A doctor and his wife are the only participants in a defined benefit plan. The plan is underfunded. The doctor has reached normal retirement age but rather than commencing benefits, he wants to make a $100,000 withdrawal which is more than the annual payment under a straight life annuity.

Does anybody think that we get an exemption from the restrictions on payments to HCE's because this is a two person plan with just the doctor and his wife.

Doctor N is getting a Hypothetical Employer Contribution from cash balance Plan S. Does he get credit for a year of participation for 415(b) purposes?

If not, is there some minimum that would start the clock?

Thanks for any help.

A 409A plan requires participants to elect future payments in the form of a lump sum or installment (over 5 or 10 years). The plan contains a reservation of amendment clause permitting the employer (the so-called "service recipient") to amend the plan.

Can the employer unilaterally require payment in the form of a lump sum, even with respect to amounts already deferred to the plan, without violating 409A?

Does it matter whether any of the benefits are so-called "grandfathered benefits", i.e., pre-409A benefits?

Thanks so much for your help.

In a Profit Sharing Plan, if a participant elected out of plan participation at the date they became eligible to participate (meaning that they elect not to receive an allocation of any employer contribution), can they at some point in the future, reverse the election, and elect to participate?

I really don't know how to propose this question... but for 2008, will cb have to test based on the segment rates?

Prior to the final 403(b) regulations a church could simply permit employees to request that a portion of their compensation be deferred into a 403(b) vehicle of their choice; no plan was created.

Initially I read the final 403(b) regs as preserving that rule for annuity contracts and 403(b)(7) accounts for church employees, notwithstanding the material requiring a plan document for retirement income accounts in Treas. Reg. 1.403(b)-9. Treas. Reg. 1.403(b)-3(b)(3)(iii) subjects church 403(b) contributions to the "plan in form and operation" rules only if they are retirement income accounts.

Treas. Reg. 1.403(b)-9 requires a plan document that states the intent to constitute a retirement income account. I assumed that a church's failure to have a plan document meant that no retirement income accounts were created, but so long as the accounts are annuity contracts or 403(b)(7) accounts, that is no problem.

But now it has occurred to me that another interpretation of the new regulations is possible -- church 403(b) accounts MUST be retirement income accounts, and the failure to have a plan document identifying them as such means that they don't qualify as 403(b) accounts at all.

That interpretation doesn't seem reasonable to me, and Treas. Reg. 1.403(b)-3(b)(3)(iii) argues against it. But, having seen that possibility, I'd like to know how others have interpreted these provisions.

Thank you.

Employee is a "specified employee" and also serves as a member of the board of directors of the same company. The employee participates in various arrangements as an employee but also participates in a otherwise 409A-compliant plan in which he can defer his directors fees until he ends his service as a director, which is the distribution event. Is the director's fee deferral distribution subject to the six-month hold out requirement?

We have a client that holds employer securities in the plan but has never reported them. How can we help them correct this plan defect.

Does a contribution to a 529 Plan constitute a "qualified benefit" for purposes of Section 125(f)? I'm pretty sure that employees may elect to have money deducted from their checks, post-tax, for contributions to 529 Plans. However, I'm not finding anything to clarify whether this benefit may be offered through a cafeteria plan.

My client's 401(K) Plan is undergoing an IRS audit. The plan is on a non-standardized Relius adoption agreement. The client elected to exclude bonuses from compensation in the Plan's definition of "Compensation" on the Adoption Agreement. The plan document also defines "414(s) Compensation" and states that when performing the ADP/ACP Test, the ADP and ACP ratios are calculated using the Participant's 414(s) Compensation.

The IRS agent is insisting that since the client has elected to exclude bonuses from "Compensation" and since the adoption agreement states that "Compensation" is the compensation used for deferral and contribution purposes, it must also be the compensation used for ADP/ACP testing purposes.

Have any of you recently been involved in an IRS audit where the client excludes bonuses from compensation for deferral and contribution purposes, but you have performed the ADP/ACP tests using total pay, and the IRS agent "blessed" it? I am looking for whatever ammunition I can find to back my case.Problem with IRS audit

An employee was promised continued medical coverage for life after retirement. This is going to be a taxable benefit and would not appear to meet any 409A exclusion after the COBRA exclusion period. This benefit will start in 2008. Does anyone see anything inherently wrong with modifying the agreement by 12/31/07 under the transition rules to permit a total cash out in 2008 equal to the actuarial equivalent of the cost of continued medical coverage?

I was watching a recent ALI ABA presentation by IRS reps, including Cheryl Press, on 457. She seemed to be saying that a 457(f) benefit where vesting was conditioned upon involuntary termination of employment or voluntary termination for "good reason" (within the meaning of 409A regulations) would not necessarily be a substantial risk of forfeiture (SRF). She seemed to say that the IRS was considering not accepting a voluntary termination for good reason as a SRF because it was not "verifiable" when the IRS auditors came in several years later to audit the payment. Note that Reg. ss 1.409A-1(n) clearly says that for 409A purposes a good reason termination (as defined in that section) will be considered an involuntary termination of employment. However, the only significance of this for 409A appears to be in the exception for a separation pay plan.

My issue is with 457(f) arrangements. In a 457(f) arrangement the SRF determines the date of taxation. So if a good reason termination is not a SRF, does its inclusion in a 457(f) arrangement result in immediate taxation?

