Sole-Proprietor sponsors a "uni-k" for himself, in order to make an elective deferral and also benefit from the 20% deduction for profit sharing. As of today, the sole-proprietor has not made any elective deferrals for 2005. Can the sole-proprietor still make an elective deferral for 2005? The profit sharing portion is still allowable, as the Form 1040 has been extended to 10/16/2006.

Any replies would be appreciated.

DC Plan is terminating in '06. Gust prototype with the following "snap on" amendments: 1) EGTRRA, 2) 401(a)(9) post-EGTRRA, 3) cashout/rollover 4) Final (k) and (m) regs. Does this plan need to be entirely restated prior to termination? Does it make a difference whether you plan on submitting a 5310?

We do require it on our forms, but is there any legal requirement that a plan sponsor sign a participant termination distribution form?

We are working on trying to streamline the process and other fund groups seem to be moving toward electronic and not requiring plan sponsor signature, so just wondering. One fund group actually has phone distributions, so we are thinking that there must not be an actual requirement for this signature?

I am just trying to get a feel as to what other firms are charging participants to get a lump sum payment (rollover or cash payment) from a participant directed DC plan after they terminate service with the plan sponsor.

Thank you in advance for any input!

I have a SHNC 401(k)plan where there are 2 entry dates and compensation prior to plan participatin is excluded, according to the plan document. When giving the SH 3% contribution, can I exclude compensation prior to participation? The plan is top-heavy so I was assuming the 3% had to be over the entire year but I was told that this may not be correct.

Assuming I can give the SH3% on the half year comp, if I do a NC allocation then, do I need to make up the difference to bring the cont to a full year 3% first before doing the NC allocation?

Hope this all makes sense. Thanks!

I think this is a fairly interesting situation. I'm pretty sure I handled this as would be standardly done in the industry but maybe I am all wet. We had a transfer plan that had a match formula based on years of service. Per 1.401(a)(4) regs, non-uniform match is a benefit, right or feature. I performed a current availability test on the match and it failed for several years. The client determined a reasonable business classification to give certain people additional match to make the current availability test pass. We filed VCP since we were outside of the correction period of 9 1/2 months. After several discussions with the IRS agent regarding whether or not the client did an ACP test (they did) and whether or not this was really a demographic failure, the IRS sent the VCP back saying the submission is ineligible under EPCRS. So in the eyes of the IRS, if the match is tested in ACP, no further testing is needed. However, whenever I file these tests on schedule Q for Form 5300, the IRS has never come back saying the testing is not needed or the testing methodology is incorrect.

You would have handled the same as me, yes or no?

Thanks!

We have a couple of plans that want to amend their document to allow for automatic enrollment as of January 1, 2007. Per the regs, the current employees could avoid the automatic enrollment by making an affirmative elections "during a specified reasonable period ending on the January 1 effective date of the amendment". Does any one have any language to provide notification to the employees of this change? Our document provider does not and when the plan is amended, there is no Summary of Material Modification provided, nor does the SPD address this. I am hoping someone has already built this document and I can modify it to fit the client. Thank you.

When there is no QTA involved, and a previously terminated (sponsoring co. has dissolved) plan provides for J and S, can assets be escheated?

In this case the ppt is unresponsive to delivered mail.

All plan assets were dist'd, except to this ppt.

Is there any definite guidance out there?

An employer allows rank and file employees to pay insurance premiums through Cafeteria Plan and also to participate in flexible spending plan and dependent coverage.

Physicians, whether they are considered key employees or not, are not allowed to participate in the Section 125 plan.

The corporation (C corp) pays the cost of insurance coverage for the physicians. These and other "physician specific" expenses are deducted from the share of compensation which each physician receives.

Does this allow the plan not to take the physicians into account when doing their discrimination testing?

When a company has both a safe harbor 401(k), using employer match option, and non-safe-harbor 401(k), for ADP testing of non-safe harbor plan, are the NHCEs in safe-harbor plan included using the amounts deferred in the safe harbor plan or are the safe harbor employees excluded? Thanks in advance for comments.

