3 sole props (no employees) decide to merge and form an LLC. 2 of them have their own 1-life 401k plans. They will all be equal owners (33%). Their intention is to "run" things as separately as possible, yet share employees, building space, etc. They also may want different contribution levels for themselves for retirement plan purposes. For example, the older owner wants to put away as much as he can, while the younger owner may want to fund his plan minimally.

Can they maintain 3 separate plans, 1 for each of them, with different levels of funding? I assume the answer is no since when they become an LLC, I assume the sole prop are no longer in existence and hence, there is no sole prop income from which to fund the plan.

However, could they set up a 401k with with separete classifications for the 3 owners, much like a new comp plan. Each classification is funded however much each owner wants to put in for himself. A 4th group would be all other employees. We would have to test for 401a4, but if they would pass, then this would work?

Is there a better way to accomplish their goals?

We have taken over two plans that are 100% owned by the same individual. The former TPA never aggregated the tests and treated the plans as entirely separate (two documents, two 5500s, two plans at the fund company).

The owner participates in only 1 of the plans. The plan the owner participates in does a matching contribution. The other plan has deferrals only and all NHCEs for 2006. I know we need to aggregate the 410b test but someone mentioned aggregating the ADP/ACP testing which I had never heard of - anyone know anything about aggregating ADP/ACP???

Let us say that you have a DB plan with only HCEs that has life insurance providing the death benefit. You have a profit sharing plan with only NHCEs and no life insurance. You meet 401(a)(26) minimum participation rules; and you meet 410(b) and 401(a)(4) with respect to benefits and contributions by testing the plans together and cross testing. But it would appear that you do not meet the benefits/rights and features requirement since the HCEs have life insurance and the NHCEs do not. In the profit sharing plan, would you need to provide the contribution needed to pass 410(b) and 401(a)(4) with respect to testing benefits/contributions PLUS an additional amount to provide equivalent life insurance, since the insurance in the DB plan is in addition to the accrued benefit? Or, because these are different types of plans, could you simply allow participants to invest part of their contribution in life insurance up to an equivalent amount and subject to the DC limits?

Employer just adopted the 401(a)(9) amendment in August 2006. It is my understanding that this still must be corrected under VCP as a non-amender. Am I totally off, but just adopting the amendment is not enough right? And the IRS will discover the error when the plan is submitted for EGTRRA right?

This probably seems like an easy question for you but I am trying to tell some people that plans cannot be ignored for years.

Company X has sponsored a stand alone 401(k) Plan for several years. Now, Company X wishes to "do away" with its stand alone plan and adopt a multiple employer plan.

If Company X adopts the Multiple Employer Plan, do the account balances of the existing stand alone plan need to be transferred into the Multiple Employer Plan? Or, could that existing stand alone plan be terminated with balance paid out to members?

I believe that under "successor plan rules", balance need to be transferred to the Multiple Employer Plan, but am foggy on that specific topic. Any help would be greatly appreciated.

A commission based employee has had his draw reduced to zero. He currently has benefits with the company and a 401(k) plan loan. Pursuant to the terms of the 401(k) plan, loans can only be repaid through payroll deductions. Does he default on the loan? How are his benefits handled? (he pays for the premiums) Any ideas??

I have a brokerage client who has termed in a db plan, and has a lump sum distribution from a plan that appears to have an asset shortfall. The plan's attorney wants the participant to secure a bond for the distribution in case the company bellies up. I am no db maven, but I did a quick read of para 215 of PPA and can't find any data to support this. As a matter of fact, it appears that the plan may be restricted from making a distribution.

DC/broker guy needs some help...

I searched and could not find a thread although I'm pretty sure this has been discussed before...

Plan excludes union employees from everything except the ability to make 401(k) deferral contributions. All union employees eligible to make 401(k) deferrals are then part of my participant count, correct?

This makes the count 122 as of 01/01/2006; I want to be sure I advise the client properly that they do, in fact, need an independent audit for 2006.

Thanks in advance.

I have a terminated employee in a DC plan that requested $10,000 a year in installments. With actuarial assumption for earnings, the installment period is less than 10 years. (These also did not go beyond her life expectancy.) Each year the individual has been directly rolling over the $10,000 into an IRA. (Don't ask me why she doesn't roll the whole thing in.)

After 5 years, she has now requested the installment amount be reduced to $3,000 a year. My question is, are these still subtsantially equal payments attached to the first series of $10,000 a year installments? Treasury regulation 1.402©-2 Q&A 5© states that if the payments change so that subsequent payments are not equal to the prior payments, you would make a new determination.

If they are linked to the prior $10,000 yearly installments, the combined period would be over 10 years and not eligible for rollover. If they are not linked and a new determination is to be made, then the new series of $3,000 a year installment would be less than 10 year and eligible for rollover.

I have not been able to find any examples for this. I looked at Revenue Ruling 2002-62, which defines substantially equal payments, but this type of scenario is not described.

Thanks!

A customer pays the taxes on the UBTI from withhin their IRA, the customer gives the Trustee of the IRA approval to liquidate an investment that is in the IRA. The check from the liquidation comes to the Trustee, the Trustee then deposits the check into a Federal Reserve for payment of the UBTI for the customer. I want to know is the money from that came from the liquidation considered a reportable distribution to the customer/IRS or would it be considered a transfer since the customer did not take receipt of the money?

I am concerned about the timing of benefit commencement under a nonqualified plan whose only benefit is the amount lost under a qualified defined benefit plan under §415 and §401(a)(17). Before 409A, the nonqualified plan provided for benefits to commence at the same time as benefits start under the qualified plan. Notice 2005-1 and Prop. Reg. 1.409A-3 appear to disallow that approach after the transition period and require benefit commencement under the NQ plan to be determined objectively, with reference to either separation from service or a date certain. An actuary colleague questions the sense of this, given the link between the plans. The proposed regulations have several provisions addressing NQ plans linked to qualified plans, but nothing relevant to this question.