I'm not going to eliminate a good reason termination as a vesting event in 457(f) arrangements based on what the IRS might do - it's too important for the executive, and I don't see why it should be treated differently for 409A and 457(f) purposes. Ms. Press is asking for comments on the recent Notice regarding new 457 standards, and this seems like a good area to address.

What do you think of this reasoning by Ms. Press?

I was watching a recent ALI ABA presentation by IRS reps, including Cheryl Press, on 457. She seemed to be saying that a 457(f) benefit where vesting was conditioned upon involuntary termination of employment or voluntary termination for "good reason" (within the meaning of 409A regulations) would not necessarily be a substantial risk of forfeiture (SRF). She seemed to say that the IRS was considering not accepting a voluntary termination for good reason as a SRF because it was not "verifiable" when the IRS auditors came in several years later to audit the payment. Note that Reg. ss 1.409A-1(n) clearly says that for 409A purposes a good reason termination (as defined in that section) will be considered an involuntary termination of employment. However, the only significance of this for 409A appears to be in the exception for a separation pay plan.

My issue is with 457(f) arrangements. In a 457(f) arrangement the SRF determines the date of taxation. So if a good reason termination is not a SRF, does its inclusion in a 457(f) arrangement result in immediate taxation?

I'm not going to eliminate a good reason termination as a vesting event in 457(f) arrangements based on what the IRS might do - it's too important for the executive, and I don't see why it should be treated differently for 409A and 457(f) purposes. Ms. Press is asking for comments on the recent Notice regarding new 457 standards, and this seems like a good area to address.

What do you think of this reasoning by Ms. Press?

I was about to set up a plan to cover 2 owners and about 10 NHCEs, excluding 2 NHCEs, when I read something from the Relius website yesterday, and I became troubled. These 2 excluded NHCEs are the 2 highest paid NHCEs, even though they were both hired in 2007. What I read, under a paragraph entitled "Volume Submitter Plans" said that the IRS is approving the EGTRRA documents with some warnings, and, I quote "In addition, in designing a classification, the employer must not limit participation to only the shortest service and lowest paid NHCEs while excluding the other NHCEs." Then, to really make me stand up and yelp, it said further "... even if the plan can pass coverage and pass the general nondiscrimination test." And as if I hadn't had enough already, it further stated "... such a design under a prototype would not be 'reasonable' under the reasonable classification requirement. Thus the IRS did not require a similar 'warning' in the prototype." Wimper ... please stop ...

Uncle. Has the IRS put a full Nelson (wrestling term) hold on our necks here? Can we even set up a plan like I describe anymore?

We are making a last minute change to the infertility coverage of our national medical plans effective 1/1/2008 (our Open Enrollment is already in process). The coverage will now have a $10,000 maximum lifetime limit (currently we have no dollar limit). Do we have a legal obligation to inform our employees in advance of Open Enrollment of this change? (We will not be allowing employees to make 2008 election changes after the Open Enrollment period).

Has anyone had a plan where they were 100% positive that a determination letter was issued for, but can not find it? Is there anyway to contact the IRS and receive a copy?

When I scan a page into a PDF, Adobe 7 prints it wrong. It always moves it to the edge of the page

high and right. Does anyone know what I am doing wrong?

Need info on "fees" charged for selecting the post retirement surviving spouse benefit in a QDRO. My Ex's attorney states that by making this selection, a fee / charge will be deducted from his clinets monthly income. Does anyone have any ideas?

Fidelity says there is a fee but will not specify an amount until the QDRO has been court certified.

Judge is giving us a month to find out the amount & come to an agreement or otherwise it will have to go to trial which neither party wants.

HOPE Someone can HELP!!!!!

I am finding a lot of the 409A rules are worded very confusingly and that summarizes of the rules put out by law firms and consulting firms are anything but clear. Here's an example:

"Plans within each category are aggregated for each individual, which means that a compliance failure in any plan in that category for that individual will make all of his or her other plans in that category fail compliance as well."

What the does that statement mean in light of the following example:

Jim is a participant in Account Balance Plan 1 and Account Balance Plan 2 (both sponsored by PrivateCo, Inc.--a privately-held entity). Jim and Donna are the only participants in Account Balance Plan 1. Jim, Larry, Donna and Jerry are the only participants in Account Balance Plan 2.

Assume Account Balance Plan 1 violates 409A because it allows Jim (but nobody else) to do something that it shouldn't. Does the rule stated above mean:

1. with respect to JIM ONLY, Account Balance Plan 1 and Account Balance Plan 2 are subject to 409A's penalties, etc. (and benefits provided to the other participants are not subject to 409A's penalties as a result of Jim's problem);

2. ALL participants in both Account Balance Plan 1 and Account Balance Plan 2 are subject to 409A's penalties, etc. (e.g., Larry's benefit from Account Balance Plan 2 is subject to 409A's penalties, etc.); or

3. Something else.

Thanks, in advance for your help/comments.

We are considering expanding our definition of eligibility to cover home schooled children but want to require some type of verifiable documents. We've been told by an employee that the State of Texas does not require any documents. Does anyone have knowledge of this and perhaps provide us some guidance on how to deal with this matter?