My 501©(3) employer has two 403(b) plans/programs: (1) The first plan (employer-sponsored, and fund sponsor vetted by employer) is a non-ERISA 403(b) TDA plan begun about 1971 or earlier with an insurance company. There is no Plan document--just individual annuity contracts ("flexible premium annuity"), with addendum updates as mandated by the Internal Revenue Code. As a result of a salary reduction agreement with my employer back in 1971, my employer remits to the insurance company my monthly contribution of pre-tax dollars; I have not contributed after-tax dollars to this plan. Also, there are no employer contributions to this plan. My employer states it is a "church" plan [a 403(b)(1)]; no Form 5500 has been filed on an annual basis for this plan. After some 38 years or so, my employer is stopping/deselecting/freezing/terminating (employer FAILS to explain precisely what mechanism is being used for stopping the plan: deselection, freezing or termination) this non-ERISA 403(b) TDA plan. I'm not sure, but I may be the sole remaining participant in this plan. I am still working and am over age 59 1/2; thus, my age qualifies me for an "eligible rollover distribution". My non-ERISA 403(b) TDA contract allows for a distribution after age 59 1/2 and allows for a "direct rollover (trustee-to-trustee)" to an "eligible retirement plan". The non-ERISA 403(b) TDA contract specifies that "a tax-deferred annuity as described in Section 403(b)" is one such "eligible retirement plan". The non-ERISA 403(b) TDA contract only mentions "direct rollovers (trustee-to-trustee)" as a mechanism for moving an accumulation from its contract.

(2) The second plan (employer-sponsored, and fund sponsor vetted by employer) is a ?non-ERISA/ERISA? 403(b) TDA plan [403(b)(1)] begun about 1976 with a financial institution other than the insurance company. [i've received contradictory information from the financial institution and my employer as to the non-ERISA/ERISA status of this second plan. I have 2 letters from the financial institution that state that the (second) plan is subject to ERISA. On the other hand, as of December 31, 2009, my revised Summary Plan Document (for the second plan) states that, in fact, this second plan is a non-ERISA 403(b) TDA and is a "church" plan as well! I contacted my employer's former CFO (who, PRIOR TO 2009, had always filed Form 5500s ANNUALLY for years and years for this second plan) and asked her why she filed Form 5500 for the second plan. She responded she did so because she thought the plan was subject to ERISA! I'm beginning to wonder if both the current CFO and the former CFO of the company for which I have been working the past 25+ years REALLY KNOW if this second plan is subject to ERISA or not! Why would a Form 5500 be filed annually PRIOR TO 2009 for a non-ERISA 403(b) TDA "church" plan? If this second plan is a non-ERISA 403(b) TDA "church" plan, why didn't the IRS return the FILED Form 5500s back to the company? Does the IRS allow employers to file Form 5500s as a "HEDGE" against the POSSIBILITY that the employer's plan MIGHT BE an ERISA 403(b) TDA? I'll always have big questions in my own mind about the non-ERISA/ERISA status of this second plan!] A Plan document and Summary Plan Description for this ?non-ERISA/ERISA? 403(b) TDA plan has been in existence for years and years. Since about 1976, I have been contributing pre-tax dollars to this plan as a result of a salary reduction agreement with my employer; I have not contributed after-tax dollars to this plan. There are employer matching contributions to this plan (up to a certain percentage) in addition to the employer contributing a "free" 2% of my salary without a 2% match from me. A Form 5500 is filed annually for this plan (short version; few schedules). My employer is keeping this ?non-ERISA/ERISA? 403(b) TDA plan viable. The ?non-ERISA/ERISA? 403(b) TDA plan only accepts rollovers of "eligible rollover distributions" and will only accept either a "direct rollover (trustee-to-trustee)" OR an "indirect/60-day rollover". Thus, the only way I can get my money from the non-ERISA 403(b) TDA plan into the ?non-ERISA/ERISA? 403(b) TDA plan is by doing a "direct rollover (trustee-to-trustee)" OR an "indirect/60-day rollover" of an "eligible rollover distribution".

