I just learned from a Fidelity rep that withdrawals from my Roth IRA account are subject to 10% penalty if they are made earlier than 5 years since the date my Roth IRA account was opened. I am extremely confused. I have read in several books that if I open a Roth IRA account and contribute cash, I will always be able to withdraw the original amount I contributed with no tax or penalty. The earnings must stay in the account because they ARE subject to tax and penalty. I just read IRS Publication 590 and it talks about "conversion" contributions and qualified distributions, etc. I have no clue what they mean by all that. It seems that any withdrawal taken from an IRA account before 5 year period ends AND before one is 59.5 years old, disabled, etc. IS subject to "10% additional tax".

So which is it? Can original CASH contributions made to a Roth IRA account be withdrawn at any time for any reason as if from a saving account without any tax or penalty? Or ARE they subject to 10% penalty?

Company, an S-Corp 100% owned by its ESOP, is looking for a new building for its headquarters. Company is considering adding an IDA feature to its 401(k) to allow investment in the "whole world," but most significantly in an LLC that would own the new building. The IDA would be open to all participants in the plan, but the result will certainly be that several HCEs, who also own significant percentages of the Company's stock under the ESOP, will end up using their 401(k) accounts to purchase most or all membership shares of the LLC, which would of course receive rent from Company.

This sounds like a nest of prohibited transactions to me, though I know that (1) individual account plans are exempt (under § 407(b)(1) of ERISA) from the employer real property restrictions of § 406(a)(2), and (2) the investors don't become fiduciaries when they direct the investment of plan assets (their accounts)--so there's no plan fiduciary directing plan assets to a party in interest/disqualified person.

Can they do it?

HCE earns $300,000 and the discretionary match is $1 for $1 up to 4%. The person who processes the payroll does not realize there is a cap on compensation and deposits $12,000 of match into the HCE's account. The match should have been capped at $8,800. Do you run the ACP test on the $12,000 and than calculate the forfeiture and refund if applicable. Or do you forfeit the $3,200 and than run the ACP test. I looked in Sal's book and my interpretation is that you would treat it like a 402(g) violation and test on the full match. But I could not find a specific example for this situation. Any advice is always appreciated.

Thanks,

We had a pension plan and froze it to new entrants and accruals in 2002. We started a cash balance plan in 2003 woth every one starting off with a zero balance. Old DB plan was left intact to pay annuities accrued.

I read section 701 of PPA to require only converted cash balance plans to adopt 3 year vesting. Since we didn't convert, but started new plan, I think we can keep the 5 year vesting. Can someone please correct me if that is incorrect. The more I read PPA the less sense it makes.

A controlled group had 4 separate entities and a QSLOB filing was done about 10 years ago. Since then each QSLOB tested their plans separately.

We just learned that a fifth entity was brought into the fold in 2002. That entity meets all the SLOB requirements, but no filing was ever done with the IRS.

Question: Do each of the original 4 entities still stand on their own? Meaning, do we need to test each entity separately with the new company (aggregate each QSLOB with the new company), or does the entire controlled group need to be aggregated since 2004?

Thanks.

I have the distinct recollection that In-service withdrawals from profit sharing accounts with a Permitted Disparity formula are not allowed, but I have been unable to find the rule, if it (still) exists, in two prototype documents and the ERISA Outline Book.

Maybe I'm looking in the wrong place or maybe the restriction was removed and I am showing my age, or maybe I was dreaming.

Which is it?

Thanks

Encountered a situation involving the 2005 calendar year and an over contribution and over allocation of profit sharing contributions. More than one year has passed from the date of the contributions.

Plan is a safe harbor, 401(k) plan. The employer funded the plan entirely throughout the plan year (i.e., did not wait until the due date of the return). They were not keeping a good account of what went in.

