Plan's normal retirement age is 55, under the new NRA rules, the plan must increase NRA from 55 to 62 (there is nothing to base the earlier retirement age on). The plan has a flat benefit formula with fractional accrual.

It would make sense to me that you have to preserve the accrued benefit, so actuarially increase the age 55 accrued benefit to age 62.

The part that's a little harder for me to wrap my brain around is how to deal with the fractional accrual.

Now that there are more years to retirement, the denominator in my accrual fraction is larger, which means that each year a smaller piece of benefit is accrued. It seems to me that the accrued benefit is now larger than what it would be if I just did a straight calculation using the new accrual fraction, so the accrued benefit would remain unchanged until the point where the new accrual fraction causes the accrued benefit to increase.

Am I on the right track? If so, is there any problem with this "wear-away" type affect?

It has been suggested to me that in conjunction with the change in NRA, that the plan formula also be changed to a unit accrual-type formula.

Thanks!

Dennis

Years ago I came across a line of cases suggesting that a multiemployer plan could not enforce the contribution obligation against an owner who chose to work at the trade.

This issue has presented itself again and I am unable to locate the case citations. Of course the CBA is silent on this issue.

Preliminary research shows a few recent decisions that allowed plans to recover from working owners. They focus on the issue of whether an owner can be considered an "employee" under ERISA. (My recollection is that the Supreme Court indicated a person can be both an owner and employee).

Has anyone researched this issue lately? If so I would appreciate a summary of your findings and any case citations. Thanks in advance.

A client left their employer and rolled over their retirement plan balance to an IRA in 2007. Client was advised that they have an excess contribution to the 401(k) for 2007 as the plan failed discrimination testing. However, now that the balance of their 401(k) is in their IRA, can they simply elect any one holding purchased with the rollover proceeds to represent the excess contribution balance (i.e., they have more than enough cash to cover this including gains attributed to interest - but they could certainly also select a holding which has lost value since being purchased) or must the excess contribution be attributed pro-rata to all holdings?

Plan improperly excluded several employees from participating in a DB plan since the Plan's inception. EPCRS addresses how to handle this situation in a DC plan context, but not in a DB plan context? Has anyone ever dealt with this situation before in a DB plan? Any suggestions?

Client was on volume submitter plan, used the volume submitter's EGTRRA good faith amendment, made own 401(a)(9) amend, made own LATE mandatory rollover amendment. Hasn't made any other amendments.

VS filed timely and hasn't yet received letter.

Assume that the plan will take advantage of Rev. Proc. 2007-44's Section 19 guidance regarding VS plan's entitlement to six year remedial amendment cycle even if it has amended out of VS status.

1. Putting aside my description of the mandatory rollover amendment as late, is it late since the plan has not yet filed its on-cycle D letter application?

2. If #1 is yes, then should client file VCP submission concurrently with a D letter application?

must a plan meet qualification requirements every year? If it isn't tested every year will it automatically be disqualified?

I have been asked if an employer may withdraw from an existing deferred compensation plan and start their own.

They are currently in a plan sponsored by an association they belong to.

They want to start their own deferred compensation plan. (okay, this part I know they can do)

Instead of continuing with 2 plans -- 1 with the association and 1 on their own -- they would like to transfer the account balances from the association plan to their own plan.

The Joinder Agreement specifically states this is allowed under the terms of the plan.

I'm trying to see if there are any negative tax implications from this. The Joinder Agreement describes one of the investment options as having stocks in it. I have no idea how they would do the accounting on this part, but the the only thing I can think of is that the employer would have any realized gain from the sale of the assets to fund the liquidation count as income for the year the funds are transferred.

Or, am I making this too complicated?

thanks

Christopher

Howdy …

I’ve looked through about 40 pages of this forum and have become more confused than when I started. I am not involved with an ESOP (S-Corp) other than being an ex-employee and apparently an ‘inactive participant’.

I fully understand and partially agree with the idea that stock ownership be limited to current employees. I understand loan repayment and stock repurchase obligations.

What I don’t understand is how the ESOP can control my account for five years after I was fired from the company.

I was very fortunate – during the 11 years I worked there, the valuation of the stock more than tripled. The last year I had a stock balance the valuation increased 30% giving me an account worth $380k. Six months after the end of the ESOP plan year I received a letter from the company informing me I had to pick an investment because I could no longer have company stock. The company picked 3 funds I could invest in with Vanguard – all of these funds are earning about 5%. I now receive a quarterly statement from Vanguard. I assume the company had to come up with the money to put into the Vanguard account, so it seems to me they are not too concerned about loan repayment or repurchase obligations.

What is the advantage to the company for not allowing a lump-sum distribution from this account? Is Vanguard paying them interest too? Delaying the distribution for the 5 year allowable time limit seems to me to be punishment more than anything else.

Can I lose the funds in this account if the company is sold? The company is fairly stable and been in operation for 100+ years. There has been a change in management in the last few years. Recent posts on the company’s web blog make me wonder if they are looking for a buyer.

Shortly after I was terminated by the company, it became obvious that my mother was unable to care for herself. I have been unemployed for the past year and a half and have been caring for her. Have there been any new ‘safe-harbor’ rules that would allow me to get to my ESOP funds?

Thanks for any comments …

thanks

We administer a small PBGC covered DB plan that will have benefit liabilities that exceed assets. The current 100% shareholder of the plan sponsor will waive a portion of her benefits so the plan can terminate as a standard termination.

