If the current value of plan assets is less than 70% of the current liability under the plan, the percentage must be disclosed in the SAR [ERISA Sec. 104(b)(3)]. I could use some technical guidance:

1. Is the percentage reported as "Additional Information", or is it disclosed in another section of the SAR?

2. The DOL regulations don't seem to prescribe any language for this disclosure. Can anyone suggest how the disclosure might be worded?

I have a one-participant plan that had $90k at the end of '05. However, the owner made a $42k contribution in March for the '05 plan year.

Does that put me over the threshold to file an EZ?

The instructions aren't very clear on that.

Someone was unaware that DOL will no longer accept a Schedule SSA attachment. That person created an Excel spreadsheet to report several hundred Schedule SSA individuals.

For obvious reasons, I don't want to enter the data manually. I believe it's possible to import data into Relius from an Excel spreadsheet. If I'm correct, does anyone know how to do the import? I can't find any instructions in the Relius user guide.

Small insurance broker has a profit sharing plan and is the broker of record on the self-directed plan assets (their accounts as well as the participants) - therefore, receiving the commisssions.

Is this a prohibited transaction or is there an exemption?

Scenario: Calendar year Non-Safe harbor 401(k). All HCE deferred. Prorata employer allocation method. All contributions are made for the same allocation/plan year.

HCE1

HCE2

HCE3

ADP testing is performed in January. Test is failed and a refund to HCE3 is used to correct. HCE3 is not eligible for catch up contributions. Money is distributed from the plan.

In September employer makes a profit sharing contribution. Allocation to HCE1 and HCE2 exceeds 415 limitations. A portion of their deferrals equal to the 415 excess contributions are then recharacterized as catch up contributions to solve the 415 violation. Because the deferrals to HCE1 & HCE2 are now lower, the plan no longer fails ADP testing and no correction is called for.

The plan has to test early to avoid penalties on the excess deferrals but once all contributions are made there turns out to be no excess deferrals so the correction to HCE3 was not necessary. So what do you do?

I have a question on filing for fringe benefit plans, and am still confused by the filing requirements. Client has plan #1 - self insured medical with stop loss coverage, covers over 100 participants. Plan # 2 - separate cafeteria plan collecting pre-tax contributions for medical "premiums" and unreimbursed medical expenses. Contributions are sent to general assets of the employer and again has over 100 participants.

Rules seem to indicate that the medical reimbursement feature of the 125 plan makes it a welfare benefit plan that must file a 5500 if over 100 participants. Is this correct? Also appears that if it is, we would only be filing 5500 and Sch. C, as no insurance and no audit/Sch. H required.

The prior posting seemed to indicate that the 125 filing could be combined with the other plan, even though they were separate plans. Did I read that correctly? Thanks for any assistance.

Hi-

Is there ERISA guidance for when or how often a Plan Sponsor request RFP's with respect to due diligence?

Thanks,

G

I get to be one of the first to draft church plan language making the 415(b)(1)(B) compensation limitation inapplicable except with respect to "highly compensated benefits." My joy is compromised by the lack of clarity in the second and third sentences of the new 415(b)(11) language. The second sentence restricts "highly compensated benefits" to accruals during or after the first year of HCE status. But the third sentence states that all benefits are taken into account in applying the limit to the highly compensated benefits.

As I get over thinking that it's nonsense, this language seems necessary to avoid giving the HCE the whole (b)(1)(B) limit just for benefits accrued after attaining HCE status--the intention being to stack the highly compensated benefits on top of previous accruals to apply the (b)(1)(B) limit, but not to cut anything but the highly compensated benefits.

For example:

Assume that X's high 3 years compensation at retirement is $80,000. At the beginning of year 1, when his accrued benefit is $70,000, he becomes bishop and thus a 5% owner of the corporation sole that sponsors the plan. By the end of year 5, when he retires, his accrued benefit is $100,000. Under 415(b)(11), his benefit is limited to his high 3 years compensation of $80,000.

However, if the facts were the same except that H had accrued a benefit of $90,000 at the beginning of year 1, then (b)(11) would only reduce his $100,000 accrued benefit to $90,000 by eliminating the $10,000 in highly compensated benefits.

Are there other interpretations for these two sentences? Or other thoughjts or comments?

Thanks!

Company offers a straight profit sharing plan. Assets are managed and are not employee directed. Assets are split into 5 different brokerage accounts. Each account has a different investment philosophy so that when combined offers a diverse investment portfolio.

