I became a new partner July 1, 2008. The partnership has a fiscal year of June 30th. The current partners deposit their max Simple IRA deferrals by July 15. The partners treat these as calendar year 2008 simple IRA deferrals. However IRS PUB 560 page 11 states "When To Deduct Contributions - You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year.

Example 1. Your tax year is the fiscal year ending June 30. Contributions under a SIMPLE IRA plan for calendar year 2007 (including contributions made in 2007 before July 1, 2007) are deductible in the tax year ending June 30, 2008."

One of my questions is should the July 15 contributions for the 6/30/08 fiscal year be treated as made for the Simple IRA 12/31/07 calendar year or 12/31/08? The reason I ask is because I want to make Simple IRA deferrals out of my guaranteed payments from 7/1/08 through 12/31/08 and deduct them on my 2009 Form 1040 againt the 6/30/09 K-1 I receive. However the current partners tell me I can't do this because I would need to deduct that period on my 2008 Form 1040. I wont be able to deduct on the 2008 1040, since I have not been allocated any earned income yet from the P-ship. Basically I want to make my deferrals monthly instead of doing a lump sum each year. Based on the IRS Pub shouldn't I be able to deduct my deferrals for the period 7/1/08 through 12/31/08 against my 6/30/09 K-1?

Any help would be appreciated.

Thanks

We wanted to see how other TPAs are handling or would handle the following situation. This is kind of long, so please bear with me. . .

401(k) daily val plan. Plan sponsor’s payroll provider calculates the match on a per payroll basis. Plan sponsor uploads payroll file to our website, we download and process the deferral and match contributions. If the matching contributions are included in the payroll file, our recordkeeping system will buy the match that is on that payroll file – it does not recalculate the match to determine if the match was calculated correctly. So, we get to year-end, and in the process of doing the annual administration and testing discover that the payroll system incorrectly calculated the matching contributions. For those that the payroll system shorted the match, that’s no problem – the plan sponsor will simply deposit the additional contribution due. However, for those that the payroll system overmatched . . . We propose doing negative contributions in the appropriate amount, placing those funds in the suspense account to be used to reduce future matching contributions or to pay plan expenses. Additional items to consider:

- The plan allows only salary deferral and match contributions

- The plan does not provide for forfeiture reallocation

- The match is not discretionary – the formula is for example 100% on the first 5% deferred calculated on a per payroll basis; deferrals exceeding 5% of comp are not matched

- The match is actually allocated to participants’ accounts per payroll

- There are regular “corrections” to payroll files. For example, at the end of the year when the census data is sent to the plan sponsor for verification, it will come back with changes to individual’s compensation (because manual paychecks were issued that did not get included on the payroll files, the payroll file reflected comp that actually wasn’t paid, etc.). This can create a true-up situation as well.

- For some reason, many payroll systems are either unable or unwilling to put the appropriate caps in their system (i.e., the 415 compensation limit, the maximum deferral percentage that will be matched, etc.)

Couple of examples:

1. HCE whose total compensation was $300,000 ($12,500 per payroll) and who deferred $15,500 ($645.83 per payroll) for the year. His deferral % is 5.17%. The plan’s match formula is 100% on the first 5% deferred calculated per payroll. The payroll system calculates a match of $625 on every payroll for a total of $15,000 for the year, neglecting to stop the match when he reaches $11,500 ($230,000 comp limit x 5% = $11,500 maximum match). So at year end this participant has received $3,500 too much in match.

2.NHCE whose total compensation was $50,000 ($2,083.33 per payroll) and who deferred 8% ($166.67 per payroll) or $4,000 for the year. The plan’s match formula is 100% on the first 5% deferred calculated per payroll. The payroll system calculates a match of $4,000 (neglected to limit the match to the first 5% deferred) when the match should have been $2500. So at year end this participant has received $1500 too much in match.

Our position would be that until the administration and testing is done at year end, these allocations are not “final” and that true-ups of this nature are done regularly in the industry (think of daily val custodians who are not TPAs – they process the contributions as provided by the plan sponsor; at the end of the year the TPA determines whether any true-ups/corrections (negative or positive) are needed. The custodian does not receive compensation information, and the TPA may not receive any census data until year end, so neither can determine until year end whether any contributions are in violation of the plan’s formula or the regs). Operationally it would not be feasible to check the calculations on every payroll before that payroll is processed, especially when it is an automated system.

An opinion has been expressed that our proposed method of dealing with this type of situation would ultimately result in an operational defect possibly leading to plan disqualification because the plan is not following (1) the plan document (limiting the match to 5% of compensation) and (2) the regulations (415 compensation limit), and that this would need to be corrected via EPCRS. Additionally, it has been said that there is no mechanism in the regs to allow us to remove these types of excess contributions from a participant’s account (our argument is that failing to remove the excess would result in a failure to follow the plan’s matching formula). Finally, the regulations require that all plan assets be allocated to participants; however, if the plan does not allow forfeiture reallocation and does not have a profit sharing provision and the match is not discretionary, there is no mechanism in the plan to allocate to participants.

