An employer (sponsoring a qualified 401(k) plan) wishes to replicate the contribution allocation provisions of a state-sponsored 457 plan by increasing the amount of matching contribution available to employees with longer service, as follows:

If the employee has 0-9 years of service and defer 3% they get 3% employer profit sharing, and 1.5% employer match (this is the maximum employer contribution).

If an employees has ten years of service or more, the match would work as follows:

Employee Deferral 3% Employer Profit Sharing 3% Employer match 2%

Employee Deferral 5% Employer Profit Sharing 3% Employer match 3%

Employee Deferral 7% Employer Profit Sharing 3% Employer match 4%

Isn't this a discriminatory contribution formula and, therefore, not allowable in a qualified plan? I thought the rate of match was not allowed to increase as the deferral rate increases or is that just a safe harbor thing?

Thanks in advance for your thoughts.

If I have a 401(k) plan that runs from November 1, 2006 though October 31, 2007, does that mean that we have until October 31, 2007 to amend for final 401(k) regs?

Under the pension bill non-sposue beneficiares from a qualified plan can now "roll" to an "inheritied IRA.. This is effective for distribitons in 2007 or later. Should apply to participants who die in '06 since the distribution over the beneficiariy's life expectancy would not have to start until '07. What about the following situations:

1) Non-spouse beneficiary begins receiving distributions over his/her life from the qualified plan (assuming the plan allows this). Can they now simply transfer the amount in the Plan to an inherited IRA and keep up this distribuiton pattern.

2) Non-sposue beneficiary elects to use the 5 year rule and does not begin distributions by the end of the calendar year following the calendar year of death. I would assume they couldn't now transfer to an IRA and then start using their life expectancy.

SEC. 829. ALLOW ROLLOVERS BY NONSPOUSE BENE-

FICIARIES OF CERTAIN RETIREMENT PLAN

DISTRIBUTIONS. 12

(a) IN GENERAL.— 13

(1) QUALIFIED PLANS.—Section 402© of the

Internal Revenue Code of 1986 (relating to rollovers

from exempt trusts) is amended by adding at the

end the following new paragraph:

‘‘(11) DISTRIBUTIONS TO INHERITED INDI-

VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE-

FICIARY.—

‘‘(A) IN GENERAL.—If, with respect to any

portion of a distribution from an eligible retire-

ment plan of a deceased employee, a direct

trustee-to-trustee transfer is made to an indi-

vidual retirement plan described in clause (i) or

(ii) of paragraph (8)(B) established for the pur-

poses of receiving the distribution on behalf of

an individual who is a designated beneficiary

(as defined by section 401(a)(9)(E)) of the em-

ployee and who is not the surviving spouse of

the employee—

‘‘(i) the transfer shall be treated as an

eligible rollover distribution for purposes of

this subsection,

‘‘(ii) the individual retirement plan

shall be treated as an inherited individual

retirement account or individual retirement

annuity (within the meaning of section

408(d)(3)©) for purposes of this title,

and

‘‘(iii) section 401(a)(9)(B) (other than

clause (iv) thereof) shall apply to such

plan.

‘

I am having difficulty finding an answer to what should be an easy question:

If a DB plan contains a PIA offset, is the protected benefit (in the context of Code sec. 411), the gross benefit (i.e., the benefit prior to application of the offset) or the net benefit (i.e., the benefit after application of the offset)?

A client wants to freeze its DB plan. The plan's benefit formula contains a PIA offset provision. As part of the PIA offset provision, the plan provides that it will estimate pre-hire wages using the method prescribed in the 401(a)(5) regulations unless a participant provides evidence that their actual pre-hire wages were less than the estimated wages using the prescribed method. Such evidence has to be provided to the plan within a reasonable time after (1) the date their employment terminates (by retirement or otherwise) or (2) the date they are notified they may commence payment of their benefit, whichever is later.

As part of the benefit freeze, the sponsor would also like to amend the plan to provide that unless such notification is made by a certain date, say December 31, 2006, your PIA offset will be based on estimated pre-hire wages and you will lose the right to provide evidence that your actual pre-hire wages were less.

It seems that if the gross benefit (i.e., the benefit prior to application of the offset) is protected, then this additional amendment can be done without violating 411(d)(6). However, if the net benefit (i.e., the benefit after application of the offset) is protected, then this additional amendment would, in a sense, eliminate a protected right. Any comments or thoughts?

Given the number of DB offset plans and the number of frozen DB plans I find it difficult to believe this is a novel issue. Any help is greatly appreciated!

News release from CCH this week stated, in part ......."As a result, under the (electronic filing) proposal, Schedules E (ESOP Annual Information), P (Annual Return of Fiduciary of Employee Benefit Trust), and SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits) would no longer be required to be filed as part of Form 5500. Also, the IRS has independently eliminated the Schedule P from the 2006 Form 5500 in anticipation of a move to a wholly electronic filing environment."

