Hello,

Participants received required annual AE notice prior to 1/1. Must they also receive notice of automatic increase taking effect 4/1?

Much thanks,

Melissa

If a plan allows deferrals on post sererance compensation, does the sponsor have to match those deferrals in cases where there are no allocation conditions on the match? From my interpretation of our 415 amendment, this would appear to be the case but it doesn't feel right.

If a participant is not yet at normal retirement date, can we still calculate the benefit at normal retirement date under the plan formula, then limit it to 415 at normal retirement date, then apply the accrual fraction, to obtain the accrued benefit. This is an issue when the normal retirement benefit is something like 255% compensation reduced for yrs of service less than 25 years. A participant with 5 years of participation now and 40 at NRD, limiting the benefit to 415 at NRD, would have an accrued benefit of 100% X 5/40 = 12.5%. But not limiting the benefit before the accrual fraction would give 255% X 5/40 = 31.9%.

The preamble to the final regulations states: "As indicated in the preamble to the proposed regulations, where a participant's accrued benefit is computed pursuant to the fractional rule of section 411(b)(1)©, the limitations of section 415(b) apply to the accrued benefit as of the end of the limitation year and, for ages prior to normal retirement age, are not required to be applied to the projected annual benefit commencing at normal retirement age from which the accrued benefit is computed."

Does the "are not required to be applied" mean "do not apply" or "do it either way"?

Any thoughts?

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.