A multiemployer pension plan has a cash benefit contribution account add-on and the payment provisions of the cash benefit portion allow for the payout of an individual's account, if that individual has no reported hours worked for a period of 2 years. The plan seeks to amend this provision and reduce the 2 years to 3 months After 3 months of no reported hours worked, the individual can apply for distribution of their cash benefit account. Does anyone see a problem with this?

We have a self insured Medical plan and only allow mid years changes within 31 days of a status change. Recently one of our employees wanted to drop the medical coverage because they just didn't want it anymore. As expected they were told no because they needed to have a status change in order to do so.

Well the employee found in your SPD there is a paragraph that states "an employee can drop medical insurance at anything during the year per their request"

Question: Can we allow this employee to drop coverage without a status change or does it violate IRS regulations?

Please advise, as I have looked all over the hard to understand irs.gov website and have found nothing. Thanks.

- Ant

I know that a controlled group of businesses must comply with coverage and participation rules for retirement plans. Is there a similar rule for health and welfare plans?

Has anyone ever submitted a VCP application proposing to correct a failure relating to nondiscrimination (e.g. failed ADP testing) where the plan sponsor did not propose to make a corrective contribution to the nonhighly compensated employees?

Two quick questions.

Is it possible for a participant to receive distributions from a Voluntary Contribution's Account or a Rollover Contribution Account at any time? (meaning, is there a penalty if a distribution is made before the participant is 59 1/2 years old)

And as far as plan fiduciaries go (trustee's, plan administrators, etc), is there insurance out there to protect against lawsuits? I know in the Health and Life insurance fields there's "errors and omissions" insurance. Is there something similar out there?

Thanks so much.

An individual is proposing to set up a C Corporation that will meet the definition of an operating company. The company will then sponsor a 401(k) plan, technically an Eligible Individual Account Plan. This owner will roll over an IRA into the plan and put it into an individually directed account. These assets will be invested into the Corporation and will comprise 95% of the ownership of the Corporation. The other 5% is owned directly by this individual. The Corporation then acquires an existing manufacturing business through an asset purchase.

Is this legal? Is there a prohibited transaction in there somewhere or is there one looming in the future in some way? Is this dangerous or on the Abusive Transaction list of the IRS?

Could the plan incur UBTI from the activities of the Corporation?

Has anyone thought how a failed or ineligible conversion from a Qualified Plan to a Roth IRA will be re-characterized? I know this is a 2008 issue.

1. Return to QP with gains/losses? ( but what if the qp is terminated?)

2. Re-characterize to a Traditional IRA? But then how is it reported on form 5498?

Just something to think about when we have nothing else to do. Whenever that is.

What is the IRS position on returning contributions to employees who were allowed to defer before their eligibility requirements were met? What happens to the gain(if any)? Does the money go back to the plan sponsor and they run it through payroll again or does the employee get a 1099R? Thanks.

Linda Michals

Are trustees or other fiduciaries of 403(b) plans required to have fidelity bond coverage?

Thanks

Even the company plan administrator couldn't answer this question from a legal standpoint. Am contributing to both a 401k and a Roth 401k simultaneously via a PERCENTAGE of fluctuating commission based wages, (not a fixed dollar amount), at the same employer. The 401k contribution is BEFORE tax and the Roth 401k is AFTER tax, BUT IS THE ROTH 401K CONTRIBUTION BASED ON THE AFTER TAX AMOUNT ONLY, OR THE AFTER TAX AMOUNT PLUS THE 401K CONTRIBUTION AMOUNT???

Example:

GROSS = $2000 401K 10% 401K CONTRIBUTION = $200 TAXES = $400

ROTH 401K 5% OF A)$1600 0R B)$1400 ???????

Since the Roth 401k is new, no one seems to have addressed this situation, and I would think this would be a matter of Roth 401k regulations, not plan administrator discretion. someone HELP!!!!

I have been advised to do IRA conversions up to the max. 15% bracket. however I have massive medical deductions limited to the excess of 7.5% AGI. Is there a spreadsheet/formula to figure out the actual max. to convert without shooting one self in the foot on the med. ded.?

If you have an participant who is actively employed and started taking 70 1/2 minimum distributions, can they decide to stop if they remain employed?

I know next to nothing about nonQ plans, but an accountant just called me with a question and I'm interested to know the correct answer.

An insurance agent worked for an insurance company and deferred compensation back in the 1980s. He elected a 10 year payout of the deferred comp 9 years ago, and received a 1099-R with code 7 for the first 8 years. He got another 1099-R for the 9th year, but it had code 1. (He's 55 now.)

Insurance co. insists code 1 is correct.

