A non-profit client asked about funding the plan on a plan termination basis rather than on an ongoing basis using long term assumptions. I thought there was a reg or rev rul or rev proc about not allowing funding on a termination basis, but i can't find it. Does anyone have a cite??? Thanks.

I have a plan where the HCEs cannot receive a lump sum because the plan does not meet the 110% "Solvency" Test. An HCE has terminated and has elected to receive a lump sum but due to the restrictions he is receiving an annual installment equal to his actuarially equivalent life annuity. At such time as the plan meets the 110% rule (for purposes of this question, ignore the PPA lump sum restriction soon to go into effect), he will take a lump sum of the "actuarial" balance of his lump sum.

I believe that the annual installment can be rolled over into an IRA. Admittedly this is a gray area. My logic is that he has not elected an annuity or a 10+ year installment payout. He has elected a lump sum and is settling for the greatest allowable annual installment until he can take the balance of his lump sum. Therefore, this is a periodic payment that qualifies for rollover.

Does anyone agree with this position or, if not, why? Has anyone heard of this issue being addressed by IRS in meetings or other forums?

I have tried other usual resources and contacts and have been unsuccessful in locating this full GRIST report from Mercer:

GRIST Report: PPA's effect on 2008 DB pension plan lump sums

Do any of you have access to this publication and be willing to e-mail the article? Thanks.

I have a owner who owns 100% of two completely separate companies, Clinic A and recently purchased Hair salon B... he currently has a plan that covers only Clinic A... Am I correct in telling him that we have to test the eligible employees for both companies for coverage testing?

Can I get the reg #s that show yes or no?

Have a two companies with identical owners. Both owners own 100% of each company. The second company therefore adopted the first companies plan. They fund separately but to the same institution. Is it one 5500 filing for the group or two 5500's, one for each company?

We represent the plan and review DROs for compliance. A participant applied for benefit commencement and the file revealed a DRO submitted for review in 1993. The DRO was not approved and the details of the noncompliance and suggested solutions were communicated to the participant, alternate payee and their counsels. Then, nothing. The 1993 letter was the last correspondence. What should we do now? Thanks for any thoughts.

Can an employer who maintains a P/Sharing Plan terminate the P/S plan and transfer funds to a SEP established for each participant at xx financial institution with e/r continuing to make future contributions to their SEP accounts, or do the rules require the P/Sharing plan participants to receive a distribution from the terminated plan, giving them the option to open a SEP (or simply move to an IRA) wherever they wish?

Related question re future contributions of employer to new SEP:

For future contributions to the SEP that the employer may establish at xx institution, can the SEP arrangement be limited to that institution, or does the employee always have the freedom to establish their own SEP wherever they wish and require the employer to send the contribution to the institution they have selected to hold their SEP?

Thank you.

Under the new diversification rules (ignore the transition rules please) an employer can limit the times when divestment and reinvestment in employer securities occur, as long as reasonable opportunities occur at least quarterly. The catch is that employers can’t impose restrictions on employer securities that are not imposed on other investments “unless circumstances require different treatment.”

What kind of circumstances do you suppose they're talking about? I don't think we'll know for sure until additional guidance is issued, but I'd like to here comments. Thanks.

We have a 401(k) plan being audited by the IRS, where one of the owners defaulted on his loan. We issued a 1099-R in 2003 in accordance with 72(p), but kept the loan on the books as there was no distributable event (the participant is still employed and is under age 59 1/2). IRS agents are telling me that they treat participant loans lose the P/T exemption under 4975(d)(1) once they go into default. However, I can't find anything to support this in the regs--4975(d)(1)(E) says the loan must be "made in accordance with the plan's terms" which it was - the participant just didn't comply with the loan terms. Our agent directed me to 1.72(p) Q&A 16 stating that taxation of a defaulted loan that is a P/T doesn't correct the P/T, but that doesn't state that the default status creates a P/T.

The agent is requiring that the loan principal and accrued interest be repaid in order to fix the P/T. What happens when a participant refuses to make payments - would the employer be subject to P/T excise taxes each year forever? This case is different, because the participant is an owner and will be partly responsible for P/T taxes, but there's no distinction in 4975(d)(1) between owner and non-owner participants.

Does anyone have experience dealing with the IRS on this issue?

Thanks

[Additional clarification]

Payments were originally made in accordance with the loan's terms, then stopped due to financial difficulty. Additionally, the loan fully complied with the plan's loan program and was bonafide when issued.

Does anyone have an opinion on whether a Trust composed of several non-affiliated union employees will be considered a VEBA? All participants are covered by a collectively bargaining agreement.

If the trust is currently a VEBA, what steps should the Trust take to confirm that such a change has not effected its VEBA status.

