Now that we have regulations and know all the answers <GGG>.

A client is well funded (AFTAP > 80%) and therefore can elect to use the credit balance / pre-funding balance.

Are all contributions ignored for purposes of the quarterlies until the balances are used up? For example calendar year plan and client makes a contribution 4/1. The credit balance would naturally cover the first quarterly. Is the credit balance used and the contribution justs gets adjusted (and used to offset future quarterlies if necessary).

Once the client makes the election to use the balances are they locked in?

Is this another 'consulting' opportunity to advise the client the options of using / not using the balances?

I had a broker call me and ask the question, "in a participant-directed 401(k) plan, is a participant allowed to make option trades?"

I don't know retirement plans well enough to know if this is a plan document or Investment Policy issue, or if it ERISA related.

Any thoughts on this?

Thanks in advance!!

Company G is buying all of the stock of Company X-1, a wholly owned subsidiary of Company X. Both G and X-1 maintain 401(k) plans for the benefit of their employees. X-1's 401(k) had previoiusly had assets from a money purchase plan merge into it, so the plan document has language regarding spousal consent and annuities. Although G's 401(k) plan has language on annuities, it meets the profit sharing plan exception unless an employee elects an annuity form of distribution. It is intended that X-1's 401(k) plan merge into G's 401(k) plan. However, to avoid the complexity associated with obtaining spousal consent for such transactions as hardships and loans, G prefers not to accept a transfer of the money purchase portion. Assuming that the money purchase portion was fully vested prior to the merger into the X-1 401(k) plan, could X-1 simply purchase annuity contracts for that portion and issue them to those X-1 employees whose accounts included the merged money purchase plan?

Hello and Happy Friday!

I had a client pose an interesting question regarding work release inmates - can they participate in a 401k plan. The document has the normal employee exclusions (union, non-resident aliens), eligiblity is age 21 and 1 year of service. Right now the client has not had any of the inmates meet the eligibility requirements, but will probably have some this summer.

The client would like the inmates to participate, they feel that it would help to rehabilitate them. However, the prison does not want the inmates to participate - it would be an administrative burden for them. So we have a big conflict with the plan document. The inmates do receive compensation for their work.

Has anyone else encountered this situation? I have not found anything in the regs to mandate the exclusion of inmates in retirement plans.

I appreciate any comments, reg sites, pros.... cons..... - run from plan?!?

I have been reading your message board for a long time, but this is the first posting. Thanks for the help!

I have a client who extended their 2006 tax return. They sent in a check to their traditional IRA on 4/20/07. No deduction was taked on the 2006 return. The 5498 showed it as a 2007 contribution.

I jyst found out that this contribution should have been made to a SEP IRA plan for 2006 and the CPA took a deduction for it on their 2006 tax return.

Their 2007 tax return is now on extension. Can I simply recharacterize this contribution as a SEP IRA contribution now ?

Thanks.

Can they maintain both plans and the Safe Harbor start up at any time? Or like converting a 401(k) to Safe Harbor 401, does the sponsor have to wait until the beginning of the plan year?

Thanks

A profit sharing plan is co-sponsored by a 100%-owned corporation and sole proprietor (the same person is the owner and the sole proprietor). The corporation has about 10 common law employees, and there are no common law employees in the sole proprietorship. The owner makes $150,000 in W-2 from the corporation, and about $170,000 in earned income prior to any deductions from the sole proprietorship.

Is there any guidance as to what percentage of the owner's contribution of $45,000 can be or should be deducted by the sole proprietorship? Or can I deduct the max 404 from the sole proprietorship, and the remaining from the corporation? Or put another way is there any regulatory restriction on how to aggregate compensation?

I appreciate your input.

For retirement ages above 65, is the actuarial equivalent of the dollar limit equal the dollar limit multiplied by an immediate annuity at age 65 divided by a deferred annuity from age 65 to the actual retirement age or dollar limit mutiplied by an annuity age 65 divided by immediate annuity at the start date?

What happens when someone makes larger payments to their participant loan than what the amortization schedule calls for?

Let's say that a loan is amortized over 5 years with quarterly installments, and the participant manages to pay off 50% of the loan in the first year. Do you re-amortize the balance over the remaining period?

I'm good on loan basics, but need a little advice when things fall out of the regular pattern.

Thanks!

what happens if a husband and wife are both participants in the plan and the husband dies. the surviving spouse is the husbands sole beneficiary. does the plan allow the accounts to be combined under one account or should they be kept separately as long as they have not been paid out?

