Hello,

This is my first time posting to this board, so I hope I am posting this question in the correct area.

I have a plan that wants to allow a terminated participant to take a loan. I have never had this issue come up before. To me, it just makes sense to not allow this. There is no control over the repayments, b/c they would not be coming through payroll deductions. I would think the loan policy would have to be amended as well as the promissory note?

Any advice/experiences anyone could share with me would be appreciated.

Rachel

Taxpayer, a teacher, took a medical retirement in 2000 and at age 55 in 2005, requested lump sum distribution from 403(b).

The 1099-R received from the Payer shows Box 7 Distribution Code as "1" - "Early distribution - no known exception", even though the Payer requested, received and acknowledged certification of the separation from service and Doctor's letter confirming medical cause for retirement.

Taxpayer believed that the Payer company, based on the communication that there was a "Separation from Service" noted on their request letter, should have executed the 1099-R to show a Distribution Code "2" - "Early distribution - exception applies".

Taxpayer contacted the Payer, and were told that they agreed, but that the Taxpayer should file the 1099-R as is, with the exception noted. Which is what was done.

Now the Taxpayer's 2005 return is being examined by the IRS to pay the 10% penalty plus interest.

In 2005, and certainly in 2000, the only information we could get was the Tax Code, which lists "Separation of Service" as 1 of 4 exceptions and Pub. 575 which states: "Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are from a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55."

This is ambiguous, and does not expressly state that the separation AND distribution both must occur in year which you reach 55.

Having taken a medical retirement at age 50, without return to work, and delaying the distribution to age 55 seemed to fulfill the requirement. We could think of no logical reason that an earlier separation would have any impact, if the distribution did not occur until age 55. Especially considering that the original code seemed to give separation of service (no time constraint) equal footing with death, total disability, or age 59 1/2, as an exception to the 10% tax.

Are we just blowing in the wind?

The plan participant dies without designating a beneficiary. There is a surviving spouse and 2 children. This is in Texas. The beneficiary designation form states if the participant "chooses not to designate a beneficiary, it is understood benefits are paid to the surviving spouse." The employer has no other written policy for distributing 457 survivor benefits, but refuses to release funds to the surviving spouse. What should happen here?

amycananaugh wrote:

I now have a question for you guys----I have been suggesting to more and more firms that they shift from a per document per amendment structure of pricing documents to an annual document fee of about $600 for an average safe harbor 401(k) plan. This includes all good faith amendments and required restatements but not discretionary amendments. I would like your thought on this if you will .....

On behalf of my clients, I like getting the one-time document fee out of the way, then moving on. But that really doesn't reflect the nature of the work involved.

I'd personally like to see doc maintenance get easier. Who are we kidding with the constant changes?

Oi vae!

Seen this http://benefitslink.com/articles/washbull070716.html ?

When preparing a 5500 for a client, how do most of you feel that the issue of "late deposits" should be decided for reporting purposes? Are you using the "bright line" standard of 15 days after the month, or the "as soon as administratively feasible" standard?

We have been going with the latter, but it is seeming that we might be alone on this.

Med

Employer fails to perform ADP test in 2001-2006. Once discovered in 2007, the ADP test is performed and it turns out the ADP test was failed in 5 of those 6 years.

For now I'm considering the failure to be significant under the EPCRS Rev. Proc., so that leads us to a VCP correction since we're too far out time-wise on several of the years to use self-correction. The 1-to-1 correction method is quite costly, and the straight QNEC method is doubly so.

Two questions:

1. Anyone have any success in getting the IRS to accept any alternative correction methods for ADP failures aside from the two sanctioned methods?

2. Does either one of the two sanctioned correction methods or an alternative method have to be specifically authorized under the plan document in order to be used?

Thanks in advance for your input!

This involves missed automatic enrollments. Assume we are going to make a corrective contribution based on 50% of what they would have been automatically enrolled at and that earnings will be based on the default investment. Through EPCRS how do you calculate the earnings when you base it on a midpoint?

I've now read several threads on the issue of IRA protection from creditors. There is little concensus and no cites of authority to back up opinions that I can find. Hopefully, there is someone out there that knows a definitive answer to this:

A client has an IRA which consists of monies granted to her from her ex-spouse's qualified plans. The marital settlement was to have $500,000 moved from the ex-spouse's qualified plans to her "rollover" IRA. The IRA is now worth $700,000. This was done per a judge's agreement and no DRO or QDRO was ever in place.

Is her IRA protected against non-bankruptcy liens/creditors? This is in California. Help very much appreciated.

This involves missed automatic enrollments. Assume we are going to make a corrective contribution based on 50% of what they would have been automatically enrolled at and that earnings will be based on the default investment. Do you know how to do the earnings when you base it on a midpoint? (in EPCRS)

A company has proposed conditioning their salespeople's eligibility for their self-insured health plan on sales production. Since the salespeople work on commission, this basically translates into eligibility based on their pay level -- for example, if a salesperson makes $60,000 they are eligible for health benefits; if not, they get no health benefits.

I don't find anything in ERISA that sets forth parameters on how eligibility for a health plan can be set (though obviously eligibility has to be determinable and outlined in the plan document). I see the bigger problem being the tax Code -- sections 125 and 105(h) and their complicated nondiscrimination rules.