When the allocation for 2005 was done in 2006, the owners/key employees were allocated a portion of the profit sharing contribution to get them to $42,000 limit (when combined with the 401(k) deferrals and safe harbor contributions). The staff was allocated profit sharing dollars under the same formula, and there remained unallocated $40,000 of profit sharing contributions The TPA proceeded to allocate the $40,000 to the staff only since the owners were maxed out.

The owners did not intend to give the staff any more than was required to get them to the $42,000. However, they didn't review the allocation report and didn't become aware of the problem until 2007.

Doesn't look like mistake of fact would help because the contributions have been in the plan for well over a year.

Have you ever seen something like this and what did you do to correct the unintended over allocation?

I'm looking for a way to keep the dollars there, but allocate them in 2006 plan year, even if it means paying a penalty and amending the 2005 tax return of the corporation.

Thoughts?

Please allow me to preface this email by saying I am not a litigator and rarely deal with such matters so I could really use some help.

A question arose involving a participant who was denied long-term disability benefits. After exhausting the administrative remedies in the plan he is looking to sue. While the participant was working for the company he lived in VA but worked in WVA. At the time the participant's claims were denied, and currently, he lives in PA. Can the participant sue in federal court in PA?

Thank you.

What is required (and when) to change from the prior year testing method to the current year testing method?

As I recall from IRS Notice 98-1, this change needed to be amended into the plan before the start of the first year to which it was to apply.

Now that they issued Treas. Reg. §1.401(k)-2© which says a plan may change from prior year to current year at anytime, does this mean, for example, that a plan amendment making this change could be signed on March 1, 2007 that is retroactive to the plan year beginning January 1, 2006 after it learns that it could pass using the current year method but not using the prior year method?

A client begged for as low an RMD as possible.

So with a frozen accrued benefit of $50,000 per year as a 100% j&s (normal form), we provided an optional payment in the form of a 100% j&s annuity guaranteed for 26 years (per ULT) with 4.99% COLA.

The outcome was an annuity of close to $24,000 for 2007.

The client then tells us that he took a distribution of $40,000 for 2007.

He does not want to consider the excess as a plan loan.

My reaction to this is as follows:

1) when computing the 2008 RMD, base it on actuarial equivalence as a result of the actual payment made in 2007.

2) Or revise the payment form to be a method that can accomodate the $40,000 distributed, such as a flexible payment method that computes the annuity as a range from the RMD to the 415 lump sum. Then the following year a new actuarial equivalent amount is computed based on the actual payment made.

Any thoughts, comments?

Non-top-heavy salary deferral only 401(k) Plan with prior year testing. Only 1 HCE, who is catch-up eligible for 2007. 2006 ADP for NHCEs was 5.0%.

Am I correct that for 2007, Plan will pass ADP if the HCE limits his deferrals to 7% of his comp PLUS his $5,000 catch-up?

Thanks!

401(K) with plan year end 12-31-2006. The company is an LLC taxed as partnership. The LLC has a taxable year ending June 30th. The document is not specific other than to state use plan year compensation and to used earned income for the partner for the plan year. Do I use the K-1 number for the LLC taxable year end 06-30-2006 when doing the 12-31-2006 compliance testing?

Just found out the LLC is a June 30th year end. Was not disclosed when plan set up. Any thoughts would be appreciated.

On 1/1/07, 100% Owner of Company A buys 85% of Company B. Company A and B have roughly the same number of employees. Company A has a 401(k) plan, company B does not. For coverage testing, I believe the transition rules allow for the exclusion of Company B through the 2008 plan year. They have to be counted for testing in Company A's plan starting 1/1/09.

Company A would like to allow Company B employees to make 401k contributions now in 2007, but would want to keep them out of the match and profit sharing until allocations until 1/1/2009. Can they pick and choose which plan components to have the transition period apply too, or is it all or nothing?

Thanks

A new 401(k) plan is effective 1/1/2006. For the 2006 plan year, only the 2 HCEs had met the eligibility requirements (and they deferred the full 402(g) limit).

On January 1, 2007, one NHCE enters the plan. This plan is currently written to use the prior year testing method.

