I'm having trouble reconciling what I'm reading in summaries by both Sal Tripodi and Deloitte - both sources smarter than I am so I'm suspicious of my conclusions - with the regs.

Both of them state that the annual adjustment applies to limitation years ending the applicable calendar year. I agree.

HOWEVER, they also use an example (Deloitte's is a 6-1-06 to 5-31-07 plan and limitation year) where for 2006, limit is 44,000, and 2007 is 45,000. They state that if a participant terminates employment prior to 1-1-07, that participant's 415 annual addition limit is 44,000.

I'm just not getting this result from the regs, or at least not in the manner I'd assume a plan would be drafted. Under 1.415(d)-1(b)(2)(iii), it appears to me under the last sentence, "However, after a January 1 adjustment is made, annual additions for the entire limitation year are permitted to reflect the dollar limitation as adjusted on January 1."

As I said, I would start off with the assumption that I'm wrong when two such sources appear to disagree, yet I'm not certain where. As long as the plan is drafted to take into account the adjusted limitation, where's the problem? Where is there a specific limitation for terminated participants where the date of termination is the deciding factor? Does the sentence prior to the above citation trump the final sentence cited above? If so, it isn't very clear to me. I'm missing something...

This may seem like a very basic question, but I could use some guidance:

An employer has a basic 401(k) plan with a discretionary profit sharing contribution, no match. In an effort to increase participation the employer is considering adding a small discretionary matching contribution. It does not want to do a safe harbor because, due to the nature of its business, it cannot be locked into making a set contribution each year. So discretion in any employer contributions is key!

Can the matching contribution be truly discretionary so that the plan document only reserves the right to make a discretionary matching contribution annually and the SPD discloses that a match is possible?

Must the employer set out some type of formula, cap, or upper limit??

Also, can the employer add the matching contribution to the plan mid-year (i.e., Beginning June 1, 2007, the employer may make a discretionary contribution) or must it implement it at the beginning of the plan year (i.e., January 1, 2008)?

Thank you!!

A client left us totally out of the loop with a hardship withdrawal taken in April. We have just found out that a participant took a hardship out of profit sharing dollars but the plan states that only deferrals may be used for hardship withdrawals. Also, the client did not suspend deferrals after the hardship.

We believe the participant should reimburse the plan for the amount taken out of profit sharing. Would that be the correct fix to that problem?

We also believe the deferrals that have been deposited after the hardship withdrawal should be returned to the participant, with earnings. Again, is that correct?

Thank you.

Company wants to grant discounted stock options. Can the grants be structured to comply with 409A by requiring that the options be exercised either within the ST deferral period after vesting or only upon a 409A-permitted event (as specified in the grant agreement)? If so, how would it work?

New client has a PSP that does not permit participant direction of investment. It's self-trusteed. The trustee caused the plan to invest in a closely-held LLC that owns undeveloped land held for speculation purposes. Rather than have an independent appraisal of the value of the LLC interest, the trustee and financial officers, with the assistance of a CPA, set the value each year, and that value was reported on the Forms 5500.

The DoL has audited, and the regional investigator in the post-audit report finds the steps taken in that valuation process were not adequate (didn't take the steps an appraiser would, so what was done was imprudent). That is cited as a violation of ERISA's requirement to follow the plan document (which specifies that the trustee will value the assets).

The DoL investigator has also notified the Office of Chief Accountant at EBSA, for its consideration of whether the Forms 5500 for the last 4 or 5 years reporting the 'inadequate' values rendered those annual reports materially inadequate and thus exposed to the $1,100/day penalty.

Also cited post-audit by the DoL investigator is that the mandatory distributions to former employees (those whose benefits are $1,000 or less since 3/28/05, or are $5,000 or less before that) were not being made. This threshold, and a listing of participating, related employers, in the SPD are outdated--now, erroneous.

The DoL is pressing the employer for a corrective action plan and timeline, but offering no suggestions for correction. That's when I'm hired.

