We have a client that received a notice from the IRS stating that EBSA had not received their 2004 Form 5500. The plan is a calendar year 401(k) plan, and the due date for the 2004 form was 7/31/05. We sent them the form in March 2005.

They received the notice in June 2007. They found a copy of the 2004 package in their files. It had been signed on July 20, 2005, but they are not sure if it was ever filed. The company was in a bit of turmoil at the time dealing with the bankruptcy of a sister, non-controlled group company and a lot of resultant changes.

They sent a timely reply to the notice along with a copy of the Form 5500 from their files, and indicated that the form had been filed on the July 20, 2005 signing date.

In October, they received a second notice from the IRS saying that they received the form, but that it had been filed late and, unless the company has established a reasonable cause for the late filing, they will be assessed a penalty of $15,000. The notice goes on to ask if the company has filed under the DFVC program and, if so, asks for the DFVC program application date.

It is my understanding that they cannot file under the DFVC program once they receive a notice of late filing. Correct? Both the original June notice and the following October notice asked if they had filed under the program.

I am looking for some guidance on what to recommend- 1. do they insist that they had filed the form timely based on the signature date even though they are not sure that they actually did and hope that the IRS will accept that? 2. do they admit that they are not sure they filed timely and write a letter explaining the circumstances regarding the sister company bankruptcy, etc. and ask that the penalty be waived? (all other 5500 filings have been made timely). 3. can they now participate in the DFVC program by complying with all the requirements of that program including paying the $750 penalty, and indicate a November 2007 DFVC program application date on their reply?

If they truly did not file, it was definitely an oversight and not something this company traditionally does, so I would like to get the best possible result for them. I appreciate any and all comments.

For a participant who elects to defer RMD's until after termination. I understand that the age 70 1/2 benefit is actuarially increased until the actual late retirement date. Would that age 70 1/2 amount be calculated actually as of the date age 70 1/2, or the April 1 of the following year up through actual late retirement date?

Example:

DOB 1/1/30

Age 70 1/2 7/1/00

RBD 4/1/01

LRD 1/1/08

Would accrued benefit at 7/1/00 or 4/1/01 be increased and compared to benefit acrcrued at 1/1/08?

Another question, if this participant doesn't retire but would like to start receiving benefits at 1/1/08 and continue working, would his benefit be calculated as of age 70 1/2 and caught up, or could it just be started now. Participant did elect to defer back at age 70 1/2 and wants to change mind. Question is assuming plan doc allows this, since Plan Administrator wants to allow this, but not sure yet.

For those who aren't yet aware, on October 17, 2007, the IRS issued Notice 2007-83, Notice 2007-84 and Rev Rul 2007-65. Each of these attacks a different part of single-employer welfare benefit plans that IRS considers to be abusive.

Notice 2007-83 names as "listed transactions" (potentially abusive tax shelters) those welfare benefit plans that provide and fund for cash value life insurance contracts.

Notice 2007-84 lists concerns about plans which purport to be non-discriminatory but which in fact result in the owners and key employees receiving all or most of the benefits. IRS threatens to re-characterize such arrangements as deferred compensation, disqualified benefits or other onerous tax treatment.

Rev Rul 2007-65 disallows tax deductions for purported welfare benefit plans that are really the purchase of cash value life insurance policies, as well as deductions taken for disability reserves when no disability payments have been made.

Under both Notices IRS threatened severe penalties against tax return preparers, promoter of the arrangements and those who aid and abet such promotion. This would conceivably include insurance companies who allow their products to be issued and banks whose trustee services facilitate the transaction.

As a result: (1) Most life insurance companies have announced that they will no longer issue insurance policies (or cash value insurance policies) under welfare benefit plans; (2) Most of the plan promoters have to register as such and provide a client list to IRS; and (3) Innocent clients have no way to get out of such plans (other than death), since one of the abusive practices IRS expressed concerns about was closing plans down and distributing assets.

We have a participant taking an in-service distribution. He will be 59 1/2 in one month.

Question: Do we code the 1099R according to his age at time of distribution, or do we code it for his age that he will be at calendar year end?

Thanks!

Newco starts a 401(k) plan that is intended to be a QACA for its employees effective 1/1/2008. For purposes of the minimum contribution increase schedule and the ability to make permissible withdrawals under Code Section 414(w), can the plan be designed so that if the employee terminates employment and is then rehired, s/he is started at the minimum 3% contribution with a right to make a permissible withdrawal? The QACA proposed regs are completely silent on this. Or would it be safer to reset the participant on the automatic contribution increase schedule and/or permissible withdrawal rights only if the employee is rehired with a break in service? Any thoughts?

I have a Safe Harbor 401-K Plan. Is it a general requirement that Elective Deferrals are available for In Service Distribution at age 59 1/2 or does this have to be spelled out in the plan document? Would the Safe Harbor Contribution (Basic Match) be treated the same?

Any help would be greatly appreciated.

Thanks,

SB

The proposed QACA regs call for autoincrease of the minimum percentage immediately following the last day of the next plan year following the date the employee participates. As the preamble notes, this can mean the initial autoincrease may not take effect for two years (ex. employee who participates 1/1/08 will not be autoincreased until 1/1/10). It is clear that you can choose to start with a greater initial percentage (4% in the preamble), but what is not clear is whether autoincreases can be made on a more rapid basis (Employees who participate 1/1/08 autoincreased on 1/1/09? Employees who participate on 6/15/10 be autoincreased on 1/1/11?) Any thoughts?

