We have a client who is a 1/3 owner of a company. His employment will be terminated when he turns 55 and he will receive a severance package which will not be exempt from 409A as it will be paid over 5 years and exceed the short-term payment amount. In addition, his stock is being purchased and he will be provided with a promissory note which will be secured by the assets in the company. The question is can the severance payments also be secured under the security agreement? I do not see anything about this, however, I am worried that this will somehow make the plan noncompliant with 409A. Any comments are appreciated.

I have a client with a calendar year profit sharing plan but they are adding 401(k) and safe harbor NEC effective for 10/1. For the NEC calculation, can I just use pay from 10/1 and only give the contribution to participants in plan 10/1 or later or do I need to go back to 1/1? If it is permissible to just use pay from 10/1, how do I note that in document? The plan has semiannual entry dates and uses pay from period of participation. I am wondering if the period of participation pay provision in and of itself will let me just use pay from 10/1 but not sure...

I have a valid QDRO from 1991. Since then, I have received only two communications regarding my and my ex's benefits (we have separate accounts): #1 in 1996 notifying me of the normal retirement benefit amounts for my ex and myself as of 2011, and #2 in 2001 with updated information on how to contact the PA. Several months ago, my ex contacted one of my relatives (ex and I have had no contact since the divorce) because he wanted to make sure I knew he had been receiving his benefits early (for 2-3 years already!) and that, according to him, I had "$20,000-25,000 waiting" for me. This was news to me since I hadn't received a communication regarding the payout since 1996. I then contacted the PA who has taken 2 1/2 months to "research" my account. They told me they had no obligation to tell me that my ex was receiving his benefits and that they would have only contacted me when he was approaching his 65th birthday! Ridiculous! Anyway, they are supposedly sending me papers to get my payments started (should have received them by now but haven't). Long story short, my questions are these: Am I entitled to a lump sum payment for all the months that my ex has been receiving his benefits, in order to "catch up?" What about interest? Also, the QDRO states that my ex must furnish me within 5 days copies of any documents received from the PA (which obviously didn't happen). Any recourse here? Thanks very much for any and all help!

A non-owner participant terminated in 2006 and turned 70-1/2 on 4/27/07.

She withdrew her entire balance on 4/9/07 and rolled 100% to an IRA.

It is my understanding that any distribution in her first distribution calendar year (2007) must include her 401(a)(9) minimum which cannot be rolled over. Therefore, she has an ineligible rollover contribution that must be treated as an IRA contribution for 2007, and should be reported by the IRA custodian on Form 5498 as a regular IRA contribution, not as a rollover contribution. If she exceeds the $5,000 maximum IRA contribution for 2007, she must withdraw the excess to avoid a penalty tax, though this seems unlikely since the minimum is only $470.

The distributing plan should issue a 1099-R reporting the amount rolled over less her 2007 minimum with distribution code G, and a second 1099-R reporting the minimum amount as taxable with code 7.

This is what seems right to me but I would like to hear from others that may have had this situation or that are confident about how to handle it. Thanks very much.

Does Rev. Rule 2007-43 mean if I have one employee and fire that employee that a PPT has occurred?

Any TPA's here currently using electronic distribution of SPD's to plan participants? I'd like information and guidance.

Thanks,

Wisln

I've seen some providers (one fairly large one, in particular) take the position that SS Integration need only be disclosed on an annual basis (they indicate that they have spoken with their legal counsel on the matter). I couldn't agree more that disclosing this fact quarterly is way over-kill, but the way I read the law the only exception to quarterly info. is for vesting.

So are people disclosing SS integration Q'ly, or annually? If annually, what is the basis?

Assume a plan has terminated a few years back and all assets have been distributed. A former participant them comes around and asks for his benefit. If the participant filed suit, would a court award amounts in excess of the participant's benefit to compensate him for the loss of tax deferred nature of the benefit?

Two employers in a controlled group each adopt a non-standardized prototype excluding the employees of the other. Two HCE's work for both companies and participate in both plans. Safe harbor 414(s) definition of compensation for allocation of the profit sharing contribution is used which includes comp from all related employers. No allocation conditions for contributions. For the year, one provides a 5% of comp discretionary profit sharing and the other provides a 8% of comp profit sharing for the year. Two questions:

1) If the plans pass 410(b) separately then would each HCE get 13% of total comp in the controlled group and you still would have a 401(a)(4) safe harbor? This doesn't seem right to me but I am not sure where the flaw is.

2) If you need to permissively aggregate the plans to pass coverage, even though each has a 401(a)(4) safe harbor allocation formula, the fact that you are permissively aggregating means you can no longer rely on the safe harbor since you wouldn't have the same percentage of plan year compensation for all participants?

http://richardweylman.com/MarketingTip/_Ma...ails.cfm?id=381

On July 4th, Americans everywhere celebrate our country’s independence. The National Anthem of the United States of America, written by Francis Scott Key, is a song that stirs strong emotions in us. Here is a description of the events that led to the writing of our nation’s great Anthem, taken from the words of noted writer Isaac Asimov:

"In 1812, the United States went to war with Great Britain, primarily over freedom of the Seas. For two years, we held off the British and our seamen proved better… Great Britain turned its attention to the United States, launching a three-pronged attack.

