May a governmental plan qualified under Section 401(a) accept rollovers by employee/participants from another qualified plan or IRA in which they participated?

I recently reviewed a case wherein a securities broker (from a large national wire house) was receiving commissions from a group annuity contract brokered to a 500 pp 401(k) with over $40 million in assets. The broker was providing written investment policy statements and fund specific advice to the plan committee and other advice related activity as evidenced by a review of plan committee minutes and reports. The broker does not deny this and even stated in the meetings that he felt that his recommendations and whether they were actually "advice" was a "nuance". We pointed out that this was a prohibited transaction and he may be required to disgorge his compensation as a result. The broker and his broker dealer have been very quiet since our findings were provided to the committee (we assume they now realize they are functional fiduciaries involved in a prohibited tranaction). The Plan Sponsor wants to know if they have any responsibility regarding this prohibited transaction with the plan. Is the burden of repair entirely with the Broker? Does the Plan Sponsor have any liability or obligation to curtail or repair this activity? Has any plan or plan sponsor liability been created?

In addition to giving investment advice to the plan committee, it also appears that the broker may have done so with plan participants. When confronted with this the borker indicated they were complying with the provisions of PPA. However, no formal PPA program or third party audit for participant investment advice exists.

Comments regarding this behavior and consequences or repairs would be appreciated (especially as it pertains to the interaction with the plan committee)

I have a Calendar Year plan, 1/1/06 - 12/31/06.

The Plan failed the ADP test, and want to do a QNEC.

The Plan Doc calls for the QNEC to be based on thePro-Rata Method Using Bottom-Up Based On Compensation. Can I do a Plan Amendment now to change the QNEC method to the Per Capita Method?

Plan is a 401(k), that allows employees to choose an Employer Stock fund in addition to 12 other broadly diversified mutual funds. Plan has never restricted participants from investing in the Er Stock fund, either incoming or outgoing. Client decided that no er stock diversification notice, pursuant to IRS Notice 2006-107 needed to be sent in early 2007 (by 2/1/07) since there was no change to the "open door" policy on er stock investment.

My first take on this, would be that the client should have sent the notice out to all current participants anyway to be safe. After going back and re-reading 2006-107 (http://www.irs.gov/irb/2006-51_IRB/ar09.html), though, I am a little unclear as to whether this would apply or not in the situation described above. Seems like it only describes needing to send the notice to affected participants, which for this plan would be none, since no easing of restrictions was needed in this case?

Thoughts?

Have a client currently sponsoring a cross tested plan for company A (future parent company of company B). Future company B will be a wholly owned subsidiary of company A, but will have different Federal tax ID #, and a separate payroll. Owners want to ensure all eligibility and benefits currently being provided (k feature, match, x-tested formula) continue to apply to new employees of company B. Plan document is a volume sumbitter doc. Is there a plan amendment that should be completed to reflect the new company as a covered group, or should they simply be treated as new employees of company A?

Thanks for any help!

I have a plan that has a non US citizen wishing to change their beneficiary after a divorce from ex spouse to child. They have submitted a decree from a county in England. My question is, are there any other issues to be considered as this is a non US court document, before we can make this change?

Thank you for your help!

Hello Everyone,

My question is regarding hardship distributions. My employer allows for these distributions and I am in the process of applying for one. I am currently late on the 1st bi-annual installment of my property taxes (not an insignificant amount in my area, unfortunately) and the 2nd installment is coming due in 2 days. I am current on my credit cards, mortgage, and car loan, but I carry balances on the revolving credit and I am barely making ends meet on a month to month basis. I would like to take a 1x distribution to pay in full my taxes and the credit cards and gain a bit of breathing space.

Would being late on the taxes qualify as a hardship distribution for the purposes of the penalty? If so, can I take out more than the actual amount I am behind on the taxes so I can pay down the other revolving debt?

If this does not qualify, what portion of the distribution is subject to taxes? If I took out a $20,000 distribution and was hit with a $2,000 penalty, is the full $20,000 subject to taxes or just the net amount of $18,000?

Thank you all for your responses. I am not proud of the fact that I am in this situation and I do not take my financial obligations lightly.

Does anyone have experience asserting "mitigating circumstances" to reduce the VCP sanction for failing to timely amend for the final minimum required distribution regulations for a DC plan?