Question:

Am I allowed to execute, specifically, a 403(b)-to-403(b) "direct rollover (trustee-to-trustee)" in order to get the "eligible rollover distribution" from my employer's non-ERISA 403(b) TDA plan (which is being deselected/frozen/terminated) to my employer's ?non-ERISA/ERISA? 403(b) TDA plan? THE PROBLEM IS, the form given to me by the insurance company is "cleverly" designed and steers me towards an "indirect/60-day rollover" (where I would have to come up with $47,200 of my own money in order to have a "complete/full rollover" of monies due to the 20% of the accumulation being removed by the insurance company for tax purposes) with no mention whatsoever of a "direct rollover (trustee-to-trustee)" option to another 403(b) annuity contract, which would cost me nothing! What about IRC 401(a)(31) and 403(b)(10) and 1.403(b)-2 and EGTRRA and being sent a Section 402(f) notice (which I never received!)? It's almost as if the insurance company wanted to make the rollover "difficult/impossible" by not giving me the 402(f) notice--I'm sure they weren't happy to say "bye bye" to several hundred thousand dollars! When I challenged the insurance company about their rollover form not making it explicit that I had the "direct rollover" option to another 403(b) annuity, they backed down and said that the form they had sent me was out of date and that I could "adjust" the form. The problem with that reply was that the form had just been revised -- (there was a very recent revision date in the lower left corner of the form) -- prior to my "direct rollover," so their "excuse" did not pass muster! As it was, in addition to filling out the "Rollover/Transfer" form in a manner that reflected a "direct rollover," I also sent a clear and concise letter to the insurance company and the financial institution informing both of my "direct rollover" intentions. This letter (2 copies, each copy addressed to both the insurance company and the financial institution) accompanied the "Rollover/Transfer" form. Had I not done some research on my own, my husband and I might not have been able to pull off this "direct rollover" transaction. Frankly, the entire rollover experience was nothing short of a NIGHTMARE . . . . my employer gave me NO help, the first attorney I hired was of very little help and let go, a second attorney (with considerable difficulty) was able to pry out some information from the insurance company (that wanted to hang onto the accumulation my husband and I wished to roll over), and my financial planner was totally unfamiliar with 403(b) products in general. I would hate to tell you folks what this transaction cost me in terms of fees to the attorneys and financial planner! FOR THIS REASON I HAVE GONE INTO A VERY DETAILED ACCOUNT OF THIS TRANSACTION, HOPING THAT IN SOME WAY I CAN IMPART SOME INFORMATION THAT MIGHT BE USEFUL TO THE READERS OF THIS SITE.

Let's assume that a particular medical transcriptionist is properly classified as an independent contractor, but has been permitted to participate in an employer's money purchase pension plan, in violation of the plan's terms. This has gone on for a couple of years; she has partially vested in her account.

There is a violation of the exclusive benefit rule and, under PLR 9546018, seems that her account balance is forfeited and the money remains in the plan to be used however forfeitures are handled under the plan. What type of reporting does this require?

Anyone handled this type of situation?

Any other thoughts on alternatives? Additional issues?

I work for a large employer that offers a group health insurance plan that would be primary to Medicare. We have an elderly worker (77 years old who worked for us for 41 years) who does not wish to participate, but wants to go on Medicare. Does anyone know what happens with Medicare if they are eligible to participate in our plan and choose not to participate? I have searched CMS website and the web looking for what happens if the employee chooses not to join the health plan. Is she still eligible for Medicare? Thanks for your time. All leads welcome!

The new EGTRRA Volume submitter has a check box to choose "Each Participant constitutes a separate classification" I am thinking about using this for every 401(k) Plan. This would give extra flexibility in the future as goals and circumstances change. I believe I can allocate on a basis that happens to match permitted disparity. And, since I will not have Permitted disparity in my document, I will not need the PPA disclosure for it.

I think every year I will be able to choose the integration level.

This seems to good to be true. I would sure like to hear what others think.

Has anyone encountered the situation where a company is acquired and as part of the deal the buyer puts funds into a liquidating trust for certain former seller employees (not shareholders), to be paid out at intervals after the deal closes? Assume the amount is being paid for past compensation and that these individuals never have nor will end up working for buyer. Does the trust withhold FICA? Does the buyer withhold FICA? That's essentially withholding FICA on non-employees, but nothing else seems to make sense.

Thanks,

m.

I have a participant who submitted a claim for the gym, along with an Rx for "strength training medically necessary secondary to cervical & lumbar spondylosis". Would you allow that? Thanks.

I hadn't run into this situation before and would appreciate any input. There is a client of an accountant friend of mine. He is a tennis pro who works in Canada for 5 months out of the year and otherwise resides in the US as a resident alien. The income from Canada is taxed on a Schedule C in the US (with a slight deduction for Canadian taxes). He wants to set up a US qualified plan on this income. So far I was OK with this scenario.

Does it make any difference that he contributes to the Canadian (federal type) plan based on this income? He does not deduct that contribution (can not do so) on the US return. My instinct is that he should be able to treat it like any other schedule C income and ignore the Canadian plan. Any thoughts?

