CPA needs your input on a situation with a client's SEP plan. They made the SEP contributions for the client and her spouse. There was also one employee who was eligible and CPA had calculated the amount for them on her as well. In doing the monthly financials CPA saw that client had written the checks for their contributions but not ee. When questioned why this wasn't done, the client said the employee left their employment in 2007 so they weren't going to make the contribution for her (she was employed at the end of 2006)

Reaction is that they can't do that; if she was eligible she has to have a contribution made for her. The question now is what are the risks to the plan with them funding only 2 of the 3 accounts? Is the plan in jeopardy? Can a SEP be disqualified? Can client "fix" anything by making the contribution now even though it is past the 9/15 deadline for the corporate return?

Thanks for your advice.

Situation: Co A is owned 100% by Z. More than 1/2 of Co A's business is providing management services to Co B owned 100% by Y. We have an affiliated service group.

Co B sponsors a DB plan for Y, the sole employee of Co B. In determining if Z can waive participation without causing a discrimination testing problem, we need to determine if Z is a 'key employee' (since Z is not by earnings alone an HCE and we'd not want to have to make top-heavy minimum contributions for Z if he waives).

The key employee question resolves into what ownership percentage is Z considered to have. The relative revenues of Co B to Co A are 10:1. So, in deciding if Z is a key employee with respect to the plan, how do we determine what percentage Z is considered as owning of the affiliated service group? Is it 100% ownership because Z owns 100% of Co A, one of the constituents of the affiliated service group? Is is 9.09% (1/11) based on relative revenues generated by the companies? Or is some other measure the appropriate one?

401(k) Plan with automatic cashout feature for participant's with vested account balance less than $1,000. The distribution fee charged by the plan administrator for a distribution is $25. If a participant has a vested account balance less than $25 does the Plan have to distribute the balance? Is there any guidance on this issue? Thanks.

As per the PPA, we provide a notice called "Consequences of a Failure to Defer Benefit Commencement" to retiring participants under age 70 1/2. For a plan that has no late retirement adjustment and a participant between age 65 and 70 1/2, would this notice need to be given since the benefit will not be larger?

What are your thoughts on the following scenario:

1 - A Money Purchase and a Profit Sharing Plan merged but kept the sources of money separate;

2 - the new plan did not continue with ongoing money purchase contributions (only Profit Sharing);

3 - company now wants to split the plan to separate out the old money purchase plan assets;

Can the existing PS plan be split in a manner where the MPPP assets are separated out into a PS plan of its own?

The purpose is the client wants to eliminate the MPPP assets (i.e. avoid J&S requirements on that money type) by ultimate termination of a PS plan that only holds the MPPP assets subject to J&S.

Here are two questions I have had in the last few days about FSAs and HSAs. We do FSAs (including limited) but I'm pretty much clueless on HSAs...

1)"My wife just got a new job with excellent benefits that will begin on

December first. If we decide to go with her health benefits and

discontinue my health coverage how would that work since I am on the new

insurance this year? If you could let me know so we can decide which

route to go I would appreciate it." (He now has a HDHP with an HSA)

I would say that he can change because of the change in status.

2)I'm going to be opening a HSA in January. My husband will have a Flex 125. We both have single policies with our employers. He has PPO and I will have a HDHP.

Is this okay for me to have an HSA and him have 125? I know that he can't get reimbursement from my HSA and I can't get reimbursements from his 125.

I would say no to this. She would still be eligible to participate on the flex - even if she spit shakes and pinky swears not to.

Am I going in the right direction on these??

MissChele

I attended a benefits seminar yesterday and one of the sessions that I attended dealt with section 125 plans. The facilitator said that if a person owns 2% or more in a Sub-S corp they were prohibited from participating in the plan. As a recent owner of more that 2% of our corporation and a current participant in our plan, I was caught off guard. I wasn't able to get to the facilitator and question her before she left.

Was the facilitator correct or did I misunderstand her. If she was correct, what can be done at this stage?

In 2008 will a 401(k) plan be required to permit rollovers of tax-deferred contributions to a Roth IRA or will the plan sponsor have an option not to permit rollovers to a Roth IRA? Also, has there been any guidance issued on how the plan sponsor will report the rollovers of the tax-deferred assets to the Roth IRA? Finally, will the plan sponsor be responsible for making certain that the distributee's AGI is under the income limits?

In 2008 will a 401(k) plan be required to permit rollovers of tax-deferred contributions to a Roth IRA or will the plan sponsor have an option not to permit rollovers to a Roth IRA? Also, has there been any guidance issued on how the plan sponsor will report the rollovers of the tax-deferred assets to the Roth IRA? Finally, will the plan sponsor be responsible for making certain that the distributee's AGI is under the income limits?

I think I know the answer, I just need some reassurance and some guidance to citations, if possible.

There are a group of attorneys who have support staff. The company wants to offer and pay for health insurance for the support staff only and not pay for health insurance for the attorneys.

