For those interested, the new Form 5307 and instructions are now on the IRS website:

200803 Form 5307

200803 Form 5307 Instructions

Mostly just format changes.

The previous Form 5307 may be used until September.

I am 99% sure that I know the answer to this question, but thought it was interesting enough to put out for comment. 100% Owner decides that he want to retire. He sells the business to his two children and takes a full distribution from the plan. 2 years later, he decides that he want to come back to work as an employee and now wants to roll his balance back into the plan. (We have already tried to stop him from doing so, but he still want to do it.) The question: Is he a key employee? My thought process is that he is because he was a key when he sold the shares and remained a key because his children own the company. When he comes back, he would again be a key because his children still own the company. (The joy of stock attribution!!)

Additionally, because he was and is a key, he was never a former key. Therfore, his rollover balance would count in the top heavy test in both the numerator and the denominator.

Agree or disagree? If disagree, why?

I know we have a few 403(b) experts who participate in this message board, so if one or more of you are interested in the issue described here and have any insight into this issue I would appreciate your thoughts.

The IRS, first in the proposed regs. and now in the final regs., slipped in a requirement under the Universal Availability rule that does not seem to have any basis in the statute or the legislative history (at least which I could find). Namely, under the "effective opportunity" component of the rule, the regs. say that it is not permissible to make any other rights or benefits (other than matching contributions and a couple of other exceptions) conditioned upon a participant making or failing to make contributions to the 403(b). This is basically the same as the rule under 401k which is in the law.

Do you know how the IRS justifies the promulgation of this requirement (other than that people at IRS think it's a good idea)? Are they saying it is a reasonable interpretation of the statute and that's it? I can understand how it might be a reasonable interpretation to say that you can't have universal availability if you punish people who make 403b) contributions, but I don't understand why it is a reasonable interpretation to say that you can't have universal availability if you REWARD people who make 403(b) contributions. The IRS created exceptions for matching contributions to a dc plan and a couple of other features, but it appears that no other types of REWARDS are permitted (e.g., providing an extra vacation day, or a cash bonus, or a gold watch, or a reduction in health insurance premiums). Have any IRS or Treasury people hinted that they might be taking another look at this rule?

I've actually read that IRS people have said that they wanted to put 403bs on par with 401ks in that regard, but unfortunately (or fortunately) the IRS does not have the same authority as Congress and the President, so that type of statement doesn't answer my question

I know that ESOPs are required to allow distributions in the form of employer stock and cash, but is there anything that would prevent an ESOP from making an in-kind distribution that is not employer stock (a property interest, for example) as long as they had the consent of the distributee?

A small plan is implementing a cross tested plan.

It provides for immediate eligibliety for 401k deferrals and 21&1 for the 3% 401k safe harbor, and Profit Sharing plan.

The plan is effective 1/1/07.

An employee enters the SH, and PS plan on 7/1/07 (i.e. the 1/1 or 7/1 on or following 21&1).

The employee has $50,000 in compensation for 2007 and $25,000 in compensation from 7/1/07 through 12/31/07.

Say a total employer contribution of $10,000 is made for the above employee.

For his non discrimination testing compensation is it acceptable to use $25,000?

As a result his allocation percent would be 10,000/25,000 or 40% and not 10,000/50,000 or 20%.

Of course it would apply this way for all employees.

It seems 1.401(a)(4)-12 allows for this.

I also would then apply the 25k with regard to the covered compensation for computing the maximum deduction.

Thank you.

A client has a 403(b) plan under which employees can choose to invest contributions with one of two annuity providers. One provider has a minimum deferral requirement of $5.00 per pay period, while the other has a minimum deferral requirement of $10.00 per pay period. Particularly now that the final 403(b) regs say (consistent with Code Section 403(b) itself) that an eligible employer can condition an employee's right to make deferrals upon the employee's election of $200 per year in deferrals, does anyone disagree with the conclusion that an annuity provider can't have a minimum deferral amount per pay period that results in a minimum annual deferral reequirement of more than $200?

I'm a Northeast Florida boy, and I'm looking at a PS valuation for a prospect in Southern Georgia. The cover letter on the 5500 from the prior administrator says that the forms need to be mailed to the EBSA, and a second complete set must be mailed to the Georgia Income Tax Division, Tax Exempt Organizations.

I didn't know that the 5500 needed to be mailed to anyone except for the EBSA. Is this a special rule for certain types organizations? Is it a special rule for Georgia?

Thanks!

A client of mine had a DB plan that it froze and terminated in the late 1980's. All money was merged into a DC profit Sharing/401(k) plan. Recently, some stock that is being held at BoNY has been idenified as belonging to the Termed DB plan. Clearly many of the participants form the DB plan that was termed 20+ years ago are going to be impossible to locate. What can be done with they money from the sale of the stock and any dividends that it pays? The total market value of the stock is less than 1,000 dollars.

Thanks to anyone who could comment on this situation.

