I am not a big fan of life insurance in qualified plans. However, an insurance agent asked me to post this question. Can a participant purchase life insurance with Roth 401(k) deferrals as long as they don’t exceed the incidental limits? What would be the tax ramifications? Thanks for any thoughts.

Our special tax notice states "The 10% penalty does not apply to death benefit distribution to a surviving spouse under age 59 1/2. However, if you roll over the death benefit, the taxable portion of any distribution from your IRA or eligible employer plan before you reach age 59 1/2 is subject to a 10% penalty tax in addition to federal income taxes unless an exception applies”.

Does anyone know what the exceptions are?

When an HCE gets a corrective distribution before the 3/15 deadline and has taxes withheld, to what year do the withheld taxes relate? - the prior year when the deferrals are taxable, or the current year when the distribution is made?

If they relate to the prior year, does the HCE need to attach anything to his/her return to show that?

This question relates to the 2007 tax year for the HCE.

The new annual funding notice requires a statement that FTAP is at least 100%, or the actual percentage if less.

Suppose there is no need to subtract the carryover or prefunding balance for purposes of measuring the AFTAP, because the FTAP (before reducing the assets) is at least 100% (per 436(j)(3)). Suppose also that after reducing the assets by the balances, the FTAP is only 95%

What is the FTAP for purposes of the funding notice? It appears that the 436(j)(3) exception only applies for the purposes of measuring the AFTAP, so the funding notice would have to disclose 95%.

The client would like to be able to tell participants that the plan is 100% funded, and the question is, do they have to burn some of their carryover balance to accomplish that?

The regulations require an Information Sharing Agreement to be used to process contract exchanges, but an ISA is not required for plan to plan transfers. Can someone help me differentiate between a contract exchange and a plan to plan transfer? When would an exchange be used, and when would a transfer be used?

Thanks.

Does anyone know if there are any issues with a SUB Plan taking an administrative fee from a particular benefit in order to pay any FICA and/or FUTA taxes both the employers share and employees share?

For instance, a supplemental seperation benefit is paid from a SUB Plan. The Plan assesses a 10% administrative fee on the benefit amount and uses this 10% amount to pay the FUTA taxes as the employer and the FICA taxes for the employee and as the employer.

Thanks

I have an client who has:

1. A self-funded dental plan

2. Claims paid out of general assets

3. Employees pay pre-tax payroll contributions to participate in plan

4. There are only 38 plan participants

Does a 5500 need to be filed?

Thanks for your help!

Can a broker or other sales intermediary receive a commission on purchase of Individual Retirement Annuity for herself?

Company wants to sponsor 2 separate 401(k) Plans.

Plan A is for the hourly employees. This will be a safe harbor plan.

Plan B is for salaried. This is not a safe harbor plan. It's match will be higher than safe-harbor plan levels.

Plan B has a large number of HCEs. Plan A has few (if any) HCEs.

Any suggestions or warnings would be appreciated. Thank you.

Terminated participant takes a lump sum, all stock distribution from ESOP in 2007 and elects NUA. In 2008 a small allocation of stock takes place.

Does the fact that an additional allocation after the year in which the participant took a lump sum preclude the NUA treatment for both the original and the follow-up distribution?

Lump Sum says full account balance with-in one taxable year. How does that apply in this case? Is he forced out of NUA by small allocation in 2008?

Self-employed individuals usually wait until the K-1 or Schedule C is complete to to deposit their deferrals in to SIMPL and 401(k) plans to be certain that there is enough income to support the deferrals. Several brokerage houses have refused to accept SIMPLE deferrals for, say 2007, deposited after 1/30/08. They cite the following from an IRS FAQ, which I lifted in its entirety:

********************************************************************************

***************************************************

When must an employer make salary reduction contributions under a SIMPLE IRA plan?

The employer must make salary reduction contributions to the financial institution maintaining the SIMPLE IRA no later than the close of the 30-day period following the last day of the month in which amounts would otherwise have been payable to the employee in cash. The Department of Labor has indicated that most SIMPLE IRA plans are also subject to Title I of ERISA; also, under Department of Labor regulations at 29 CFR 2510.3-102, salary reduction contributions to these plans must be made to the SIMPLE IRA as of the earliest date on which the contributions can reasonably be segregated from the employer's general assets, but in no event later than the 30-day deadline described above. These rules also apply in the case of self-employed individuals. Thus, the latest day for the deposit of salary reduction contributions made on behalf of a self-employed individual for a calendar year is 30 days after the end of such year, which is January 30th.

