The regs state that termination and distribution of participant accounts prior to the effective date of the regs is permissible if the contracts are updated to comply with the final regulations. The plan I'd like to terminate has a plan document. Other than adding a provision that allows for distributions upon termination, does that document have to comply with the final regs or can we terminate "as is"?

Person is beneficiary of an inherited IRA. He dies after he has been taking RMD's. Estate is beneficiary. Can the estate continue to take distributions in same manner as he was?

Client has a new corp from which he willtake a small salary. Can a db plan use a high 3 average comp from his previous sch c income to fund for a benefit that is higher than 100% of the current year w-2 income? No previous db plan.

If a prohibited transaction occurs, and the plan terminates but the PT has not been corrected, is there any effect on the PT or correction method?

The ERISA Outline book says that the taxable period for determining the amount of the excise tax on a PT is the first of the following dates:

1. The date the IRS issues a notice of deficiency for the excise tax,

2. The date the tax is assessed, or

3. the date the transaction is corrected

I understand the corrected part, but what triggers the first two?

My example, a client has land in their 401(k), and they want to buy the land from the plan. If they buy the land and pay the excise tax, the transaction is not corrected, so the taxable period continues. What would cause the issuance of Notice of Deficiency, or cause the IRS to assess the tax?

I'm not an expert on PT's, but I want to give the client some things to consider with their attorney when they start considering this.

Any pointers would be greatly appreciated.

This is a very bad joke. The punch line is going to hurt. What is really sad is I drag it out so long. I wouldn't be surprised if Dave Baker kicks me off for this one. Exit now before it is too late.

Ok. You were warned.

Our story takes place in Russia, back in the good old days, before the glorious revolution, before there was talk of ‘proletariat’ and ‘bourgeoisie’ and other terms I have no idea how to spell. And it concerns a certain Rudy Rudovich, who lived in one of the small villages that surrounded Moscow. Rudy was a poor dirt farmer. That is being kind, perhaps in a good year he had a bumper crop of ‘dirt’. You see, Rudy was missing a few screws, so to speak. And our hero was quite the hen-pecked husband.

Once when I was telling this joke someone stopped me and said I shouldn’t be redundant. Hen-pecked and husband go without saying. Now, I have to take the individual’s word for it. I have never been married, and as I am in my mid 40’s maybe I will never find that out. Well, anyway, it was “We need more firewood, Rudy” and all he could reply was “Yes, dear.” Or “Are you done with the dishes?” “I will get to them as soon as I finish the sweeping, dear”. Poor Rudy. Day after day. Month after month. Year after year.

If I had more time, I would explain where the term ‘hen-pecked’ comes from. But that is another bad joke, and it’s Christmas, and having you hear one bad joke is unkind enough for the season.

One spring day, the sky was dark and threatening. But it was mid-April, and Rudy always sowed the seeds that day, and he wasn’t about to break his pattern. His wife had invited some ladies over. They were playing bridge, and drinking tea, and eating cupcakes with frosting on them. You know, the ones cutely decorated with those little round silver candies on top. Yeh, I thought you knew. Well, Rudy grabbed his seed pouch and headed out the door. Oh, maybe some of you don’t know. Those little silver candies are called dragees. You can get about 2 ounces of them for a couple of bucks. Well, maybe if they are on sale you can get them cheaper, but they are not that expensive. And you get so many of them, I don’t think they would ever sell them in bulk. Did you ever read the label on them?

It says ‘Use only as a decoration’ and ‘Non-edible’. I’m not kidding. That’s why they make them out of sugar so kids won’t eat them. Yeh, right. But seriously, look at the ingredients: Sugar, corn starch, gelatin, acetic acid and silver. Honest. They actually use silver in making these. That’s why you aren’t suppose to eat them. You could get silver poisoning. Oooohhh. A plot for a muder mystery. Slowly poison someone by…oh, that’s another story. Anyway, do the math, silver sells for around $4.50 an ounce [gee whiz, 5 years ago, now its around $14.50] and you purchased 2 ounces of these things for a couple of bucks. There must be enough silver in these things to, hmmm. And that would be if you ate the whole container of them. Guess I wouldn’t lose sleep over whether you ate any or not.