Each time there is a sell of an asset the brokerage houses turn around and buy shares in a Liquid Asset Fund (MM fund) to house the money instead of leaving it in cash. Then when they buy a new asset they sell the Liquid Asset Fund to generate the cash needed to pay for the new asset. This is all automated....

Auditor is claiming that these buys and sells of the Liquid Asset Fund constitutes a series of transactions and are reportable.

This can't be right, is it??? Trust is 10 million so it only takes 500k in transactions throughout the year to reach this point...only a few buys and sells plus a bond maturing to hit it.

A gov't entity is considering terminating a pre-erisa money purchase plan that contains salary defferals. Are there specific rules to follow to shut down this type of plan? What other factors need to be considered?

Also, the client is considering immediately establishing a 457(b). Would this be considered a successor plan?

Is anyone aware of any publications/literature referencing pre-erisa money purchase plans.

Thank you

I am new to the 403(b) plans and I have a couple of questions I hope someone can answer:

1) Can a plan exclude an employee from contributing and receiving the employer contributions (match and non elective) if they are employed on an as need basis? The eligibility requirements are age 21 and entry upon hire. Would this fall under reg 89-23?

This particular employer does not offer the plan to these types of employees.

2) For hardship distributions, are the participants limited to just contributions for w/d or can they w/d the gain also?

3) If a person is eligible for the plan but elects not to make a salary deferral would they be eligible for the nonelective contribution from the employer?

Any input would be greatly appreciated.

I received an email from a client who was told that PPA has caused onerous taxation from 403(b) plans. Has anyone seen information on this?

anyone seen growth of their 401k retirement savings like that of what this article claims http://www.research401k.com/401k-longterm-growth.html ?

"A study carried out by 2 Washington DC state organizations revealed that 401k participants who contributed payments towards their employer sponsored 401k retirement plans over the past 7 years have seen growth rates of over 50%. This is inspite of the tech boom bust of 2000 and market declines in 2002."

A U.S. employer maintains a 401(k) plan under which 10 employees who provide services to the employer work and reside in Mexico. Their compensation is considered non-U.S. source income as 100% of the services provided by these individuals are performed in Mexico and these individuals are non-U.S. citizens. If they were U.S. citizens they would be taxed on their world-wide income.

Is the Employer required to withhold employment taxes if these individuals participate in the U.S. employer's 401(k) plan?

Thanks in advance.

Ed

Can anyone tell me - in a nutshell, if at all possible - the benefit of purchasing life insurance in a DC plan (other than being able to pay the premiums with "pre-tax" dollars)?

Follow up: What are the ramifications and remedy/ies when a participant's life insurance (DC plan) premiums exceed the IRS "incidental benefit" limits (Doc, of course, who I think got sold a "bill of goods"!)?

Thanks!

Can anyone help me come up with a reason for my client, why they can't allocate HRA excess to the 401K as PS contributions?

They have 1 ppt who has met the HRA contribution cap and they want to make sure that guy still gets his money so give it to him as PS in the 401K plan.

I tried explaining that the plans are not covered by the same laws and are not the same plan and each have their own defined set of rules which must be applied appropriately but I'm looking for a more "professional" answer.

Any help is appreciated!

I am trying field a question as to why an ER cannot move money as they choose from 1 benefit to another. For instance, there is a cap of $1,500 on the HRA and once the cap has been reached, the ER would like to contribute the rest to the 401K account as a profit sharing contribution for that participant only.

I'm trying to find something in writing that explains the differences in these plans and how they are developed as a benefit plan and the EE cannot choose how the "benefit money" is allocation (Health care, retirement, ect....) How you cannot aggregate all plans of the employer 401K or othewise, for non descrim testing.

Anyone have any ideas?

Thanks!

I am trying to figure out how to price this client, and also figure out a strategy for the future.

Client currently has:

A 401(k) plan with no employer matching or profit sharing.

1,500 people employed at some point throughout the year.

700 eligible participants

60 currently participating.

"Free" daily val administration

Client Wants:

Still wants online access.

Personal Service.

Now my dilemna.

To keep fees as low as possible, are we allowed to put a 2 year wait on deferrals? This would help lower his eligible employees and benefit his longer term employees the same as they are right now anyway. I know that you can do 2 year and make everything 100% vested, but in the back of my mind I am thinking that even with a 2 year eligibility that you have to allow deferrals after 1 year. Since he doens't have any match or profit sharing right now, the plan wouldn't operate any differently except cut down on all these employees popping up with zeros on the plan.

I don't think I can do this, but maybe...I always have hope.

