It seems last year on 12/31/05 the least-likely-to-be-challenged discount rate might have been 5.50%. What do you pension actuaries out there think will be the least challenged discount rate for 12/31/06?

One of our clients has an employee who is on layoff. He has vested accounts in both the 401(k) plan and the prevailing wage pension of the employer. Now the employee wants exercise his COBRA option to continue his health insurance AND he wants to take the COBRA premiums directly out of his former company's retirement plan accounts without paying a 10% premature distribution tax penalty.

Can he do this? Can the COBRA premium be totally income-tax and penalty-tax free?

Thanks in advance.

Carol Caruthers, MSPA, EA

A professional firm with a calendar plan year has a profit sharing contribution formula of 5% up to the wage base ($94,200) and then 20% of compensation in excess. A participant became partner at 7/1/06 so his compensation prior to becoming partner and after is treated differently. After becoming partner, 401(k) and 1/2 tax on self employment are taken out before calculating contribution, and then the contribution is divided by 1.2.

So for instance, a non-partner's first tier would be $94,200*.05 = $4,710. A partner would be $94,200 * .05 / 1.2 = $3,925. (This is per the client's cfo.)

Say a sample participant earned:

$60,000 in the first half of the year, as non-Partner, and

$55,000 in the second half, as Partner, after adjustments.

The client has informed me that each period is treated differently and wants to apply 5% to each part. I feel like there is an excess over $94,200 that needs to be taken into account.

Client comes up with 60,000*.05 + 55,000*.05/1.2 = $5,291.67.

I come up with 60,000*.05 = $3,000 +

(94,200-60,000=34,200)*.05/1.2 = $1,425 +

(55,000 - 34,200 = 20,800)*.2/1.2 = $3,466.67 =

$7,891.67.

Any thoughts please?

A partnership with a Solo 401k plan ( no employees other than 4 partners) recognize net income at year end. ( Three partners made $50,000 and one partner made $5,000 in net income before tax). They all previously elected to do maximum Roth contributions. When determining their maximum Roth 401k aftertax contributions and profit sharing contributions, which one is done first.

1.If profit sharing is done first, then the profit sharing deduction will decrease the net amount available after tax for Roth contributions.

2.If Roth contributions are done first, then net income after tax needs to be calculated, then the Roth contribution, followed by a deductible profit sharing expense

It is my understanding that 2. is the correct order but for some reason I do not feel 100% convinced. Any comments?

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Nothing to see here, move along.

*Sorry - I posted in the wrong forum, I am reposting elsewhere, Moderator please delete.*

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A professional firm with a calendar plan year has a profit sharing contribution formula of 5% up to the wage base ($94,200) and then 20% of compensation in excess. A participant became partner at 7/1/06 so his compensation prior to becoming partner and after is treated differently. After becoming partner, 401(k) and 1/2 tax on self employment are taken out before calculating contribution, and then the contribution is divided by 1.2.

So for instance, a non-partner's first tier would be $94,200*.05 = $4,710. A partner would be $94,200 * .05 / 1.2 = $3,925. (This is per the client's cfo.)

Say a sample participant earned:

$60,000 in the first half of the year, as non-Partner, and

$55,000 in the second half, as Partner, after adjustments.

The client has informed me that each period is treated differently and wants to apply 5% to each part. I feel like there is an excess over $94,200 that needs to be taken into account.

Client comes up with 60,000*.05 + 55,000*.05/1.2 = $5,291.67.

I come up with 60,000*.05 = $3,000 +

(94,200-60,000=34,200)*.05/1.2 = $1,425 +

(55,000 - 34,200 = 20,800)*.2/1.2 = $3,466.67 =

$7,891.67.

Any thoughts please?

Hi, I'm based in the UK (and this is my first post). I'm planning a trip to the US and Canada soon and I'd like to meet organisations who represent pension plan sponsors. Here in the UK we have organisations such as the National Association of Pension Funds and the Pensions Management Institute.

Can anyone advise me as to who the equivalent organisations are in the US and Canada please?

Thanks in anticipation.

A company established a directors fee deferral program in 2005 that provides that a director can elect to defer his fees to be received over a 5 year period, and he (or his beneficiary) will receive monthly payments over 10 years upon the earlier of his attainment of age 70 or death. There are no provisions for payment upon a change of control, termination of the plan, or any other event. The plan is clearly subject to 409A, and it appears to comply.

Another company is about to acquire this company and wants to get this obligation "off the books". It would like to cash-out the benefits upon the change of control. Can the plan be amended to add a change of control (using the 409A definition) payout? Assuming the acquisition goes through, the result would be that the payments will be made sooner than under the current terms of the plan, so is this a prohibited acceleration under 409A? To me it seems logical that you should be able to amend a 409A plan to add other payment events, as long as such events comply with 409A, but it's not crystal clear to me.

The transition relief provides that a plan may provide, or be amended to provide, for new payment elections on or before 12/31/07, as long as it does not apply to amounts that would be payable in 2007, or accelerate into 2007 payments that would otherwise not be payable in 2007.

I guess the question is this: What is meant by the term "new payment election"? If the term applies only to the ability of a service provider to change the timing of his payments, then I think the amendment should be OK. However, if the term covers any change to when the benefit may be paid, then the amendment appears to be a prohibited acceleration unless the transition relief applies.

