Client has a safe harbor 401(k) plan and acquired another entity with a non-safe harbor 401(k) plan. Client wants to freeze the acquired plan and put the acquired company's employees in the client's plan in a couple of months, and then merge the acquired plan into the client's plan later this year. The client's recordkeeper says no, however, as it claims that it can only merge the frozen plan into the client's safe harbor plan as of the end of a plan year. It has not provided any authority for this, however. Is anyone aware of authority that would bar a mid-year merger?

The law firm of Smith & Wesson consists of two equity partners (Smith and Wesson--each 50% equity partners). Smith and Wesson are also each 50% profits partners. The firm also pays two lawyers as common law employees (W-2) and two lawyers as "partners" (K-1). There are, of course, a couple of support staff too.

The two lawyers treated as partners are paid via K-1 because what they get paid is based directly on what they generate. My question is whether someone can properly be a partner if they have no equity and no profits interest in the partnership?

Would the insolvency of a related entity (assume controlled group) be treated as the insolvency of the plan sponsor? The truly insolvent entity does not contribute or have employees in the NQDC plan.

Can participants in a 457(b) Plan (nongovernmental) continue to make elective deferrals beyond NRA, even if such participants have utilized the special 3 year catch-up contributions?

Background: Plan is considering changing NRA from 65 to 55. While catch-ups can be made at an earlier age, will the participants also lose the ability to defer earlier? Can participants make elective deferrals beyond NRA even if they don't make catch-up contributions?

Thanks!

The regs don't address if a notice is required when there's a merger or liquidation of a fund comprising the QDIA. Granted the plan fiduciary has the duty to prudently select and monitor all assets, including the QDIA, which would entail confirming that the merged fund or replacement fund (upon liquidation) still meets the QDIA requirments; but, does this mean notice must be given to the plan participants as well?

This request seems so obvious but I am seeking my "lifeline's" confirmation nonetheless. Client wants to avoid restricting lump sums to 50%.

2008 FT = 7 million

Assets = 5 million

2007 FSA CB (Before contributions) = 1 million

AFTAP 2008 = (5 - 1) / 7 = 57%

If CB burned, AFTAP = 5 / 7 = 71%

If CB burned, amount Needed to bring AFTAP to 80% = 630,000

Contribute $630,000 for 2007 but do not add to FSCOB

Result is no FSCOB [we threw $1.6 million in the fire] and 80% AFTAP.

Is there a way to accommodate this transaction and either contribute less or still retain some FSCOB?

http://www.mhco.com/FAQs/FAQ-TH_Top-Paid5%25_070904.htm

"Even when using the “top-paid group election” to determine highly compensated employees, the 5% owners rule must be considered since 5% owners may not be in the top 20% group. How can these rules be reconciled? Email Alert 2004-14 07/09/04

The highly compensated group consists of individuals who own more than 5% of the business entity in either the current plan or the prior year, and employees who received compensation in excess of $80,000 (as indexed--$90,000 in 2003) the prior plan year. The top-paid group election permits the employer to limit the highly paid group to owners and the top 20% of employee when ranked by compensation."

Do the paragraphs above accurately represent regulations? Can anyone provide passages from official literature to buttress the above?

Picky, but important question regarding top heavy, as there is no allowance for a deminimis amount. Namely, is only money that is actually in a participant's account at the determination date included for the balance considered (for a plan in operation more than one year as of 12/31/06, the determination date would be 12/31/05)? After all, not often does would a taxpayer have made his or her contribution for the 2005 plan year actually before 12/31/2005, usually they would make it a few months later (but still before the income tax return is due).

Second question, somewhat less important; does the phrase "termination process" only refer to when employees are dismissed without their consent, or if they voluntarily leave, does this still count as part of the termination process? There would still be paperwork involved.

We have a sole prop client that incorported mid plan year - same employees. His plan is a safe harbor 401k with profit sharing. I know amendments to the plan are needed - new plan sponsor, tax id. Would you also include an amendment for the prior service under the old plan sponsor? Anything else I am missing?

Also, how would you handle calculating the contribution for the year for the owner?

Thanks for any help with this.

A participant died without designating a beneficiary for pension plan's benefit. The executor of the deceased's estate is requesting the distribution to the estate.

Should the taxes be withheld from the distribution?

I took out money that I need for an emergency from my Roth Ira(I took out the $15,000 in contrbutions I had put in so far). Am I correct that I don't have to pay any teaxes on the distribution of my contributions? Also, am I allowed to put the amount back in in the future if I'm able to? Thanks.

As you all know, the final regulations include that confounding statement that "a plan may designate only one time and form of payment upon the occurrence of each event described in paragraph (a)(1) [separation from service], (2) [disability], (3) [death], (5) [change in control], or (6) [unforseeable emergency]. While I still am not sure what the IRS was trying to accomplish with this new rule, I am concerned that this effectively prohibits the long-standing ability to make different payment elections for each year's deferrals. For example, an employee elects that his 2009 deferrals elected in 2008 will be paid in a lump sum upon separation from service, and elects that his 2010 deferrals elected in 2009 will be paid in three annual installments upon separation from service.

