University is cutting back its 403(b) vendors. There is an existing vendor, the contract was issued pre-2004, that will be receiving contributions through the end of this year but not after 12/31/08 (it will be eliminated as a vendor but the participant can leave his money there). Is it grandfathered, do we need to make a good faith effort or what? Rev. Proc. 2007-71 talks about contracts that haven't received contributions since 2004 and contracts that were issued after 2004--but not contracts that were issued before 2004 but are still receiving contributions.

Working my way through 404(o) to determine methodology for 2008 valuations and have the following observations/questions (realm is small plans under 100 lives):

404(o) right now has the greater of the 430 minimum required contribution and the result of the following:

1) Funding Target for 430 purposes, plus

2) Target Normal Cost for 430 purposes, plus

3) Cushion Amount, composed of:

3Ai - 50% of Funding Target, adjusted by eliminating the effect of any increases arising from amendments within the last two years for HCEs - this also includes automatic COLA increases to benefit and salary limitations, so that a 1/1/2008 valuation would recompute a hypothetical 1/1/2008 accrued benefit for HCEs taking into account 2005 salary and 415 dollar limitations

3Aii - increase in Funding Target again arising from future salary increases (in practice with high end HCEs, no effect, but impact rank and file participants)

then subtract Plan Assets under 430(g) to get cap on result.

My questions:

1) Assume as in past practice that we would NOT reduce Plan Assets by carryover or prefunding balances

2) 430 minimum is determined as of the beginning of the plan year. As opposed to past practice where this was increased with interest to the end of the year, we're now dealing with a role reversal where we are discounting actual contributions back to the beginning of the year using Effective Interest Rate. Is there any (and I know we don't have 404(o) regs out yet) mechanism to adjust the 404(o) maximum past the beginning of the year amount to reflect contributions after the first day of the year. In past practice under 404 (assuming plan year equalled fiscal year), we did adjust our results by the valuation interest rate to the end of the year to determine the max deductible contribution. So if our old result had 404NC of $100,000 @ 1/1/2007, val interest rate of say 6%, then the max deductible contribution for 2007 would be $106,000, regardless of when the contribution was actually made, either during or after the plan year. Under the new law, let's say we come up with BOY figure of $100,000 and again a 6% EIR. Would the max deductible contribution be $100,000, $106,000, or $100,000 adjusted @ 6% based on actual date of deposit?

Any thoughts on this (and if there is any knowledge of adding TNC to the 50% cushion amount in the Technical Corrections Bill?)

I have an employer considering using a VEBA to fund post retirement medical benefits, which are currently being paid on an as you go basis by the ER, with FAS 106 liabilities being booked. All covered individuals are already retired, ie, no active employees are eligible for retiree medical. Employer already has a VEBA set up for other welfare benefits, such as LTD, so adding this benefit would not be a major problem or hassle--my questions relate to whether or not using the VEBA would be the best solution.

Questions:

1. Under 419A, if the employer funds the VEBA with cash equal to present value of benefits (being that the remaining working lives of all the retirees is "0"), would income accumulation on the assets in the reserve be subject to UBIT?

2. If so, does funding the VEBA with life or health insurance solve that problem?

3. Is a VEBA really necessary, or would a taxable welfare benefit trust or full insurance essentially provide the same result as a VEBA.

Anyone have any insight--the goal is to reduce the FAS 106 liability and obtain maximum tax benefits?

I have an employee whose wife is on SSI. She has Medicare Part A and is covered on our GHP. In our situation, Medicare is the secondary payer. She does not have Medicare Part B, but is considering enrolling. The employee has asked for some information on coordination of benefits if she enrolls in Part B.

I searched the Medicare site and read the Medicare & You book and the Medicare Who Pays First guide. From what I understand, Medicare will coordinate its payments with an employer's group insurance and, when the GHP is the primary payer but does not pay in full for the services, Medicare becomes the secondary payer and pays for Medicare-covered service up to the Medicare approved amount. Ideally, the result of this coordination is that medical bills are paid in full.

What I haven't been able to find is specific information on when and how Medicare pays. For example, when do the Medicare benefits kick in? Does the employee have to first meet the GHP deductible and begin paying the coinsurance before Medicare pays? Is the Medicare deductible counted with the GHP deductible or will the spouse need to first meet the GHP deductible and then the Medicare deductible? If the employee's GHP coinsurance is 25%, does Medicare pay 80% of that 25%, or would the 80% cover the entire 25%?

Thank you for reading my post. Any information will be appreciated.

wekiva

Hello,

I am helping a friend of mine with their church 403b and getting a plan document.

Currently they do not allow for employee contributions, it only has a discretionary contribution. The discretionary contribution is paid to the pastors of the church (it is very small), the one administrative assistant does not receive a contribution.

They are considering allowing employee contributions. From what I understand the administrative assistant could not be excluded from making contributions because she works more than 20 hours per week (and would not be part of another type of excludeable class - at least from what I understood with universal availiability).

