A retiring participant in a DB plan rolls her lump sum distribution into an IRA. Several months later it's discovered that the actuary made a big mistake (in the participant's favor) when calculating the lump sum. Several more months go by before it is determined that the excess distribution cannot be recaptured (long story -- that's not the question anyway).

Does the fact that the lump sum consisted of more than the participant was entitled to put the IRA rollover in jeopardy? There were no adjustments to any tax forms and the plan was a qualified plan. A devil's advocate is raising the issue because he thinks it could be determined that the IRA holds an excess amount. I say baloney.

A new participant has 30 days to elect to participate in a nonqualified deferred comp plan. A participant elects a deferral and the deferral is withheld from his first paycheck. The participant then decides he does not want to participate (buyer's remorse??).

The plan is not too clear on when the election actually becomes effective...when made (think possibly no revocation) or the last day of the election period (think 30th day). Under the regs, the participant may change his initial election any time before the election becomes effective. May the participant revoke his prior election? I think the answer is clearly yes unless the plan provides otherwise (and we can clean up the language to specify the effective date of the election as we finalize for the regs).

Now, here is the real question, what happens if the company has already withheld deferrals from the participant's pay. By withholding, isn't the employer treating the election as effective sooner than the 30th day, in which case a revocation does not seem possible any longer. If the employer could still allow the revocation because the 30th day has not arrived (can it even do this?), what happens to the deferrals...stay or distributed? Seems as though they would have to be returned.

A profit sharing plan has 401(k), qmac and discretionary employer contributions (there is no DB plan). 401(k) and qmac are tested using the adp test. Employer contributions are allocated based on 5% to TWB and 20% > TWB and is then cross-tested. As part of the whole cross testing, is it required to test first the employer contribution, and then to test the sum of all contributions under the ABP Test for coverage? Second question, the plan has never been tested with permitted disparity. Can the plan now be tested with permitted disparity? This year it allows the the cross test of the employer contribution to pass.

Guy is my office just showed me the news on stimulus package. He makes $145,000 and his wife doesn't work. He's tickled pink that he's going to get check for $1,200.

Anyone know if the "couple" limit will require the wife to also have earned income.

Some practitioners have interpreted the proposed regulations such that an EACA must automatically enroll all eligibles (who haven't made a deferral election) based on the uniformity requirement. In my opinion, the proposed regulations allow the EACA to be applied to new participants only. Most practitioners originally interpreted the plain language to allow application only to newly eligibles, and in my opinion, it is only through a strained reading that an alternative interpretation has been construed. If Congress wants to make a technical correction or if the IRS wants to clarify in future regulations, then we will have to live with it. But in the meantime, why make their conservative arguments for them? Keep in mind these are proposed regs, and there are arguments for a good faith interpretation to allow the EACA to be applied only to newly eligibles as most of us originally thought. I put forth the following arguments in the spirit of being advocates for our clients, and invite your additional arguments pro or con.

1) The proposed regs are quite clear for a QACA that it must apply to all, and the EACA does not have this same language. IRS knew how to make it clearly mandatory if they wanted to. Where they did not use the same language, we can presume they did not have the same intent absent other clear guidance.

2) The EACA makes reference to the ACA definition, and an ACA has never been required to apply to all eligibles. (An EACA is an ACA that meets 3 conditions: uniformity, notice & QDIA.) Pre-PPA, an ACA could clearly be applied only to those eligible on or after the start of the ACA if the plan wished. Nothing in PPA or the proposed regs add a requirement to clearly make it effective to all. This would be a big change, and I don't think the definition of ACA in 1.414(w)-1(e)(2) justifies such a conclusion. The language says "an eligible employee's affirmative election," which is different than saying "all eligible employees." 1.414(w)-1(e)(2) Automatic contribution arrangement. An automatic contribution arrangement means an arrangement that provides for a cash or deferred election that provides that in the absence of an eligible employee's affirmative election, a default election applies under which the employee is treated as having elected to have default elective contributions made on his or her behalf under the plan. This default election ceases to apply with respect to an employee if the employee makes an affirmative election (that remains in effect) to— (i) Not have any default elective contributions made on his or her behalf; or (ii) Have default elective contributions made in a different amount or percentage of compensation.

