Is a 412(i) plan subject to 401(a)(26)?

Looking for some type of documentation here to help explain the law to a combative client. Here's the details:

Client sponsors 401(k) plan which has continued to withhold and submit deferrals through 2/2007. Plan sponsor now wants to terminate plan, effective 12/31/2006, and have all 2007 deferrals returned to his employees as a "mistake in fact" in order to avoid the cost of nondiscrimination testing for 2007.

We have told this client we cannot do this - the contributions have been posted to participant accounts and there is no legit reason for a "refund" - that in fact we would be facilitating a prohibited transaction.

Any ideas on best way to "show" this to the client?

I HAVE BEEN RETIRED FOR 7 YEARS AND BEEN COLLECTION MONTHLY PAYMENTS .

THE HOSPITAL PAID ALL OF THE TAXES AGAINST THE DEFERRED BENEFIT AT THE TIME OF MY RETIREMENT AND I WAS UNDER THE IMPRESSION THAT THEY WERE REDUCING MY YEARLY BENEFITS ON AN ACTUARIALLY BASIS OF 26.9 YEARS. NOW I DISCOVER THAT THEY HAVE BEEN REDUCING MY BENEFITS EACH YEAR BY AN AMOUNT MORE THAN TWICE THE ACTUARIALLY AMOUNT. IS THERE ANYTHING IN THE CODE THAT REQUIRES THE HOSPITLA TO RECOVER MORE THAN THE UP FRONT PAYMENT THAN THEY FUNDED. I DO NOT FEEL THE HOSPITAL IS CHARGING ME INTEREST ON THIS UP FRONT PAYMENT BECAUSE THERE IS NOTHING RE. IN THE CONTRACT. BUCK

Scenario: In 1993 the employer purchased individual insurance policies with a promise that each employee would get the policy when he or she retired. No plan documents, just policies and conversations. The employees expected to get the policy tax free on retirement and defer the income until they withdraw the cash from the policy.

Since there is no documentation, I am concerned that anything I do will be construed as a material modification that would trigger income and the 20% penalty. Any thoughts and suggestions will be greatly appreciated.

My client has a plan that permits loans, but only up to half of the amount in the participant's voluntary deferral account. Unhappily, it made two loans (both to HCEs, coincidentally) in excess of the plan limit, although well within the limits of 72(p)(2)(A)(ii). We were found out upon an audit. I want to correct under EPCRS with a retroactive plan amendment, arguing that this is an error less egregious than making loans that are forbidden by the plan document. Our auditor says that the language in RP 2006-27 says what it means, and a retroactive amendment is possible only if the plan does not permit loans.

Has anyone had this problem and found an acceptable fix once you are under examination?

Scenario: P, age 53, is a participant in a 401k plan with a Roth option and that permits the purchase of life insurance. P is married to S, age 36. P's life insurance agent has proposed that P make the maximum $20,500 in elective deferrals for 2007, and declare them to be Roth. Then, direct benefits in the Roth account to pay for life insurance, under a policy that will be paid up in 12 years (when P reaches age 65, and presumably retires).

The agent explains that whenever P dies, the death benefits will be paid to the plan with no tax, and that when S withdraws those Roth benefits there will be no tax due, not even on the interim investment earnings on the death benefits.

As compared to P purchasing this life insurance on his own, outside of the 401k plan, the recommended approach will shield the post-death investment earnings on the unused death benefits from taxation.

As compared to P purchasing this life insurance inside the 401k plan, but with pre-tax benefits, the recommended approach will shield the death benefits and subsequent investment earnings from taxation when and as withdrawn.

Does anyone know if there's a reason that so leveraging a 401k Roth with life insurance in this way will not work?

Employer self-insures an HSA offered in connection with a HDHP. Employees pay high premiums to participate in the plan, but employer makes a sizable contribution the HSA portion. If employee terminates and goes on COBRA coverage, are there any issues with providing COBRA coverage at a lesser cost since Employer will no longer be making contributions to the HSA portion after termination?

I'll try to be as clear as possible. An employer sponsoring a self-funded health plan wants to basically share the risk of the plan with employees. The plan sets its "premium," based on actuarial evaluation of past claims experience and administrative costs, at the beginning of the year, and requires a 30% employee contribution to it. The employer pays the rest out of its general assets. The owner wants to do the following:

At the end of the year, look at actual claims and expenses for that year, and if the claims/expenses were lower than the expected amount, refund 30% of the excess to employees. If the claims/expenses exceeded the expected amount, charge employees 30% of the difference.

