A plan document has been drafted to provide for discretionary matching contributions. The client has been applying a % of compensation discretionary match with a dollar cap ($1000 annually). The plan document does not indicate a dollar cap on the match. Is there a problem in need of remedy under VCP? Can the match be completely discretionary in regards to both percentage and dollar cap as long as both parts of the formula are applying in a nondiscriminary manner?

Thank you for any help or for pointing me in the direction of any guidance in advance!

10/01/04 -09/30/05 employer contribution was not deposited. We calculated lost earnings on the 2004 contribution and instructed the client to deposit the lost earnings with the 2004 and 2005 contribution. The client deducted the 2004 contribution amount and 2005 contribution amount on the 2005 corporate return. The client never made any of the deposits including the lost earnings and will be amending their 2005 corporate return. This client is not contributing to the 2006 plan year/tax year. The employer contributions are discretionary, not sure if that matters at this point. I believe this client will need to make the 2004 and 2005 contribution in addition to lost earnings for both plan years and also pay the 10% excise tax under Section 4972 for the nondeductible contribution amounts. Is this correct?

I have a client with a profit sharing plan with no eligibility requirements. It is a small plan covering only around 8 employees. Most of the company work is done by union employees whose benefits are under a CBA and they are excluded from the plan.

Client had questions on situations that have come up with several union employees.

1) Some union employees work for the client when there is no union work, doing another type of job to fill in the caps from the union work. Client wants to know if for those periods of time and the compensation paid during those times, does he have to include them in the profit sharing plan. Has anyone encountered this before. It is usually more cut and dry between union and nonunion.

2) Client also has retired union workers that have come back to work for the client to help in a smaller role on the jobs for extra cash. The employees do not want to be under the union or get benefits from the company. Just want some extra cash. Do not feel comfortable saying they should do 1099 since they are working for the client. Anyone have experience with this?

Any thoughts would be appreciated.

Under what circumstances can federal income tax deductions be taken by a for-profit employer with respect to IBNR welfare benefit liabilities (for example, is it necessary that the funding of the IBNR be "set aside" in a trust holding plan assets per ERISA Section 403(a))? A corollary question is whether the contribution must be paid in cash (or is the acknowledgment of the liabililty by the fund sufficient to take the deduction)?

I have a client with a brand new plan. The plan is effective retroactive to 1/1/08, with 401(k) provision effective 2/15/08. Plan is using safe harbor nonelective. Can the nonelective contribution be calculated on pay from 1/1/08 - 12/31/08 or can I only use pay from 2/15/08? I am getting various answers from attorneys with whom I have posed this question...

A DC plan has been terminated and everyone paid out other than the owner and one participant. The participant will not return the forms. She is not missing, she just won't return them. This participant has the mistaken opinion that she is owed more money, which is why she will not return the forms. To date the only follow-up correspondence has been by phone. It's been a few months since the forms were issued. The distribution amount is approx. $10,000. Can she be forced out? If so, what is the procedure, and is there any IRS guidance to back it up?

I have seen various practitioners perform this test while looking at the full year, rather than at one date. For example, for a calendar year plan, if one prior participant terminates on 7/1 with 1000 hours, and another is hired and enters on 9/1 and is still active on 12/31, both would count in the denominator of the test, and possibly in the numerator, depending on other facts.

However, the reg (specifically 1.401(a)(26)-7) doesn't seem to read this way. It says that the plan passes 401(a)(26) if it passes the test on every day of the plan year, but alternatively, it passes 401(a)(26) if it passes on any single day, but only if that day is reanonably representative. This doesn't seem to allow for a method that looks at the plan year as a whole, but as I said, I have seen various practitioners do it that way.

Can anyone shed some light on this?

A friend, residing in NY, lost her husband two years ago. One of his IRAs did not have a beneficiary designation according to the custodian. She has requested evidence of the documentation and has not been able to actually see how the account was set up. The brokerage firm is telling hewr that his estate(now closed) will have to be the beneficiary. She is now 50 so at the end of the five year period the she will not have reached 591/2. If the brokerage firm does not produce the documentation does she have any legal recourse against them? Are they not required to retain the paperwork in some format?

Thanks for any wisdom here..

I have recently been assigned to work on a PS plan for a small company. They had a different recordkeeper previously. They allocate the max contribution to the owners.

I have determined that in 2005, they made an error in allocating the contribution to one owner. They intended to allocate the max so he would reach $46,000 (42000 + 4000). They would then reclassify his 401k as catchup. After the client made the deposit, the recordkeeper noticed that the owner did not have any 401k. So they took out the extra 4000 from the contribution and gave it to him as 'other'. The 5500 reported the full deposit as the contribution. Is this allowed somehow?

