A client is the only participant of his pension plan.

He wants to take $70,000 in plan assets and invest in a condo.

He believes that he can get net proceeds in a couple of years of say $200,000 from this investment.

He then asks if he can pay the $70,000 back to the plan plus say another $30,000 of investment return and keep the remaining $100,000.

Without going into much detail he claims he would structure it as an investment in a company of $70,000, where the company purchases the real estate and then sells it and gives him thenet proceeds. I don't see this altering what wa stated above, just his attempt at making the transaction seem legitimate.

My question is to determine the damages of this clearly PT transaction.

For example, I see it as a situation where he in effect takes $100,000 from the plan at the time of the sale of the condo. And therefore, it is conceivable that the PT excise tax could start at 15% of the use of the money. So if the use of the money were estimated at 10%, that would amount to $10,000 in the first year and the first year excise tax would be 15% of $10,000 or $1,500. Of course this would then compound every subsequent year that such transaction is not corrected. And the excise tax wopuld be increased from 15% to 100% if the transaction is not corrected and a DOL letter is received on account of this PT.

The above seems like one potential consequence. Curious to hear of other outcomes that people believe would occur. For example, perhaps the entire plan and all prior plan contributions would be disqualified, resulting in corporate taxes for all prior contributions, taxable compensation to the employee and maybe penalties, interest, excise taxes, etc.

Or alternatively, what would be the damages if right after the transaction the plan were immediately terminated? Would the $100,000 simply be a part of the accrued benefit that is taxable, end of story?

Thanks.

Two separate issues:

1. Safe Harbor 401(k) to be terminated prior to year end.

Seems that if the facts/circ's meet the requirements of obtaining a funding waiver as if it were a MPPP, then safe harbor status remains intact.....????

2. Regular 401(k) to be terminated where e/er maintains a "successor plan".

Even though deferrals cannot be distributed to participants it appears that they can be transferred to the successor plan. I assume this can be handled in the termination amendment. I also assume that the successor plan will need to be amended to maintain the 401(k) distribution restrictions as to the transferred deferrals.....???

Any comments/feedback on either or both of the above greatly appreciated....

Here are the facts:

i have a 70.5 year-old man who is a 5% owner and is already receiving RMD from the employer's 401(k) plan. He wants to take advantage of the charitable IRA contribution under the PPA of 2006.

Obviously, as his retirement plans are arranged now, he can't at all take advantage of the new giving provision because he isn't yet in an IRA or Roth IRA.

Question: how do we move him into an IRA/Roth IRA while he is currently receiving RMD under the 401(k) plan. The code and regs make clear that you can't rollover an RMD.

However, what if we included this year's RMD in GI while simultaneously rolling the 401(k) plan assets into an IRA, at which point we could make a $100K contribution in 2007?

Also, from my understanding, assets rolled into an IRA from a qualified plan retain their creditor-exempt status under ERISA.

What am i missing or just plain not thinking about?

I have what I feel is going to become a common occurance in our shop. A little background first: We had an employee who was in jail and wanted to withdrawl his 401(k) money to pay court costs, etc. Employee was advised that the only way he could get all his money would be to resign his position with the company. Gen. Mgr. stated that he would be eligible for rehire, but wouldn't guarantee his job for him. Employee gets money, a few weeks later gets out of jail and then comes back to work.

This employee is good friends with another employee and earlier this month, sec. emp. puts in his 2 weeks notice with some story that he needs to move but doesn't have a job, house, etc in new state. I get the funny feeling he needs his 401k money and is planning on asking for his job back. Sure enough, on Tues. I get a call from a cash checking place verifying that this was a former employee and an acutual check. Just 10 min. ago, I get the phone call from this employee that he needs his job back and wants to talk to the foreman.