This would raise another question. If the plan were so amended, and the change of control occurred in 2007, would this violate the transition relief by accelerating into 2007 payments that would not otherwise be payable in 2007?

Any thoughts are appreciated.

Since April 1 falls on a Sunday, is there an extension to April 2nd for those who wish to delay the first RMD?

We have a family that all elected COBRA due to termination of employment. Nine months into COBRA, one of the children ceased to be an eligible dependent since she was no longer a full-time student. We know she is eligible for the additional 18 months as a secondary event. But how do we handle the premium? Is it ok to move the child out of the family class and begin charging her the employee-only premium starting when she no longer qualifies as a dependent? That would then continue for the remainder of the 36 months. The rest of the family stays in the family rate. Is this ok to do or do we have to leave her in the family rate til the end of the original 18 months and then move her to the employee-only rate?

404(k)(2)(B) allows C Corp. dividends on allocated shares to be deducted if the participant receives shares at least equal to the dividend they otherwise would have received (aka the fair market value test.) 4975(f)(7) contains a similar provision for S Corps. That section says the plan will not be treated as violating 401, 409, or 4975(e)(7) or engaging in a prohibited transaction if the participant receives shares at least equal to the earnings distribution they otherwise would have received. There is no deductibility question for S Corps.

The issue is in the case of a C Corp. that for whatever reason does not deduct the dividend, can it then ignore the the FMV test and allocate stock worth less than the FMV of dividends forgone to participants? I find nothing that would explicitly stop a C Corp. from doing that. However, if the issue on the S Corp side is 401, 409, etc., I would think that also applies to C Corps and their dividends regardless of whether or not they are deducted, even though nothing says that. As always, any thoughts would be appreciated.

General Questions regarding a payroll department not withholding elective deferrals.

Here is the scenario:

A client has a 401(k) plan. In 2005, its payroll department manually stopped withholding employee deferrals on 1 eomployee who had reached the maximum deferral limit. However, the payroll department never started the deferral back in 2006, therefore, the participant had no contributions for 2006. The employee did not notify the client until a week ago that he should have had deferrals for 2006.

How would this be handled? Does the client have to correct it considering the employee said nothing about the lack of deferrals when he received his paychecks?

Any input would be appreciated...

My brother had three ex wives. He recently passed away unexpectly.

He was divorced from wife number 3 for 4 years and they had in there divorce decree that neither one had any rights to the any retirement benefit they each had.

He was divorced from wife number 2 about 15 years ago and it seems that she is the name on the 401K benefit form.

He never had her name removed during the time he was married to wife number 3, I realize that wife 3 was the beneficiary by law even if her name was not on file.

On one section of the beneficiary designation form it states that the employee sometimes might divorce and not change the former spouses name and then remarry and if the employee should die the plan would consider the former spouse on file the beneficiary.

Does this last wife break the chain of the former wife (number 2) from being the beneficiary?

He did not have any children.

How does the ERISA law apply to a situation like this?

I know he did not want either ex wife to have any thing he had.

Thanks for any help.

Dulan

Hello,

I would like to know if an employee can ask their employer to convert retro pay increase, professional growth stipend, and longevity stipend from elective deferral to non-elective deferral (employer contribution)? If this is possible will non-elective deferral be subject to OASDI, MEDICARE, SDI taxes? I have been told that non-elective deferrals into a 403b will save on the above taxes for both employee and employer. The employer in this case is 501(3)© Public School District.

Thanks,

jyork

When purchasing "irrevocable commitments" (i.e., via a group annuity contract)for a PBGC covered termination when in the purchase process is the benefit obligation considered to have been irrevocably transferred to the insurer given that a final signed contract or annuity certificates may not be completed or distributed for quite some time following the receipt of premium, i.e., immediately upon receipt of an application and premium, upon execution of the contract, when certificates are sent to individuals, etc.

I'm looking for some guidance on the one-time rollver from an FSA to an HSA provision in HR 6111

We put an HDHP/HSA option in place eff. 1/1/07.

Some ee's who were in the FSA for 2006 will incur forfeitures because they overestimated their expenses. Our FSA does not have a grace period.

Our run-out period ends 3/31/07.

Can we give employees the option to rollover any unclaimed balance in their FSA account ? If we don't do it before the end of the run-out period, do they forfeit that money ?

A DC plan has adopted cash-out forfeiture provisions, and as required the plan allows repayment of distributions to restore forfeited benefits.

The question is, upon re-hire, is any notice required to be provided to the employee about their ability to buy-back the forfeited benefit by repaying the cash-out distribution? The regs at 1.411(a)-7(d) do not contain a notice requirement, and I've checked a few reference manuals that do not speak to any required notice. However, I'm working with an accountant who believes a notice is required. SUch a notice would seem fair (especially since this is not described well in the SPD).

If anyone is aware of any authorities regarding participant notices in this situation, I would appreciate any information you can provide. Thanks.

I am curious about when a company can change its safe harbor matching contribution. For example, the annual safe harbor notice was distributed in November 2006 for the 2007 plan year. The notice said that the company was going make the basic matching contribution. Then, in December 2006, the plan was amended to change the matching contribution. The basic matching contribution provision was amended to provide a matching contribution formula that was more generous then the basic matching contribution. Is this a safe harbor enhanced matching contribution? Can the employer do this after it already distributed the notice?

Can a Safe Harbor Matching contribution be counted towards meeting the minium gateway for crosstesting ,

can a QNEC?

Thanks in advance!!