My company is somewhat of a "serial acquirer." It has always been our practice to have the seller terminate their plan in a stock acquisition, file the 5310 and then wait until the LOD has been issued in order to allow rollovers into our plan (this has been done on the advice of our ERISA counsel). Sometimes the selling company's TPAs file the 5310, sometimes we do it. Either way, we are at the mercy of people who know that they will lose the accounts in the end and have no urgency to complete the filing or to provide us with the data in a timely manner. As a result, most terminations take between 18-24 months and the participants are not happy that they cannot access their monies (even though we explain that these are retirement funds and should not be accessed but reinvested). We are exploring our options of not filing the 5310s. ERISA counsel has pointed out the possible risks involved in changing our SOP.

We do not do this for asset acquisitions since we are usually not taking on successor liability.

I am interested in hearing how all of you handle this...do you file 5310s? do you have an SOP in place or do you approach it on a case-by-case basis? Do you feel strongly about it one way or the other? Has your counsel provided any other direction?

Thanks much.

I know that each state imposes its own rules with respect to what activities constitute the "practice of law". And I also suspect that in all or virtually all of those states, a retirement plan consultant/TPA would engage in the "unauthorized practice of law" by representing a client in court. But what about everything else? Does anyone else who is a nonlawyer worry about meeting with a client to discuss what plan design best fits their situation, advising the client about controlled group/affiliated service group issues, preparing a plan document to implement the selected design (whether the document is a prototype, volume submitter or individually designed plan), advising the client about fiduciary compliance issues or prohibited transaction issues and all of the other "practicing law-like" things that we as retirement plan consultants and TPAs do on a regular basis?

In a takeover case, for example, I might discover that a client's plan documentation is outdated (likely because they haven't been using a lawyer) and that they have inadvertantly engaged in a prohibited transaction (maybe because the "financial advisor" they used didn't know anything about the PT rules)? Is a lawyer needed to fix/address these issues?

I know there was a Florida Bar Association opinion a while back (I think in the 80s) and a North Carolina Bar Association opinion more recently, but I don't know what those opinions really say or how, if at all, they should affect how I provide TPA and consulting services to my clients (fortunately, I don't do anything with clients in Florida or North Carolina).

I've never seen a seminar or break out session at any of the industry seminars on this issue--why is that?

I may just be a worry wort. I am not a CPA or an enrolled actuary. Should I look into getting the new Enrolled Agent or whatever it's called designation from the IRS? Does that give us nonlawyers who are not CPAs or EAs any protection from state laws governing the provision of "legal services"? Maybe my most basic question is where do you all look for guidance on what constitutes "legal services" in order to make sure you're not stepping "over the line"? I'm sure the people who spent a gazillion dollars to get through law school and their state's bar exam don't want me doing the same thing they are doing without having to have gone through that too--but maybe I can do just that so long as I don't represent any of my TPA/consulting clients in court. Is it really that easy?

I also wonder about my errors and omissions/liability insurance policy. It specifically says that it does not cover the provision of "legal services" and the definition of "legal services" is defined, in part, as "legal advice and counsel, and the preparation of legal instruments and contracts by which legal rights are secured, although such matter may or may not be depending in a court." One of the basic precepts under ERISA is that a plan document is a legal contract creating legal rights. If I mess up a plan document and get sued by a client I wonder if my insurer would take the position that when I prepared the plan document I was involved in the "preparation of legal instruments and contracts"? How do other folks handle their insurance coverage needs?

My background is in the banking industry as a trust officer who migrated, as did so many other folks, into recordkeeping and ultimately into running my own small consulting/TPA firm. This issue has always made me nervous, but now that the DOL is stepping up its fiduciary compliance reviews my clients are more and more frequently asking me to render opinions about does such and such practice satisfy the fiduciary standards or is such and such a prohibited transaction.

Any thoughts or help sorting these issues out?

If an employee becomes a participant on 1/1/08 and fees are paid by plan (therefore, from each participant - including the new participants) on 1/15/08 for charges incurred the last quarter, 2007, is this permissible?

Legal Counsel will be retained, but some basic guidance sure would be appreciated.

Back Ground:

In the early 80's the Trustee of a profit sharing plan purchased a piece of unimproved property for approximately 30k. Zero self dealing issues and for all these years the property has remained unimproved. At the time of the purchase and through the late 90's, this investment and/or appraised value represented less that 10% of the total trust value.

The plan has paid all the expenses to maintain the unimproved property (property taxes, appraisal costs, etc.). Through the 80's and 90's actual appraisals were completed on a tri-annual basis. Since 1999 or so appraisals have been done on an annual basis.

Through the early 2000's the property had an appraised value less that 300k.