We wanted to get a feel for how others in the industry handle this type of situation. Thanks for any feedback.

We have a situation in which an employee embezzled funds from the employer, and now, as part of the plea agreement, wants to pay back the employer with funds from the employee’s profits sharing plan. I know ERISA generally forbids assignment, but there is an exception in the reg (26 C.F.R. § 1.401(a)13). Has anyone ever dealt with this situation before??—is following the procedure in subsection (e) of the regulation all that needs to be done? Does anyone know of a case discussing this situation? Any help would be appreciated—thanks.

Under the "currently includible" definition of compensation (aka, "Safe Harbor 415 Compensation"), compensation includes all wages, salaries, fees and other amounts received by the employee for personal services rendered in the course of employment with the employer, but only to the extent includible in gross income. See Treas. Reg. §1.415©-2(b)(1).

Do you think "signing bonuses" would be included in this definition of compensation? In other words, are "signing bonuses" for personal services rendered?

A plan sends out monthly benefit statements to participants and retirees. Every time the plan does a mass mailing they receive hundreds of envelops returned as undeliverable or "return to sender" with no forwarding address. The plan continues to mail mailings to the old addresses, what is the process/requirements that would enable the plan to stop mailing to that particular address? After some many attempts or years can the plan just stop mailing to the bad address and keep the statement in the members file rather than waste the postage to send to an address the plan now knows is wrong?

thanks.

A Dr. owns 100% of two unrelated companies, his practice and a hair salon. His children are not employees of his practice.

can he transfer ownership of the hair salon to his children? and if so, how much ownership can he keep?

Can a public sector health plan, such as a retiree medical trust sponsored by a police officer association, be an ERISA plan? Our plan was advised that we do not have to be concerned about GASB reporting requirements because we are an ERISA plan. Does this make sense?

Employers A, B, C, D and E are members of a controlled group. Employer A, a C corporation, participates in Multiemployer Plan X, while Employers B, C, D & E neither sponsor a qualified plan nor participate in Plan X. Employer A ceases to do business, and has a large withdrwawal liability from Plan X--the shareholders of Employer A do not have personal liability, because Employer A is a corporation (assuming no fraudulent transactions). Employers B, C, D & E, as members of the controlled group which includes Employer A, share Employer A's withdrawal liability. Employer B is a partnership, Employer C is an LLC taxed as a corporation, Employer D is an LLC taxed as a partnership, and Employer E is an S corporation. Here is how I analyze (or don't analyze) the withdrawal liability of the individuals who own Employers B, C, D & E:

• Employer B, the partnership, passes through its liability to the individual partners.
  
• Employer C, the LLC taxed as a corporation, passes through no liability to its members.
  
• How about Employer D, the LLC taxed as a partnership? Does its LLC status protect the individual members from personal liability, or is the fact that Employer D is taxed as a partnership cause the members to have individual libaility in the same manner is if Employer D were, in fact, a partnership?
  
• And how about Employer E, the S corporation? Are its shareholders treated as partners so that they have individual liability?
  

Any thoughts, comments?

I believe a cash balance plan that does not use "more than 10 years" of compensation can use the fractional rule to pass the accrual rules. Therefore, for a cash balance plan whose credits are service-based only, can we can use fractional rule to pass? For example, the participant might get a flat $500 a year for years 1-10, $750 a year for years 11-20, etc.

I'm reviewing a "relatively simple" (LOL!!) deferred compensation plan that will pay employee $XX,000 per year for 10 years when he terminates employment following NRA (no issue there). If he dies before the NRA, the agreement provides that beni gets either the sum of $XXX,000 paid as a lump sum, or $XX,000 per year for 10 years, as elected by the employee.

Is such an election permissible?? To the extent it is (and I'm not sure), presumably it must be irrevocable. Maybe it is permissible if made w/n 30 days of becoming a participant in the plan b/c this is a new plan. Any tthoughts on this??

Thanks.

If somebody is only getting a top-heavy minimum, how does that affect allocations calculations? Where the plan calls a step that is comp to comp, do you exclude that person (the person only getting a top-heavy minimum) from the eligible compensation? If anyone has a spreadsheet depicting such a case, feel free to e-mail it to me.

What are the rules for former key employees who (1) still work there, but no longer hold key employee status due to their no longer having ownership or sufficient salary or (2) don't work there anymore?

How do employees who left before the current plan year or before the last day of the plan year figure in?

Does giving someone a 3% top-heavy minimum help you pass 410(b) coverage issues?

What do you have to with a closing agreement?

I found this list a while. Anyone feel free to jump in to elaborate or explain what these amendments refer to you and why we must amend for them.

Revenue Procedure 2005-66

Notice 2001-57

Notice 2001-56

26 CFR § 1.72(p)-1

26 CFR § 1.401 (a)(4)-1(b)(2)

Revenue 2001-30

Code 401(a)(17)

Notice 2001-56 for EGTRRA § 611©

Code § 401(a)(31) amendment by § 643 of EGTRRA after-tax contributions not allowed?

