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

I was wondering whether ERISA requires proof of age, e.g. a birth certificate or any other document, prior to paying out benefits?

In regards to processing a discretionary amendment to a prototype plan, if the employer is a corporation, is a board of directors resolution required to process the amendment? Or would a trustee signed letter requesting the amendment be acceptable?

My client is selling a piece of land they have held in their 401k pooled account. Does excise tax on the sale apply?

It's not that I don't believe our HR Director/FSA Plan administrator but I am looking for a little more solid support for her assumption that we can return FSA experience gains to plan participants so long as the proceeds are distibuted evenly. I know IRC allows for "reasonable and uniform" allocation but is there any other source that explores this topic well? Preferably something in layman's terms.

I am struggling with the concept that a person who contributes $100 to the plan and uses all but $10 and the person who contributes $1000 and doesn't use any will receive the same amount back. The first participant makes money!

since my mind mentally can't handle how to calculate the following:

Plan year runs 7/1/07 - 6/30/08

but comp for allocation purposes is calendar year comp. thus the comp for the calendar year ending within the plan year is zero.

immediately eligibility. ee hired in 2008 and so enters in 2008. and is there on the last day of the plan year.

plan is top heavy.

so his top heavy minimum is zero?

and if plan was tested for nondiscrim he shows as zero?

and for coversge he got nothing though he is eligible?

In ind agg plans(we know we're somewhat past that now for 2008)we would give client nc as the cost per person;but often this was not great approx of what person is due.

We also at times found giving pvab differential from previous yr to current one not perfect solution either.

Any ideas?

ty

Participant and AP have agreed to QDRO terms, however AP wants Partic to report the distribution as his taxable income. She is returning to school and doesn't want the 1099 income to mess up the availability of financial aid. So it is more than just a question of who pays the taxes.

I have never seen a QDRO written in this manner. Does anyone think this would be permissible?

If you used ind aggregate funding method,would you give those NCs as per participant costs.

Or use the increase in the pvab each year?

Is it correct that you must use prior year's comp for boyr val and therefore if you have a p/s plan alongside the db plan;you must therefore use current yrs comp and cant use beg yr val?

ty

Can a 1 person DB plan purchase a home in Costa Rica purely as investment?

I have a hardship for a participant that is requesting under the safe harbor option of casuality damage to his principal residence. He has provided us with his 2007 Federal Income Tax form showing that he deducted the loss. I'm thinking that we should require some additional info before we make this distribution. My thought would be estimates for the repair or bills. Any suggestions would be appreciated.

A client is a 501©(3). They wholly own 5 other organizations. They sponsor a 401k plan for the 5 children + the parent

AND they sponsor a 403(b) plan for just the parent. All participants from the child companies are excluded from the 403(b) because they are eligible for the the K. When they do ADP testing on the K plan, all of the parent employees (many of whom are HCE) factor in a zeros. Clearly this greatly helps the K plan pass testing and the parent HCE's are not negatively affected since they can sock their 15,500 into the 403(b) plan. Can anyone see a problem with this arrangement? I haven't been able to uncover anything that suggests a violation but it almost seems too good to be true.

Help! I understand that health and disability plans may require arbitration (non-binding) as 1 of the 2 levels of appeals and may use mandatory arbitration (binding) on additional appeal on a voluntary basis. However, what about other plans (eg, pension, top hat)?

Do these same rules apply, that is non-binding arbitration is allowed as 1 of the 2 levels of appeals and mandatory, binding arbitration is allowed but only if the plan offers it as a voluntary appeal and the claimant agrees to it?

Company is selling a subsidiary. Actuary has suggested that the company establish a VEBA for retiree medical benefits now, and then amend the plan to provide that the VEBA is the sole source of benefit payments with all future funding by employee contributions. Then appoint an independent trustee and "spin off" the VEBA to the participants. The idea is that after the sale of the company, retiree medical benefits can be "locked in" for a period of time, say three years (i.e., buyer is not a party to this arrangement). Actuary has characterized this as a new practice that is gaining popularity.

Anybody seen this idea, and more importantly, see any issues with it?