The Schedule P was discussed pretty well in another thread this week.

http://benefitslink.com/boards/index.php?s...32718&st=15

Does anyone have any thoughts as to how a plan sponsor and/or the trustee will insure the Statute of Limitations will be triggered annually if the "P" is no longer a part of the plan filing?

Is there any guidance on how to correct a situation where a participant is terminated so they can receive a distribution and immediately rehired?

We had a participant take out a loan in 2002. It was deemed a distribution in 2003, 1099 issued. participant has not had a break in service.

Does that loan carry from year to year (on the 5500) until it is either paid or participant terminates?

Gang,

Can salary deferrals in an Eligible 457(b) non-gov'tal Top Hat plan be 100% vested immediately? Or, must they be vested only when no longer subject to a substantial risk of forfeiture?

If deferrals are 100% vested immediately, yet 457(b) assets are subject to claims of an Employer's creditors, does the vesting take a back seat to the creditor's claims?

Please advise,

Espo, QPA

Appears this will be signed.

Here is a link to the Committee Explanation of the provisions:

http://www.house.gov/jct/x-38-06.pdf

Does appear, looking at page 181 of the Committee, that the high 3 year issue for 415 purposes is resolved in our favor (goes back to all service, rather than participation service).

Funding rules for 412 apply to 2008 plan years.

Any other observations at short notice?

Does anyone know the criteria that would need to be met in order to exclude a spouse's business? I believe there are 5 points that need to be met? Anyone know what they are or a link?

Thanks.

I have a plan that is top-heavy. The owner, who is over 50, would like to set up a 401(k).

Can we set up a SH 401(k), do the SH match, have the owner just put in catch-up for himself and then be able to do a NC allocation? This way he does not have to worry about if any employees defer or not and he can max himself out. Is this making sense? Can an owner just put in catch-up, no deferrals. Thanks for any insights.

Does anyone have the 30-year treasury lump sum rate for July 2006?

I have to admit I don't have any experience with governmental 457 plans at all, zero, zilch. The client is looking for something with a little more public funding and more "guaranteed" than their current 457 plan. I believe a goverment entity may adopt a profit sharing and/or a defined benefit plan, but I also understnad that are a lot of differences. I think I even read that thy aren't subject to Title I of ERISA. That seems like a big deal to me.

We are talking about a small, rural goverment entity. As strange as this sounds I am almost thinking that a Money Purchase plan might be a good fit. I figured MP plans were "so 1990s", but maybe this could work. This will lock in a fixed amount of contribuiton that is required to be paid each year, but will not have exposure to unfunded liabilities.

Anyone have some tips for me while I continue my research?

Has anyone heard about whether the DOL will be issuing guidance addressing the reasonableness of mutual fund fees? In order for mutual fund fees to be exempt from the prohibited transaction rules, they must be "reasonable."

Thanks!

One of my new clients is requesting a Certification, 29 C.F.R. 2520.103-5. What is this and what does it do for my client? Can anyone point me to any guidance so I can read up on this? His auditor says that without it, they will have to have a full audit, not just a limited scope audit.

A plan which has 401k and a fixed match deposited too much money in 2003. The plan allows for discretionary match and/or profit sharing. However, the 2003 extra contribution is still sitting in the account (under the forfeiture section) and not allocated as of today. It appears that it should have been allocated to participants eligible to receive a contribution in 2003. Comments??

Client has a non SH plan with a 6/30 year end. ADP test is failed for pye 6/30/06. HCEs' deferrals made during the first 6 months of 2006 - no deferrals were made to this Plan by HCEs between 7/1/05 and 12/30/05. Question 1: If refund is made by 9/15/06, is refund taxable in 2006? Question 2: If answer to question 1 is yes, can HCEs "defer" the amount of the refund during the plan year that began 7/1/06 to enable them to defer the full $15,000 during 2006.

We have heard that the IRS has a new revenue ruling concerning pick-up contributions pending review by the Office of General Counsel.

Does anyone have any information on this?

Thanks.

We have heard that the IRS has drafted a Revenue Ruling pertaining to pick-up contributions that is now pending with the Office of General Counsel.

Does anyone have any information about this?

A participant who is age 60 makes Roth 401(k) contributions during 2006 .

During 2006, he does a direct rollover of half of his Roth 401(k) account into a Roth IRA. (His plan allows in-service withdrawals.)

This distribution would be composed of both contributions and earnings, correct?

The distribution would be considered a non-qualified distribution since it had not been five years from 1/1 of the first deposit year, even though the age requirement was satisfied.

Question: We normally think of a direct rollover from a 401(k) plan as not being subject to tax. Is any part of this distribution taxable? Will tax be due on the interest and earnings piece of the rollover distribution since it is a non-qualified distribution? Would the answer change if the participant were under age 59 1/2?

A participant might choose to do this in order to get the 5-year non-exclusion period for the Roth IRA started as early as possible.

Thank you for your help in thinking this through.