In 2006, plan sponsor pays former participant with a check from the trust written to the person for the 2004 year end balance. Doesn't tell TPA (lucky me) until now. No withholding and no 1099.

Is there a "proper" corrective procedure?

I have an employer with a SH plan, 3% NEC. They also provide a match of 100% of 6% and an integrated profit sharing contribution. So, very generous to employees. Very nice employer - pays employees well, etc. Small company with less than 10 employees. The owner's wives signed forms saying that they wanted to withhold 6% of pay (since that is amount necessary for full match) but they actually contributed up to dollar limit, which for them was about 75% of pay. They are being audited and auditor wants wives to return all deferrals over 6% since that is what the form says. This seems ridiculous to me since plan is safe harbor, no one was harmed etc. Any suggestions on convincing auditor to let deferrals stay in plan?

May a plan subject to 409A provide that upon the death of a participant the amount of benefits paid as a lump sum will be equal to the amount of life insurance proceeds received by the employer? The remaining account balance would then be paid over a period of years.

Because the employer would retain the ability to control the amount of life insurance it holds on the participants, I am worried that such a plan provision would be deemed an impermissible acceleration of benefits.

I have been doing alot of thinking,all this talk about SS going belly up in the not too distant future?.

and if it may happen I want to open an IRA (ROTH) for my daughter now at the age of 10.

I have read the basics on a IRA for minors,like having to keep records that she baby sat , dog walking etc.. for x amount of dollars yada yada....

how hard does anyone think,it would be to open an IRA for my 10 year old. (them letting me start ira for 10yr old)

I had done some calculations, just $25 a month for 55 years @ 10% intrest would be around $700k for my daughter when she is 65. I know that in 55 years $700k would not be much money, but it will be 700k more than I will have when i'm 65.

Thanks,

Barry Myster

I am new in the field of 401k plan administration and want to get some explanation of a couple of things.

We'll assume that the plan has a 401k feature and a profit sharing plan feature.

1. If a plan is NOT self directed and all plan money is in one trust account, not segregated, then my understanding is that the recordkeeping is allocated for each participant based on the overall return of the trust fund, including taking into account transactions. Therefore the account balances for all participants must be computed based on total plan assets by the plan adminstrators and the bank or trust custodian does not play a role in this matter.

Is this basically correct?

2. If alternatively, a plan is self directed then my understanding is that each participant must have a segregated account that is determined presumably by the custodian (i.e. Schwab, Fidelity, etc.). And thus it would seem that the plan administrators (if not Schwab, Fidelity, etc.) would not be required to perform record keeping, other than perhaps determine which amounts are vested, since there are segregated accounts. Or perhaps they are sub accounts within the one master trust account.

Is this basically correct?

Thanks.

We have a client that sponsors a small DB plan with 15 participants.

They have a 2-20 vesting schedule and would like to provide a more generous schedule (1 year 25%, 2years 50%, 3 years 75%, etc). In addition, they wish to make this schedule effective back to 2002. Is it possible to amend a plan to provide more generous vesting retroactively? They have only ever had 4 terminess who were all partially vested and dont mind paying additional benefits.

I have the following questions on the MA employee HIRD form mandate:

1) For purposes of determining who has to be furnished the employee HIRD form, the employer's medical plan provides that an employee becomes eligible to participate in the cafeteria plan on the first day of the month after s/he has been employed for 30 days. So, for example, if an employee is hired on May 15, s/he will become eligible for the medical plan on 7/1/2007. The HIRD regulation is not very clear on when the employee form has to be furnished to a new hire who has become eligible under the plan because it requires the form to be returned to the employer within 30 days "of the applicable open enrollment period." Does this reference to the open enrollment period mean the annual open enrollment period for the following year which would end in either October or November? Or, since each newly hired employee may enroll within 31 days of when s/he iks first eligible, does this refer to the 30 days after the end of the 31-day period in which the employee may enroll under the plan? In other words when does the employee HIRD form have to be returned to the employer in the example in the above scenario? Would it be August 31 (i.e., 30 days after the 31-day enrollment period in which the employee is first eligible)? January 31 of the following year? If the former, it would appear that we would have to issue the employee HIRD form to employees hired to work in MA on or after April 15, 2007, would have to be issued the form. Such employee would become eligible for the plan on June 1, 2007, have a 31-day period to elect to enroll ending July 2 and, if s/he declined coverage, would have to returned the completed form to the employer by August 1.

2) Under MA law, the cafeteria plan has to cover employees who normally work at least 64 hours per month. These employees would never have been offered coverage under the medical plan (which is confined to those expected to work at least 1,000 hours in a plan year). My question is, when do we need to furnish such employees the employee HIRD form?

S1.415(a)-1(g)(4) grandfathers the benefits accrued as of the end of limitation year that is immediately prior to the effective date of the regs. So for a calendar year limitation year the benefit accrued @ 12/31/06 would be preserved.