********************************************************************************

***************************************************

Most self-employed individuals don't know if they will have taxable income by 1/31! Has anyone else run into this issue? Has anyone seen a similar IRS position regarding 401(k) plans.

If, due to an administrative error, an after-tax contribution was made to a 401(k) plan after the employee asked that no further contribuitons be made, can such amount be returned to the participant (with the employer contribution made on such amount being forfeited)? I would say yes, b/c it was admittedly the recordkeeper's error -- but, the contribuiton was made in 2007. Any issue with refunding this now for a mistake made last year?

[deleted inexplicable duplicate of original post]

An employer wants to terminate a non-ERISA 403(b) "plan" -- which basically consists of salary reduction agreements and employee annuity contracts with a handful of vendors -- before the 2009 effective date of the regulations, but there's no guidance on what procedures are required. The preamble indicates that the plan must come into compliance, and have a provision for termination, before this may happen, but the "written plan" requirement does not have to be met. I understand that "written plan" is not supposed to mean the same thing as "plan document," so how can a plan include a termination provision without it being in writing? Any thoughts on the steps to take?

I don't expect the plan's vendors will be pleased about the termination, especially as they will need to perform some of the termination actions (such as the 402(f) notice).

Is there an exception to the 20% withholding requirement for an in-kind distribution of real estate? This is a one person profit sharing plan, this is a partial distribution, the remainder of the benefit will remain in the plan.

We have issued a 402(g) refund for a participant. I advised him that in early January 2009 he would receive a 2008 1099-9R with a code P for the excess amount. I told him that means it is taxable in 2007. He wants to amend his return now, and asked how he can do that without the 1099. I am not sure how he would do that other than add it to the "other income" line on his amendmended return (which is how he will report the corresponding loss for 2008 on the 2008 return since there is no 1099 for the loss). Does anyone have any idea how a participant reports the excess income due to the refund without the 1099?

Thank you!

What a fun time <GG>!?!?!?

There were definitely more issues than resolutions. These are my takes from the meeting:

1 Pre-retirement mortality for funding is still up in the air. Regulations say MUST BUT IRS has said it depends on the method??. The issue is the valuation of the pre-retirement death benefit prior to NRD and the timing of payments with respect to the yield curve.

2 Disturbing comment of the conference from Jim Holland. The cushion amount for the maximum deduction should not recognize amendments that have occurred in the last 24 months (effectively 1/1/2008 valuation uses plan in effect 12/31/2005). This rule also applies to 415 limit as each COLA adjustment is deemed to be an amendment. Therefore, the cushion for the HCE should ONLY recognize the 2005 415 limit for an ongoing plan.

3 Quarterly contribution regulations should be out shortly (especially with 4/15 looming). The problem is that in order to use the credit balance, the client has to put in writing they want to do that BUT they can only use the credit balance IF the plan is 80% funded.

4 Pre-retirement mortality for PVABs should probably be avoided (especially in states where the issue has already been decided in district court). The IRS disagrees with the decisions (indicating that the courts do not understand that the death benefit is NOT part of the accrued benefit - even reiterated by Harlan Weller at the closing session)

5 Problem in paying lump sums if < 80% funded. No safe harbor for small amounts (maybe in Technical Corrections but for now.

6 Problem with deduction in the first year of a plan that needs to be resolved. The problem is no target liability and therefore no cushion. Therefore, minimum equals maximum. So, say minimum is 100,000 and client contributes at the end of the year requiring a contribution of 106,000 (since the contribution is discounted back to the valuation date at the effective interest rate). The problem is the deduction rules permit the deduction of the minimum (100,000) (remember there is no cushion so the maximum is the same) and therefore there is this discrepancy (same is true of the quarterlies as they currently do not appear on the Schedule SB and are not part of the minimum).

7 Good news. Top 25 restrictions still exist which would require the calculation of current liability numbers. IRS is in Grey Book as allowing a reasonable approach would be to use funding target as a replacement.

I am sure that I am forgetting things but those were the biggies. Lots more regulations planned and supposedly coming up in pieces to enable administration to continue.

If you find a mistake on a previosly filed Schedule B should you amend it, as you would with a 5500, or should you, as I've recently heard argued, file just the correction as an attachment with the current B. I've always dealt with this by asking the actuary who originally signed the B to amend it. Any thoughts?

If benefit formula is specific to person;ie Dr.J benefit is 500/mo per y of svc

Sue Smith 100/month

in subsequent year we have a new entrant.

should trust doc address what some default benefit is for new entrant?

can it be determined per person as they enter?

Does a plan with a prototype document automatically become an individual design when administerd by anyone other than the prototype sponsor?

Can amendments be done to prototypes?

Thanks.