I'm considering proposing (a) conforming amendment that would provide for no mandatory contributions, regardless of how de minimis, (b) amendment to stop all further contributions, rollovers into the plan and acceptance of plan-to-plan transfers--and thus vest everyone--© an SMM describing these two amendments and naming the sponsoring employer, but instead of naming the current participating employers, including the statement that upon request about an employer, the PA will indicate if then participating and provide address if so, (d) to keep the costs to the plan (and thus the adverse impact on the employees' benefits) to a minimum, just doing a current valuation through independent appraisal or have other vendor follow that methodology, and (e) asking that the Office of Chief Accountant agree not to impose penalties on already filed annual reports, explaining that requiring retro valuations would just run up the cost to the plan, which specifies it pays for the trustee's costs (and imposes the valuation chore on the trustee).

I don't like 'bidding against myself' but that's the posture the DoL's request for a corrective action plan without offering any corrective steps puts me in. I don't want to offer more by way of the corrective steps I propose than would be necessary. But I also don't want to be so far afield that we don't move this matter along to resolution.

All constructive input will be greatly appreciated.

An ex-spouse is listed as the beneficiary of her former spouse's IRA. If it were a qualified plan, that might be enough to assure that she receives at least some of the assets regardless of what the divorce decree says. But since it's an IRA, and the divorce decree says that the plaintiff and the defendant waives any interest in the other's retirement accounts of any nature, whether 401(k), IRA, 403(b) or defined benefit plan, I'm wondering if she has the ability to get any of that account. Does she have a chance?

Question 1: are employers whose healthcare benefits are self funded exempt from requirement to establish Section 125 cafeteria plan with liberalized eligiblity provisions for full-time employees resident in Massachusetts (e.g., 60 days from hire)?

Question 2: are employers whose healthcare benefits are self funded exempt from health care minimum coverage mandates effective January 1, 2009?

Citations would be welcome!

We have discovered that a client put in too much safe harbor match (SHM) into a participant's account for 2006, probably because they didn't pay attention to his compensation amount (he made $330,300 for last year). They use the regular SHM formula and this participant contributed $15,000 in deferrals. I am ok with his deferrals, but they deposited $12, 004.04 in SHM (after his rec'ble for 2005), and he shouldn't get more than $8800 (to top it off, the client reported this participant's match to be $13,285.20).

The excess will need to be removed from his account, and after speaking with John Hancock about how they would like to handle this issue, they sent me an excess withdrawal form. I don't think this is correct. The money shouldn't be returned to the participant, it needs to go back to the company, or at least held at JH to use towards the next safe harbor payment they need to make (they make them during the year).

Thoughts?

I have two plans each with 100 pensioners. The first plan covers the United Amalgamation of Coal Miners and Asbestos workers and the lump sum option is unavailable even for de minimis benefits -- i.e., everyone takes a pension. The second plan covers the employees of the National Academy to Promote Nonsmokiing, Aerobics, and Organic Foods and it offers an optional lump sum.

So by adding the complexity of pre-retirement/post-retirement perennially changing one-size-fits-all multigenerational projected and setback mortality tables makes this country a better place to retire? It is of note that somewhere along the way unisex mortality tables for lump sums will released which would obviate any hope that mortality could become representative in virtually any situation.

We have a new 401(k) plan that is to become effective 7/1/2007. The employer wants to have a 21 & 1 requirements with semi-annual entry. In addition to the doctor, they have 2 ee's hired 9/06 and 1 hired 4/07. They want to have the 2 2006 hired ee's in the plan as of 7/1/07, but impose the 21&1 on the 2007 hire ee.

Would writing the document to say that "any employee working for the company on 1/1/07 is eligible for the plan on 7/1/07" be acceptable? Using a date (1/1) prior to the effective date (7/1) in order to bring people in?

Thanks

I understand that HRA's are subject to HIPAA, but I am not totally clear on the notice requirements. If the HRA is tied to a health plan, will the HIPAA notice that is sent under the health plan presumed to satisfy notice under the HRA? Are annual notices required?

Hi there -

We have a general purpose FSA. We initiated an HSA in 2005. At the time we did not know there may be a conflict between FSA & HSA. We found out about the conflict in December and our FSA provider told us that they did not offer a limited purpose FSA but that we could just advise participants on the fact that they needed to self regulate their FSA's as LFSA's.