3) The history of ACA rulings started out applying only to newly eligibles, and was later expanded to make clear it could also be expanded to current participants who hadn't made an election. This was permissive to apply it to all eligibles, not mandatory. I think the definition from 1.414(w) is drafted in light of this history, to make it clear that it may apply to any eligible participant. (In 1998, Treasury and the Internal Revenue Service issued a ruling clarifying that automatic enrollment in 401(k) plans is permissible for newly hired employees (Rev. Rul. 98-30). Building on that beginning, Treasury and IRS issued a second ruling allowing automatic enrollment for current employees as well (Rev. Rul. 2000-8).)

4) The uniformity requirement is met, even with an application only to newly eligibles. It is uniformly applied to everyone the ACA applies to. Thus by applying the ACA to only newly eligibles, it can still meet the 3 requirements of uniformity, notice & QDIA and thus be a valid EACA.

I tried to insert prior posting to respond to new post. It didn't work. Help! Can someone explain how to make it work?

Thanks!!!!!

My question centers on imputed income and the withholding/reporting requirements an employer may have in this realm. First the Facts:

Employee enrolls for family coverage to cover himself and his "wife." Later during the year, he informs the employer that he and his "wife" were never actually married but have lived together for some time. Prior to this time the employee was paying for family coverage on a pre tax basis. Under the IRC (3401) the fair market value of the coverage provided to the domestic partner must be included in the employee's gross income. The Regulations under Code Sec. 3401 are fairly clear in that imputed income from a health plan consistutes wages subject to withholding. Specifically, the imputed income is going to constitute supplemental wages. The amount of supplemental wages for the year is going to be well under $1 million. Now, I'm not sure how far this goes back, but for the purposes of this question, let's assume it was a one year thing.

My questions: Does the Employer have to report the imputed income to the Service (e.g., on Form W-2)? Is there any other affirmative action the employer must do? Secondly, if the Employer determines that amount that must be imputed into income and then, accordingly, determines the amount that must be withheld, does the Employer then begin withholding from the next paycheck? Can the withheld amount be prorated over remaining payrolls?

Finally, I'm going to post this question in a few areas that discuss Health and Welfare Plans because I'm new to this board (virgin post! ha) and I'm not sure which area gets the most traffic. I would really appreciate any insight someone can give.

My thinking is that the imputed income is reported on Form W-2 and the Employer begins withholding from the next paycheck and remits those withheld amounts. What I'm really not sure of is whether the amount should be withheld from one single paycheck or whether it can be spread out.

Up front I appreciate any responses I receive!

If a plan only pays benefits from the pension fund (no lump sums or annuity purchases) and the plan will be less than 80% funded based on the 2007 lookback AFTAP, is the employer required to provide participant notices even though in reality there are no benefit restrictions since benefits are only paid from the fund? Thanks.

Hi,

We have an HCE who put in 17,915 in deferral and 32,085 in profit sharing and he is over 50.

Should we consider that he made the full catch-up of 5,000 and thus for ADP purpsoses let the software put his deferral at 12,915 OR is the catch-up 2,415 and have the software put his deferral at 15,500? In what order do we recharacterize the catch-up -ie 402g, 415, and then ADP OR 402g, ADP, 415? We're getting different results from the software based on when we do the test (before or after the PS contribution is posted).

Thank you

A PBGC distress termination will occur. Several older retirees have benefits exceeding the current guarantee.

All have been retired for more than 5 years.

Does the PBGC give them a haircut on their pension when it takes over the plan?

Any recent court cases or rulings with a different result?

What happened to the United Air pilots and Delta pilots who retired in the 90's?

When an ESOP plan has the provision that no Company Stock may be distributed until the Exempt Loan is paid off in full and has the automatic cash out $1,000 limit, does the automatic cash out rule supercede the provision regarding no distributions until the loan is paid off. The only assets in the ESOP are Company shares, no cash.

