409A (statute and regs) says that if you fail to meet 409A, amounts deferred under a nonqualified plan FOR ALL TAXABLE YEARS are currently includible in gross income to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.

The regs also provide that unless the plan is materially modified after 10-3-04, 409A applies only to amounts deferred on and after 1-1-05.

Suppose someone established a nonqualified plan in 2000 to which they made substantial annual deferrals. Suppose further that the person never paid attention to the changes brough about by 409A and continued to make deferrals under the noncompliant plan during '05 and '06.

The deferrals during '05 and '06 are definitely subject to 409A. However, if the plan was never modified, are the pre-'05 deferrals grandfathered (i.e., protected from 409A)? The language "FOR ALL TAXABLE YEARS" (above) suggests that all deferrals under the plan are subject to 409A.

Can anyone confirm that I have this right? Is there any way to salvage the pre-'05 deferrals?

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A defined contribution plan provides a participant with the right to take a distribution upon attainment of age 65 (but not before, even if their employment terminates prior to age 65). Can the plan sponsor amend the plan so that distribution is available prior to age 65 upon termination of employment only if the distributee waives his/her right to sue the plan for anything (including an ERISA or ADEA violation)?

I found some guidance in the 411 regs that says a distribution prior to the mandatory commencement date (since voluntary) may be subject to restrictions so long as the restrictions are objective.

Our firm has encountered an employer who is reimbursing their employees the cost of the premium amounts for them to be covered on their spouses employer's plan.

This has definitely caused an uproar in our small business community as the employees are now terminating their coverage to jump on their spouses insurance to be reimbursed by their employers.

This seems unfair, but I am sure it is legal. My question is what would be the draw back for this employer? And, wouldn't the employee's then have to report that as income/wages and be placed on the employee's W2's?

Any helpful information would be greatly appreciated.

Thank you,

Existing PS plan was sole plan for plan year ended 6/30/06. It then changed it's plan year for a short plan year 7/1/06 - 12/31/06 to match a change in the company's fiscal year. A new DB Plan was then adopted for 12/31/06 with an effective date of 1/1/06. Since both DB and PS plan have the same plan year end I believe I can permissively aggregate them. However, can I only use compensation and contributions from 7/1/06-12/31/06 for the DC side given the short plan year end ? Thanks for any thoughts/opinions.

I came across two cases this week that I thought were disturbing in that the plan sponsor used the 401k (to its detriment) to increase the profitability or marketing or the plan sponsor itself.

the plan sponsor negotiated with a bank for its commercial lending and/banking needs. Within a period of time, the plan sponsor was solicited by the ERISA services department of the bank and the plan sponsor promptly moved the plan to the bank's 401k offerring (ironically the plan was already serviced by a competing bank). Obviously, there were many 401k vendors that could have offerred superior services and fee schedules. We performed a benchmarking for the client that clearly showed the Bank would be wildly over compensated if the client went ahead with the conversion (soft money and explicit fees totalled over $1500 per head and growing). The bank was using loaded A shares, R shares, etc, when "I" shares were clearly available at a steep reduction in cost. Our report was ignored and the client is proceeding. Is the pan sponsor self dealing? Is this a violation of the exclusive benefit rule or some other provision of ERISA?

Can anyone provide some insight on whether or not there are restrictions on terminating a 401(k) plan after the purchase agreement has been signed. The purchase agreement did not identify that the buying company was going to terminate the plan. Can anyone provide some info. on 401(k) distribution restrictions?

Getting some conflicting information - can an employer change their safe harbor match to an enhanced match during the plan year. For example, calendar year plan year and from 1-1 to 6-30 the plan is providing a basic S-H match. Effective 7-1 the employer wants to use an enhanced match for the remainder of the plan year. Plan is amended effective 7-1 and revised Notices distributed.

I thought changing the S-H match (other than eliminating it with proper notice, amendment) during the year was prohibited?

And if changing the basic S-H match to an enhanced match is allowed, is changing a S-H nonelective from 3% to a higher percentage during the year allowed (again with proper amendment and notices)?

An employee in Company A also received some compensation late in 2006 from Company B. The companies are unrelated, but participate in the same 401(k) plan. The employee had made the maximum 402(g) contribution relating to Company A compensation before receiving the compensation from Company B, so did not defer based on B compensation. The employee is an HCE wrt Company A, but is a NHCE wrt Company B.

Company B's ADP test fails due to the employee's zero deferral. Can the employee be treated as not eligible to make deferrals wrt Company B, and therefore be excluded from the ADP test? Seems only fair and logical to do that, but we know IRS rules don't operate on that basis.

Thanks

Can a participant rollover their Roth 401(k) account to a Roth 403(b) and vice versa. I was under the impression this was not permitted. I thought I read recently, that the PPA contained language permitting rollovers between roth accounts. Any information and supporting regulations are appreciated.

Thank you

One of my clients - who has terminated employment - is being told that his 401k plan limits his ability to rollover or withdraw his salary deferrals to $15,000 prior to age 55.

Is this legal? I was not aware that plan documents could restrict terminated employee access to salary deferral contributions.

A small 401k plan had 1 payout (rollover) in 2006. By accident, our office and the accountant separetely prepared identical 1099-R's, which the owner/Plan administrator promptly filed both copies with the IRS and sent both versions to the former participants.

