When calculating the true up for short plan year, how is annual compensation calculated, through the end of the short plan year? Assume the plan matches based on annual comp. but allocates match each payroll. Thank so much in advance!

A company wants to charge EE 2% for single coverage, 3% for EE +1, and 4% for family--regardless of the EE's salary and whether he or she is an HCE or NHCE.

The safe harbor in 125(g) is written in terms of cost, not a percentage of salary. It seems like the ER can't charge a flat % rate of the EE's salary where the % bears no relationship to the actual cost of the health insurance. For example, an HCE earning $200,000 would pay $4,000 for single coverage whereas an NHCE earning $50,000 would pay $1,000 for the same coverage. Obviously, this does not discriminate in favor of HCEs as they are paying more than a NHCE.

Would a flat % contribution scheme work under the 125 regs or is it discriminatory?

Plan provides SH match 100% first 3%, 50% next 2%. They want to provide an additional match that avoids the ACP test. I understand this additional match must be limited to 4% of pay per person and be based on comp no greater than 6% of pay. My question is this: does the plan explicitly need to have a formula that caps compensation or otherwise spells out a match formula? The current language is very flexible discretionary language with no references to a formula or cap.

I am working on a new plan for 2008 and maybe I'm late for the parade, but I just realized that it seems to be impossible to fund the maximum lump sum benefit if I have a db/dc combo.

Assuming my db contribution will exceed 25% of payroll and its not covered by PBGC, if the ER makes a contribution into the a PS plan, the db deduction is restricted to the lesser of the min required contribution or the amount needed to bring the plan to 100% funded (not 150%).

Since maximum lump sums are probably based on 5.5%, and each of the current segment rates for funding are greater than 5.5%, my funding requirements will always be lower than the amount needed to accumulate a 5.5% lump sum. If I didn't have the PS contribution, I could overfund the db up to 150% and that would probably produce an adequate cushion. However, if I fund the PS plan, I loose that ability and therefore force my db plan to be underfunded at all times.

I won't ask if it makes sense, because I know it doesn't, but do you agree that it how it works? Basically, PPA either forces employers to underfund their db plans, or forces them not to make profit sharing contributions. And why is that good for the participants?

I think this problem will become less of a problem over time as 417(e) rates converge with funding rates, but in the mean time this seems like a real problem.

We are setting up a new maximized DB plan for 2008 for a 1 life situation. When I use a common plan design to maximize (10% x yrs. of participation up to 10), both my minimum and maximum is the Normal Cost under PPA. This is lower than desired.

Since there is no accrued benefit as of 1/1/2008, there is no Target liability to apply the 50% cushion to, therefore the maximum 404 calculation will not apply.

We are proposing changing the formula to be based upon years of service so that as of 1/1/2008 the AB would be 1/10 of the dollar limit under 415 (the participant has much past service and high average earnings). Of course, the AB on 12/31/2008 would remain unchanged. In this scenario, we get $0 as a normal cost and the 430 minimum is basically the 7 year amortization of the Target Liability. However the 404 maximum can equal the unfunded target liability including the 50% cushion amount (which is similar to the old 150% of CL concept with, of course, different assumptions due to PPA).

Is this a proper reading of 404 under PPA in order to maximize contributions in the first plan year?

I just received a K-1 for one of my DB plan clients. I looked at line 14 "Self Employment Earnings" and I was surprised to see two entries, one coded "A" with a value of about $200,000 and one coded "C" with a value of about $800,000. Which one do I use, or both?

An employer with a 401(k) plan is selling its assets to another company (asset sale) which slso has a plan. The options that I know of with the seller's plan are as follows:

1. The seller can terminate and liquidate the plan (severance from service), or

2. The buyer can continue to sponsor the plan (separation from service).

The buyer does not want to transfer the new employees into his existing plan (maybe too many differences between the plan provisions). I am concerned that the buyer may want to have the seller's plan terminated and start another plan for these participants. Is there a same desk rule that prohibits a plan from being terminated and another started within a 12 month period?

I have work with a fund that has 15 different money managers. For most of them, reporting the market value at any point in time isn't an issue, but for some (real estate, hedge funds, etc) the financial consultant is telling us that getting the market value as of a date other than a calendar quarter is not possible.

So if my valuation date is May 1st, I would be using March 31st values as a proxy for April 30th for some of the investments. Is this a problem or is it something that happens all the time?

The issue came up when I asked for preliminary asset information to get an idea of the funded status before May 1st.

I guess this could be in issue in single-employer plans as well.

A husband and wife are the only partners of an LLC.

Say they each receive separate Schedules K-1 of 100k each.

For the husband the entire k-1 of 100k is subject to SE taxes.

For the wife 20k is subject to SE taxes and 80k is not subject to SE taxes, presumably passive income.

As a result there is a total of 200k of k-1 net income.

