant separates from service by reason of the attainment of normal retirement age under the plan, disability or death... Is there any reason, for this purpose and this purpose only, why a plan could not define Normal Retirement Age as the Sociacial Security Retirement age for each employee?

Top-Heavy related questions; how does that impact coverage testing? I know that the people who do not work enough hours who would normally not get an allocation end up (usually, I suppose) getting an allocation when the plan is top-heavy, but does that figure into coverage test for 410(B)? Does a two step coverage test take place in this situation?

Some have said that IRS regulation 401(a)(4)-2(b)(4(vi)(D)(3) as well as 1.416-1, Q & A M-10 impact this situation.

We have a 1 participant DB Plan that may be over funded by about $100K.

The plan was underfunded so he delayed terminating but then had some good investment results along with getting older than age 65 and now the assets exceed the maximum lump sum limit.

His 3 year high comp limit is only about $140K so unfortunately we are running into that cap on the lump sum.

The question I have is can he payout 1-year worth of anuity benefits as taxable income and then roll out the rest to an IRA or does this violate the §415 limits?

If he can't avoid the reversion, can he roll the excess to a qualified replacement plan and allocate to himself and avoid excise tax? He has never had any employees other than himself.

When whipsaw was around, I always had both AE and the interest crediting rate equal to 417(e) rates. Now that they can be different, what is considered the benefit to general test? Here's an example (just assume it's a first year plan for simplicity):

AE: 6% post/pre

Interest crediting rate: 5%

Plan defines the SLA normal form solely on AE (no reference to interest crediting rate)

That of course means that as time passes, the SLA decreases, but I digress.

For determining the benefit for general testing do you think it's:

A) The CB converted to a benefit using AE

B) The CB increased to NRA at 5% and then divided by AE post-retirement mortality

C) Something wacky that I can't think of

How does one get into the TPA business? That is, where do I go to learn more about the industry / designations / etc. For years I have worked for a very successful investment advisor on the support side of the 401(k) business (from an investment standpoint). I'd like to transition to the TPA side of the business, but I don't know where to turn for more information about licensing / designations.

Basically, what would I need to do to be able to get a job at a TPA firm without being entirely confused (or blindsided) when I walked in on day one. (eg. financial advisors have the CFP, accountants have the CPA)

Thanks in advance for your help.

I know there are proposed regulations that will change the timing of submitting contributions to 7 - 10 days. Does nayone know if these regulations have been finalized?

I was asked to review two separate IRS proposal letters for two DB plans (not ones that I put in) that sets forth their procedure for unwinding each plan.

They do not consider it a plan disqualification, but instead just an option to go into a closing agreement and agree to unwind the plans.

I do not know if there is a specific technique to unwind a plan. The IRS says unwinding the plan would be treating the plan as if it never existed at all or like a non qualified plan.

One of the plans is a 412i plan and the other is a tradtional DB plan.

Both plans only include the husband and wife as plan participants.

In the case of the standard DB plan the IRS proposes that the the trust be distributed and the participants take the proceeds as income. Simple and straight forward and does not remove corporate tax deductions.

In the case of the 412i plan, the IRS proposes that all prior plan contributions be treated as income to the corporation for each year and that now the total value of contributions (i.e. premiums) be taken as income to the participants in 2008 and that a corresponding corporate deduction be taken in 2008. This large corporate deduction creates a large loss that will never be able to be offset with income. Clearly the unwinding is much more severe with the 412i plan.

With the traditional plan the individuals are only taxed once; for the distribution.

With the 412i plan the corporation (i.e. individuals) is taxed and then the same individuals are taxed for receving the distribution. That is, taxed twice in this case.

On the one hand the 412i plan sponsor can raise the issue of inconsistency, though it may be futile.

And on the other hand, the IRS can just say they can do whatever they want in each case.

Any suggestions on what the 412i plan sponsor could propose? The 412i plan sponsor already requested that the IRS just tax the individuals once by means of a taxable distribution and not tax the corporation as well. The IRS rejected the suggestion, but yet seems to offer the same option for the other DB plan.

Not a pleasant project to work on, so I can understand any reluctance to give an opinion here.

Thanks.

I have a client who has several Synthetic GICs in their plan. Can these be reported in "Other" on the Schedule H for balances and earnings? Or do we need to break them down into the underlying assets (mostly bonds) for balances and earnings?

Plan/ loan program currently provides that a participant's plan loan is accelerated upon his termination of employment. Employer would like to amend the plan to remove this acceleration and permit continued loan repayment following a termination of employment. Can this change be applied to existing plan loans? I think yes for loans made on or before 1/1/2004, under the "refinance" regulation, but I'm not so sure for those made prior to 2004.

Can a participant defer 401k dollars into a 401k plan while they are on disability? The compensation definition is silent on this except that it says "compensation paid while an employee is not a participant in the plan is excluded". Does this mean that disability pay is excluded?

The plan in question is being asked if a terminated participant's mother, who has a power of attorney to act on behalf of her son (the terminated participant who is in Iraq), if she can complete the withdrawals forms and rollover his balance in the plan to an IRA in his name. I'm pretty sure this is OK but can't find anything specific to this situation.