Situation is this: Govt ER has a 457b plan with no service requirement. Govt ER also has a 401a plan with a 3 month service requirement. An EE wants to make a one time, irrevocable election under 1.401(k)-1(a)(3)(v). That requires the election be made before becoming eligible for any plan described in 219(g)(5)(A).

219(g)(5)(A) included "(iii) a plan established for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing". According to the 457 Answer Book, 4th Ed, at pp 1-15 and 2-13, it is suggested that a 457b plan does not fall under 219(g)(5)(A)(iii). If not, then the EE in the situation may make the irrevocable election during the first 3 months employed. Otherwise, the EE cannot make such an election have employment begins.

Does anyone know the citation of authority for the notion that a governmental 457b plan is not a 219(g)(5)(A)(iii) plan?

We have a plan that wants to do the "match" as a flat percentage of employee compensation. For example, if you defer even $1.00 you get the 4% of compensation that is being contributed for any participant who defers. It is my understanding that this becomes a BRF and must be tested (410b) as such.

Does anyone have any experience doing this testing?

I have a business owner (no employees) who would like to set up a DB plan for 2007. However, he has already funded his SEP (above 6% of comp i might add). Is there any way this contribution can be "re-classified" as a DB contribution? My thinking is that he can set up a 414(k) account, roll the SEP assets into the 414(k) account and the $45,000 that was contributed into the SEP would then be a DB contribution.

Question: What can be done by an employer to correct excess contributions made through a cafeteria plan to employees' HSAs? If not "corrected" what is the penalty to the 125 plan, if any?

My understanding is that the employer can't recoup any $ from the employees' HSA accounts. I understand the implications for the individuals and they need to remove any excess contributions from their HSA accounts and include the excess contribution amount + income as income by April 15 (or applicable tax filing deadline) or be subject to the penalty, but what I am worried about are the implications to the 125 plan, if any. So, please only comment on that aspect. Thanks!

Anyone have a good reference source for old Revenue Ruling (1959) and old GCMs (1977). I tried the IRS.gov website but it didn't pull these up using a general search. I have CCH online but it doesn't seem to go back to 1959 on R.Rulings, Same with Kleinrocks CD.

Regarding fees from the final QDIA regs:

Section ©(5)(ii)(A) shall not apply to fees and expenses that are charged on an ongoing basis for the operation of the investment itself such as investment management fees, distribution and/or service fees, ‘‘12b–1’’ fees, or legal, accounting, transfer agent and similar administrative expenses), and are not imposed, or do not vary, based on a participant’s or beneficiary’s decision to withdraw, sell or transfer assets out of the qualified default investment alternative;

Does this mean if the plan charges a $50 processing fee against a participant's account for the distribution of the QDIA within the first 90 days after the initial investment that is okay even if it wipes out the entire account value?

If the answer seems obvious, I apolgize.

FAB 2006-3 essentially states that a Section 101(m) diversification notice is not required to be furnished if: (1) the plan provided diversification rights prior to 1/1/07 that were at least equal to those required under ERISA 204(j); and (2) the participants received quarterly benefit statements in 2007 that were PPA compliant. That first quarterly benefit statement would satisfy the diversification notice requirement.

Please tell me if I'm wrong, but I don't read the FAB to provide relief from furnishing the diversificaiton notice to participants entering the plan during or after 2007. That simply wouldn't make sense. Anyone agree, or disagree?

What is the difference between a medical expense reimbursement plan (under Code section 105) and a Health Reimbursement Account?

An employer has a MERP in place and has been approached about establishing a HRA. I cannot seem to figure out what the difference is besides the rollover from year to year.

Partners have different ages and thus have different levels of benefit value in a traditional DB plan. I wonder what philosophies you folks are using to "assign" costs to each partner in these DB plans of partnerships in year 2, 3, ...... Of course each partner wants to make sure they aren't getting the shaft by having a greater percentage of costs versus benefits assigned to them than other partners.

the employer notified employees that the plan was a safe harbor matching formula. later in the year the employer implemented a plan design that requires a safe harbor nonelective in connection with another plan. they basically make a mistake in thinking they had a safe harbor nonelective. would they be able to just make the safe harbor nonelective essentially changing the formula they have in their plan? no ee would receive any less.

Does anyone know if any of the main Volume Submitter Doc providers out there have a Volume Submitter plan w/401(h) post-NRA medical expense "account" language as an optional feature ? We use Accudraft and they said they don't have this as an option within their pre-approved Volume Submitter plan. Would prefer to keep it in the Volume Submitter realm if possible, if not, we'll go the long way via attorney drafted customized plan. We'd be happy to edit a Volume Submitter to include this language and submit as customized plan doc but I have no idea of what language needs to be in there.

Plan Sponsor of a terminating 401(k) Plan sent out a notice to interested parties notifying participants of its intent to seek a determination letter on termination of the Plan. Notice was sent out 10/17. Notice must go out not less than 10 or more than 24 days prior to the day the 5310 application is made. Seems Plan Sponsor still can't get its hands on some data required to complete the 5310. If the 5310 application won't be filed within 24 days of giving notice, what happens? Do they send another notice and start the clock all over?

Thanks for any insight.

My client AAA, Inc. is having its stock purchased by BBB, Inc. a Delaware corp and CCC, Ltd (BBB's parent company) which is an Austrailian company. They want the plan to remain intact and to have it cover only the employees of AAA. In the agreement BBB, Inc. is specified as the "Buyer".

Who is going to be the employer? Will AAA continue or because BBB bought all the stock is it the employer? BBB is only a small part of CCC, so it controlls both BBB and AAA.

There needs to be a resolution prepared to exclude all non AAA employees etc. Whose reso?