My meager knowledge indicates that he should be getting paid on a W-2, not a 1099-R. (The 1099-R instructions say to use a 1099-R only if it is a commercial annuity...I guess it could be, but what's the correct code in that situation?)

Any thoughts?

i have an on the money stock option granted in 2005 structured to be exercisable under a fixed schedule. is this option exempt from 409A or does it comply with 409A? i want to be precise, but am going in circles. thanks.

Opinions wanted:

Will the increase in the interest rates applicable for lump sum payments being phased in from 2008 to 2013 be meaningful enough to cause insurers to raise the rates (lower the costs) they use to price annuity purchases?

Large frozen plans that do not offer lump sums wil be faced with the choice of offering lump sums or annuitizing the plan. Will the annuity cost be favorably affected by this?

A plan sponsor restated its 401(k) plan in 2001 using a standardized prototype document. It did not realize that the document made the employees of another company in the controlled group eligible to participate in the plan. Therefore, it failed to offer those employees enrollment.

The plan sponsor had 4 highly compensated employees and over 100 non-highly compensated employees in the plan. At the time, the entity that was excluded from participation had well over 1,000 employees working from time to time on a temporary basis (none of whom would have been a HCE). When the plan sponsor discovered the error, it contemplated standard correction by making a contribution (plus earnings) to the excluded employees. However, given the number of employees potentially involved, and the fact that the employees were employed only periodically, it felt that the contribution would have been beyond its means. In addition, due to the transient nature of the workforce, the plan sponsor would have a difficult time properly identifying and finding all of the individuals affected by the problem. It also claimed that the employees would have been very unlikely to contribute, even if offered matching contributions.

Instead, the employer froze the 401(k) plan. It then adopted two nonstandardized 401(k) plans. One plan was a mirror image of the now frozen plan, except that it excluded HCEs. The other plan was only for the entity that had all the temporary employees. A few years later this plan was terminated since very few temporary employees participated.

The original plan has been updated for law changes over the years. In addition, it is my understanding that money has never been distributed from the original plan. At this point, the plan sponsor would like to eliminate the original plan partly because it is concerned as to how the restatement and submission process will impact the original plan and the second plan. In addition, it would like to allow the participants in the original plan (a large number of whom still work for the plan sponsor) to roll their account balances into the second plan.

It is my understanding that the phrase "time heals all wounds" does not apply here. In other words, that just because time has passed the original plan is not magically fixed and can be treated as a normal plan. Am I wrong in thinking that the original plan is no better today than it was 4 or 5 years ago? How would you clean this up?

I apologize for the long post, but at least it makes for an interesting story. Thank you in advance for your insight.

Daily valued 401(k) plan. Employer wants to include treasury stock as one of the investments. Understand the PPA requirements but what other issues might you have encountered with including treasury stock as an investment?

Can a Davis Bacon plan allow hardship distributions from prevailing wage $ if the document states that hardships are available from all sources?

This plan allows for prevailing wage contributions to be counted as a QNEC and to allow for profit sharing offset. To my knowledge the plan never used the prevailing wage as a QNEC because it is a Safe Harbor Plan, however, it has used prevailing wage to offset both Safe Harbor and PS contributions.

The administrator wants to amend the document to remove the option to use the prevailing wage as a QNEC and then allow hardships from all sources. Is this allowed?

Medical Practice A has a calendar year SH 401k plan. Age 21 and 1 YOS. Dual entry dates. The plan recognizes service with Medical Practice X for eligibility and vesting.

On 1/10/07, Jane Doe, a 10 year full-time employee of Practice X, terminated her employment and was hired at Practice A. The doctors at Practice A want to let Jane start participating in the 401k immediately. My position is that she will have to wait until the next entry date of 7/1/07. Am I wrong in my thinking? Or can she start participating immediately upon being hired?

Thanks.

I suppose this is a two part question.

In setting up my company's 401k, I do not want to use the elapsed time method because of the transient nature of our employees and I would LIKE of course to use the hourly method in recording service, but there is no "hourly wage" per se, only compensation for work completed. So it is difficult to determine hours worked on a yearly scale. Is it possible to define an hourly wage in the plan document so that at the end of each plan year you are able to simply divide total compensation for the year by the hourly wage, giving you hours worked for the year?

Secondly, I would like to use a "cliff" vesting schedule. I would like to allow for 100% vesting after two years instead of three, but I have a question about that. Hypothetically, let's say for the first two years there are NO matching contributions. After two years, the plan sponsor decides to initiate matching contributions. Under a 2-year "cliff", would those plan participants who have already worked for 2 years become instantly 100% vested? Or would they have to work for another 2 years to acquire that designation.

Thanks so much for your time, guys.