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.

very strange but true, and I only know this because the Dodgers have a minor league team (AA) here in Jacksonville.

Currently on the roster they have a guy from China whose name is Hu. He is a very good fielding shortstop, batting over .320 this year so a good chance he will make it to the big leagues soon.

Yesterday the Dodgers signed a guy out of college whose last name is Watt.

If he is any good, then someday at a Dodger's game it is possible that you will hear

Hu's on first and Watt's on second.

good grief, shades of the old Abbot and Costello routine.

I wish to prepare the simplest possible election form for my client who does not want an immediate lump sum. The plan provides for in-service distributions at or after normal retirement date, and the participant's normal retirement age is less than 70-1/2. It seems to me that the regulations provide four choices:

1. A life annuity (including C&C and/or COLA if permitted by the plan terms)

2. An annuity certain (including C&C and/or COLA if permitted by the plan terms) for no longer than the participant's life expectancy (in whole years, based on the table in the regulations)

3. and 4. Same as 1 and 2, but as a joint & contingent annuity

My questions:

1. Is the above correct?

2. Can a participant choose to receive more than the required minimum in any year?

If the answer is yes, then the only choice to give the participant would seem to be the one which produces the lowest required minimum, as this would provide the greatest flexibility. Is this correct?

If the answer is no, then offering all four choices would seem to provide the greatest flexibility. Is this correct?

3. If the answer is yes, does choosing a larger than mimimum distribution in any given year affect the required minimum in subsequent years?

4. What, if anything, would change if normal retirement age were greater than 70-1/2 (e.g., participation began at age 68)?

Thanks in advance.

I bill some of my Plans on the basis of Participant defined as Eligible +terminated with account balance.

Does anyone know of a report which shows active Participants and account balance for version 12X?

It would be great if it counted them, but I would settle for a report with a column of names, column showing status and a 3rd column showing account value, preferably vested value.

A client is employed by a local school district, the client is having a claim problem, asked the school district for the SPD - the response was we don't have to provide them since we are a government agency - this doesn't ring true. The plan is self-funded. Can you provide some advice on this?

If you have a participant that request a hardship withdrawal and the only documentation you collect was a signed statement by the participant that states the hardship is to pay medical bills. You are later audited the auditor discovers the participant did not qualify for the hardship. What/ who is pentalized and how? Can this cause the plan to be disqualified>

We have a client that discovered that several eligible employees were improperly excluded from the plan. This discovery happened during the existing plan year, and the employer intends to make QNECs for those improperly excluded employees. The question was raised, and I'm surprised I haven't seen it before, is do they need to amend their plan to provide for corrective QNECs? There was an earlier thread that dealt with this issue in the ADP context (i.e. if the method of correction provided for a QNEC to be made, and the plan, as currently drafted, did not allow for QNECs to be made, that the plan could be amended to allow for a correction by QNEC - from the EPCRS Rev. Proc).

I'm not really sure that this is a comparable - I've never seen a 401(k) plan that contains language that says "in the event of an operational failure, the plan sponsor may make contributions to the plan to correct such failure".

I thought I'd throw it out there and see what sticks.

Much obliged.

I am trying to find the simplest answer to the maximum contribution of a one person business - incorporated, that is making north of 1,000,000 per year.

He is establishing a DB plan this year and making the maximum contribution he can make into the plan is about 149,000 to provide the max benefit at age 62.

I understand that he can also use a solo 401k and defer 15,500 + 5,000 for a catch up since he is over 50.

QUESTION 1- Can he also fund up to 6% of compensation into a profit sharing portion of the solo 401k up to 29,500 (45,000 limit minus the 15,500 deferral= 29,500).

QUESTION 2- What is the 6% number based on in this total compensation- if he made 1,000,000 but he deferred 20,500 into the solo 401k plus contributed the 149,000 into the DB would his total compensation be 1,000,000 or 979,500 or 830,500.

QUESTION 3 - Is the 6% number essentially capping out at 491,667 of income (29,500/6%) - I guess this number would be clearer if # 2 were answered.

QUESTION 4 - Finally if an individual made enough money is he allowed to max out a DB plan and max out a 401k with a profit sharing up to 50,000 since he is over 50?

I have a client who needs a new prototype.

Accudraft.com recommended by a collegue. Does anyone have any experience with them? Tech support, quality of documents, etc.

I'm drawn to them because of price, frankly.

Thanks in advance for your input!

Can the DOL impose penalties for failure to provide a notice of Special Enrollment Rights? Does anyone have any insight into what action the DOL can undertake if they come accross such a failure. It appears the IRS has authority over this HIPAA provision.

This was in the NY Times 'Puns and Anagram' Crossword Puzzle this week:

5 letter word

"Government provision that might raise pension questions"

(I find it fascinating that whoever composed the puzzle even came up with something like this)

Mom died in 2005. Brother is executor, I am third in line to act if he fails to act. He has liquidated other IRAs and rec'd checks made out to him and to mom and put these into her trust/estate account at the bank.

We have 4 IRAs remaining that do not have a beneficiary listed. Have called the funding agencies and these can pass onto the estate per their contracts. However, one lawyer says we need to do probate?

Why, if there is a will and a living trust document and these spell out what happens to all assets, can't we avoid probate costs?

The estate is less than $100,000. There are 9 children to inherit. Thoughts of what is best strategy? Had thought of doing a 'stretch' of the funds but majority of siblings want to close out everything and move on.

We are all workable with each other, so, majority rules.

For the limitation year 1/1/05 to 12/31/05, a member has an excess annual addition of $1000.00.

All of their deferrals were matched, and the plan document says to prorate the excess from deferrals and match. If the refund was done correctly, then $700 in deferrals would have been refunded and $300 in match would have been forfeited.

Instead, $1000 in deferrals were refunded to the member.

Any idea's on how to remedy this failure? Would it be acceptable to have the member return the overpayment?

We have been approached by a consultant regarding our ESOP (we are an S-Corp). We currently limit distributions to cash, but the consultant says we can amend the plan to distribute stock with a "call option" so that the company can decide when it can come up with the cash to buy the stock from the participant. I assume the stock would also require a "put" option.

Has anybody heard of this? Issues?