An employee's monthly accrued benefit under the plan @ 12/31/06 is $8k (100% of 401(a)(17) Hi 3) and his S415 Hi 3 is $10k (which is less than the $Max).

PV of $8k using the plan assumptions is 1.3 million and PV of $10k (S415 Hi 3) using the S415 assumptions is 1.5 million. So he could have been paid 1.5 mil.

Absent the grandfather rule, under the new regs, the S415 Hi 3 benefit will now be $8k with a PV of $1.2 mil.

Assuming the employee's average comp remains unchanged in the future, under the grandfather rule, is the S415 maximum payout equal to:

PV of $8k using the plan assumptions or the PV of old Hi 3 of $10k using the plan assumptions?

Any input gratefully received ...

I’m self-employed, and my QRP Plan 1 (small, sole-participant, never subject to annual filings) closed in 2004, assets rolling over into a new plan (Plan 3) in January 2005. I’ve just learned that I should have filed a first+final 5500-EZ for it, so I’m panicking. In deciding how to proceed, my reading of this forum has been very helpful but leaves me still confused on some points ...

(1) Are the late penalties the same for FIRST+FINAL filings for plans in an under-$100K situation as they are for ANNUAL filings (by definition for plans over $100K)?

(2) As a sole priorietor, am I ineligible for DFVCP even if I file a full Form 5500 (though eligible to file 5500-EZ)? Or am I better off penalty-wise by throwing myself at their mercy directly rather than via DFVCP, anyway?

(3) Until now, I’ve handled 5500 filings myself. Beyond the (now) obvious arguments for using a professional, will this late filing and plea for mercy be better received by IRS / DOL if it comes from me personally or through a professional accountant? How best to beg for mercy?

Some filing history may be useful. Combined value of my plans reached $100K for the first time in August 2005 (after Plan 1 closed), and I began annual 5500 filings for Plan 3 starting with the 2005 plan year. But back in 2002 when my only other plan (Plan 2) closed, I had doubted that a first+final 5500-EZ was required (the document I’d consulted was silent about the under-$100K scenario) -- but I DID file one, purely as insurance, with a cover letter saying I didn’t think it was necessary and to please throw it out if they didn’t require it. (They didn’t reply.) More recently, a third party (it doesn’t matter who, the responsibility's mine) erroneously told me that final filings weren’t required in the under-$100K scenario, so with my doubts wrongly confirmed I didn’t file an “insurance” final for Plan 001. Which brings me to my present fix.

Thank you in advance for any thoughts!

Someone please tell me if I have this wrong, but continued medical coverage that is taxable to the participant is excluded from 409A during the COBRA period, but subject to 409A afterwards. Once you're out of the COBRA period, you comply with 409A by following the rules on fixed payments under1.409A-3(i)(1)(iv). Yes? No? Help!

A husband and wife are only participants in their 100% owned company DB plan.

They are terminating the plan and each have a lump sum value worht $50,000.

Scenario 1 - say plan is invested in one piece of real estate worth $50,000 and cash in the amount of $50,000.

Can one of the participants receive an in-kind distribution of the real estate? Can the real estate be directly rolled into an IRA account that accepts such an investment?

Scenario 2 - plan owns a piece of real estate worth $100,000 and no other assets.

Can the real estate be rolled into each aprticipant's IRA account where each has 50% ownership of real estate?

The questions above are regarding the legality. Of course the plan will have to provide for the above as well.

Thanks.

Need a little clarification with what appears to be a loophole in the law. One of the glaring differences between the roth IRA and the roth 401(k) is the contribution amount each year. For 2007, I believe, the limit for the roth IRA is $4,000 while the limit for the roth 401(k) is $15,000. Another difference between the two investment vehicles is that there are no required distributions for a roth IRA while the roth 401(k) will force me to start withdrawing money at a specific age (I believe 70½).

I would like to combine the best of both of these types of investment and it appears that there is a way to do this. I wish to combine the high contribution limit of the roth 401(k) with the stretching power (no minimum distribution requirement) of the roth IRA. To do this I plan on maxing out my roth 401(k) each year that I am at my current job (let’s hypothetically say 5 years). When I leave that job, I will take my roth 401(k) and roll it to my current roth IRA which I have been contributing to each year. I believe that this is done with regular 401(k)s all the time. When you leave a job, you are allowed to roll a regular 401(k) (from a previous job) into a traditional IRA. Therefore, are you allowed to roll a Roth 401(k) into a Roth IRA? If I can do this rollover, would the government make me set up separate roth IRAs stipulating which I contributed money to as a roth IRA and which I contributed to as a Roth 401(k). I have not seen any published information on this loophole (if it does exist!) that could generate millions of dollars for investors. I am 27 now and am maxing out my contributions to my Roth 401(k). Can I be exempt from the Required Minimum Distribution of the Roth 401(k) through conversion to a Roth IRA as I leave each place of employment? Apologize if I wasn’t able to explain my question clearly. Comments welcome.