Ok, see you learned something new, so maybe it was worth reading this far. Now leave before you get to the punch line because it is going to hurt.

Where was I? Oh yeah, Rudy was going out the door to plant the crop. About 5 minutes later there was a clap of thunder, and the skies burst forth with a torrential downpour.

Of course, one of the ladies blurted out “Guess it won’t be long before your husband comes back, huh?” to which his wife replied “Rudy? That idiot hasn’t got enough sense to come in out of the rain”

And so it was true. One hour, two hour, all morning rain, rain and more rain. And still Rudy had not returned. Finally, about lunch time Rudy swung open the door, soaking wet. The ladies looked up at this somewhat pathetic looking figure, but rather than express any words of comfort or sympathy, there was nothing but giggles. And then his wife let into him.

“Don’t you dare track mud in the house”

“Yes, dear”

“And don’t you dare hang your wet things over the furniture”

“I won’t. dear”

“Rudy, I swear, I don’t think you even know what rain is, do you?”

“Guess I don’t dear”

Looks like it’s gonna be another banner year for the dirt farmer!

So spring passed by, summer followed. One Wednesday evening, about 7 there was a knock at the door. Rudy’s wife looked up from her book and shouted “There is someone at the door”

“I’ll get it, dear” Rudy said, emerging from the kitchen, soapy hands, apron and all.

He opened the door, and standing there 6 individuals – members of the newly formed communist party. They had a very good sales pitch. “Be a Red, or be dead”. A convincing argument, especially when accompanied by the guns they brandished. They wanted Rudy to go their meeting that night, and, though he wasn’t the brightest, Rudy knew it was in his best interest to go. He had started to walk out the door when that old familiar voice resounded “Not until you finish the dishes, mister”

Rudy returned to the kitchen “Of course dear. How silly of me”

One of the communists took a step in and said “Listen lady…” but that was as far as he got.

“Excuse me. Did I invite you in?”

Wisely, he took a step back. Perhaps the world of events might have been different if there were more Mrs. Rudovich’s!

It took Rudy about 5 minutes to finish his chore and off he went. Secretly, his wife was glad. She put her book down, got up from her chair, went over to the bookcase, and behind the third book on the middle shelf pulled out a chocolate bar.

The Wednesday night meetings went on for about two months.

(By the way, I could have picked any night of the week, it has nothing to do with the joke if you are trying to figure out where this is headed. I will warn you again to give up on this one, it will save you a big groan at the end.)

After about two months, the communists (or Reds, if you will) decided they weren’t making much progress with Rudy. They convinced him he would best serve the party by simply growing food – they would handle the nasty end of things. They even managed to convince him it wasn’t a good idea to plant in the rain, as the seeds washed away. And to top things off, they gave him a red bandana to wear. “Remember Rudy, be a Red or be dead” Wear it for your health. Rudy was only to happy to comply.

Fall came and went, followed by winter. Rudy put up a Christmas tree (well, this is a Christmas joke, I have to fit Christmas in somewhere). It was one of the few times of the year there was peace in the house. Ok already, the rest of the year his wife gave him a piece of her mind. But that’s not the punch line I have been warning you about. It is coming. Beware!

Spring came at last. And it was almost like déjà vu. Threatening skies. The wife had the ladies over for bridge. There were iced cupcakes, but no silver candies on top this year. No, not because they were worried about the warning labels, but simply because Rudy’s wife was on a diet.

Rudy headed out the door armed with his seed bag. And just like last year the skies opened up. Terrible rainstorm. Of course the ladies started in with some nasty remarks, remembering last year’s fiasco. Finally, to climax the snide remarks Rudy’s wife said “I told you that dolt doesn’t know what rain is”

And at that moment, the door swung open, and banged against the wall. Now Rudy’s wife was sitting in the chair with her back to the door. She didn’t know Rudy was dry – he had been standing under the eves on the porch rather than being out in the garden. The other ladies were somewhat speechless, so his wife, bidding 2 hearts, added “Don’t track mud in the house”

“Not muddy dear” Rudy replied.

“Well don’t drip water all over the place”

“Not wet dear” came the reply.