With a desire not to revise the prior recordkeepers work in 2005, I thought that we could allocate him the full contribution for 2006, and then subtract that 4000 from what is assigned to him. He will be allocated 40,000 (44000 - 4000) in 2006. The plan document says that when there is an overcontribution in error, you can reallocate that amount as forfeiture, so we are then allocating that to the other participants who have not yet reached the maximum limit. Is that an acceptable 'correction'?

Alternatively, would it be acceptable to ignore what the previous recordkeeper did and bring forward his balance and allocate to him the full $44000 for 2006 without taking any other action?

Are there any circumstances under which a profit sharing plan can hold the mortgage of the son or daughter (not employees of the sponsor) of the company owner? Is there a residential loan program that allows such a loan in the plan?

A new plan grants past service and assume benefits limited by 415(b). Assume Plan effective 1/1/2007 and that formula accrued benefit is $50,000 on PUC basis. So, 415(b) as 1/1/2007 is $18,000 (zero years of participation but count 1/10 of $180,000) and 415(b) as 12/31/2007 is also $18,000 (still 1/10 of $180,000). So, accrued liability is based upon a benefit of $18,000 and there is no normal cost. Charges to FSA are 30 year amortization of AL so at end of year one the Plan is potentially grossly underfunded unless employer contributes larger amount (up to 150% of CL). If Plan didn't grant past service, then PUC would be the same number as the AL and there would be a whopping minimum.

Does this make sense or is something very basic being overlooked?

We have a bfwd plan, with annual valuations. Several participants had lump sum distributions processed in Sept. 2007, based on 12/31/2006 account balance.

They now believe they are due additional monies - any gains/losses for the first 9 months of 2007.

Is this an IRS or DOL law for a bfwd plan that they would not be entitled to these earnings, or is this something that would be specified in the adoption agreement? It's a standardized prototype.

Thanks in advance.

Assume calendar year plan.

Am I correct that a formal AFTAP certification has to be issued for 2007 in writing to the plan administrator or else the presumption for 2008 will be less than 60%, and that this presumption will create restrictions on amendments after 1/1/2008 and restrictions on distributions and accruals after 4/1/2008?

A husband and wife each own separate LLC's, 100% each. The 1563(e)(5) attribution exception notes that neither can be a director in each others' businesses. In this case being LLC's there are no directors, instead there are members. Does anyone think that makes a difference? Anyone know of a TAM or other legal precedent?

Doing a crss tested plan on 12.1.2. Does anyone know if Relius has a report which shows who is in what class?

Ideally it would show Employer contributions and be sorted by class with totals by class?

Unit credit method and end of year val date. Plan participant terminates during the year but worked more than 1000 hours and therefore accrued a benefit. Should this person have a normal cost? My initial reaction is "yes" but my valuation software company disagrees and says that for a participant that terminated during the plan year that the whole AB (as of the year end) goes into the AL, rather than the beginning of year AB for the AL and the benefit accrual going into NC. Their method creates an actuarial loss all else being equal. I can't find anything in a text book that would support their position, and I can't think of anything in the Code either. What I can come up with from the Code is that a method that inherently creates gains or losses is not "reasonable". It seems that would apply here. Opinions?

To keep the numbers simple lets say that for '06 and '07 I contributed the max of 4k. If I decided to take out the 8k, can I re-contribute those years at some point? Meaning at the end of '08 could I put that 8k back in, in addition to the 5k I am allowed for '08? Thanks for the help!

Looking for some thoughts on my wacky problem -

Traditional defined benefit plan where the normal form of benefit for an unmarried participant is a life annuity with a 5 year term certain.

Active Participant turns 70 1/2 in 1990. Elected to have his RMD based on his life expectancy only without recalculation (all copacetic with the 1987 regulations). Begins receiving his benefits in the form of the life annuity with 5 year term certain. Participant continues to work and accrue additional benefits under the Plan, which essentially bump up his payments the following year. Participant dies in 2007 without ever retiring. (Plan did not give the option to stop receiving RMDs under SBJPA).

His child calls the plan asking what benefits might be payable to his estate.

My initial thought was that this participant's beneficiary is not entitled to anything because the participant died at least 5 years after payments began. One of the senior actuaries in my group thinks that each annual bump is in and of itself a new life annuity with 5 year term certain, and that the beneficiary is entitled to receive the remainder of the five year certain for the last five years. The plan document is silent (who would contemplate this?) A more senior actuary and attorney thinks that "something is payable" but is honestly too busy to back that up with anything further.