"The northern prong was to come down Lake Champlain toward New York and seize parts of New England. The southern prong was to go up the Mississippi, take New Orleans and paralyze the west. The central prong was to head for the Mid-Atlantic States and then attack Baltimore, the greatest port south of New York. …

"On September 12, [the British] arrived and found 1,000 men in Fort McHenry. If the British wished to take Baltimore, they would have to take the fort. On one of the British ships was an aged physician, William Beanes, who had been arrested in Maryland and brought along as a prisoner. Francis Scott Key, a lawyer and friend, had come to the ship to negotiate his release. As twilight deepened, Key and Beans saw the American flag flying over Fort McHenry. But toward morning the bombardment ceased, and a dread silence fell. …

"As dawn began to brighten the eastern sky, Key and Beanes stared out at the fort, trying to see which flag flew over it. After it was all finished, Key wrote a four stanza poem telling the events of that night called “The Defense of Fort McHenry” [and] for obvious reasons, Key’s work became known as “The Star Spangled Banner,” and in 1931, Congress declared it the official anthem of the United States. Presumably, the old doctor is speaking. This is what he asks Key:

OH! SAY, CAN YOU SEE, BY THE DAWN’S EARLY LIGHT,

WHAT SO PROUDLY WE HAILED AT THE TWILIGHT’S LAST GLEAMING?

WHOSE BROAD STRIPES AND BRIGHT STARS, THROUGH THE PERILOUS FIGHT,

O’ER THE RAMPARTS WE WATCHED WERE SO GALLANTLY STEAMING?

AND THE ROCKET’S RED GLARE, THE BOMBS BURSTING IN AIR,

GAVE PROOF THROUGH THE NIGHT THAT OUR FLAG WAS STILL THERE.

OH! SAY, DOES THAT STAR-SPANGLED BANNER YET WAVE,

O’ER THE LAND OF THE FREE AND THE HOME OF THE BRAVE?

ON THE SHORE, DIMLY SEEN THROUGH THE MIST OF THE DEEP

WHERE THE FOE’S HAUGHTY HOST IN DREAD SILENCE REPOSES,

WHAT IS THAT WHICH THE BREZE, O’ER THE TOWERING STEEP,

AS IT FITFULLY BLOWS, HALF CONCEALS, HALF DISCLOSES?

NOW IT CATCHES THE GLEAM OF THE MORNING’S FIRST BEAM,

IN FULL GLORY REFLECTED, NOW SHINES ON THE STREAM

‘TIS THE STAR-SPANGLED BANNER. OH! LONG MAY IT WAVE

O’ER THE LAND OF THE FREE AND THE HOME OF THE BRAVE!

AND WHERE IS THAT BAND WHO SO VAUNTINGLY SWORE

THAT THE HAVOC OF WAR AND THE BATTLE’S CONFUSION

A HOME AND A COUNTRY SHOULD LEAVE US NO MORE?

THEIR BLOOD HAS WASHED OUT THEIR FOUL FOOTSTEP’S POLLUTION.

NO REFUGE COULD SAVE THE HIRELING AND SLAVE

FROM THE TERROR OF FLIGHT, OR THE GLOOM OF THE GRAVE,

AND THE STAR-SPANGLED BANNER IN TRIUMPH DOTH WAVE

O’ER THE LAND OF THE FREE AND THE HOME OF THE BRAVE.

OH! THUS BE IT EVER, WHEN FREEMEN SHALL STAND

BETWEEN THEIR LOVED HOMES AND THE WAR’S DESOLATION,

BLEST WITH VICTORY AND PEACE, MAY THE HEAVEN – RESCUED LAND

PRAISE THE POWER THAT HATH MADE AND PRESERVED US A NATION.

THEN CONQUER WE MUST, FOR OUR CAUSE IS JUST,

AND THIS BE OUR MOTTO – “IN GOD IS OUR TRUST.”

AND THE STAR-SPANGLED BANNER IN TRIUMPH DOTH WAVE

O’ER THE LAND OF THE FREE AND THE HOME OF THE BRAVE."

I work for a TPA that has relationships with a number of fund companies. We handle recordkeeping for our clients and send trade instructions to the fund companies when requests are made through our voice response or websites. As long as requests are made through our systems, everything works fine. Some sponsors and/or their financial advisors have found a way to send trades directly to the fund company for purchases, withdrawals and exchanges. When this happens, our recordkeeping system is obviously out of balance until we can figure out whose account the trade is attributable to.

Does this happen to other TPAs? If so, how do you handle these situations? If not, what are you doing to avoid these situations? Thoughts?