Adding info: the terminated participant is not in the military but working for a company on a government contract so the employer does not need to hold a job for him. The mother does not want a cash out, she wants to roll the balance over into an IRA in his name. My opinion, and I have not spoken to the mother, only the employer, is that she wants to be able to protect the $$ by investing in something that has little or no risk in his absence.

A colleague recently asked me if the ABPT could be run netting out any ADP/ACP refunds (due to a failed test). I told him that it could not. While I am confident in my answer, he asked for justification. I have looked and the best I could come up with was that all employer contributions are included in the ABPT. Since it was a contribution, it must be included regardless of the subsequent action. Can anyone provide a better explination or a cite? Also, if anyone disagrees with me, please let me know.

I have not seen much helpful guidance out there on this provision. The Code and the proposed regulations state that the plan must include a provision dealing with the special interest rate rules that apply in the event of termination. However, I don't know whether the IRS is expecting anything to be placed in the plan other than the basic rule, or if it is okay to just incorporate the Code and regulatory provisions by reference. For purposes of new plans or those being amended and restated this year, does anyone have any sample langauge that they are proud of and would like to share, given that this does not seem to be a matter for which any model language will be provided by the IRS?

We tookover admin for a plan for 2007 that uses SH match. The document states that match is per pay, but since the plan was established in 2004, the prior TPA calculated it on an annual basis; that's how the client funded it, once a year in February of the year following. Can we do a clarifying amendment or something like that to bring the document into compliance on how they were operating?

A defined benefit plan was terminated 5 years ago. The Plan sponsor received approval from the PBGC and an IRS D-Letter. All participants elected to receive their benefits in lump sums. And so, the Plan and Trust are long closed.

The Plan Sponsor has determined that a former vested-terminated employee had been inadvertently excluded from the process. Had the employee been included, the lump sum would have been $50,000. The current lump sum value would be about $70,000.

The (good shepherd) employer wants to do the right thing. That would be (a) gross up the lump sum for income taxes and FICA taxes (as well as pay the employer's share) or (b) reopen the plan so that gross up amounts are avoided and employee can roll benefits to an IRA.

Question: Has anyone reopened a plan under similar circumstances? If so, what steps are involved to open and then close? Are we looking at more costs and head aches than grossing up, which may cost about $50,000 in addition to the $70,000?

I'm sure this is not new ground and any thoughts would be appreciated.

a.t.a.

Plan is a safe harbor/401(k)/cross tested psp. Plan year is calendar year. 2008 Safe Harbor Notice was provided to participants. Plan is terminated as of 2/29/2008. If I read Sal correctly, and prior posts from a few years ago, the plan must provide the SHNEC through date of termination AND they must also perform ADP test. Finally, their annual additions are limited to 2/12 * 46,000 or 7,666.67.

Is this correct?

Thank you.

Anyone familiar with ABC Co, Inc.? (edited by sitewide moderator)

A client claims ABC Co Inc. contacts them every now and then about providing a free independent review of their plan. According to the client, "they stress how our plan is not considered to be “valid” according to ERISA without a review."

I have not been able to verify that this is the actual language used by the sales rep. If anyone has any first-hand experience with ABC Co Inc, I'd appreciate a review.

Does anyone else wonder about the statutory authority for a couple of transactions set forth in Notice 2008-30? Specifically,

1. The Notice allows nonspouse beneficiaries of deceased plan participants to complete a direct rollover to an inherited Roth IRA, pursuant to IRC §402©(11). A reading of §402©(11) tell us that these rollovers can be made to an individual retirement plan described in clause (i) or (ii) of §402©(8)(B) for a designated beneficiary who is not the surviving spouse.

Clauses (i) and (ii) of §402©(8)(B) mean an individual retirement account or annuity described is sections 408(a) and 408(b), respectively. These are traditional IRAs. Roth IRAs are described in §408A, and are not, as far as I know, eligible retirement plans under §402©(8)(B). So, how can these beneficiaries roll to Roth IRAs?

2. The Notice also allows spouse beneficiaries of deceased plan participants to roll to an inherited Roth IRA. I cannot find any authority that allows a spouse to do this. §402©(11) specifically states that the rollover must be done by someone other than a spouse; and also states that the rollover must be made into an inherited IRA described in §408(d)(3)©. A reading of §408(d)(3)© tells us that an IRA shall be treated as inherited if such individual is not the surviving spouse. So, how can a spouse beneficiary roll to an inherited IRA?

I have other concerns about the Notice as well, but these two will do to start a discussion.

plan is effective 1/1/07

but document not signed until 4/1/07, deferrals are ok because they didn't start until 6/07.

now, does that mean no one was eligible the first day of the plan year (and therefore avoid a large plan audit) , since the plan itself wasn't in existence until after the effective date. certainly you weren't eligibile to defer until after the signing date.

(Stupid plan in which only 7 people deferred out of many, many, many)

My wife and I were just married and both had Roth's set up before we were married.

Few Questions:

1. Can the accounts be combined in any way?
   
2. She is not currently, but when we start a family, she will be a SAHM (stay at home mom). Can we contribute to her acct even though she will NOT have taxable income? (i.e., with my salary)
   
3. what are the contribution limits for tax year 2008 for married filing jointly, and is it a COMBINED limit, or a limit for EACH account?
   

THanks very much