Notice 2005-5

§ Code 402, EGTRRA 641, 642, 643 rollover per 403(b), 457

hardship distributions?

employee contributions?

Code 401(a) amendment for § 617 of EGTRRA?

404(k)(2)(A) amendment for § 662(a) of EGTRRA-plan not ESOP?

Notice 2002-2 Plan not an ESOP?

Code § 411(a) as amended by § 633 of EGTRRA

Revenue Ruling 2003-65

Code § 411(a)(11)(D)

Revenue Procedure 2005-23 (or 2002-73?) as modified by Revenue Procedure 2005-76

Code § § 411(d)(6)(D) and 411 (d)(6)(E)

26 CFR § 1.41(d)-4, Q & A-2 (e)

26 CFR § 1.411 (d)-3

Revenue Ruling 2004-20

Regulations Under § 414(v)

Notice 2002-4

Revenue Ruling 2001-51

Code § 415 © as amended by EGTRRA § § 611(b) and 632

26 CFR § 1.415©-2(e)

Revenue Ruling 2002-27

Code § 416 (g)(4)(H)

Revenue 2004-13

26 CFR § 1.417(e)-1

Code § 4975 amended for § 612 of EGTRRA

Code § 4975(f) amendment of § 240 of AJCA

Public Law 109-73

Notice 2005-92

Notice 2005-70

Revenue 2002-42

Revenue Procedure 2002-21

Revenue Procedure 2003-86

Revenue Ruling 2003-11

Revenue Ruling 2004-10

Revenue Ruling 2004-12

Revenue Ruling 2005-55

Notice 2007-3

Notice 2005-101

Gulf Opportunity Zone Act of 2005, Public Law 109-135

What do you have to do when you terminate a defined contribution plan? What are the accelerated plan amendment requirements?

P-ship issued a K-1 to P1. It showed an amount in excess of the compensation limit for 2007 ($225,000). On that basis, TPA tested an allocation of employer contributions for P1, in the P-ship plan’s nondiscrimination testing, using the $225,000 amount for her compensation.

P1 did not roll the income from the K-1 into Line 17 of her Form 1040 via Line 28 of Schedule E. Instead, P1 brought the K-1 income into a Schedule C (with the resulting amount from the Schedule C ending up on Line 12 of her Forms 1040). Due to expenses claimed and deducted by P1 on the Schedule C, the end result amount from the Schedules C onto Line 12 of the Forms 1040 was $85,000.

P1 has notified the P-ship that her earned income was $85,000, not $225,000.

My question is not about the appropriateness of what P1 did (i.e., running the K-1 ordinary income through Schedule C rather than Schedule E).

My question is whether for purposes of the P-ship's plan, is P1's compensation for 2007 the $225,000 as more than that was reported as her ordinary income from the P-ship on the K-1? Or is it the $85,000 that she's notified the P-ship about, and requiring that it recompute the nondiscrimination test--and reduce her allocation from P-ship contributions?

If the $85,000 must be used in a recompute of the nondiscrimination testing, and thus part of her employer contribution taken from her benefits, it would appear such would have to be re-allocated among other employees and could not be returned to the P-ship under a 'mistake of fact'. Even with the reduction in P1's compensation, the total employer contribution would yet be deductible. Agree/disagree that the extra would have to be re-allocated among other participants rather than returned to the P-ship?

We have a client with a plan that was amended in March 2006 to allow for Roth deferrals. They were signed and filed away in 2006. Should these have been redone last year? I seem to be getting some conflicting info. Help! I have already been sick this week....

Does anyone know when we have to start using the new revised Form 5330 that requires the preparer to use their SSN or the PTIN? Or do we continue using the old format until further notice?

As we know the 415 regs require the inclusion of compensation paid after severance in the definition of compensation if it is paid by the later of 2.5 months after severance or the end of the plan year of severance, and it is regular pay earned before severance. As such, it can also be deferrred on. Ths issue is if the payment (and deferral) occur after the end of the year but within the 2.5 month window, in what limitation year are they included? A large consulting firm recently put out a release with the following example.

EE terms on 12/31/08, receives final paycheck for vacation, etc. in 1/09 (no actual date given.)

Deferrals taken from the final check (and a matching contribution made.)

The example then says the compensation, deferral, and match are all counted in the 2008 limitation year because of the regs. They go on to say that this rule can complicate year end testing and tracking compensation for employees who are later rehired in the year of the final paycheck. Not to mention bringing a '09 deferral into '08 could cause a 402(g) violation.

I have read the regs many times (especially 1.415©-2(e)(3)) and can sort of see why they say what they do, but I don't see it as clearly as they make it sound. However, if we assume that the payment is made later than the first few weeks of '09, their assertion is not logical, primarily for the reasons they cite as complications. I'm not sure the first few week thing applies anyway.

I'm curious what others think about this.