Thanks!

Okay, we are looking at the general test. The plans cover a fairly large number of NHCEs and let's say 3 HCEs (2 owners and an owner's child). On the DC side, all 3 HCEs are eligible. The owner's child is eligible but does not defer, is excluded from the safe harbor allocation, and is in a classification that receives no profit sharing allocation. The DB plan is arranged to provide 0.50% to the NHCEs, zero accrual to the owner's child, and a larger accrual rate for the owners.

If we count this owner's child in the test, we divide by 3 HCEs then our average benefit percentage looks good and we can pass. If for some reason we cannot, then the test fails.

I think this HCE child gets counted so we can divide by 3, but a recent conversation with another actuary has me in doubt.

This HCE has zero benefit in both plans, can we count them in the general test for our HCE count?

when the EA for a plan changes within the same actuarial firm, does that change have to be reported on Schedule C to Form 5500? A number of years ago this question was answered "yes", in particular Gray Book 1992, Q-36. Has anything changed?

I have a client who wants to take a hardship distribution to fulfill a financial need, a divorce settlement. The plan doesn't inhibit distributions to just the four safe harbor circumstances and leaves it open to the two part test of immediate and heavy financial need, and a the distribution is necessary to satisfy the financial need.

The problem is with an impending divorce, can he take that distribution? I would think the account is frozen for an action like that until a QDRO is produced. Also would it matter if he was taking less than 50%, assuming the court is going to divide it 50-50?

The plan doc restates the statute and gives the administrator the ability to determine if the need meets the above tests.

Any help would be appreciated!

I recieve a weekly excel sheet showing compensation from a payroll department. There is comp for a manufacturer's Rep who is not an employee included in it. It is very easy for us to mistake him for a commision salesman of this company and bring him into the Plan.

I want to exclude him and I can see 2 ways to do. I can either create a class or a division of "always excluded". Does anyone see a preference of one over the other?

Can a DB plan be merged/transferred into a new profit sharing plan if all the spousal consents are done?

http://www.irs.gov/pub/irs-drop/rp-07-49.pdf

Main item to note (for me): For failure to adopt required amendments timely, they really want the appendix F used "as is" (Appendix F) from Revenue Procedure 2006-27.

Here is an issue on the interplay of various exemptions from 409A for separation pay.

I've read that in order to meet the 2 X pay/over 2 year exception all payments made on separation are aggregated, so that if an executive received a lump sum severance payment of 2 X pay immediately following separation and additional installment payments over a year, that the aggregated amount (both the lump sum and the installments) would be subject to 409A, because 1. it doesn't meet the short term deferral rule because payments extend beyond the short term deferral period, and 2. it doesn't meet the 2Xpay/2 year exception because it exceeds 2 X pay.

If that is the case, and if you had a specified employee, the entire amount would be in violation because payments in the first 6 months violate the 6 month rule. Since all the payments are aggregated, all of the scheduled payments would be taxed immediately and subject to penalty.

Do you think that is a correct reading of the separation pay/short term deferral exceptions from 409A?

It makes sense to me, but I've seen various comments that seem to say that all separation payments due within the short term deferral period would be exempt from 409A. If this is true, it would be helpful to me to understand the basis for it.

I don't usually work with Nonqualified deferred comp agreements funded by COLI, so am scrambling to get up to speed now that I have one in front of me.

I'm trying to determine what, if anything must be amended for 409A (with which I'm familiar), but I'm not finding a lot of guidance out there.

Since this is a nonelective plan that pays only on 409A-permitted specifed events, it seems we're OK as long as acceleration of payment is not permitted.

But I have a sneaky feeling that I'm missing something. Is the general view that 409A does NOT apply to COLI? I can't find much about it.

Any general insights welcome.

A multiemployer group has maintained a 501©(9) trust for several years. It is used to provide SUB, Death, Training, Health Premium and similar benefits to members. A retiring participant can use his VEBA balance to pay retiree health premiums until the account is exhausted.

Due to the increase in health costs the group made a change 5-6 years ago to begin reimbursing participants for certain out-of-pocket medical expenses (deductibles, co-pays, eyeglasses, etc.)

My understanding from an earlier post is that the IRS is using the HRA guidance from June, 2002 as well as Rev. Rul. 2006-36 to disqualify plans that mix the HRA type benefits with traditional VEBA offerings. (Or are they just deeming the medical reimbursements to be taxable?)

Q1- Is my understanding of the IRS position correct?

Q2- If this is correct, it seems that the problem would be mitigated by running a separate HRA plan (at additional costs) under the same trust umbrella. Agree or disagree?

Q3- Any guesses as to the headache and fines involved if the plan reports the problem to the IRS and takes corrective action?

The IRS seems to be splitting hairs on this issue. Why if a group can offer the HRA type benefits under a 501©(9) trust would they insist on a separation of medical benefits from the others?

Thanks in advance.