Unless the employer is prepared to force highly compensated individuals to pay for the full cost of their health insurance on an after-tax basis, I don't see this strategy being workable.

Thanks for any thoughts in advance.

Recently established a small DB plan (1 100% owner @ 55, 8 employees, some highly paid, all significantly younger). The reality is that this plan will be in place until the owner reaches age 65 and then be terminated. Definitely would not continue in the future after the owner's retirement.

Given small population, not getting involved initially w/ pre-retirement death decrements as death benefit is PVAB and feeling is that death rates would be "false precision" given the small number of participants. However, am thinking of a turnover assumption to reflect the likelihood of plan termination after 10 years.

My question is this: for FASB purposes, I'm projecting COLA increase in the salary and 415 limitation to retirement. However, my preliminary numbers, given the fact that many of the younger people are at the limits right now anyway, gives a NPPC twice as high as the regular valuation cost, mainly due to projections to NRD of their salary and 415 limitations. With this approach, the sponsor will be accumulating accrued pension costs each year drastically higher than the actual contributions going into the plan. However, the plan will end in 10 years (if not sooner), where this liability will go poof (to use an actuarial term). Given this situation, what would people think of some sort of turnover assumption being used reflecting the overwhelming probability of the plan not continuing past the owner's expected retirement? Would still reflect future salary and limitation increases over the next 10 years in the PBO and Service Cost, but not beyond that point. Any thoughts?

The four key employees of a client of ours want to take distribution of their deferral and match balances and roll the proceeds to individual IRA's to make investments not offered by the plan. We advised them that such distributions are not permitted since there has not been a distributable event. We discussed directed brokerage accounts as a possible solution. They mentioned to us that they would "quit" and get rehired. (Remember, they own the company!) We advised them that this action would not create a distributable event.

Today, we received distribution forms for all four employees with a 7/13 termination date. We called the company because the forms were incomplete and learned that the four have already been "rehired". As TPA, we feel it is our obligation to refuse to make the distributions.

1) If the client demands that the distributions be made and fires us, or we resign, do we have an obligation to notify the DOL of the violation?

2) If the distributions are made, what are the possible ramifications to the plan and/or the four participants other than plan disqualification? What about the IRA sponsors?

3) Am I being overly cautious?

Thanks.

We have a doctor that sponsors a SIMPLE IRA plan. He has an associate (doctor) that he was treating as an independent contractor. It was later determined by a State auditor that the associate should have been treated as an employee.

Since the associate wasn't considered an employee by the employer, he was not offered the SIMPLE plan. If the associate would have been considered an employee from the beginning, he would have been eligible in 2006.

Since the associate was subsequently re-classified as an employee, for the SIMPLE purposes, I would think you should treat him as an eligible employee in 2006 forward and correct under the EPCRS program by having the employer make a QNC for missed deferrals plus earnings plus related match, etc.

However, a question came up: Since he is not a rank and file employee, is there any way he can sign a waiver electing not to participate in the SEP retroactive to 2006 when he thought he was an independent contractor?

The Plan provides for a max. of two loans (one per year).

Ppt wrote a bad check to pay off a first loan. Ppt had an existing second loan. Ppt was given a third loan after the first loan was "paid off". Ppt cashed the check for the third loan before the plan administrator realized he had been given a bad check for the first loan payoff.

First loan was re-established. Now ppt has three loans in violation of the plan. One loan has to go.

Is the first loan a deemed dist'n? Should the third loan be a deemed dist'n because it should not have been established?

Ppt states that due to problems with the IRS freezing his accounts, he is unable to payoff any loan. (Could loan 3 be a hardship loan?)

Guidance Please!

Our plan has always required spousal consent on loans and any type of withdrawals. We've been told that it's virtually impossible to remove a spousal consent requirement from the plan, although we can remove it going forward, but we would still have to require spousal consent on the "old" money. Is this really the case?

Are the requirements for plan amendments for multiemployer plans different than for private plans? May a plan that is not amended for EGTRRA etc. continue to operate without amending the plan till the required to be submitted under the new determination process?

Can a state entity such as a Borough or Township that has pension plan offer an early retirement window to only nonunion employees without violating ERISA or other applicable laws?

Thanks!

IRC Section 162(l)(2)(B) says that a self-employed individual is not entitled to the above-the-line deduction for health premiums if he/she is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer of the spouse of taxpayer. What is the definition of "subsidized health plan" for this purpose?

If spouse's employer provides employee-only coverage for spouse but no employer-provided coverage for family, is that a subsidized health plan? If spouse's employer pays 10% of the cost of family coverage for spouse, is that a subsidized health plan?

The TPA for whom I work is a tiny division of a much larger company. Management (comprised of people without backgrounds in the TPA world) is being asked by a mutual fund client to have our administrators take on the responsibility of determining new plan sponsors' status as a controlled group or affiliate service group instead of our current practice of requiring them to have their attorney or CPA make that determination for them.

The administrators are not comfortble with this. Several of us have ASPPA designations, one is a CPA, one is CEBS, one is an attorney, several others have no industry designations. We are looking for some published guidance to show management why it is NOT in our company's best interest to honor this request from an important client that they are anxious to accomodate.

Does anyone have any suggested resources?