From what I can tell, there would be no discrimination testing b/c the insurance would be provided 100% through health insurance. Also, I'm assuming that attorneys vs. support staff would be an acceptable classification.

Any thoughts?

If an existing 457(f) plan has a rabbi trust and thus the substantial risk of forfeiture was being subject to creditors, how should it be amended to comply with 409A?

A Sole-P, over age 50, maintained a SEP-IRA to which he made a $6800 contribution in 2007. Later in 2007 he joined a 401k sponsored by an LLP (he is a partner) and made a employee 401k contribution of $20,500. Is this allowable or is he considered in excess of the limit?

Mahalo!

For purposes of granting military leave service under a defined benefit plan, how far back in time must be examined to determine missing service periods? Certainly under USERRA effective since 1994, I could see adding military service hours and pay to determine the correct accrued benefit. What about for service prior to 1994? We're hearing some suggestions to go back basically forever, but that would be a nightmare from an administrative perspective. Do you think that 1994 is an appropriate and/or best practice and/or acceptable practice?

Hey Ya'll - what are ya'll using for electronic filing of Forms 1099R? In the past, I have used software which has filled in the data fields for the printed forms, but haven't filed electronically yet. Want to be up and running on this before 2008! Thanks for your help.

An NQDC arrangement provides for a lump sum this year, but the service recipient wants to distribute a life insur. policy in its place. Is this permissible under the regs.? I tend to think it's not permitted but am not positive. Thanks!

Husband (Fred) and wife (Wilma) are co-owners of a business and both are covered by the company's DC Plan.

Both Fred and Wilma had a "required beginning date" of 04/01/07 for purposes of commencing their required minimum distributions from the Plan.

Fred died in 2006, prior to his required beginning date. Wilma received her 2006 required minimum distribution based on her 12/31/05 Plan balance.

In 2007, Wilma (as Fred's surviving spouse and beneficiary) rolled over Fred's Plan balance to her account under the Plan. No money was actually moved. Wilma simply ended up with a "rollover" recordkeeping account in her name and will be issued a 2007 IRS Form 1099-R reflecting the direct rollover of the death benefit.

Since the rollover of Fred's balance to Wilma's account was not effected until 2007, am I correct in assuming that this rollover amount is NOT included in Wilma's 12/31/06 Plan balance for purposes of calculating her 2007 RMD - but will be included in her 12/31/07 Plan balance for purposes of calculating her 2008 RMD?

Consequently, Fred's Plan balance was not (need not have been?) included in any RMD calculation for either 2006 or 2007?

Just trying to make sure I've got my "head screwed on straight" on this one.

Thanks for any and all comments, confirmations, clarifications, etc.

I know one of the options for paying participants out when they refuse to return their paperwork is to an FDIC account. I have no problem and routinely do so to IRAs. We have several participants in a terminated plan that are proving difficult, and any advice would be welcome. I also realise that the unclaimed property route is available, but its extremely cumbersome for the state the plan is in and we want to use it only as a last resort.

Participant One: completed and signed the distribution form. Check was issued. The participant refuses to cash it. Its been quite a few months, check was reissued, still won't cash it. Any ideas? Technically since the participant exists and we are in contact with them and they even responded, I don't see that it qualifies as "lost"

Participants two and three: have account balances just under $500, we cannot locate them, are there any banks or financial institutions willing to open accounts? the smallest IRA rollover I've found an institution willing to take is $500. I thought a regular bank or credit union might, but of course I haven't found one that will let me open up an account in another person's name w/o their knowledge or consent. Any ideas on this one?

Again, I am trying to avoid the state's unclaimed property route.

Thanks.

What ever happened to the proposed phased retirement regulations from 2004 (age 59 1/2)? Have they been abandoned?

It seems to me that the IRS should clarify Notice 2007-86 by clarifying that the following regulations are applied by substituting references to December 31, 2008 for references to December 31, 2007, and substituting a reference to January 1, 2008, for the reference to January 1, 2008:

1.409A-1©(3)(vii) (transition rule for written plan requirement)

1.409A-1(i)(3) (specified employee identification date)

1.409A-1(i)(4) (specified employee effective date)

1.409A-1(i)(7) (nonresident alien employees)

1.409A-2(a)(13)(i) and (ii) (initial deferral election with respect to compensation paid for final payroll period)

1.409A-2(b)(2)(iv) (installment payments transition rule)

Or do you think these substitutions are obvious?

I have a plan where there were some participants overpayments and some have underpayments (of both deferral and match monies) due to administrative error in the allocation. Simply put, the plan is jacked up and there are many issues deeper than this one.

But looking at EPCRS, the correction methods in Appendices A and B don't appear to squarely fit this circumstance. EPCRS seems to focus on exclusion of eligible employees for their share of allocation or contribution. Plus, Section 3 earnings adjusments in Appendix B says the calculation for lost earnings is only to be used for underpayments, not overpayments (corrective reductions).

I'd appreciate any help. Thank you in advance!