I've finally had a participant die where he hasn't terminated and cashed in the policy first... and I've realized that I have almost no idea how to handle it.

The face value of the policy is $72,000, and the cash vaue at the time of death was $16,000. If I'm getting all this straight, this means that $56K is due to the beneficiary (which is its own problem, but... well, that's a separate problem) tax-free, and the $16K is taxable, able to be rolled into an IRA with the rest of the "regular" balance. Is this correct? Thanks!

If it is determined that a retired participant, who is receiving a series of substantially equal periodic payments under a qualified plan, was underpaid on those periodic payments for several years, due to an error of the plan administrator, will a lump sum payment to correct prior underpayments qualify as eligible for rollover to an IRA ? In addition to the lump sum payment, the participant will continue to receive future substanitally equal periodic payments, adjusted to a higher amount to reflect the corrected periodic amount.

Reg. 1.402©-2 Q&A 6 seems to say yes, in the A-6(a) definiton of "independent payment" and in A-6(b)(2) which defines payments that are not treated as "independent payments"......but, A-6(b)(1) provides that if the payment is "due solely to reasonable administrative error or delay in payment" it will not be considered independent. I find no definition of "reasonable administrative error". Would the fact that a favorable court ruling was necessary for this participant and numerous others to receive the payments rise above "due solely to a reasonable administrative error" to qualify the lump sum portion of the settlement as an eligible rollover ?

And hopefully a less complicated question: What does the term "less than or equal to the greater of 10% of the annual rate of payment of the annuity ". as referred to in Reg. 1.402©-2 A-6(b)(2)(iv) mean ? Is it simply 10% of the total scheduled annuity payments for the latest one year period ?

Thanks for your help.

I have a question related to counting participants on Line 7b or Line 7c of a Form 5500.

So - you have a terminated participant in a DC Plan who has an account balance. Should he or she be reported on Line 7b or Line 7c. I always thought Line 7c because terminated and entitled to future benefits, but the terminated participant is entitled to the benefits now..so is it Line 7b. If not, when would you report someone in a defined contribution plan under 7b? If they are receiving annuity payments under the plan? I have read the 5500 instructions, but it seems a little unclear to me.

Thank you!

A 63 year old active participant is inquiring as to the possibility of rolling out his assets into an ira, paying taxes, and then rolling it back into the plan as roth 401(k) money. The plan has ROTH provisions, but does not allow for in service distros.

Has anyone had experience with such a transaction?

Thanks

We have assisted a administration client with an ERISA 403(b) plan under which an annual profit sharing plan has been made for many years. We were just informed that the client has also permitted elective 403(b) deferrals under a separate arrangement unknown to us. It appears that the intention was for the elective deferral plan to be a non-ERISA plan through which the only employer activity was the withholding and forwarding of the elective deferrals.

Are there any problems, past or present, with maintaining the separate plans (it appears that all employees were eligible to defer although employee eduction was not robust)? I assume a solution may be to add an elective deferral option to the ERISA 403(b) plan and have one plan with both elective deferrals and the profit sharing contribution. Does anyone see any pitfalls with that approach if the current 403(b) elective accounts are basically frozen?

I do not know whether any of these questions have answers (I just know the questions keep coming up):

1 There was a restriction on distributions to HCEs that involved 110% of the current liability using the highest interest rate. Is this still in effect now that current liability is not being used for funding numbers???

2 An ongoing plan amends the formula to increase benefits in 2007. The plan is now attempting to run the 2008 PPA valuation. It appears that the target liability and normal cost are computed using the increased formula (even for the HCE). However, the cushion amount may not reflect the increase in formula for 2 years. Is this correct??

3 I heard rumors that Mr. Holland suggested that PPA valuations could be performed without pre-retirement mortality. This appears to contradict the Measurement of Assets and Liabilities proposed regulations but I am all for it. Any truth to the statement??

4 What happens to a plan with a quarterly penalty in 2008? The calculations are performed but the extra penalty is NOT added to the minimum contribution required (at least on the current version of the Schedule SB). Does this mean that it is no longer deductible??

Any and all answers are appreciated. Thanks in advance.

My wife and I both have IRAs and we are over 65 and less than 70.5 years old. We both earned over $5,000 each in 2007 but most of our income was from IRA withdrawals.

Can we withdraw $10,000 from our IRAs now (2008) and use it to make a 2007 contribution ($5,000 each) to our IRAs before April 15th?

The benefit is that we are in a higher bracket this year than we might be in next year so we delay somewhat taxes. Also, I did not pay enough in estimated taxes and this will eliminate a penalty.

Client #1 has an EIN ending in 1 and just installed (in February 2008) a brand new IDP (the client has never sponsored a qualified plan). The client is a Cycle A sponsor and the Cycle A deadline expired on 1/31/2007. Are the options (1) hold off on applying for a D-letter until 2/1/2010 to 1/31/2011 or (2) file "off cycle"?

Client #2 also has an EIN ending in 1 and installed a brand new IDP plan effective 1/1/2007 (the plan was signed in December 2007). This newly-installed IDP plan is a cash balance plan. At the time the cash balance plan was installed, the client sponsored a 401(k) profit sharing plan containing a "new comp" allocation formula (and this plan is also an IDP). Neither plan was submitted for a D-letter by 1/31/2007. The 401(k) profit sharing plan has/had a favorable D-letter. Are the only options for the cash balance plan the same as for Client #1's newly-installed plan? What about the 401(k) profit sharing plan?

Thanks in advance for any guidance.

Is there a Summary Annual Report required for Health Benefit Plan filings if the client files a IRS Form 5500?