I wonder if I can get tennis lessons out of this. ;-)

I am hoping this is a relatively simple question. If you have a 401(k) plan that excludes all HCEs from participating, are there any coverage or nondiscrimination issues in also carving out large groups of NHCEs from participating in the Plan? (NHCE carve out would be based on reasonable business criteria--say exclusion of NHCEs at particular geographic location or particular job classification).

It would seem to me that the exclusion of the HCEs basically does away with coverage and ADP testing issues such that the plan sponsor would have wide flexibility in picking and choosing among NHCEs to receive benefits--even if that meant that a majority of NHCEs would not get benefits.

I am not sure that it is relevant to general question but issue arises in situation involving employer acquiring a large number of NHCEs in Puerto Rico (75+% of overall workforce). Puerto Rico employees have 1165 plan in place. Employer would like to continue with separate 1165 plan rather than attempt dual qualified 401(k) plan for both US and Puerto Rico employees. If the Puerto Rican employees are excluded from US 401(k) Plan, there is no way plan can satisfy coverage requirements. Employer, however, would be willing to also carve out the handful of HCEs working for company and take care of them in some other fashion rather than including them in 401(k) Plan. End result would be a US 401(k) Plan covering just US NHCEs (about 25% of total workforce) and separate 1165 Plan covering Puerto Rican employees (about 75% of total workforce) with handful of HCEs excluded altogether.

Any reason the exclusion of the large Puerto Rican group of NHCEs from the US Plan would cause a problem if the Plan excludes all HCEs? Would the answer change at all if the Puerto Rican employees had no 1165 plan and thus had no retirement benefits at all? (I wouldn't think that would make a difference with respect to the US plan.)

Anybody have an alternative suggestion for addressing. Excluding the HCEs from the plan is apparently not all that big of a deal for the company and I think would prefer that than starting down dual plan route with its apparent many compliance burdens.

We have a client who has an owner only 401 (k) plan. The owner just returned his 2007 plan information (calendar plan)and is showing the he took a $70,000 loan. This is $20,000 over the legal limit. What needs to happen next? Can he repay the $20,000 back with interest calculated that would have been earned since the date of withdrawal or is this a taxable event (1099-R and amended personal return) plus 10% penalty?

I feel more comfortable if the DB/DC plans have to have the same trust name in order to commingle plan assets. I know there are TPAs out there commingle assets for the two plans have different name and trust IDs. What do you think? If the plans have different trust names and IDs, can a simple plan amendment solve the issue? Is there any other administration issues? Where are rules in this area?

Participant took a loan in 1997, several years after terminating employment. Made a few payments and stopped. In mid 1998 received a letter from plan administrator that the loan was about to default unless brought up to date immediately and would be includable in 1998 taxable income. No additional payments were made. Outstanding balance of the loan was $3500 in 1998. Not clear if participant reported taxable income from loan in 1998 and not clear if 1099 was issued.

Participant left his account in plan. In 2007 plan terminated. Third recordkeeper since 1998 was on the job. Claimed loan default in 2007 and prepared a 2007 1099 with income from defaulted loan of over $7000 (3500 plus nine yeras of accumulated interest). Participant is claiming that the loan defaulted in 1998 and offers letter from plan administrator as proof. Recordkeeper claims no 1099 was issued and without 1099 there is no default. Participant counters that DOL rules required the default in 1998 and just cause the plan admin/trustee made a reporting mistake, he should not be penalized. Participant claims that he believes that he reported the loan default as income in 1998, but whether he did his taxes right or not is none of the plan's concern.

Thoughts?

A DB plan defines the normal form QJSA as a joint and 50% survivor annuity and provides actuarially equivalent J&66-2/3%S and J&100%S annuities as optional forms of benefit.

Under PPA, the plan appears to have two options:

(1) make the joint and 100% survivor annuity the normal form QJSA and the J&50%S annuity an optional form of benefit or

(2) add a J&75%S annuity.

For a variety of reasons, the plan sponsor wants to do (1).

The plan's QPSA rules say that the QPSA is based on the survivor annuity percentage of the normal form QJSA. Which means that prior to PPA, the QPSA was based on the 50% survivor annuity percentage. Unless I change the plan's QPSA language, after redefining the plan's normal form QJSA as a joint and 100% survivor annuity, the QPSA will be based on the 100% survivor annuity percentage.