If this new entrant is the only NHCE for 2007 and they defer zero for the year, what is the maximum percent that the HCE's could defer for 2007?

I'm thinking a 401(k) has to be in effect for at least 90 days, but can't be certain. Can the first plan year be a short plan year of let's say 60 days?

I am again working on an LLC.

The first LLC (I'll call it LLC A) has 3 owners. Each owns 33 1/3% of the Business.

This LLC is a 60% owner of another LLC (I'll Call it LLC B). A different unrelated LLC owns the other 40%.

Is LLC B part of a control group with LLC A? Are the rules different for the LLCs than for corporations?

Thanks!!!

We are introducing our high deductible health plan and employer sponsored HSA effective 7/1/07 to a group of newly acquired companies. 7/1 is our usual annual enrollment date and we are bringing the new companies on board with our benefits on that date. Company A just went through annual enrollment 2/1/07 and Company B's annual enrollment is effective 3/1/07. My question is - for the employees in Company A and B who elect the HDHP as of 7/1, can we rollover any deductible they may have satisfied in the prior plan to the HDHP because of the short plan year on their prior plans?

We have a client considering adding a wellness benefit - if employee certifies that he/she does not smoke and will not smoke, the employer will make a contribution to the flex plan.

Are there specific issues that need to be considered? If you have ever been involved in this type of arrangement, your thoughts would be appreciated.

Thanks.

I've read this forum as best I can and appreciate all the time and effort some of you have taken. I have not found another incident similiar to the one I find myself in.

My wife divorced her 1st husband in 1990, a DRO was drafted and sent to his pension. In May of 1991 A QDRO was entered with court. Wy wife recieved a copy of the signed stamped order and letters from her attorney to both the plan administrator and opposing counsel. In his letter to her he states...."please find enclosed a conformed copy of the QDRO which has been signed by the Judge. Please be further advised that we have sent the pleading on joinder of the pension Plane via certified mail to Primerica. We arealso sending a conformed copy of the QDRO th the plan administrator".

My wife's ex husband died of cancer last November and when she went to inquire about her half of the pension she was told that the pension plan had no record of her QDRO. She forwarded a copy of the QDRO and was sent back a form letter saying "Domestic Relations Order Reciept Denial Attachment" with the reason that the participant has commenced the pension benifit and there is no further benifit from the plan.

The funds were rolled into a trust and the trustee acknowledges he has the funds but states my wife needs to go get a court order. The attorney who handled her case says he did everything right and that going to court is a better and cheaper recourse then sueing the pension plan. He is checking since he's not a probate attorney who if anyone you could serve since the ex husband is dead. My understanding (please correct me if I'm wrong) is that the pension has a clear ERISA violation if they did in fact receive a valid QDRO. As a former trustee in a pension plan I know the penalties for violations are not small.

Thank you for any and all who read this, thoughts and suggestions are appreciated. It will take a minimum of $5,000 or so to get the requested court order. Assuming valid service is possible is this a worst case or would litigation ensue even here. My concern on "proof of service" is that apparently this dragged on from the May, 1991 QDRO until April of 1992. Is is possible her attorney "dropped the ball" or is this ongoing exchange proof enough? To further complicate things the ex father in law was an officer of the company in question and personally visited the plan administrator to faciiltate getting a finalized QDRO (this is documented).

We know the funds are in a trust and assuming we have valid proff of service can we compell the pension fund to reclaim the funds from the trust or compell the trust to release the funds using the current (assumingly valid QDRO). What is the best way to check if the QDRO we have is valid or see if it was ammended/challenged after May 1991?

If the plan's recordkeeper is not going to provide vesting information on their statements so that the plan will instead be providing an annual vesting statement, does anyone know when the first statement must be provided?

Assuming the plan is participant directed, would the first annual notice need to be provided by the date the first quarterly statement is due, I believe May 15, 2007? Or is some later date acceptable?

Thanks!