Not a Flex Plan, but a Health/Medical Welfare Benefit Plan?

Can you let me know somewhere to reference?

I have an HCE with an ADP failure. He deferred 15,500 and 4,800.00 is being reclassed due to failure. He wants to get a refund? I've never had someone want a refund instead of a reclass. Is this permissible? He feels that since catch up is an option, which he didnt choose, then he should be able to take the refund? I think that if the plan allows catch up, it is mandatory that his failure is reclassed?

I have little knowledge about IRAs, but was told they're better than regular 401K plans.

Where do you go to start one?

What are the requirements?

Can a college student start one?

Does anyone know the delayed effective date for a collectively bargained union plan regarding benefit restrictions under code section 436? I have a calendar year plan with a union contract that was ratified prior to 8/17/06, and want to determine if I have an 4/1/08 deadline to issue the certification. It appears there is a delayed effective date depending on the date of ratification.

thanks

Hi, I'm a physician in private practice. I've been recommended to start a DBP for myself. I've been advised to purchase universal life insurance through the dbp into some protected account which I can apparently swap out at some point down the road. There are apparently some tax benefits to this method. Can anyone explain this to me further and give some advice for a newbie?

We are a TPA and were recently retained to straighten out a plan that has many problems (e.g. Safe harbor match exceeding % limitations, integration formula not followed, no 1099s issued, etc.). The company's CPA was doing TPA work when many of these problems occurred and then in an attempt to get a better handle, they transitioned to a major insurance company, which just compounded some of the problems. There was not intent to defraud anyone on behalf of the company and it is a very generous plan for all employees (100% SH Match on first 6% and 4% of compensation contributed which is allocated on an integrated basis.) Almost all of the 10 NHCEs contribute close to matching levels. The client simply did what their outside advisors told them to do.

Now the good part---The IRS has now selected them for an audit. My question is for all those people who have been through messy audits, do you think the client should just upfront confess to their sins and ask for mercy or just let the IRS uncover it for themselves? They will get some fines and penalties, but I don't know if it is generally the same regardless of the circumstances. Had the IRS not come in when they did, we would have gone through the EPCRS to fix problems.

Ten years ago I started to convert a Rollover IRA to a Roth using partial conversions. After a couple of years the market dropped and the funds in the Roth were worth less than the price at conversion, resulting in the payment of taxes on a loss. I subsequently recharacterized one of the partial conversions, since it was within the allowed timeframe, however I could not recharacterize the first partial conversion.

I had recently read in a newspaper article (which I did not keep) that it was possible to recharacterize an old Roth IRA conversion if you recharacterized all Roth IRAs you held, basically eliminating your participation from the Roth IRA program. I can not seem to find this in IRS publications or web sites.

The complete undoing of all of my Roths is not an issue since the I have only one left which is the one I am trying to recharacterize. My motive for recharacterizing is that the value of funds in the Roth is so small that I am limited in the investment choices I can make (my broker has many funds which have a $25000 minimum). If I can recharacterize this final Roth back into the Rollover I will have a sufficient balance to purchase/exchange into many more fund choices.

A final question and hopefully not one which is guilty of being posted to the incorrect message board. My employer is now offering Roth 401K. I am contemplating participating in this program when I reach 50 (soon) and will be eligible for catchup contributions/increase in contribution limits. Will taking the actions above make me ineligible for Roth 401K?

Thanks to all who respond.

Dan

I have a plan that has not made their safe harbor contribution for 2005 and 2006.

Not exactly sure how to handle this. The document states that the contribution will be made, so I don't think that I can just "assume" (always dangerous to do, anyway) that we "lose" SH status and apply the ADP test because then I'm not in compliance with my document. Document is silent on the matter.

I don't think that I can just make the SH contributions now and let the client go on their merry way, because of the 12 month limit to get the SH contributions into the plan.

At a loss! Anyone got any thoughts, suggestions? A hammer so that I can hit myself over the head? Or better yet, hit the client over the head!

The new auto enroll regs allow for a 2 year cliff vesting schedule with an auto enrollment feature for a safe harbor plan. The advantages of the safe harbor plan is that ADP/ACP tests are satisfied. As long as you don't make any other contributions aside from safe harbor, top heavy is also satisfied for a safe harbor match. If you make a non-elective safe harbor contribution of 3%, you have made the top heavy required contribution even if your plan is top heavy.

I am sure that these forfeitures can be used for plan expenses, etc., but I am really interested to know if they can be used to reallocate to participants. More specifically, can you use a age weighted/integrated/new comparability type of an allocation method to make a discrationary profit sharing contribution in addition to the required safe harbor contribution? These new laws would seem to create one of the first times that there could be a substantial amount of forfeitures in a safe harbor plan.

I would think that a plan with a few highly compensated employees and a large number of short tenure lower compensated employees could really benefit if they could reallocate their forfeitures using one of the above methods. Furthermore, the HCE employees would not have to worry about corrective distributions and the could always defer the maximum.

Does automatic escalation have to be effective as of the first day of the plan year?

If a roth portion of lets say $1000 is refunded and earnings are $80, I believe that the taxable portion is included as income in the year of the excess contribution (at least for 2007). Does anyone agree or disagree.

Owner has a SEP plan and he wants to fund 2008 now. Can he make contributions to his own SEP IRA now and then make contributions for other eligible employees later in the year? What if the employee doesn't turn 21 until July 2008. Can he go ahead and make a deposit for her now even though she hasn't met eligibility yet? She has already met the service requirement. Thanks.