When doing a IRA to IRA rollover how do you determine 60 days from receipt? How does the IRS know the date you received the IRA?

I opened my Roth account in June 2006, so I will be able to withdraw a "maximum" of $10,000 for a first house in the beginning of January 2011.

I've read websites that say I can withdraw 10,000 worth of contributions and earnings for the first house. Suppose by then I have $16,500 in my account, and $500 of it is pure earnings. Does the government have a strict "earnings" and "contributions" column, so that there is a certain percentage of earnings and contributions I can take out when I buy the house? Or, may i opt to take ALL of the earnings and 9,500 worth of contributions out of my Roth account?

Does that make any sense?

Basically I'd like to take all the earnings out when I think about housing, particularly since I won't be able to touch any earnings until I retire.

And, if I can withdraw CONTRIBUTIONS without penalty, can I also take out the extra $6000 worth of contributions toward this house as well?

Or can I take out $16000 with no penalty, and have to keep the earnings in there because the government doesn't keep track?

Thank you all for your help!!

Anyone on the board using DataPath DPI 125 with Microsoft Office Pro 2003? I'm having problems printing out employees account balance letters. DataPath says it's a problem with Microsoft Office 2003 and not theirs. Was wondering if you have the same problem and how you solved it.

Thanks,

Wisln

An employer maintains a calendar year cafeteria plan with health FSAs, dependent FSAs and premium conversion. The employer is acquired and becomes part of a large controlled group. The parent of the controlled group establishes a group medical program and cafeteria plan (with health FSAs, dependent FSAs and premium conversion) effective 1-1-06. This employer decides to stay under it's existing group medical (and cafeteria) plan until at least renewal on 8-31-06.

Now the employer wants to join the controlled group plans as of 9-1-06. The major difference in the cafeteria plans is that the health FSA limit is substantially greater in the controlled group plan. Can the employer terminate its cafeteria plan and join the controlled group plan for the remainder of the year? If yes, would the employees be able to make new FSA elections under the controlled group plan for the remainder of the year, and use up the existing FSA balances under the old plan?

If the employer can't terminate the old plan and adopt the new plan mid-year, can the plans merge? Even if possible, I assume that the employees could not make a new election under the terms of the merged plan to take advantage of the increased FSA limit, so I don't really see any benefit to this option.

Obviously, the old plan can continue until 12-31-06 and then be terminated, with the employer adopting the controlled group plan for 2007. Are there any other options?

I'm looking for some general information on the use of option plans by LLCs. This type of plan would grant an employee the right to purchase a membership interest in the LLC. Does anyone know of a good website or article that addresses the major issues associated with these arrangements? Thanks.

We took over a plan. There was a distribution for a terminated participant. We weren't aware of the distribution (timing) and thought the prior TPA would have taken care of it, but they didn't. When doing the year end valuation, we found the distribution. We prepared the 5500. The client now received a letter from the IRS stating they owe the withholding (and that there was no 1099 prepared). How do we correct this?

Thank you so much!

I have a participant that requested an age 59 1/2 inservice withdrawal through the recordkeeper's website. The participant received check and is now saying they made an error when navigating the website. They accidently requested the maximum avaialble, but they really wanted a much smaller amount. Essentially, they have removed their entire account balance, which is a sizable amount, but they wanted only a fraction of the account.

The participant contacted the recordkeeper. Recordkeeper is refusing to reverse the transaction unless we (the plan sponsor/employer) indemnify the recordkeeper AND agree to make good on any loss that will be incurred by reversing the transaction. The indemnification wording they are suggesting is basic holds harmless type wording - no specific regulations or statutes are referenced.

What I am trying to understand is what is risk to our Plan if we authorize this reversal? The recordkeeper has been unable to cite the specific regs or statutes that would be violated by reversing the transaction.

I would like to help the participant out in this situation, but I'm hesitant to act without a better sense of the risk to the Plan. Has anyone had a similar situation occur? Any comments on how other plans handle these types of participant mistakes?