Needless to say I have pitched a fit. Talk about extra paperwork to constantly hire and rehire these guys. I go to the GM and the Foreman and let them know my concerns because these guys in the shop feel that 401(k) "holds their money hostage" not that its a retirement account to be used when they are old. I am afraid that if they rehire this guy it will begin a rash of employee's taking the chance and resigning (not to mention they get paid all accrued Vac for next year when they resign), cashing out their 401(k) and calling to come back to work 2 weeks later.

Do, I need to worry about anything legally? Can the government come and fine us for something like this? We are following proper procedure when an employee quits, but I am afraid that our carrier will see a pattern and we could be held accountable.

Any help is greatly appreciated. It just makes me mad that they would even consider rehiring this guy.

Are Roth 401(k) contributions included as contributions when completing the average benefits percentage test?

Looking for a report that will run on Relius version 11 that will list the following information for each participant on one line showing multiple participants on one page.

Name, Beginning Balance, Contribution/Forfeitures, Gain/Losses, Distributions, Ending Balance, and Vested Balance.

Has anyone created such a report. I have a few plans that require an audit and this is being requested by the auditor.

What steps must be taken to terminate a SIMPLE IRA Plan? Does anyone have a sample notice to employees to notify of the SIMPLE IRA termination?

Does anyone have have something I can "site" for an angry terminated particiant who is being charged a yearly maintenance fee? I believe this is okay but can't find anything in the regs to sustantiate the fee.

The new safe harbor that was created by PPA for autoenrollment plans requires the automatic deferral increase provision (among all the other requirements). That I understand.

But. there is some disagreement in our office about whther or not an existing SH 401k plan would be required to implement the auto increase if they add the automatic enrollment feature to their existing plan to maintain their safe harbor status.

I have not seen anything on this so your thoughts are appreciated.

We are a local governmental entity and started having mandatory employee contributions into our VEBA plan that was previously only funded by employer contributions. The employer continues to still make its contibutions. Currently, the employee contribution is being made with post tax dollars. Is there a way to have the employee contribution come from pre tax dollars? Please Help!!

Our open enrollment period for the flexible spending account program runs during a specified month of the year. All materials are quite clear as to the date the open enrollment closes. The forms also clearly state any elections submitted after the close of open enrollment will not be processed.

This year a form was submitted electing NOT to participate in the flex spending. Five days after open enrollment closed, the person changed their mind and called to ask that their election be changed so that they could particpate in the flex spending program. They were initially told this could not be done as open enrollment had closed. This was a person with high rank, and suffice it to say, 17 days later an email was sent out to most of our 3800 employees (about 1000 do not have email access) advising that the open enrollment period had been extended by one month.

There was no plan amendment for this, simply an email going out to some, not all, employees. My feeling is that we are not in compliance with the Plan, or IRS regulations, and may have jeopardized the entire plan. I seem to be the only person worried about this. Am I correct in worrying?

Do the new vesting rules under PPA allow you to apply a 3-year cliff vesting schedule to matching contributions and a 6-year graded schedule to employer non-elective contributions? All of the various PPA explanations I've seen seem to imply that all employer contributions must be subject to the same vesting schedule. Under Code Sec. 411(a)(2)(B), is it possible to define the term "plan" to apply separately to the different contribution sources (similar to what the minimum coverage rules allow)?

Do all employees in a controlled group have to be eligible for a 401(k) plan in order for the 401(k) plan to meet the safe harbor matching contribution rules? Assume, for example, that you have Corp. X and Corp. Y in a controlled group. Assume Corp. X sponsors a 401(k) plan. Assume further that the plan satisfies Code Section 410(b) even if no employees of Corp. Y participate in the plan.

Now, assume X wants the plan to be a safe harbor matching contribution plan. Is that possible without letting Y employees make elective deferrals? Note that Treas. Reg. Section 1.401(k)-3©(6) says the plan cannot restrict "elective contributions by NHCEs" and does not say the plan cannot restrict "elective contributions by eligible NHCEs". The terms "eligible NHCEs" and "NHCEs" are two different terms.

Yet I thought not all employees in the controlled group had to participate, as long as the plan met 410(b).