My question is, if they allow for employee contributions would then the administrative assisstant have to be included in the discretionary contribution? I believe that the discretionary contribution would be set by the board of directors, or could the BOD exclude certain employees from receiving the contribution?

Thank you VERY much for your help!

A range certification (80-100%) was certified by 4/1/08 for calendar year plan. The employer will need to waive a portion of the credit balance to reach 80% when actual certification is completed by 10/1/08. In the mean time, client may use balance of credit balance towards 4/15 and 7/15 quarterly requirments. What if, come 10/1, the amount of waived credit balance to avoid benfit restrictions is greater than originally calculated and eats into some of the credit balance that was used toward the quarterly requirements??? How is that handled?? Does employer now become late on quarterly payments?? Any help is appreciated. Thanks.

I know nothing about 412(i) plans except that they are in fact a DB plan. The plan terminates and wants to roll the $$ into a 401k plan. Can the assets from the 412(i) plan be retitled or do they have to be cashed out and then cash rolled into the 401k?

Rollover from a 401(k) to a Roth IRA is subject to taxation correct? Is the trustee of the 401(k) [employer, plan sponsor] responsible for withholding the 20% federal tax on the amount being rolled into a Roth IRA?

Thanks.

My client has an IRA and owns 100% of a company with a DB in which he is a participnat. May he take 1 RMD from the IRA which covers the RMD amount he must take from both the IRA and the DB Plan? Or, does it depend on what kind of IRA money it is? For example, IRA money that came from a retirement plan?

All help appreciated!!

In 1968, an employer established a money-purchase plan. The plan always has had only one participant, who also is the employer’s sole shareholder and sole director and is the plan’s administrator and trustee. The plan and trust documents are individually-designed. The employer now wants to terminate the plan, and the participant would instruct that her final distribution be paid as a direct rollover into an IRA. The participant’s vested accrued benefit is more than $1 million.

A practitioner who preceded me seems to have furnished a regular course of plan amendments through 2003, and all of these are signed. If I accept, I’d be engaged to draw a plan amendment for recent years’ tax-law changes, if any (the plan already has a choice of 100%, 75%, and 50% survivor annuities), and the termination. There is NO IRS determination – ever.

For terminating a plan, ordinarily one uses Form 5310 to get an IRS determination that the plan remains tax-qualified in form. Given the facts described above, is a Form 5310 application sensible? Would the IRS reviewer seek to retrace the entire 40-year history of plan documents and amendments? (The Instructions state that, in the absence of a preceding IRS determination, the applicant must submit the initial plan and all amendments.) If so, how worried should one be that the IRS would uncover some decades-ago document defect that disqualifies the plan?

(If it matters, it would be difficult to find an operational defect because all that’s happened so far is that the employer contributed each year 25% of its employee’s compensation.)

Assuming that the amendment I draw would be correct, is it “safe” to file a Form 5310 (without any preceding determination)? Or should I tell my prospective client that it’s wise not to open this door (and, without any IRS review of the plan, simply to believe it to have been tax-qualified)?

I’d appreciate your views, especially about why it would be wise or unwise to use an IRS determination procedure.

I know that this topic has been dealt with several times, and I thought I understood the rules, but am finding that further clarification might be a good idea.

We are a TPA. One of our defined benefit plans has invested in a LLC (established in the U.S.) which holds real estate investments in Costa Rica. Question is, does the indicia of ownership requirement need to be met just at the LLC level or at the level of the LLC's underlying investments? The plan is not the GP.

We're trying to stay out of giving legal advice here, and just want to know if this is a situation on which they should seek legal advice, or whether it is obviously okay.

Any interpretations welcome.

So I have a client who (without my "permission") paid out a terminated partner as though he was 100% vested when in fact his PS money was just 60% vested. I explained that this was wrong and they said, "that's ridiculous, it's money that came out of his pocket" which is true inasmuch as it was a reduction directly to his capital account. I told my client that it was really an excellent question and I would look into it...

Has anyone ever run into this before? I have a theory that the appropriate way to handle is obviously to forfeit the nonvested portion but perhaps increase his capital account by the amount of the forfeiture.

Any cites (though unlikely?) would be appreciated...

The Form 1099-R instructions are not that clear on how to report designated Roth contributions from a retirement plan where the participant "meets" the qualified distribution rules (contributions in the plan for 5 years and the participant is age 59-1/2 or older, is disabled, or dies). Here the earnings are not taxable.

I assume that the designated Roth account (contributions + earnings) are tax reported as follows:

Box 1 = Gross amount (designated Roth contributions + earnings)

Box 2a = Taxable amount is 0.00

Box 5 = Designated Roth contributions + earnings

Box 7 = Category of distribution is a 7, 3, or 4 (T would only be used if payor doesn't know if participant meets the 5-year period)

Additionally, the 1099-R instructions indicate that a separate 1099-R be created for a designated Roth account distribution. If it meets the qualified distribution rules, can one 1099-R be used for a Roth and non-Roth distribution?