Jmar

I was wondering if anyone could share the differences or recommend either of the 2:

ASPPA's QPFC program

or

Plan Sponsor's PRP

I am looking for overall breadth of information, which (if any) is considered better and why. I realize it may be subjective however, I appreciate any comments.

Thanks.

There used to be a Treasury Regulation that allowed an employee to terminate their election (POP) mid-year due to cessation of require premiums. This has come up with a client that has a POP with Aflac. A disgruntled employee told his payroll department that he wanted his deduction for cancer insurance stopped. They told him he couldn't cancel in midyear. Can an employee terminate in mid-year under the cessation of required premiums?

Thanks.

Wisln

Do the EGTRRA prototypes as being approved by the IRS include provisions for Final 401k Regs or will this require an immediate amendment like the Final 415 Regs?

Would a frozen cash balance plan have a normal cost attributable to the interest credit?

Does anyone out there have any clue or inclination what is going one with IRS opinion letters for prototypes? Thanks...All this work to get ready on time and then the IRS sits on its hands.

ABC Corporation realized that a plan participant had requested a 10% payroll deferral in 2005.

At the time, the ABC Corporation was owned by DFG. ABC Corporation was sold off in April of 2007.

ABC Corporation would like to know if DFG would have any liability regarding the missed payroll deferrals between

2005 and March 2008 when the deferral percentage was updated. The error occured while owned by DFG.

Would ABC Corporation need to fund the missed deferrals and earnings or would DFG hold some responsibility?

Safe Harbor 401(k) Plan defines "Compensation" to be W-2 wages and to include salary and bonus deferrals made by employees pursuant to employer's nonqualified deferred comp plan.

Plan defines "Code Section 415 Compensation" using a safe harbor definition which excludes employees' salary and bonus deferrals in the nonqualified plan.

Plan uses "Compensation" definition for purposes of computing matching contributions.

Therefore if employee A makes $100,000 salary, defers $10,000 of it into the nonqualified plan, his entire $100,000 salary is used for purposes of computing his match. However, his salary for 415 purposes is $90,000.

Is this improper?

Is it improper to include salary/bonus deferrals in a nonqualified plan as part of "Compensation"?

A participant enrolled in the plan at 4% in May of 2007. The participant had one payroll deduction taken in that month, but due to a Recordkeeping error, those deductions stopped. Supposedly, the participant just realized that deductions were not being taken and called on 3/27/08 to restart her deductions at 4%.

In situations where corrections are required, I understand that corrective contributions are made to the participant account in the form of a QNEC in the amount equal to 50% of the missed deferrals, plus earnings. I also understand that the client would have to put in all attributable match for that time period plus earnings (which would also be funded by the Recordkeeper).

My first question is: Is this participant entitled to a QNEC at this point due to the amount of time that has lapsed? Is there a "statute of limitations" on this type of situation, or are we responsible to make corrective contributions for any time period?

My second question is: If a correction is required, up to what date to we owe QNEC's? Up to the most recent time period, or only until 12/31/2007. The participant called in on 3/27 to change deferrals back - does that technically fall within the "9-month rule" where she still has enough time in 2008 to make up missed contributions from the first three months?

Today, the Treasury and the Internal Revenue Service released Notice 2008-41, authorizing the creation of a support group dedicated to helping companies avoid imposition of penalties from the inadvertent violation of Internal Revenue Code Section 409A. Dubbed 409AA, it guides companies and their advisors through a 12-step program designed to uncover areas of potential trouble. The Notice also specifies that commitments to participate must be received in writing in the year prior to commencement of the program, that shortening the number of steps is absolutely prohibited and that changes to the program will require participants to start 5 years later than originally scheduled.

Section 1.415©-2(g) of the final 415 regs follows the Code and provides that compensation used in performing 415 testing on 403(b) plans is "the participant's includible compensation determined under

 section 403(b)(3).  Accordingly, the rules for determining a participant's compensation pursuant to section 415©(3) (other than section 415©(3)(E)) and this section do not apply to a section 403(b) annuity contract."  In reading that, I figured that the $200,000 (as adjusted) compensation limit set forth in 1.415©-2(f) would not be applicable to a 403(b) plan, but I see that the IRS model 403(b) plan in Rev. Proc. 2007-71 states that includible compensation used for 415 testing is subject to the 401(a)(17) cap.  What gives?  Where is the authority for this, given the language in the regulations?

Does anyone know how supplemental unemployment benefits under a SUB Trust must be reported for tax purposes? The SUB Fund has been told that it must report the benefits on a W-2 Form to the individual. This does not make a whole lot of sense to me. The participants are not employees of the Fund, they are not performing any services, so how can it be considered an employee/employer situation. The subsequent issue with reporting these benefits on a W-2 Form is that such reporting has caused problems with the State Unemployment Compensation and the Trust be charged as an employer. Any information or thoughts on this would be greatly appreciated and if anyone else has dealt with something similar please let me know.

Cheers

We just were asked to bid on a college that sponsors two 403(b) plans.

One has a match and one does not.

I am finding conflicting information on what testing needs to be done.

Anyone know for sure?

thanks