“Look, Mister. Don’t get wise with me. I know you don’t have enough sense to come in out of the rain. Like I was telling my friends, you don’t even know what rain is. Just what have you got to say for yourself?” And turning, her jaw dropped as she saw her husband standing there, dry and clean.

And the Rudy, waving that red bandana the communists had given him simply said

“Rudolf the Red knows rain ….dear”

I warned you it was bad.

All kidding aside, may God bless your holidays! Much Peace in your homes!

Can an employee of a company of 20+ employees opt out of the plan for a private Medigap policy?

Thanks for your help

Ken

Does anyone know if the PPA technical corrections bill was passed?

A company is closing Dec 31 and I need guidance of what needs to be done to terminate the 401(k) plan. Any helpful resources would be appreciated.

Also, the plan has been slowly laying off people since July and have had issues with making contributions since so we will have to figure excise tax and lost earnings. Of course the 401(k) is not the only thing they haven't been paying. The bank and creditors are lining up outside their door looking for money. Maybe I'm getting a little ahead of myself, but what if they run out of money before all contributions, excise tax and earnings can be made up?

An employer decided, effective with the plan year beginning 1/1/08, to add a safe harbor match to an already existing 401(k). They sent the notice on December 1, 2007 but, yes - you know what's coming - they missed a group of employees (about 15%) when sending the notice.

Can this be corrected and the safe harbor status maintained? The 401(k) reg don't appear to allow the plan to have a fall-back ADP/ACP testing if it is a safe harbor. Question #10 from the June 2006 ASPPA Q&A's indicates that it could be corrected under VCP but I'm not sure what the correction is:

http://www.irs.gov/pub/irs-tege/epcrs_asppa_qas.pdf

Has anyone used VCP for this before? I guess that the company could go back and eliminate the safe harbor match (giving notice of course) which is really not to the advantage of the participants. I don't know that they have actually signed the plan amendment yet. Am I missing something here - there should be a better way to fix it. Other ideas? Thanks.

PAL

potential client referred to me was told (in writing by a major HR firm) that it is too late by regulation (not laziness) to start a 401(k) Plan for 2007. "plan must be in effect for one month. 12/1 was the deadline."

this is not a Safe Harbor plan - there are no employees.

I have searched about and can't find any reference to any deadline other than last day of year.

(I told him to tell HR company to set up the plan with a 2/28/08 year and then have a short year 12/31/08. seems to work around OK to me. can't be that easy if that is a real reg.)

thanks

I wrote an e-mail to Americans United for Separation of Church and State:

Hello, I have been familiar with your group since at least reading an interview with Mr. Lynn in American Legion magazine in the early to mid 1990's.

I work for the IRS, and an issue that occurred to me and my fellow trainees is that it is mentioned that churches do not have to file 5500s for their defined benefit or defined contribution retirement plans, but once they do, they are locked in to doing so afterward-so we wondered why they would do that. I dug up a book by Paul Blanshard which pointed out that in the recent past (after 1870), the courts had stopped deciding property disputes in favor of the lay members of the congregation ( i.e. the non-clerical members) and had started deciding matters in favor of the bishops and hierarchy. I will include an excerpt of this passage from Blanshard at the bottom of my e-mail, but I draw your attention to it only in that it reminded me of the fact that in court cases lay members of churches can easily stand to lose in favor of the bishops.

So, do you know of, or have you handled, any court cases involving defined benefit plans or defined contribution plans and churches where the churches filed a 5500? Or retirement plans where the churches did not file a 5500? If so, in these cases, who won? The lay or clerical members?

________________________________________________________________________________

_______________________________

* I remembered a book by Paul Blanshard called God and Man in Washington. On page 60 of that book, the author writes "In matters of institutional power, the Court cannot maintain such neutrality. When a quarrel for the possession of physical property breaks out in a church, someone must decide which faction has title to its physical assets. In such cases the Court follows the charter of the church and not necessarily the conventions of democracy. If the charter is congregational, the congregation rules. If the charter is autocratic, the bishops rule. This policy is something of an innovation, since the courts before 1870 tended to say that any church could be ruled by a majority of its members. What Professor Mark DeWolfe Howe of Harvard has described as "enforced congregationalism" has now been abandoned". Howe used that phrase in Leo Pfeffer's Church, State and Freedom, specifically Volume I of the Conference Proceedings of "The Institute of Church and State" of Villanova University, 1958.