Of course it may take a year before we get a DL from IRS and benefits are distributed.

The 100% shareholder had a deal with one of the employees that she would sell her stock to him by July 31, 2008.

I believe she must be the 100% shareholder at the time benefits are distributed NOT just at the time the amendment to waive benefits is executed. Does anyone disagree with this?

Thanks much.

We have to pay tax on excess aggregrate contributions (we are outside the 2 1/2 month window following the affected plan year). When is the excise tax due? 15 months following the affected plan year? What happens if we pay it later than its due date?

This is pursuant to the EPCRS Orphaned Plan's "Eligible Party" which can be a person appointed by the court with authority to terminate the plan and dispose of its assets.

I'd like to hear your feedback as to how procedurally one does this. And does ERISA preempt this kind of appointment so that it be done in Federal Court only? I doubt it, but I just had to ask. Thanks again for your feedback.

I love this

for Hanson Bridgett (they're a local San Fran law firm)... employee benefits lawyers in lederhosen definitely makes me smile. Catchy tune, too, got my head boppin'.

2007 ADP Test Fails. One HCE is due a refund of $500. This HCE contributed $12,000 to the Plan in 2007.

Since the HCE did not use the $5,000 catch up in 2007, can I reduce the ADP refund and therefore no ADP refund is owed?

Or since the EE deferrals were not greater than $15,500, I cannot use the unused catch up amount to offeset the ADP refund.

Any help is greatly appreciated.....ALEX

Cash balance plan provides for interest credits at the five-year treasury rate. In connection with a determination letter request, the IRS has directed the plan to retroactively include a minimum interest credit rate in order to satisfy the minimum acrrual requirements of Code Section 411(b)(1). The minimum rate that the IRS has demanded is greater than the actual interest credit rate that the plan used for four of the last six years, so the Company is faced with providing increased interest credits on a retroactive basis.

We took the position that the plan satisfies the 133 1/3 rule using an "accrued to date" method, as described in 401(a)(4) regulations. The IRS has rejected our position, although we have not yet heard its explantion as to why.

Has anyone else: (1) faced this type of demand; (2) convinced the IRS that the accrued to date method is a viable alternative in this type of situation; or (3) had any luck with any other position?

Thanks in advance. .

My husband is 53. Shooting for retirement at age 63. Tax bracket will probably be unchanged in retirement. He puts 6K per year in a SEP IRA. He has an additional 2,000 this year (tax year 2007) to put SOMEWHERE. He could just put it in the SEP, but does it make sense to have combination of IRA types? He doesn't currently have a ROTH. The calculator I used projected a little better income in retirement with a ROTH, but I think I read that a ROTH contribution needs a minimum of 5 years before withdrawal or face a penalty. Does that mean if he contributes to a ROTH when he is 61, that money can't be touched until he is 66? What about contributions made IN retirement?

Thanks!

1/1 plan year for a 401(k) plan. In 2006 the plan had deferrals and a qualified match (i.e. QMAC or Match in K). Both contributions were tested in the ADP test. It failed and refunds were issued. An ACP test was not done.

The plan was amended and effective 1/1/07 they switched from a qualified match to a basic match (Match in M) - which has to be tested in the ACP test.

Now that an ACP test has to be done for 2007, does anyone know what prior year percent would be used? Here are the 3 options I can think of:

1. Since an ACP test was not done in 2006, you'd have to use 0%.

2. Since the plan was amended, could you make the argument that they added the 401(m) provision for the first time and therefore could use the 3% for new plans?

3. I suppose you could retest 2006 to test the qualified match in the ACP. However, the ADP results will change and since you're past the 12 month deadline then that could get messy.

Thoughts?

Any opinions whether compensation to a service provider that is not taxable compensation to a service provider (for example where there is an exclusion under IRC 132 from taxable comp. Thus, not reported on a 1099) but that same compensation meets the definition of "indirect compensation" under Schedules A and C?

For example, a service provider hosts an educational event for TPAs. The Service Provider can take a deduction for the expenses. Also, the Service Provider is not required to report the value received by the TPA as compensation on a 1099 due to the exclusion under IRC 132. However, Schedules A and C have a broad definition of compensation (both direct and indirect) that would capture the value received by the TPA, which must be reported on Form 5500.

It seems that since there is no similar exclusion from 5500 compensation as there is for taxable comp that such compensation would have to be reported on Schedules A and C. There are only two options here, one is to report the compensation on Form 5500 and the other is to exclude it since it is not taxable compensation. In other words, report the “indirect compensation” on Schedules A and C even though it is not taxable comp reported on 1099, or not report on the Schedules because it is not taxable compensation.

Any thoughts?

In HR 3361, the Technical Corrections bill to fix certain aspects of PPA 2006, there is a provision that inserts "described in paragraph (8)(b)(iii)" after "eligible retirement plan" in 402©(11)(A). I can't figure out why that change is being made, as that would indicate that until 2009, when other changes to 402©(11) kick in, only qualified plans can permit direct rollovers by non-spouse beneficiaries to inherited IRAs. In Notice 2007-7, the IRS clearly stated that 403(b) and other plans could permit the same rollovers. Is Congress tryint to retroactively reverse that position?

If an employer deposits their safe harbor match at the end of the year do those who deferred and terminated during the year receive a safe harbor match? What if they didn't work 1000 hours? I thought initially you couldn't impose such restrictions but didn't it change where terms would not receive a safe harbor match?