Can anyone advise on how to fix this? If we file an amended 1099-R showing $0.00, I'm concerned that might wipe out both 1099s. To do nothing would make it seem that there were 2 distributions. Since this was a rollover with no taxable event, is it best to just do nothing?

Thanks

In trying to figure out a way for some owners to maximize their annual additions, I came up with the idea of using employee contributions to get there. I would appreciate any comments if what I have is way off base.

Company has 9 employees, with 2 owners (brothers), plus 5 more lineal family members, for a total of 7 HCEs, with 2 non-related NHCEs. Plan is a Roth 401(k) 3% safe harbor. No other contributions so far. New Comp. won't work in this plan if we try to favor the 2 owners. Everyone has elected to make Roth contributions rather than pre-tax 401(k).

What if the plan allowed for both Roth and after-tax employee contributions? The 2 owners (with comp of $225,000) make $15,500 in Roth contributions, get $6750 in s/harbor contribution, and a contribution of $22,750 in after-tax employee contributions, getting them to $45,000 in 2007. If none of the other 5 HCEs make after-tax employee contributions, the 401(m) HCE ACR would only be 2.89%. If the 2 NHCEs were to put in on average 1.45% after-tax (but not Roth) or if the company put in a 1.45% QNEC for NHCEs only, then 401(m) passes (1.45 *2= 2.90%).

Granted this is a pretty narrow set of circumstances, but does this work as well as it seems to work? The owners, who already favor after-tax plan money (compared to pre-tax) can hit $45,000 by either making a small QNEC or possibly no additional ER contribution if the NHCEs put in a small EE contribution.

Is there any difference tax-wise between after-tax employee contributions and Roth contributions? Am I correct in that both contributions go in after-tax, earnings grow tax-free, and both are not subject to income tax upon distribution? I know there are some differences regarding when and how withdrawals are made.

Suppose an employer sponsors a safe harbor unit benefit DB. If the same employer adopts a safe harbor 401(k) are we required to general test accross two plans?

I make over 100k and I'm currently doing 15% per paycheck. Last year I had reached my 15k goal by end of October. I want to save as much as possible for my retirement, but this 15,500k limit seems low. What is the best way to save more, does it make a difference if I go traditional 401k or Roth, what is the best for my situation.

Thank you.

I am new to this board but I am aware of the impact that fees have on retirement accounts which has led me to ask this question.

If an individual has access to a 457 plan but the plan has high expenses, is the individual better off taking advantage of his/her Roth Ira and after maxing that out, investing the remainder in a taxable index fund(s). Are the contributions a participant makes before taxes so significant that it outweighs the possible high expenses in the plan.

Here are the expenses in the 457 plan.

Bond Index .40

Int'l Stock Index .60

Midcap Index .50

S&P 500 Index .50

Small Cap Index .50

In addition to the above basis points, the plan also charges .57% for administration, no other fees.

This is not an annuity. It's a 457 offered thru AIG/Valic invested directly in mutual funds.

I have tried to google search a financial calculator to answer my question. Does one just pass up this 457 plan and invest directly in Vanguard's Index Funds that range from 19 to 32 basis points, and do so in a roth Ira first and then in a taxable account.

I am single, 25 years of age, earn between 40 and 45K and live in Florida.

Any help is appreciated.

Please help with the following scenario to determine if an excluded class of employees must receive a gateway minimum:

Plan type: Cross-tested 401(k) plan, no match - plan is top heavy

Plan document Eligible Employee exclusions:

Excluded from Elective Deferrals - Union, Non-Resident Aliens and Other: Employees who are classified as paid on a "per diem" basis and not regularly scheduled to work over 999 hours during the plan year.

Excluded from Employer contributions - Union, Non-Resident Aliens and Other: Employees who are classified as paid on a "per diem" basis and not regularly scheduled to work over 999 hours during the plan year and Contract employees except to the extent to satisfy top heavy requirements under Section 416.

For purposes of performing the cross-testing would the Contract employees who receive a 3% top heavy contribution be required to receive a minimum gateway contribution?

Or, is this category of employee is treated as not benefiting for cross-testing purposes and therefore not required to receive the minimum gateway?

I have not found any examples addressing a situation exactly like this so any input would be greatly appreciated.

Moved question to cross-tested board

A small non-profit wants to establish a non-governmental 457(b) top hat plan for a key executive. They would like to include a rabbi trust. My understanding is that the trustee of a Rabbi Trust has to be a corporate entity and not an individual. Most of the entities which would provide the trustee services are cost prohbitive, especially for an employer of this size. Other than going without the Rabbi Trust, are there any vendors out there who will provide a simple corporate trustee service for a 457(b) that isn't going to charge a huge sum?

A small 401(k) plan has a participant who went to the financial advisor to request a distribution of $1500 of her account. The advisor processed the request and no taxes were withheld. This was done without the trustees knowledge. Obviously the advisor was in error, but ultimately the trustee/plan administrator is at fault.

What options are there to the plan?

1) Retroactive amendment to allow for the distribution?

2) VCR filing?

3) Fire the advisor

Any thoughts? I looked back at about 18 months worth of topics but did not see a pertinent one.