JOEL L. FRANK

Retirement Analyst

PO Box 148

Marlboro, New Jersey 07746-0148

732-536-9472

Email: rollover@optonline.net

MEMORANDUM

September 2006

Public Retirement Planning

“Defined Contribution” and “Defined Benefit” Plans

For more than 40 years the State of New York has administered a Defined Contribution (401(k) type) retirement plan (the Optional Retirement Program) as a primary retirement benefit for the administrative/professional staffs at the State and City Universities, (SUNY-CUNY). In fact this select group of employees is given a choice of plans with the other one being a Defined Benefit pension. The selection is made, not by the state, not by the unions but by the individual. This identical choice of plans should be offered to the entire public employee workforce in New York.

Any intelligent dialogue about solving the multi-billion dollar funding problem of public employee pensions in New York must include a discussion about offering a choice of plans, Defined Benefit or Defined Contribution.

The unions’ position goes something like: “Defined Contribution Plans have a number of attributes that limit their applicability to most state and local public employees, although they are suitable for higher education professionals. Defined Contribution plans place all of the investment risk on the individual. Hence, they are best for employees who can bear that risk because they have other assets and who are knowledgeable about investment alternatives.”

This assertion is utter nonsense and highly insulting to the hundreds of thousands of public employees who do not work for SUNY-CUNY. Prior to allowing the higher education employee to join the Defined Contribution Optional Retirement Program does the state require the employee to file a net worth statement and take a financial literacy test in order to evaluate his or her “knowledge about investment alternatives”? Of course not!

Prior to 1964 higher education employees in this State belonged to a State-administered Defined Benefit pension system just like all other public employees. As a group higher education personnel are more mobile than other career civil servants and, as will be shown in this Memorandum, the Defined Benefit system is hurtful to such employees. The Defined Contribution system, on the other hand, is ideal for the employee who has had several employers during a career of service or just one.

The Defined Contribution plan is not reserved for the higher education community because they have “other assets” and are “knowledgeable about investment alternatives”. Career mobility is the sole reason why higher education personnel are furnished with a choice of plans: Defined Contribution or Defined Benefit. When it comes to choosing the type of retirement plan one size does not fit all. The choice of plan is best left to the individual based on his or her personal circumstances and work pattern. The Defined Contribution approach may very well be “suitable” for the person that cleans the office of the Professor of Greek Mythology but “unsuitable” for the Professor. The State of Florida has come to this conclusion by offering a choice of plans to its entire public employee workforce. http://www.myfrs.com/content/index.html. New York should do the same.

Each type of plan has a different impact on a participant’s total compensation, career mobility, and retirement income.

The Defined Contribution Plan

This type of plan makes its pension commitments to participants in the form of monthly contributions that are a stated percentage of current salary. The employer’s contributions, along with those of the employee, are deposited each month to the individual retirement investment account of each participant, as are the investment earnings on the accumulating contributions. For the Defined Contribution plan illustrated in this Memorandum, contributions are 12% of salary, with 7% paid by the employer and 5% by the employee. (Under the assumptions used, this rate of contribution provides a retirement income of about the same amount as the Defined Benefit plan illustrated after a career of participation.)

During the working years, all funds contributed to a Defined Contribution plan accumulate with investment earnings, and at the time of retirement may be used to provide an annuity income based on the amount of the accumulation. Age, of course, has a material effect on life expectancy and therefore on the rate of monthly pay-out. The younger the age of retirement, the smaller the monthly income per $1,000 of accumulation, because the longer the number of years over which payments will be made.

The Defined Benefit Plan

This type of plan provides that if an employee stays with one employer until retirement, he or she will receive a monthly single-life income equal to a specified percentage of the average salary paid by the employer in the years just prior to retirement, e.g., 50% of final-5-year average salary at age 65, after a career of service. The monthly single-life income is therefore the same for all who have identical salary and service histories. The accumulation needed to pay the income is determined by the age, salary and service of the person.

The Defined Benefit plan in the illustrations that follow provides that for each year of participation the plan will pay a retirement income at age 65 equal to 1.5% of the average salary paid the employee during the final five years of participation in the plan. This formula therefore promises that after 35 years with one employer the participant will receive a retirement income equal to 52.5% of final-5-year average salary.

Pension Contributions as Deferred Compensation

It is revealing to compare the two plans in terms of how much they add to a participant’s total compensation each year. Under the Defined Contribution plan illustrated, employer contributions of 7% of salary are credited to the participant’s retirement account each month along with the participant’s own contributions of 5%. Each month the employer is therefore adding 7% of salary as deferred compensation to each person’s account.