Client is going to receive a distribution from a public defined benefit plan upon seperation of service. The distribution will consist of some "tax free" and taxable money. The taxable portion will get rolled over to an IRA. Can the individual roll the tax-free portion directly to a Roth IRA? I believe as of 1-01-08 taxable distributions can be rolled over directly to a Roth IRA, but can the client roll the tax-free portion to the Roth IRA.

Thank-you.

I see that the ACP test is be required for 403b plans in 2009 (if there are NECs), and the Gateway Minimum test is required if multiple plans or multiple groups are involved.

Do these final regs also require tests like Top-Heavy testing?

Here's a quote from final regs.

"These final regulations, like the 2004 proposed regulations, require a section

403(b) plan to comply with the nondiscrimination requirements for matching

contributions in the same manner as a qualified plan. Thus, a non-governmental

section 403(b) plan that provides for matching contribution must satisfy the

nondiscrimination requirements of section 401(m)."

What if someone tries to argue that a plan became top-heavy because of grouping? If that assumption could be made, then it could be argued that the Top Heavy test is part of the "nondiscrimination requirements" that a 403b plan must "comply with" "in the same manner as a qualified plan"?

Am I interpreting this too harshly?

Please say yes.

IE: Are there other Non-discrimination tests that may be required (like some unusual version of the coverage test)?

Please say no.

Is there any way for a self-employed individual to make deferrals currently to an existing plan for 2007 since it's only now that their 2007 profit is being determined? I would guess not, but I seem to recall hearing that "accrued compensation paid" up to 2 1/2 months after the close of a year can be used for certain things and wasn't sure if this situation could be construed as such. Is is too late to make '07 deferrals?

I'm confused.

For a safe harbor 401(k) Plan: SH contribution is basic match

Eligibility requirements for salary deferrals is three months, but for the safe harbor match eligibilty is one year of service.

This would mean that there would be salary deferrals that would not be matched with SH contributions for a new participant that entered the salary deferral portion of the plan mid year. I thought any and all salary deferrals had to be matched if the SH contribution is to be matching contribuitons.

When filling out the checklist for a new SH plan, don't you have to make sure that the salary deferral eligibility requirements and entry date is the same as for the SH match so that all salary deferrals get matched?

Employer has an elapsed time method of counting service so that employees become eligible for (k) deferrals after 3 months have gone by. Employer thought that it was hours counting and so employee needed to work a certain number of hours. One employee did not work that certain number but did have the 3 months of service. Employee does not make much money and would not have participated if given the opportunity, so I am told. Employer is reluctant to give the standard correction of 1/2 the ADP of the NHCEs for the missed year. Is there any other way to correct this error?

Any ideas would be great!!

Thank you!

Are distributions from Nonqualified Deferred Compensation Plans reported on a 1099 R?

If not, are they reported at all to the IRS? If so, on what tax form?

Thank you

A 401(k) PSP does not have a last day worked or hours requirement in place for participants to share in the PS contribution. If a 401k plan participant leaves a company, but will receive salary continuation for the next 2 years as a condition of his leaving, is the participant eligible to receive a share of the PS contribution, based on his compensation even though he may not be employed at all during the plan year? Similarly, can he make 401(k) contributions given his status?

Thanks

Plan one (DB) has dual entry.

Plan two (PS) has monthly entry.

Both require 21 & 1, 1000 hours.

Do I have to test the person hired 11/29/06 who enters PS on 12/1/07?

Do they get gateway under combo plan testing, even though DB entry is 1/1/08?

Are they otherwise excludable, so I can test them separately?

I think the person must be included in the test, but looking for a cite.

My search of prior posts did not answer this question.

Purchaser is buying assets of Seller. Purchaser will also employ many (but not all) of Seller's employees. I am being told that Purchaser would like to "adopt" Seller's qualified plan.

I was not aware that this can be done. In asset acquisitions I have dealt with in the past, Seller's plan terminates and the plan participants either get a distribution or roll their plan money either to an IRA or to Purchaser's plan (assuming such participant becomes an employee of purchaser).

I don't know how Purchaser can just adopt another entity's plan; yet I am being told that this can be done.

What happens to the plan participants who do not become employees of Purchaser?

Has anyone ever seen this before?