A landscaping company hires Mexican laborers under a program called H2B. As the owner explained it to me, each state is allotted a certain number of these workers. Attempts must be made to hire American workers first. If this cannot be done, an application is made for H2B workers. They tend to be seasonal, but return year after year. He wants to eliminate these workers as a class from his 401(k) plan.

1) Does anyone know anything about this program?

2) If any does, can workers in it be eliminated as a class from plan eligibility?

Just when one thinks he has seen it all! Thanks

Two items:

1. Are the slides for past sessions available to those who missed them?

2. Joan's session today (9/27) showed several areas where additional guidance is requested. Can we find volunteers to draft suggested answers to those areas needing guidance?

Examples: What do we want to see in PBGC regs on missing participants?

Can we enumerate a list of "market rates of return" acceptable for cash balance plans?

Can we have ADEA exemption if the older HCE has a lower contribution than the younger HCE?

Is there a way to avoid the "moral hazards" of timing the actuarial certification of AFTAP? How can we protect the industry from criticism/litigation over the timing of benefit freezes caused by underfunding.

Can a valuation performed at the end of the year serve to determine the AFTAP for the next plan year?

How do we help a client elect use of the COB or waiver of COB?

What is the best way to satisfy 204(h) advance notice with the AFTAP suspension of benefit accruals?

What will be the allowable benefit payment on the restricted benefits at 60-80% funding levels? Plan rate, new 417(e) rate, PBGC premium rate, PBGC plan termination rate?

What will happen to 415 limits that would be limited under 401(a)(17)?

How do you determine or document that a contribution is to pay for a benefit increase rather than the normal funding? What will the schedule B need to disclose?

How will the threshold rates for 2007 be applied to determine if 2008 restrictions are in place? Highest allowable interest rate, or rate used by actuary for CL? or 412(l) value?

What effect will result from purchases of annuity contracts that are subject to dividends or excess interest credits? Will the purchase price be used?

If we fund benefits on an end-of-year valuation date, do we lose the ability to spread gain/loss on the salary increase portion of the accrued benefit?

I'm sure each of us has unresolved items in applying PPA. What are your ideas?

Is there a limit on after-tax contributions that can be put into a defined contribution plan, other than the 415 limit? Rev Ruling 80-350 had a 10% limit on compensation aggregated over all years of participation, but I see that Rev Ruling 93-87 made Rev Rul 80-350 obsolete.

I'm trying to locate a copy of Revenue Ruling 80-350. Can anyone help with this?

Suppose you have a small company (just two 50% partners in LLC) that starts business June 1, 2006. They already have income of $600K each. The tax year is December 31, 2006. Their plan salary already exceeds $220k each.

They could adopt a DB plan with a plan year 6/1/06 to 5/31/07. Question: Given they will have maximum plan salary before 12/31/06, could the DB plan be run on a beginning of year basis? If so, could the full contribution for the 6/1/06-5/31/07 plan year be deducted on the 12/31/06 tax return? It would be contributed by 12/31/06.

Thanks.

Has anyone considered whether providing for auto enrollment for salaried employees and not for other employees would need to be tested as an other right or feature under 1.401(a)(4)-4? Would it instead fall within the exception that it "cannot reasonably be expected to be of meaningful value to an employee"? Any thoughts are appreciated.

A defined benefit plan has mandatory employee contributions. A plan participant terminates with 0% vested employer contributions. The plan makes a lump-sum distribution of the employee's own contributions, plus earnings.

Is this distribution reported on Schedule R, Line 3? Clearly, a lump-sum distribution has been made, but was a "benefit" distributed to a "participant"? For the purposes of Schedule R, a "participant" is someone who, at any time during the plan year, had an accrued benefit in the plan. Accrued benefits include both forfeitable and nonforfeitable amounts.

Would you report the lump-sum distribution? The Schedule R instructions specifically say not to report lump-sum distributions of elective deferrals, but there's no mention of mandatory, after-tax employee contributions.