My question is, can he do this legally? My thoughts initially are that if the employees' contributions are run through a Section 125 plan, then any additional contribution/refund would have to be post-tax or it would violate the change of status rules, unless this would qualify for a "change in premium." Would there be a problem with deferred comp if the adjustment was not made until after year-end (in other words, adjustment made in January 2008 for 2007 claims experience)? Would this have to be paid/collected from the employees actually enrolled in the health plan during the year claims were incurred, or employees enrolled as of the date of the adjustment? How would COBRA rates be impacted?

I don't particularly like what this employer has proposed, but I'm not sure that it can't be done. Any input would be appreciated!

How many days are allowed to pass, after the payroll deduction is made, before the contribution must be credited to the investment account? Please give citation.

Does anyone know how a "Disregarded LLC" effects a 401(k)?...if at all? I have never heard this term until yesterday.

An employee was hired and provided with all the information to enroll in a self-insured health plan. The background check came back 3 days later, employee lied, and was terminated. Employee argues he should be offered COBRA coverage, and that he did not enroll in the Plan because he did not have internet access at the hotel (although he did have access at work). The Plan enrollment provision says that coverage is effective as of the date of hire so long as an employee elects coverage within 31 days of hire. However, the employee did not enroll in the Plan before termination. Any thoughts?

Client allowed an ineligible employee to receive a matching contribution. She was not eligible because the plan requires terminees to complete 501 hours of service to be eligible for the match. However, they contribute the match each payroll period (we know that is a problem, we have tried to get them to change). Participant received the match, terminated, took a distribution and received the match distribution. Client tried to retrieve the match from the participant, but participant refused to return.

What is the correction for this? From my reading, it appears that if the mistake had been discovered prior to distribution, the match could have been forfeited and that would have been that. Should the employer contribute the amount in question to the forfeiture account?

Thank you.

Employer X is establishing a 401(k) plan for its employees effective January 1, 2008. X intends that the plan satisfy the automatic enrollment safe harbor to the ADP/ACP tests and for top-heavy purposes. Consequently, it would be adopting a two-year cliff vesting schedule. The employer has been around for a number of years and there are certain entities technically unrelated to the employer which are involved in selling the employer's products. Under its other qualified plans, service with such other entities is taken in to account for eligibility and vesting purposes.

Assuming that eligibility is immediate, can X have its plan provide that service for vesting purposes will be credited by looking solely for those employees who are rehired during 2008 or 2009 only, so as to limit the complexity of recordkeeping for any former participant who terminated many years earlier and then returns?

Just bumping this up to the top.

See: http://www.treas.gov/press/

“” Published along with the regulations was Notice 2007-34, which includes additional guidance regarding the application of section 409A to split-dollar life insurance arrangements and provides that certain amendments of such arrangements to comply with section 409A will not be treated as a material modification.””

TCWalker

I have a plan whose normal form is J & S 50% for everyone who is married (for our sake we'll assume everyone is, in fact, married).

When I calculate the 417(e) lump sum, do I calculate it using the normal form (J&S 50%) or convert it to Life only using AE first?

397 Pages of good clean reading, plus an additional 8 on split-dollar. Happy reading!

Final Regs

http://www.ustreas.gov/press/releases/reports/td9321.pdf

Split-Dollar

http://www.irs.gov/pub/irs-drop/n-07-34.pdf

Participant has a mortage loan in plan with a 30 year amortization schedule that was written in 1999. IRS is questioning the 30 years. 72(p) gives example with 15 year mortage loan. However, the verbage does not specifically state a loan on a primary residence must be 15 years. Can anyone give me a specific code section, revenue procedure (etc.) were I can prove the 30 years was the maximum at the time it was written in 1999? Thanks for you help!

Our firm has a client with operatiions in the United States Virgin Islands and has inquired as to whether these employees can be covered under its US based 401(k) plan. Does anyone know if the laws of the USVI that govern defined contribution plans follow US law? Can anyone point me to any publication that would address this issue? I know that the Puerto Rican tax code's rules do not totally follow US rules, but cannot find anything about USVI law.

Business owner age 71 has 2 million in profit sharing plan. He thought the charitable giving 100k was allowed from the plan. Everything I read says it must be from a traditional or roth IRA.

Do ya suppose he could roll 100k into an IRA then make a 100k charitable distribution from the brand new IRA.

Searching for a vendor for DB plan custodian. Looking for suggestions on questions to ask? We have everyone's prices but thats not everything...what funds can we use, if you require proprietary funds, how much needs to be invested in them, do you charge a termination fee, etc...

Would appreciate anything anyone else may suggest?

This isnt for recordkeeping..that is taken care of outside. Just custody of the money and check cutting.

appreciate your help