We have two folks who want to enroll in HSA's effective 6/1/07. They are terming employment and therefore for their general FSA's on 6/29/07. Can they have an HSA for June?

We did advise all FSA & HSA participants about the restrictions on usage in December, and have provided periodic updates re: same. However, we did not cancel anyone's participation in the FSA. Should we?

All thoughts appreciated.

Leslie

We have a debate regarding loan payments made via payroll deduction that I hope to get some guidance on before advising client. Loan policy states as a term that, " If the participant is currently employed by the Employer, the Plan Administrator will require the participant receiving a loan from the Plan to enter into a payroll deduction agreement to repay the loan. If the participant is not currently employed by the Employer, the Plan Administrator may require additional collateral for the loan."

The participant has asked the employer to stop withholding loan payments from the paycheck, basically with the intent not to pay it back. What is the employer able to do? Can the employer require the employee to have the payments withheld or do they abide by the participant's request, which will result in a deemed distribution?

Suppose that in a DC plan, EE divorces and ex-spouse is awarded $100,000 of benefits. The plan provides, and thus ex-spouse can take withdraw the $100,000 (as adjusted by any subsequent investment experience) at any time. Ex-spouse chooses to leave the money in the plan.

The plan calls for default payout, as a lump sum, at the time participant's reach the later of normal retirement age or age 62. The plan also requires payout by December 31 of the year in which the participant reaches age 70 1/2.

Question 1: If there has been no withdrawal or election by the ex-spouse by the time the employee reaches the later of normal retirement age or age 62, does the plan automatically pay the ex-spouse a lump sum? What if the QDRO, as many do, simply provides that the payout of the awarded portion is at any time the ex-spouse elects?

Question 2: If the ex-spouse affirmatively elected to postpone payout beyond the time that the employee reaches the later of normal retirement age or age 62, must the plan the plan payout the awarded benefits to the ex-spouse by December 31 of the year in which the employee reaches age 70 1/2?

Question 3: If the employee dies earlier than reaching age 70 1/2 and the QDRO did not specify the ex-spouse as the "spouse" of the awarded portion, is the ex-spouse considered a non-spouse death beneficiary as to the awarded portion with MRD either 5th year post death, or over ex-spouse's lifetime beginning the year after death?

My expectation is that the Participant is the borrower and that Reg Z requires the truth-in-lending disclosures be made to the borrower. While the proposed spousal consent form includes all the Reg Z information, it is not in the Reg Z specified graphic box format. Does the spousal consent have to comply explicitly w/ Reg Z?? Has anyone researched this question or seen any guidance??

THANKS for you comments.

We have a client that for January 2006 was NOT part of controlled group. In July 2006, due to ownership changes, the entities became a controlled group. One of the entities sponsors a SEP. They need to cover all eligible employees of both entities. Question: Should we use compensation for all of 2006 to determine contributions for the "new" employees or compensation from the time the entities became a controlled group?

Where would I find the definition of compensation for this purpose? Thanks.

My client has 2 FSA's: a general purpose and a limited purpose. They also have an HSA. Both FSA's have a limited purpose 2 1/2 month extension period.

An employee in the limited purpose FSA also makes HSA contributions. She is leaving the firm. She wants to roll over her FSA balance into the HSA.

I cannot find anything that says you can roll over other than at plan year end. I have been over IRS Notice 2007-22 a few times, and it seems totally silent on this issue.

Also, assuming that she can do the roll over, do we always have to look at the FSA balance on September 21, 2006? What if the person was not an FSA participant in 2006, just 2007?

Thank you for your help.

Am I right in my thinking for plans that have a Trust EIN that the number is no longer reflected on forms 5500, Sch. A, I & R (the ones we typically use)?

Should after-tax matched contributions be segregated from employee after-tax contributions and what are the withdrawal/distribution restrictions associated with the after-tax matched contributions.

If a 403(b) non-ERISA Plan has a division where two priests receive 1099's instead of W-2s. Can the priests contribute to the 403(b) non-ERISA Plan?