This question relates specifically to COBRA third party administrators (TPAs).

Typically a COBRA TPA will send out a COBRA qualifying event notice and election form package using its own proprietary COBRA election form. The proprietary form will permit the qualified beneficiary to elect COBRA coverage under all types of group health coverage the employer offers, including for instance dental as well as group health.

The problem is that the individual insurance carriers are insisting on timely completion of their own COBRA election forms, and are denying COBRA coverage where, for instance, the qualified beneficiary timely elected COBRA using the TPA's "omnibus" election form, but failed separately to complete and send back the Delta dental election form. Usually the carriers' separate COBRA election form contain self-protective language such as an arbitration agreements, and this self-protective language is the primary feature that sets the carrier's form apart from the TPA's "omnibus" COBRA election form.

Keep in mind, the TPA's omnibus election form contains all information required by COBRA regulation to make a timely and informed election, and also permits election of all coverages subject to COBRA. So, in the qualified beneficiary's mind, he or she checked off "Dental" coverage as part of their COBRA election, and understandably are confused when Delta refuses coverage for lack of a timely completed, separate COBRA election form.

The question is, can the carrier legitimately deny COBRA coverage to a participant who timely elected COBRA coverage under the carrier's policy, using the "omnibus" TPA election form, but did not sign off on the proprietary election form, where the "omnibus" election form contains all information required under ERISA to make a timely COBRA election?

Put another way, can a carrier condition COBRA coverage on a participants' signature on arbitration provisions or other non-COBRA language?

Comments are appreciated.

Can I use Form 5558 rev August 2004 even though they have a new form now (rev January 2007)?

Company A is spinning off its subsidiary, Company B. Effective as of the date of the spinoff, Company B will establish plans for its employees identical to those of Company A, including a 401(k) plan and a DB plan. As soon as possible after the spinoff, both Company A plans will transfer assets and liabilities for the Company B employees to the Company B plans.

I have always understood the general rule to be that an employer has until the earlier of the date that contributions are made to the plan or the end of the year in which the plan becomes effective to adopt a plan document. Thus, under Reg. Section 1.401(k)-1(a)(3)(iii)(A), Company B's 401(k) plan must be adopted no later than the spinoff date in order for employees to start make elective deferrals at that time.

I can't find any clear guidance with respect to the DB plan, however. No employer contributions will be made to the plan until some later date, so the general rule would say that Company B has until the end of the year of the spinoff to adopt a plan document. Would the fact that a transfer of assets and liabilities will occur shortly after the spinoff change that so that a plan document should be in place as of the spinoff date?

Employer wants to merge its money purchase pension plan into its 401(k) Plan.

The money purchase pension plan contains several life insurance policies.

Is there any reason these can't be transferred to the 401(k) plan when the plans merge?

We just discovered that a client untimely distributed one Notice of Plan Benefits for its terminated defined benefit plan. I have found information on the PBGC's penalty policy and notice of noncompliance, but cannot seem to locate information on how to report the delay...is there some kind of program that we can enter to pay the penalty or is this just something that we have to wait for them to discover on audit?

Interesting ruling, and quite confusing. Rather counterintuitive, because this treatment is quite different from other items of compensatory property (such as restricted stock).

If an employer makes fully vested contributions to a non-exempt trust, the employer is liable for the FICA tax withholding and the trust is liable for income tax withholding. 1 payment, 2 W-2s.

If the contributions are not vested, value of the trust is taxed later when vesting occurs. At least in this case there is only 1 w-2 required, by the trust. However, since the trust is treated as a separate employer the full FICA tax is applicable (even if the employee's regular wages equal or exceed the wage base). The employer and trust, therefore, may each end up paying the full employer portion of the social security portion. The employee can get an income tax break to offset the overpaid social security taxes -- but would this violate 409A?

And what happens if the trust is subject to graduated vesting? Time to upgrade the computer.

We have been approached by several governmental entitles looking to invest in our financial products. These entitles do not have a plan document. We are interested in offering a 457(b) prototype plan document to be used by governmental entitles.

If you know of any service providers that offer such a governmental 457(b) product, please advise the name of the company and, if possible, the name and number of a contact.

Thank you.

We came across a DB plan that uses a document (from a major provider) where the participant receives the greater of 1) the formula with continued service/salary or 2) an increase of 6% only per year on the normal retirement benefit. However, the plan's definition of actuarial equivalence is 7.5% GATT.

Can the plan have an actuarial equivalence definition where the post-retirement actuarial equivalence is something like:

Would that be alright or would this violate something from those ancient proposed rules?