If you parse through the language of all of the applicable sections relating to payment elections, the regulations inconsistently refer to "a payment", "a payment amount" and "an amount" as being subject to deferral and payment elections. I am hoping to hang my hat on the position that the deferrals for each year are each separate "payments" for which separate payment elections may be made.

Any thoughts?

In the plans I have taken the time to notice, the remedy to fix a 415 excess seems to be to refund deferrals first, the ER contributions such as match then Profit Sharing (assume no voluntary contribs).

Why is this? It seems to penalize the employee (higher taxable income) for the employer's generosity (a big match, PS, what have you).

Is there any rationale as to why deferrals are commonly taken first?

Company X maintains a cafeteria plan for its employees. The cafeteria plan permits premium conversion of medical and dental coverage and has flexible spending accounts for medical and dependent care expenses. Company X has a number of employees who are paid primarily on a commissioned basis. In many cases, these employees may receive little or no commissions from which to deduct payments for the coverage. Assume Employee C enrolled for coverage in 2008 under X's cafeteria plan for medical, dental and medical FSA coverage. The plan document authorizes the termination of coverage for nonpayment of premiums. Assume Employee C receives no commissions during Januayr 2008 but elects to have Lasik surgery done. Can C's coverage be terminated retroactively?

A financial institution plan has use a 9/30 measurement date for its 12/31 fiscal year because there is certain reporting they must complete early in January. We have used a discount rate based up Moody's Aa indexes. This has worked fine until FASB mandated using 12/31.

If we can use a rate say as of 12/24, then the work (spreadsheet) can be completed and then it's simply plopping in the 12/31 asset value. I sense that the accounts will not get excited if 12/24 is used rather than 12/31.

Question: Can anyone point to were I might find -- preferably on-line -- Moody's daily Aa rates?

The Aaa rates appear to be readily available but the Aa rates are not.

The Qualified Election Period defined in IRC 401(a)(28) is six years. May a plan extend that period, for example, to 10 years? This would only be for Qualified Participants. Is it discriminatory to offer diversification outside the window period only to individuals who have attained "qualified participant" status?

I have a client that withheld too much from employees' paychecks. The employees' accounts now contain amounts in excess of their deferral elections for a given period. The EPCRS does not anticipate this, but my inclination is to self-correct by deducting the over-contributed deferrals from the accounts and return the amounts to the affected employees, with appropriate earnings (under the theory that the plan should be returnded to its condition prior to the failure). However, could the argument be made that these amounts are actually overpayments, which could be corrected under SCP as provided in Rev. Proc. 2006-27 (by placing the amounts in excess of the employees' deferral election in a suspense account established solely for this purpose, which would be used to reduce future contributions)? Any thoughts are appreciated.

Sample owner-only plan has an AFTAP between 60-80%. The desire is to amend the plan to increase benefits retroactively and prospectively. Of course under 436© to allow for the amendment a contribution equal to the increase in the amendment's increase in the funding target must be made. This contribution can't count toward the minimum contribution.

Let's assume the maximum deductible contribution is equal to the minimum required because we can't considered increases in benefits for HCE's in the last two years. It would seem then that the amount required to fund the increase in the funding target is not deductible in this year. This of course makes sense or one could easily skirt the two-year requirement. Anyone disagree?

I would presume the 436 contribution would be a carryforward deductible in future years as allowable and that no excise tax would be required. Of course I haven't lengthened my research to that yet.

I was wondering if any one else has dealt with this situation this year....

A participant has the following amounts in the 2007 limitation year:

$33,750.00 Employer Other

$15,500.00 Elective Deferral

$11,151.18 Employee Contributions

$60,401.18 Total contributions

This results in a $15,401.18 415 limit excess. The plan says to first refund Employee Contributions. If there is still an excess, then to refund from Elective Deferral.

This was the first year the member was in the plan and during 2007 there was a net loss in her account.

So, my first question is should we apply any of the net loss to the amount or do we still have to refund the entire $15,401.18?

Now, in 2008 the account has had more net loss. As of today, the value of the Employee Contributions is $9,851.67.

So, my second question is should we just be refunding $9,851.67 from the Employee Contributions and the remaining 5,549.51 from elective deferrals? That means the member is losing $1,299.51 of their after tax contribution.

Thoughts?

Our client has a plan that is valued annually. Participant applies for a loan February 2008. The 12/31/07 valuation is not yet complete. Using the 12/31/06 balance, the amount requested would not exceed 50% of the 12/31/06 balance.

However, the plan is expected to suffer a loss, so when the 12/31/07 valuation is completed, the amount requested may exceed 50% of the 12/31/07.

If the loan is processed today and the 12/31/07 valuation eventually shows a loss to the extent the loan exceeds 50% of the 12/31/07 balance, is this loan out of compliance?