The unimproved piece of property is now setting in an area of the community that has extremely high end developement going on and the appraisal for 2006 came in at 2.1 million. The 2007 appraisal will come in near that value.

The small plan audit requirements are in play and the trustees decided to comply with the independent audit requirements. So an independent audit was completed for the 2006 year and will be completed for the 2007 year.

Issue:

The Plan Trustees have received an offer to purchase the property for 2.25 million by a developer who would like to structure the buy out as follows:

20% down payment. If 40% of the developement on this piece of property is sold in the first year the offer price, minus the down payment is paid at the end of 14th month.

If 40% of the developement is not sold by the end of the first year. The offer price minus the down payment is paid not later than the 24th month.

The plan nor the owners of the employer have anything to do with the development. Again no self dealing, but comments regarding the offer sure would be appreciated.

IRS Notice 2008-30 did not specifically address this issue, but can anyone think of a reason why after-tax funds cannot be rolled over to a Roth IRA beginning this year (assuming the income and tax filing status requirements are met)?

Our client is a collectively bargained multiemployer health and welfare Plan and VEBA that has limited participation to bargaining units represented by a single local union and non-bargaining unit employees of their contributing employers. It covers participants engaged in a number of industries in a relatively limited geographical range (primarily several contiguous counties).

The client has recently received an overture from a bargaining unit affiliated with an entirely different international union which would like to join the Plan. If the trustees accepted this group, it would be the first unit not affiliated with the sponsoring union. The new group is engaged in one of the industries currently covered by the Plan and within the Plan’s geographic region.

If this new group is accepted, would this jeopardize the Trust’s VEBA status because of the absence of an employment-related bond?. I've been unable to find any IRS guidance on this question. I'm stuck on Treas. Reg. 1.501©(9)-2(a)(1) which reads:

“Typically, those eligible for membership in an organization described in section 501©(9) are defined by reference to a common employer (or affiliated employers), to coverage under one or more collective bargaining agreements (with respect to benefits provided by reason of such agreement(s)), to membership in a labor union, or to membership in one or more locals of a national or international labor union. For example, membership in an association might be open to all employees of a particular employer, or to employees in specified job classifications working for certain employers at specified locations and who are entitled to benefits by reason of one or more collective bargaining agreements.”

On the one hand, the regulation could be read to say that either coverage under any CBA or membership in a labor union will suffice as an employment-related bond. But I wonder if this is too broad a reading and some other employment-related bond (e.g., common union affiliation, common industry) is required. Another way to ask this, is whether any Plan provided for in a CBA will automatically satisfy the employment-related bond requirement? Thanks for any input.

A plan provides for suspension of benefits for retirees upon reemployment. A retiree returns to employment and benefits aren't suspended until after 6 months. A SOBN will now be issued prospectively. The regs indicate future payments may be offset up to 25% for payments made while he was back in service. If the SOBN notice includes the information about the offset, are we good to gowith offsets once benefits recommence OR did the SOBN have to precede the period for which the offset will apply?

Folks:

In a 1992 paper published by the IRS, it states on pages 9-10:

"The qualified cost of a fund not only includes the qualified direct cost, but also additions to a qualified asset account described in IRC 419A. A qualified asset account may be established only for the specific purposes described in IRC 419A, and no addition is allowed if an accounbt is overfunded."

This seems to suggest that no addition is allowed, even if non deductible.

Yet, I have read in other places that deductions may be taken in the following year.

Does that mean that the funding cannot occur until the following year?

To read pages 9-10, go to:

http://www.irs.gov/pub/irs-tege/eotopicj92.pdf.

Don Levit

a plan with only hces with profit sharing and cash balance plan passes 401(a)(4) and 410(b) by default right> no testing involved except for the 25% combined limit/6%dc limit.

agree?

Does anything in ERISA (or otherwise) prevent an investment manager who manages plan assets from using a foreign clearing entity to hold stock or payment for stock while the trade clears? As background, this question relates to certain foreign countries' trading practices/custom where trades take 2-3 days to settle. Specifically, the stock being sold and the payment for the stock must be deposited in the clearinghouse on the first day after the day of trade (T +1), and the trade is then settled on T + 2 or T + 3 (depending on the country).

Some trust agreements I have seen appear to require that payment and delivery of securities coincide (requiring the Trustee to "deliver plan investments upon receipt of payment"). So while we could amend this provision of the trust agreement, I am wondering if there is some other less-obvious ERISA requirement that would prevent an investment manager from complying with these kinds of foreign trading customs.

I would greatly appreciate any thoughts on this issue. Thanks.