Blanshard mentions two notable cases regarding Church property, Kedroff vs. Saint Nicholas and Saint Peter's Roman Catholic Parish vs. Urban. The former case involved the conflict with the Moscow home church and a New York located church in 1952, and the latter case involved Bishop John F. Dearden in Pittsburgh and the Urban Redevelopment Authority.

Their answer:

No, we’ve never handled any cases like this. A tax attorney who specializes in non-profit organizations would be a better resource for you.

http://public.findlaw.com/mboards/webx.htm...0@.ef068a3/1977

IRC Code 414(u) military deferral, Rev Proc 96-49, CFR

1002262, IRC 414(u)(3), DOL Reg. 20 CFR 1002.265©

I was doing some research on these topics. I have a

brother in the military. Does anyone have any info on

how this applies to a benefit plan.

t has to do with military leave. What happens if the employee benefit plan has a last day provision, and the employee goes off for his or her military service before the last day of the year? Does the employer have to make a contribution for that year?

Also, anyone with any info on plan terminations?

Can't seem to find a clear answer on this...

Grandmother owns a traditional IRA. She dies. Mother is sole beneficiary. Mother starts taking RMDs at age 70 1/2.

Mom now dies. Son is sole beneficiary. How are the remaining IRA assets treated?

1) Does he have to take it all in the year of death?

2) Can he take it over Mom's life expectancy?

3) Can Son take it over his life expectancy? (I don't think so).

4) Something else?

Co A has a 401(k) and was purchased by Co B in an asset sale. The 401(k) was not part of the sale and is in the process of terminating. Co. A has a couple of 'EEs who are age 70 1/2.

Am I correct in that those 70 1/2 employees would have to take a MRD from the Co. A's plan? Or does it matter if Co. B purchased Co. A prior to the termination of A's plan and they (A & B) would have been considered a controlled group and therefore those 70 1/2 employees have not yet terminated employment from the controlled group yet?

NQDC plan was set up some time in 2002. Plan has 5 participants who all made deferrals until 6/30/05, then stopped. Plan has not yet been amended for 409A.

Is there a violation of 409A?

If so, I understand the penalty to be income taxes + 20% excise tax + interest, right?

Can this be avoided by amending the plan to be compliant with 409A prior to 2009?

Thanks!

A stock appreciation right vested in 2006 and was not in compliance with 409A. (It is subject to 409A because it doesn't fit the reg 1.409A-1(b)(5)(i)(B) exception to deferred compensation). Part of the violation included the employee having the right to elect and in fact electing to postpone payout until 2008.

For 2006, there was 409A income subject to withholding and reporting in an amount equal to value in 2006 (stock value less exercise price), when the employee first had the immediate right to exercise the stock right. However, the employer did not realize its reporting and withholding obligation with respect to the amount that vested in 2006.

The stock price has gone up since 2006.

Does the employer have to report and 'withhold' on the 2007 increase? or just wait until 2008 when actual payout will take place?

Also, any suggestions about how to handle the missed 2006 reporting and withholding at this late date?

There have been rumors around that COBRA audits on the horizon...does anyone have documentation or knowledge on this? I have contacted the regional office and they were not very helpful.

Regarding a Keogh Money Purchase Plan: If MPP is frozen in Jan 2008 can the contribution for 2007 tax year be made after it is frozen (Feb or March 2008)? If the contribution for 2007 must be made before it is frozen (ie contribution made in Jan and plan frozen on March 1) will a contribution need to be made for the first two months of the 2008 tax year? Thank you!!!

I'm working at a TPA firm where they suggest clients with late deferrals go through the Voluntary Correction Program. I have not encountered this at prior employers - we always filed 5330s and deposited the lost earnings and called it good. I went through an audit a year and a half ago in which a client had late deferrals and had filed a 5330 & deposited the earnings - the auditor was satisfied with that alone.

I currently have 2 clients who have late deferrals totaling less than $3,000 each. I'm wondering how many of you use the Correction Program in a case like this and if something has changed recently where the industry is using the Correction Program for late deferrals.

Thanks!