We submitted a 401(k) plan for a determination letter in February 2007. Plan sponsor failed to amend for the new minimum required distribution regulations (actually, there was a 2 sentence amendment that said plan would comply with the rules, but with no detail whatsoever). IRS reviewer says sponsor failed to adopt a good faith MRD amendment, which I think we almost have to concede. However, all other amendments have been made on a timely basis, and the reviewer had only one substantive comment on the plan document itself (related to the top heavy provisions, which, given the plan's size, will never be an issue under this plan).

Plan has been in operational compliance on MRDs at all times, which can be shown by the recordkeeper's adoption of a process to comply with the final regulations.

Plan sponsor is looking at a hefty penalty for a single oversight during the 20-plus year history of this plan. Reviewer says he hasn't heard anything yet that would support mitigation.

Can anyone help? Thanks.

2 related employers maintain their own calendar year 401k plans and the plans aren't aggregated for testing. Both don't have matching contributions. One employer has a safe harbor 3% and the other employer's plan is a nonsafe harbor plan subject to normal ADP testing. The employers now wish to merge the nonsafe harbor plan into the safe harbor plan before the end of the year.

Can this be done? We assume the merger will allow short plan year ADP testing through date of merger for the nonsafe harbor plan. What are the issues?

I have a cb with two year eligibility and a nc ps with two year eligibility.

My SH 3% contributions have a 1 year eligibility. Do I have include the employees who are just receiving the SH 3% in my cb/ps cross testing?

I have a plan that I need to test on the ATD method. I have 1 HCE who is a deferred retiree who has been getting actuarial increases from his NRD. I also have 1 HCE and 1 NHCE who have accrued benefits that are wearing away under a prior formula. Their annual accrual is -0-, but I have a question on their ATD benefit. The valuation system (Relius) is taking their current benefit and dividing by current testing service. This seems to overstate the benefit for the deferred retiree, because it now is taking into account the actuarial increase that I could ignore under 1.401(a)(4)-3(f); and understate the benefit for the two wearaways, because their benefit is decreasing with increasing service.

I think I can restructur the three -0-s into their own component plan and test on the annual method, and test everyone else on ATD, but I'd like to know the answer to the above.

Does anyone know if public agencies are subject to discrimination testing for 125 plans? Most of our county employees are primarily covered under collective bargaining agreements with the exception of the management/confidential group. Thanks in advance.

Participant distribution request (via valid POA) was completed and mailed on Thursday. Participant passed away that following weekend. Check was not cut until 8 days later. Distribution was part cash and part rollover to IRA. Does that cash piece go to estate now? or can they both be refunded to trust?

I have a defined benefit plan that does not currently pay lump sums. If I convert to a cash balance and convert the current accrued benefits at actuarial equivalence, do all 417(e) issues go away? What happens if I later add a lump sum option?

I have a client whose original Flex plan runs 7/01 -6/30 and wants to know if they can change to a calander year plan year 1/01 - 12/31, how can i do this?

I know they can amend the plan but can I amend the 7/01 plan year to a short plan year thru 12/31 and then start a new plan year commencing 1/01.

Please advise

I have a client who does not have a plan documen for their 403(b) Plan. The employer contributes to the 403(b) Plan. We are in the process of installing a plan document for them.

My question is - can I file under the VCP Program??? I was told by an IRS Agent that since 403(b) Plans are not required to be in writing, you cannot fix this under the VCP Program. This answer does not seem right to me.

THank you!!!

Linda

After reading the regs and various commentators, I did not think group legal was a permissible benefit in the cafeteria plan. However, during a Sept 4 discussion with various IRS officials, the woman indicated that one could incorporate a group legal plan in a cafeteria plan (but added that she didn't see why anybody would do it). So, I am a little confused. Any thoughts?

In a 401(k) plan, if the enmployer match is stated in the collective bargaining agreement and in the summary plan description, does the amount also have to be stated in the plan document if the union contract is referenced in the plan?

Please provide any appropriate guidance.

Thank you for your assistance.

Two multiemployer Taft Hartley welfare funds are considering merging (more like the smaller one is merging into the larger one.) The Funds are administered by the same group. Are there any issues to be concerned with? What, must be done from a procedural standpoint to effecutate this? Due diligence issues? Forms to be completed?

Thank you.

Two multiemployer Taft Hartley welfare funds are considering merging (more like the smaller one is merging into the larger one.) The Funds are administered by the same group. Are there any issues to be concerned with? What, must be done from a procedural standpoint to effecutate this? Due diligence issues? Forms to be completed?

Thank you.