Prior to January 2, 2006 the New Jersey State Employees Deferred Compensation Plan (NJSEDCP) was administered by the New Jersey Division of Pensions and Benefits with the New Jersey Division of Investments and the State Investment Council responsible for investment of the funds. The Plan is funded solely with voluntary employee salary reductions with the employee responsible for paying all costs associated with the administration of the Plan. The Plan offered four investment funds (DCP Funds) each with an expense ratio of 0.08 percent (eight basis points). On a national level only the Federal Thrift Savings Plan (TSP) offers a more cost effective retirement savings/planning tool.

This all changed on January 2, 2006 when Draconian changes were introduced. The State's Deferred Compensation Board appointed Prudential Financial as the Plan’s Third Party Administrator (TPA). The new investment lineup comprises 23 investment funds with expense ratios as high as 1.45 percent (145 basis points). The lowest cost fund, the Vanguard Institutional Index Fund with an expense ratio of 0.25 percent (25 basis points), is more than three times as expensive as any one of the four DCP Funds.

On January 2, 2006 the DCP Funds were closed to future contributions. If the participant had not given Prudential Financial new investment instructions as to which new funds he or she wished to invest in Prudential Financial made the decision by default. DCP Equity Fund investors are now investing their current contributions in Large Cap Blend Enhanced Index/QM Fund with an expense ratio of 0.89 percent (89 basis points). DCP Bond Fund investors are now paying 0.80 percent (80 basis points) to invest in Core Bond Enhanced Index/PIM Fund and DCP Small Cap Equity Fund investors are now investing half their allocation in Mid Cap Blend Enhanced Index/QM Fund and half in Small Cap Value/Munder Capital Fund with expense ratios of 0.94 percent (94 basis points) and 1.35 percent (135 basis points) respectively.

Assume a participant invested equally in the three DCP Funds. On January 2, 2006 his/her expense ratio was increased nearly 12 fold to 0.94 percent (94 basis points). Assume an average investment return of 8 percent over the next 30 years. A DCP investor who starts off with $30,000 on January 2, 2006 (with no additional contributions) will have an account balance of $295,000 on January 2, 2036 while the "new investor", who also starts off with $30,000, will have an account balance of $232,000. Such are the results of paying 0.86 percent (86 basis points) in additional fees over a 30-year period. This cannot be defended!

This is a bad, really bad deal. An investor cannot control the investment markets but can control the cost of investing in those markets. Prior to January 2, 2006 the Deferred Compensation Board, Division of Pensions and Benefits, Division of Investments and the State Investment Council all keenly recognized this important principle of investing. It had served the employee very well for 25 years. Why was it suddenly abandoned? A cruel injustice has been inflicted on New Jersey State employees and must be corrected forthwith.

Joel L. Frank

Interesting issue:

Company has not performed 105(h) testing for several years for self-insured plan. They have included a select few retirees, and as a result will fail. Therefore, excess benefits to all HCIs are taxable.

Prospectively, the company can carve out an insured plan for the select retired execs they want to cover, but any ideas on what the retroactive correction is for prior years? Issue amended W2s and 1099s for past years to the HCIs (active employees and retirees) and have them amend their tax returns? That's tough to swallow considering the definition of HCI in 105(h) regs includes the top 25% wage earners (more than 200 individuals in this case).

thanks for your thoughts,

RT

On the 2004 Form 5500, Schedule I, the total expenses were not deducted from the total plan assets, thus it appears to have about $3,000 more in end of year assets than I think it should. As a result, I'm in a quandry over what to do for my 2005 beginning balance. Two questions:

(1) Am I correct that the total expenses (which equals the amount of benefits paid during 2004) should have been deducted to arrive at the end of year total plan assets? Is there any reason why this amount would not/should not have been deducted?

(2) How do I correct it? Should I use the correct balance for my 2005 "beginning of year total plan assets" and also prepare an amended/corrected 2004 Form 5500? If I prepare the amended/corrected 5500, do I need to provide any type of explanation for why I am doing that? Do I send the corrected 2004 Form, the explanation and the 2005 form in together?

Thanks!