I have a new client that was using a prototype plan from another firm for its integrated DB plan and its 401(k) plan. That firm adopted an amendment for all its prototypes, DB and DC, in 2005 to reduce the involuntary distribution threshold to $1,000. We are now restating their plans and now that they are aware of what happened to their plans in 2005, they would like to change the threshold back to $5,000.

As I read the 411(d)(6) regs, it looks like they can only do this prospectively for benefits accruing after the amendment is adopted or effective. Reducing or eliminating the threshold is OK, but increasing it is not. (1.411(d)-4 A-2(b)(2) Ex 3(v))

Before I rewrite the plan, I'd like to hear from others on whether you think I'm correct or not.

Terminated participant has 200k account balance and is in latter stages of cancer treatment. Plan currently only allows for lump sum distributions but employer is willing to amend if it will benefit the participant. Participant needs a portion (1/4) of the account to pay for care which will likely take him through his passing. Beneficiary of account is participants daughter.

Can anyone tell me the best way to go about this to make sure that the distribution works for all involved?

Seems to me that the money is better served being left in the plan based on non-spousal rollover options; assuming that an amendment to allow for continuous right of withdrawals or installments could be made. But, perhaps I've interpreted that incorrectly. Thought that if it was rolled from a qualified plan into non-spousal IRA that it goes in the name of the beneficiary but if it's from an IRA then it remains in the name of the decedent FBO the beneficiary. That brings MRD into play far sooner...

What are the pitfalls here? Not likely that anyone else will fall into this category as it's a small business and plan termination is likely within 5 years so precedence of allowing for partial withdrawals isn't a big deal. Participant is not an HCE either.

Anything I'm missing to help get an answer?

Employer has declared chapter 11. As the TPA we are no longer getting paid, and should be a class 6 creditor, so probably nothing will ever be paid.

However, due to the drop in work force, we have 14 individuals that have been sent enrollment forms prior to us knowing of the bankruptcy. Two people, thus far, have returned them expecting to be eligible for benefits.

Our company has not been administering COBRA for exceptionally long and this is our first bankruptcy. My understanding is that once they file, all plans cease to exist. No one is eligible for COBRA. I'm wondering two things.

1) Do the COBRA bankruptcy rules apply to all bankruptcies, 7, 11, 13 etc... Just seems like if it is 11, and they are going to reorganize wouldn't the plan stay in place unless the employer dropped them.

2) If the plans are dropped, shouldn't these employees receive a notice that there are no benefits? I think we could be seen as responsible for this and don't mind getting a letter together and the cost even though we won't be paid.

Any thoughts?

Are disability insurance policies issued by insurance companies and paid by employers treated as deferred compensation under Section 409A? These policies sometimes have a definition of “disability” which does not match 409A.

I’ve seen Sec. 1.409A-3(i)(4), but that seems to pertain to plans of an employer where payments would be made out of the general fund (or, in our most common situation, from receivables that come in after the onset of disability). I’ve also seen 1.409-1(a)(5) which excludes “disability pay” from the definition of nonqualified deferred compensation.(with the same meaning as in Sec. 31.3121(v)(2)-1(b)(4)(iv)©) but, quite frankly, I don’t understand 31.3121(etc.).

Please be kind – I’m a paralegal who does not want to be throwing together plans on Christmas Day.

A single employee plan with assets under $100,000 was terminated effective Dec 31, 2006 but the assets were not distributed from the plan until March 2007. Do we have to file a 5500 for 2006? 2007?

Must FSA elections be spread equally over the plan year? Group is faced with almost impossible task of getting national enrollment done by the first pay period in the new plan year. They want to start with the second pay period and divide FSA elections equally over the remaining pay periods.

Anybody?

Hi, my brain's not working and I'm going around in circles, so I'm wondering if someone could verify my #'s before I call my attorney client and get myself in trouble:

Plan is 5/1/06 - 4/30/07

Comp limit = $220,000

402g limit = 15,500 (or $20,500 for aged 50+)

Annual Addition max = $45,000 (or $50,000 for aged 50+)

HCE = comp > 95K 5/1/05 - 4/30/06 (doc does not use calendar year comp)

thanks!

Annie

I'm getting ready to terminate my 401K single payer plan and just discovered I should have been filing Form 5500EZ since 2002 and haven't been. My plan doesn't qualify for the delinquent filer voluntary compliance program since the only employees are myself and my spouse.Can you give me some guidance on how the IRS treats the penalties? If they follow their rules, it would be $15,000 for each of 4 years. Does it make a difference that I'm terminating the plan? Any help most welcome. Shirah

409A has made it clear that you can move money to the 401k from the NQDC plan after testing.