I would appreciate any comments.

Thanks!

Dentist wants to set up the following: Dentist's father will own 100% of Corp X. Dentist will own 100% of Corp Y. Corp X will lease Dentist's services to Corp Y. Corp X will fund retirement plan covering only Dentist. Looks to me that it might be an affiliated service group such that all e/ee's of both Corp X and Corp Y would be in the plan. Any suggestions or comments?

Company A has had a SIMPLE IRA for a number of years. Deferrals for January and February of 2007 have been deposited. The company now wants to establish a 401(k) plan for 2007. The way I read the commentary, there are two options:

1) Don't do it!

2) Freeze the SIMPLE and establish the 401(k). The SIMPLE is now invalidated for 2007. It looks like there are three correction methods:

-Reurn the 2007 deferrals to plan participants by the due date of the employees' tax return, pursuant

to IRC section 408(d)(4). While there is no guidance, it looks like the 25% the 6% excess

funding penalties do not apply. I don't think that Form 1099 has a box for this. Does anyone know? Is

the failure insignificant as required for self-correction?

-For the weak-hearted, request relief from the IRS by filing under EPCRS. As I read EPCRS, there are

two approaches.

a) The filing can be done as an employer eligibility failure, which, if approved by the IRS, would

treat contributions already submitted for 2007 as contributed to a proper SIMPLE. Since the

violation would not be "accidential", I probably would not recommend this approach. Any

thoughts?

b) File to correct as the contribution of excess amounts under section 6.10 of EPCRS.

Am I making any sense? Has anyone done any of the above? Thanks.

I have a client that is looking to start up a 457(b) and 457(f) plan. They will have maybe 20-30 people

in the b and 1 person in the f plan.

They are a non-for-profit enitity and have both a 403(b) and a 401(k). We will look at their 403(b) provider, but their 401(k) provider does not do non-qualified plans.

I have checked with a few firms and most have said no. So far Principal has said yes.

Please let me know if you aware of a non-qual administration firm who will do these start up plans?

Thanking you in advance!!!!

willow

Big Corp. owns 100% of Small Corp. Small Corp. sponsors a 401(k) plan. Big Corp. does not sponsor a retirement plan of any type. Mary is employed by both companies. She is paid $100,000 a year from Big Corp. and is paid $15,000 a year from Small Corp. She defers the enter $15,000 she receives from Small Corp. into the 401(k) plan.

Is Mary a Small Corp. HCE? I think the answer is "yes" if her combined pay exceeds the applicable HCE pay threshold. Let's assume it does.

Is Mary's ADR in the Small Corp. 401(k) plan (1) 100% (i.e., $15,000/$15,000) or (2) 13% (i.e., $15,000/$115,000)?

A colleague directed me to Code Sec. 414(b) and showed me that there is no reference in that Code Section to Code Sec. 414(s). He has concluded, as a result, that Mary's ADR in the Small Corp. 401(k) plan is 100%. He would also conclude that since Code Sec. 414(b) does not reference Code Sec. 414(q) that Mary is not an HCE with Small Corp.

I am not satisfied with these two answers although I can understand his logic. Any thoughts? My inclination is that Mary is an HCE and that her ADR in the Small Corp. 401(k) plan is 13%. I need something to back-up my inclination, though. Any help would be appreciated!!!

An investment management firm has published a detailed 'fact check' of Tuesday's testimony to the House committee looking into disclosure to participants of fees charged on investments of 401(k) (basically, self-directed defined contribution) plans. Here's the text of the description and the hypertext link, from today's Benefits in the News page here on BenefitsLink.com:

Opinion: 'Fact Check' Needed for Testimony Given to House Committee on 401(k) Fee Disclosure (PDF)

11 pages. Mr. Eisen provides comments on each key point presented by four witnesses at the March 6, 2007 hearing, and explains why he agrees or disagrees with each point. (Ron Eisen of Investment Management Consultants, Inc.)

Comments?

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We have a client that has been making required tax payments under IRC Section 7519 because they were not 100% owned S Corporation ESOP and maintained a 9/30 year end. The ESOP recently purchased the remaining ownership of the S Corporation and they are now 100% owned by the ESOP. They have been making the required payments under IRC Section 7519 but it seems ridiculous that they will have to continue to make required payments when there is no tax deferral for the shareholder since the ESOP pays no taxes. It looks like the regs under 7519 haven't been updated for S corporations to be owned by ESOPs and so they would have to continue to make the required payments. Any thoughts or has someone else dealt with this?

Plan Sponsor rolls out a 401(k) with 2% auto enrollment and a match, but the only salary deferrals actually contributed are for the employees that completed forms to have a greater amount withheld.

The participants who made no election have had no salary deferrals and thus no match.

I have not found any self correction procedures for auto enroll. What's the best course of action to correct?

There is a severance fund. The trustees and administrators of the fund are also participants in it.

If the trustees and administrators vote to deny somebody benefits, it may look like a conflict of interest, because granting the benefit would diminish the trustees' and administrators' benefits.

There is no reason to believe that the trustees and administrators are acting arbitrarily or capriciously, and there are safeguards set up in the fund. There are certain procedures which must be followed, including appealing to the entire board of trustees if a person's benefits are denied.

What safeguards have you used or do you know of which would help eliminate this problem? Thank you.

A 401(k) plan excludes consultants from participating in the Plan. The plan has no coverage issues but regarding ADP testing, can you exclude this class from the ADP test?