Thanks!

A small defined benefit plan (husband and wife only) terminated effective 12/31/2007. They signed the termination amendment November 1, 2007 and immediately rolled over all assets ($810,000) to one IRA (i.e he forgot his wife who is due $150,000). The owner and trustee never bothered to contact us.

As long as everyone involved is agreeable, this should be relatively easy to fix. We would have them transfer back the original amount from the IRA back to the plan, prepare proper benefit elections and have them make the distributions.

Does anyone see a problem with this? Does this require VCP? Perhaps it would as the IRA custodian would prepare a 1099-R for any amount transferred back to the plan.

I am looking for some guidance on when a buying organization constitutes a "successor employer." We have a situation where we are buying assets from selling company and another company is also buying assets from the selling company. At the end of the day, the selling company will cease its operations and there will be approximately 14 employees of the selling company who will not be hired by either us or the other buying company. Both purchasing companies will be using the assets in the same capacity as the assets were utilized by the selling company. We are purchasing less than 50% of the assets while the other company is purchasing a more than 50% of the assets - which company, if any has the COBRA obligation? The regs provide that if he selling group ceases to provide any gph in connection with the sale AND the buying group continues the business operations associated with the assets purchased ... without interruption or substantial change, then the buying group is a successor employer...

Any guidance would be appreciated,

Thanks

We took over the administration of a 401(k) plan for PYE 12/31/2007 and I'm not sure how to prepare the Schedule SSA for 2007. We did not receive a copy of the 2002 or 2003 Form 5500 & Schedules from the client or former TPA, so I have no idea who they reported those years on the SSA and who they didn't - of if one was even done.

I guess my question is this: if I report someone with a code "A" that was already reported in 2002 or 2003, will that create a problem? What about removing someone (code "D") that was never reported in the first place?

I have absolutely no faith that the prior TPA prepared any of the Schedule SSA's correctly, if they even did them at all!

Any thoughts on this would be greatly appreciated!

Thanks.

I have a situation in which the participant died and his beneficiary lives in Mexico and does not have a SSN. Should we process the cash distribution as we normally would and just use the deceased SSN on 1099? Or require the beneficiary to get a tax id#? Looking for a practical solution and there seems to be numerous posts on the issue but not with this specific example.

Thanks,

Company A is a participating employer in a multiple employer defined benefit pension plan (the "DBPP"). The DBPP provides a career average pay retirement benefit of 2.6% of earnings for year of service. Approximately 10 employees of Company A participate in the DBPP. These 10 employees entered the DBPP when they were employees of Company B, prior to Company A being formed. Once Company A was formed, Company A became a participating employer under the DBPP. There is no control group or affiliated service group.

Company A is considering establishing a new cash balance pension plan (the "CB Plan") for its 200 employees (including the 10 who participate in the DBPP). Our actuary calculated maximum credits that could be made to the CB Plan. The maximum credits do not take into account any accured benefits under the DBPP.

As our actuary is out of the office for the next couple of days, I was hoping to pose a question to the community.

What is the interplay between the two plans? How are the maximum credits under the CB Plan affected by accrued benefits under the DBPP? Do we aggregate the benefits under the DBPP and the CB Plan to determine comliance with Code Section 415? Does it make sense to have 10 employees terminate participation in the DBPP? I am a pension attorney who is just trying to address this issue before our actuary returns mid-week.

Thanks in advance for your consideration.

Ed

I am new to the 403(b) area so pardon my ignorance.

I have a client (a school) with a 403(b) plan that has been around since the 60s.

They do not have a plan document and have asked me to help them in putting one together.

They have given me their pertinent plan provisions and several written descriptions of the plan to assist me.

Basically, the plan requires participants to defer 5% of their compensation (that is, participation is not required, but if you choose to participate, you must defer 5%). The employer then contributes 5% of your compensation for a total annual contribution of 10% of compensation.

They have asked me to make sure their definition of compensation includes only contract salary (as opposed to W-2 wages). For example: a teacher has a contract to teach for one year for $30,000. If that teacher also coaches a sport for $1,500, that $1,500 is NOT considered compensation for purposes of the 403(b) plan.

In the qualified plan context I am always very cautious when it comes to modifying definitions of compensation but I am unsure whether this seemingly innocent request should raise any red flags when it comes to the 403(b) plan context.

I appreciate any guidance.

Client has a church 403(b) with custodial accounts - salary deferral and employer contributions. They want to discontinue employer contributions and terminate. They have never filed a 5500 for this plan. I was under the impression that church 403(b)'s are exempt from 5500 requirement, but just read in BNA portfolio on Tax Deferred Annuities that "although governmental and church plans are generally exempt from ERISA, their plan administrator must file annual returns with the IRS with respect to tax-deferred custodial accounts. I was always under the impresseion that a church 403(b) plan is exempt from 5500 requirement, but apparently not it is not exempt if custodial accounts are involved? Any comments are greatly appreciated.