What about the reverse? Is it possible to defer/rollover the returned excess contributions from the 401k directly to the NQDC Plan? (staying pre-tax)

I've been researching and can only find that the sponsor must make a taxable distribution to the participant.

I would appreciate any regulation references that would help.

Districts routinely offer retiring teachers a "severance" payment based on accumulated sick leave. A teacher with no accumulated sick leave would be entitled to no severance. Both 409A and 457 contained exceptions for bona-fide sick leave payments. My understanding is that this exception means districts will not need to be concerned about the final 409A regs. Agree?

There doesn't appear to be an EPCRS correction method for this problem. Do you apply the general correction principle of putting the participants in the positions they would have been in had the failure not occurred? If this is the case, should their elective deferrals made during the 6 months after the hardship distribution be taken out of their plan accounts and taxed? Thanks in advance.

An employee has exhausted all flex dollars for the plan year ended 6/30/07. She has a $900 OB Care bill that started in June. She will be seen for the next several months and is making payments as time goes on. What is sufficient documentation for reimbursement for this claim? The bill turned in today states a prior balance of $835, todays charges of $225 and payment of $325. She requests a full reimbursement of her payment. Can we do that or does 'todays charges' have to be at least the $325? Thank you!

Rec'd new question today - participant is filing bankruptcy and requested a hardship withdrawal from her employer for overdue association fees as well as attorney fees. My gut response was that bankruptcy was not a qualifying event and if participant got an eviction notice due to late assoc. fees and/or mortgage payments, those would qualify. Employer told me she thought one's home is protected under bankruptcy. I have no experience or knowledge in this area (whew!). So - is the bottom line that the participant is unable to use the hardship provision due to non-qualifying event? Thanks in advance to anyone that responds!

The owner gives everyone the required 3% safe harbor non-elective, however he decides he does not want one for himself for only the 2006 plan year....can he do that? Being the owner, can he elect on a year to year basis, when he himself, would recieve the 3% if in fact all NHCE's got their correct allocation?

A Financial Advisor was told today, that in the next 2 years all 401k plan must allow for In-Service Distributions, is that true? What can I read about this if it?

Thanks

We represent a plan that has a few participants, some with significant account balances, who cannot be located. These participants are approaching their required beginning dates and the administrator is getting nervous. He would like to distribute these accounts in accordance with the EBSA guidelines for terminating dc plans with missing pparticipants. Is this possible/advisable? It seems that the EBSA gidelines only apply to terminating plans. If we don't distribute these accounts, is the plan in any potentially difficulty under the RMD requirements? Can we just hold these accounts indefinitely? Any thoughts would be appreciated.

A Financial Advisor was told today, that in the next 2 years all 401k plan must allow for In-Service Distributions, is that true? What can I read about this if it?

Thanks

My spouse and I are in a high income bracket ($120K AGI), but we have hardley any deductions, making our taxes really high ($15K). We are planning on buying a new house in the next 1-3 years.

We are also planning on contributing the max to Roth IRA's until we are ready to buy a house, which will lower our taxes approx $2200 a year. We will then take out the contributions we make and use these funds as part of a down payment. It is my understanding that this money will not be subjected to the early withdrawl penalty or earnings taxes (withdrawing contributions only). I do realize that I will have to report the withdrawl as income, but this will be offset by the reductions in taxes from closing costs, property taxes, mortgage interest, etc. And, while we are waiting to buy the new house, this money grows tax free. We already contribute more than enough to our 401k's so saving this money for retirement is not an issue. We are simpling looking for the best way to lower our taxes and save for a large down payment.

Can anyone give me any reason as to why this is not a good plan?

Thanks for any advice!

I Had a call from a CPA on one of his clients. His client has a 3% matching SIMPLE IRA plan.

An employee who became eligible 3 years ago never got into the plan because the investment company sales rep left the bsuiness. Nothing ever happened since. Now the employee is leaving and the employer wants to make her "whole". She is also expecting the last matching contributions also.

Any ideas on who is at fault here ?? Can he just give her a check as a bonus for her forgone matching contributions and have her sign a hold harmless agreement ?

Any thoughts would be appreciated !

Bob

In a 401(k) plan that is currently participant directed, can you switch to a pooled account that would be trustee directed? All of the participants leave their money in money market and have expressed interest in having the employer handle the investing for them. Would this take anything more than an amendment?

Thanks for the help in advance.