Does anyone have an opinion on whether such a Trust would be considered a MEWA where all participants are covered by a collective bargaining agreement (even though unaffiliated unions)?

These contributions are considered in determining the maximum employee deferrals. Is there any reason to track them separately?

This question has come up twice for us in the past week and we thought we knew the answer but are now questioning it again...

If your plan has semi-annual entry dates for salary deferrals (including making modifications to current salary deferrals), when do you implement the change? Is it based on payroll period or paydate? For example, salary deferrals are to begin on July 1st. The first pay date is 7/3 but the pay period end date is June 30th. We thought the salary deferral agreement would go into effect with the 7/3 paydate, but two clients have come back and said that because the pay period ended June 30th, they waited until the 7/17 pay date.

Any thoughts or support you could refer me to?

I have a non-profit home health 501©3 organization that currently has a 401(k) plan and wants to terminate their 401(k) plan and establish a 403(b) plan. The reasoning behind the change is mainly because a salesperson told them they never should have been set up with a 401(k) plan and they could save o money by switching to a 403(b) plan.

It is my understanding the 403(b) plan would not be considered a successor plan so this could be accomplished in the same year. The plan has no HCE and is a deferral only plan which is currently invested in Nationwide product.

My knowledge about 403(b) plans is limited and more limited with regard to the differences of an ERSIA versus a Non-ERSIA 403(b) plan.

In light of the new final 403(b) regulations, could someone help explain to me why or why not this organization would be better off with either a Non-ERISA or an ERSIA 403(b) plan.

Any help would be very much appreciated.

In 2006, Client completed forms directing the 401(k) plan trustee to do a direct rollover to her IRA. The rollover was received by the custodian of her IRA and recredited to her IRA account. The client just found out that her IRA was a Roth IRA and not a tranditional IRA.

The client did not intend to convert this distribution to a Roth IRA, and would have told the IRA custodian to open a separate traditional IRA if she had been advised at the time of the rollover.

According to the IRS Notice on Distribtuions, the direct rollover should not have been made to a Roth IRA.

So, besides telling the IRA Custodian to transfer the distribution plus earnign to a tradtional IRA, what else has to be done to correct this error?

Hello,

I am contemplating turning my traditional IRA into a ROTH and can't find a solid answer surrounding what is a qualified ROTH IRA withdrawal (not subject to 10% penalty)

Here's my scenario:

Under 59 1/2

had Roth IRA for LESS than 5 years

If I convert my traditional IRA into a ROTH IRA tomorrow, I want to have the option WITHIN the next 5 years to either:

1. Withdrawal money to buy a house

2. Withdrawal money to pay for higher education expenses from an accredited institution.

Can someone please tell me exactly what the tax implications are for each of these scenarios for a ROTH IRA that you've had for less than 5 years?

Thanks

Notice 2007-6 described three safe harbor rates for interest credits, one of which is "the rate of interest on long-term investment grade corporate bonds (as described in § 412(b)(5)(B)(ii)(II) prior to amendment by PPA ’06”.

The cited code section in turn refers to "the weighted average of the rates of interest on amounts invested conservatively in long-term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year."

So does the 2007-6 safe harbor refer to actual interest rates on corporate bonds or 4 year averages?

Any comments appreciated.

As I understand it, in-service distribution options are a protected benefit that cannot be removed upon plan restatement. Salary deferrals cannot be withdrawn until age 59 1/2 per IRC.

When restating a document in a take over situation, how do I reconcile those statements with the exisiting document's provision allowing in-service distributions from all money types at age 55?

Can you do a SH Match Wait and See Notice or does it have to be a Safe Harbor Nonelective Minimum 3% contribution for the Wait and See?

Thanks

I have a participant in a 401(k) PSP (earmarked accts) that took out a loan back in the 1990's to purchase his principal residence for him and his spouse. This loan is scheduled to be repaid in another ten or so years. He got a divorce a while back, his account was divided between him and his spouse, and now he would like to take out another loan to purchase his primary residence since his spouse got the other house. So, now he would have two primary residence loans at the same time (plan allows for 2 loans at a time). Is this ok or does this violate the tracing rules, or any other rules out there? I never do administration on participant loans and now I know why...what a nightmare they can turn into!!

Any input would be greatly appreciated ;-) Thanks!!

Can a QDRO be modified/interpreted after the Alternate Payee has died? The Participant thinks that he is entitled to something, which in and of itself is questionable and a whole other issue, but the participant wants to take the QDRO to the domestic relations court and have them modify/interpret the QDRO to reflect what he says was the intent of the QDRO. If this does not make much sense, then I guess, generally, can a QDRO be modified/interpreted post-death of the alternate payee?

Any ideas are welcomed.

Thanks