It would appear that the 120k that is subject to SE taxes, i.e. earned income would be eligible for pension purposes where a total of 120k could be deducted.

Is there a rational (any interpretations) for providing that all 200k can be deducted? That is, where 50% SE taxes plus imputed pension compensation plus the pension deduction add up to 200k? Or are we still limited to the 120k portion and the 80k cannot be considered in the equation at all.

Thanks.

A client is filing late 5500s in DFVC program. During the years in question, the plan was in payout status - the corporation was still in existence but there were no employees. So do we list 0 employees on Schedule T? And does that mean that it passes by ratio percentage? (I keep thinking 0 divided by 0 is 0 which is decidedly less than 70%.) Are those answers likely to flag an audit?

There were no contributions made during these years; all participants were fully vested and most had taken lump sum payments already. The plan was for a small physician's practice and it's just the two doctors left who have accounts. We're talking about whether they'd like to terminate the plan and roll their balances into IRAs. But before we can get to any of that, we've got to take care of these matters!

I am working with thh plan that discontinued SH NEC for year 2007. They use Prior Year testing method. What percentage I should use for ADP & ACP testing, since this is not a brand new plan using Prior Year method. I do not think I will be able to use 3% for Prior Year since this is not a brand new plan. Can someone confirm this please? Do you think I need to test Prior Plan (2006) year (using Current Method) in order to get Prior Year ADP/ACP %'s? Please respond.

Should we be using the 2008 mortality tables being used for DB plans for cross-tested DC plans as well, rather than the 1983 GAM? If so, please be specific as to which ones. Thanks as always to anyone who can help.

There are three partners that are more than 5% owners. The partners had negavtive earnings for 2007. Do you count them in the 2007 ADP/ACP test?

In looking at the archived threads on this site, I found some threads dealing with the time and form of payment to the alternate payee, and there was some disagreement as to whether a plan could force an alternate payee to take only one form of payment even in cases where other forms were available to a participant and would not violate any rules relating to distributions to alternate payees. My employer's hybrid DB plan requires all alternate payees to receive a lump sum even though participants have annuity options available. I realize that it is in the employer's interest to get rid of alternate payees, but can anyone cite a specific provision of the law that would forbid a plan from requiring all alternate payees to take a lump sum?

ER pays $20,000 to new EE for moving expenses under agreed terms that if the EE does not remain employed for 2 years the EE will repay the ER the $20,000.

Is this subject to 409A? It would be much like the ER having given the EE a $20,000 loan at date of hire and agreeing to a $20,000 bonus after 2 years of employment, paid by offsetting the $20,000 the EE otherwise owes the ER due to the loan.

Treas Reg § 1.409A-3(f) addresses offsets as substitutes. I'm interested in your thoughts and comments.

We have a client who has inadvertently been including catch up contributions when calculating 415 limits. Because of this incorrect calculation, two hces received refunds in 2005 and 2006.

What is the proper way to correct?

We have a 401(k) Profit Sharing Plan whose current plan participants are the owner, her spouse, and their children. All other plan participants have terminated and were paid out. The children no longer work for the company, but they still have "rollover" accounts in the plan. Plan also has non-qualifying plan assets (real estate) in which the children have a vested interest.

In the future, the company will hire people from time-to-time, but they will never work enough hours to become eligible to participate.

Is this plan subject to Title I?

Thanks!

I have a client who had a contributing SEP -IRA with a business partner. The business has concluded its business and the SEP-IRA still exists for both owners. No cotributions are expected or desired to be made for tax year 2007. The client has since started a new business with one employee who will be retiring this calendar year but wants to include a contribution for him for tax year 2007. Can he start a new SEP-IRA for this new business and include one employee if the former partner and his SEP-IRA is still open and active?

Employer (corporation) has a PSP (with 7 participants). Employer deposited $40K into the plan in November 2007 and in January 2008 told the TPA to allocate $35K among 2007 plan participants and to let the plan hold the remaining $5K as a 2008 contribution.

Here's my question:

Can the corp deduct the entire $40K in 2007 (the year that employer paid the $40), even though only $35K is going to be allocated to 2007 participants ?

I've read that IRC 4972 says that a 10% excise tax penalty is imposed on contributions in excess of the deductible amount. But it fails to explain what the deductible amount is. In my case, is the deductible amount $40K or $35K ?

I'm aware that the maximum deduction in any one year is 25% of eligible wages. (Pleae note: 2007 eligible wages for the 7 participants is roughly $300,000. So max allowable 2007 contribution is $75,000 ... which is far less than both the $40K and 35K.)

i have an employer (a law firm) that is adding a new partner. they want to credit this employees past service with another employer. they have never done this before. is this discriminatory per se or can a case be made since there are no other NHCEs and there is a valid business purpose it would be ok.