Here's my question:

Can the QPSA be based on the 50% survivor annuity percentage or must it now be based on the 100% survivor annuity percentage that is part and parcel of the plan's new normal form QJSA?

Cash Balance has NRA = 60

401k plan has NRA =65

so, can the 401k NRA be amended after plan year end to NRA age 60?

If a profit sharing plan amends the plan to remove its in-service provision is this considered a cut-back in benefits?

A LLC with 3 members currently are holders of a reverse mortgage. One of the members wishes to sell his interest for basis in the LLC to his self directed 401(k) so then the seld directed 401(k) will own the investment. Is this type of transaction allowed? Common sense tells me no. I would appreicate any thoughts and comments. Thanks

Treasury, IRS Issue 2009 Indexed Amounts for Health Savings Accounts

Washington, DC--The Treasury Department and Internal Revenue Service today issued new guidance on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending limits for High Deductible Health Plans (HDHPs) that must be used in conjunction with HSAs. These amounts have been indexed for cost-of-living adjustments for 2009 and are included in Revenue Procedure 2008-29, which announces changes in several indexed amounts for purposes of the federal income tax.

See New_Cola_2009_May_2008.pdf

We've been notified by a client that they've received a penalty notice from the IRS for a late filing of the 2006 Form 5500. They filed on the day of the deadline for extensions, October 15, 2007, via some overnight delivery service, I don't know which one, but they say that they never received the confirmation card back, and the overnight service says it was lost. In addition, some confusion over who was doing what at the client resulted in the 5500 being filed without the audit attached (it was complete and ready). They filed the auditor's report on November 25, 2007. The IRS is demanding a $25 per day penalty for 25 days late; $625. Obviously, the filing was completed well before the 45-day mark that is usually the earliest you would get an incomplete filing notice, and the client says they never received one. If it were me, I'd pay the penalty and forget about it, but our contact seems to think she will lose her job over this (!). Other than writing a letter affirming that the Form 5500 was filed timely and the audit was omitted in error, and noting that they have never had a late filing before and asking for the penalty to be abated, does anyone have any other suggestion on how to proceed? DFVC would cost more than the $625 penalty, right? Does she have any options? I can't say that I really am very sympathetic, but it doesn't hurt to consult the Group Mind on her behalf. Thanks in advance -

JP

I have questions about two short scenarios:

Scenario 1. A plan does not suspend loan repayments during periods of USERRA service and requires repayment via payroll deduction. Also, the employer does not pay an individual while on USERRA service--so there isn't any payroll from which to deduct the loan repayment. Does an individual's loan going into default at the end of the "cure period" following the first missed payment even though they are on USERRA service?

Scenario 2. A plan suspends loan repayments during periods of USERRA service. However, while an individual is USERRA service, the employer terminates them because they have been on USERRA service for more than 5 years. At the time their USERRA service period began, the individual had an outstanding plan loan. Since the individual has now been terminated, does the individual's loan go into default?

Thanks in advance for your help.

I think I may have run a similar rabbit before, but in any event I wanted to see what the collective wisdom is. Husband and wife have signed off on a separation agreement (no court decree, no court order, just an agreement as to who's entitled to what property on account of the separation). Husband has agreed to transfer 1/2 of IRA to wife. Wife wants to rollover said 1/2. Wife's counsel has advised that there has to be a court order. The tie in §408(d)(6) refers to a "divorce or separation instrument described in subparagraph A of section 71 (b)(2)." Section 71(b)(2)(A) states "(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree". I note that §408(d)(6) did not tie in subparagraph B of §71(b)(2) which is "a written separation agreement". Thus, it would appear that without a court order somewhere in the mix (eg, the court decree could later incorporate the written separation agreement?), the movement of 1/2 of husband's IRA to wife's IRA would be a taxable distribution to husband.

The legislative history (House Comm Report 101-247) regardng the change to §408(d)(6) seems to imply that the change in the language was to put IRA's on par with qualified plans as to the requirement of a QDRO. I also note that I ran across a number of third party research service materials which seemed to state that the IRA could be split pursuant to a divorce decree OR separation agreement and referred to all items under §71(b)(2). I do not know that they are exactly right based on the actual language of the Internal Revenue Code. However, I also note that the bank holding the IRA says a written separation agreement is fine (ie no need of a court decree). Anyone have any thoughts on this?

Do we have any new information on distributing assets in a small (1 person) underfunded plan in 2008? AFTAP less than 80% but greater than 60%. The last I heard, the benefit restrictions apply and this plan can terminate in 2008 but cannot pay out until it is funded properly, or until 2009 when an AFTAP will not be required.