Has anyone ever seen this before?

Much obliged!

We are taking over a 403(b) plan and putting them on our document. Currently their document allows the participants to make a one-time irrevocable election of 5% (along with elective deferrals into a separate plan). If they opt in, they get a 5% nonelective contribution from the ER. In our restatement, we would like to change the wording to allow the participants to make an irrevocable election but not specify the amount. If they did make at least 5% they would get the ER contribution. This would enable some of the HCEs to specify a higher % (several want to put in the $15,500 in "regular" deferrals and then put in another 10% of salary in "irrevocable" elections).

First, is there any problem allowing the employees to choose the deferral % they want to specify in an irrevocable election? I understand that once they do specify the percentage that they cannot change it.

Second, most of the employees made a 5% irrevocable election under the original plan. If the election they originally made was irrevocable, can an employee change it when providers and/or documents change? If not, does this mean that the employer is basically stuck forever with the original plan design? I also understand that the irrevocable election has to be made when the ee first becomes eligible. Since most employees were eligible a while back, does that mean that they would not be able to take advantage of the increased flexibility in a restated document?

One last thing -- the employer contribution is currently subject to the 5% irrevocable election -- you don't get it unless you contribute 5%. Under what conditions would the ER contribution have to satisfy 410(b)? Thanks!

Thanks!

A DRO to award 1/2 of the EE's accrued defined benefits was determined by the PA to be a QDRO. AP dies before EE reaches earliest retirement age. Thus, payment of the awarded 1/2 of the defined benefits had not commenced to AP.

Language of the QDRO provides that AP "shall hereafter own, as her sole and separate property, all right, title, and interest to" the awarded 1/2 of the EE's accrued defined benefits, "and shall have and enjoy all rights and privileges with respect thereto as provided by such plan and [REA]." Payment of the awarded 1/2 of the EE's accrued defined benefits was to commence as early as permitted, i.e. the EE's earliest retirement age.

The QDRO specifies that the AP may choose any form of benefit options permitted by the plan as to the awarded 1/2 of the EE's accrued defined benefits. However, given that the amount does not fall below a de minimis dollar cap for lump sums, a single life annuity is the only form of benefit available. Under the plan, the AP could postpone payout commencing on the EE's earliest retirement date, but here the QDRO specified that payments to the AP were to commence as soon as possible.

The plan document specifies what happens if the EE dies before the AP, i.e. the AP is treated as the 'surviving spouse' only to the extent provided in the QDRO. If the EE dies before reaching his earliest retirement age, the AP is entitled to benefits only if the QDRO specifies the AP as the EE's surviving spouse.

However, the plan is silent as to what happens to the awarded 1/2 of the EE's accrued defined benefits if the AP, as here, dies before the benefits commence. There's two possibilities. The 1/2 of the EE's accrued defined benefits that were awarded by the QDRO do or do not 'revert' to the EE. The argument favoring reversion would seem to be that the benefits were his all along, and the QDRO's provision that payment of that 1/2 of those benefits be made to the AP failed because she died before payout of the single life annuity commenced, and therefore the QDRO ought have no bearing on the benefits to which he is entitled under the plan. Afterall, there's been no loss to the plan since no part of his benefits ever were used to base a single life annuity on as the AP died before that could happen.

The argument that the EE does not get a 'reversion' is that the QDRO was valid, for plan purposes following the PA's determination, and the QDRO gave the right to payment of 1/2 of the EE's accrued defined benefits to the AP as "her own, as her sole and separate property, all right, title, and interest". From the time of the QDRO being determined as such, the EE no longer had any right to payment of that 1/2 of the benefits. The QDRO could have, but did not, call for reversion to the EE if the AP died before payment of the awarded benefits began, as was the case here. The plan's actuarial determinations were, after the QDRO, based on two separate individuals' life expectancies, regarding the two halves and not on a joint and survivor basis. The death of the AP does not override the provisions of the QDRO, which only allow payment of that 1/2 awarded to the AP to be made to the AP.

Does anyone know how courts have ruled on such situations?

Could the EE go back into divorce court, giving notice to the executor of the AP's estate, and get a QDRO modification post-death since no payout of benefits has begun? DoL Reg 2530.206(b)(2), Example 1 permits QDRO's to be entered post-death, but what about after a risk-affecting event (here the AP's death) has transpired? Would the plan have standing to intervene and argue contrary to the EE?

Thanks in advance for responses to this post.