A Defined Benefit plan is more difficult to pin down in terms of how much it adds to a person’s compensation each year. Although employer costs are often expressed as a percentage of salary, e.g., “7% of covered payroll,” this over-all percentage is rarely indicative of the value of pension benefits earned by any individual in the plan. Instead, the cost of the defined benefit earned by a year’s work depends on a person’s age, salary, and years of participation in the plan. If the plan is contributory, participants contribute a stated percentage (5% in the illustration), just as in Defined Contribution plans. But the employer’s share of the cost varies substantially from person to person, adding little or nothing to a younger person’s compensation, and adding a great deal with advancing age and long-term participation in the plan. This is shown in Table I, which illustrates the contribution pattern required to keep each type of plan fully funded for a person who enters at age 30 and stays with one employer until age 65.

Assumptions

All of the Tables are based on the following assumptions:

· Salary is $8,000 a year at age 30, increasing by 4% a year to an average of $28,107 a year between ages 60 and 65.

· The Defined Benefit plan provides that a person who enters at age 30 and stays with one employer until age 65 will receive a retirement income of 52.5% of the final-5-year average salary, or $14,756 a year for life.

· The level contribution rate for the Defined Contribution plan (12% of salary) was selected because under the stated assumptions it too will provide a single life annuity of approximately the same amount at age 65.

· Both plans provide full and immediate vesting and the full accumulation value is assumed to be payable to the participant’s family if he or she dies before retirement.

· Employee contributions are 5% of salary for both plans.

· The investment return is 5% for both plans.

Table I

Contributions as Per Cent of Salary

Employee’s Employee Employer Contribution Employer Contribution

Attained Age Contributions Defined Contribution Defined Benefit

Either Plan Plan

Approach

________________________________________________________________________

30 5% 7% -2.18%

35 5 7 -0.99

40 5 7 1.02

45 5 7 3.86

50 5 7 7.83

55 5 7 13.38

60 5 7 21.06

64 5 7 29.27

Under the Defined Benefit plan illustrated, the younger employee’s own 5% contributions are more than enough, with anticipated interest earnings, to cover the full cost of the defined benefits earned at the younger ages, and to cover most of the cost until nearly age 50. Thereafter, for a participant who remains at one employer throughout a career, the employer’s share of the cost rises rapidly with advancing age and long service, because each year’s pension commitment includes not only (a) the cost of the current year’s 1.5% benefit, based on the most recent five years’ average salary, but also (b) the additional cost of updating all previously earned benefits to the latest 5-year average salary. This results in deferring most of the employer’s pension commitment for an individual to the final years of long service, as shown. For example, in the Table I illustration about 85% of the employer’s cost under the Defined Benefit plan is deferred until after the 25th year of participation, between the participant’s age 55 and 65.

This deferral has the unfortunate effect of making a disproportionate part of a person’s lifetime compensation contingent on age and fealty to one employer. Deferred funding also works to the disadvantage of those who participate at the younger ages but leave the work force during the middle years, say to raise a family. They take little or no deferred compensation with them when they leave, and their re-entry problems, if they later return to work, are exacerbated by the high pension costs at the older ages. A Defined Benefit plan also has worrisome implications for an employer’s budgeting and salary administration, especially during periods of salary inflation. For example, under the Defined Benefit plan illustrated, each salary increase of $1,000 at age 60 carries with it a pension cost of approximately $5,800 between ages 60 and 65.

Death Benefit Prior to Retirement

It is also interesting to compare the amount that accumulates on behalf of each participant during the working years. Under Defined Contribution plans the accumulated funds are payable to the participant’s beneficiary if the participant dies prior to retirement. Under the Defined Benefit system, any employer funding on behalf of an employee is forfeited upon death prior to retirement. The funds revert to the pension plan and help pay the employer’s pension costs for other participants. But Table II shows the combined amounts of accumulated employer and employee contributions at 5-year intervals, and assumes that under both plans the full amount would be payable to the beneficiary or estate of a participant who remains at one employer until the ages shown and then dies.

Table II

Accumulated Death Benefit Prior to Retirement

(Assuming participant remains at one employer until death at age shown)

Age Defined Contribution Plan Defined Benefit Plan

Attained

at Time of Death

30 $ 953 $ 223

35 7,166 1,951

40 16,476 5,621

45 30,066 12,846

50 49,521 26,495

55 76,964 51,545

60 115,225 96,572

64 156,115 156,523

Retirement Income and Career Mobility

The effect of career mobility on the end product of each plan also bears examining. A person who moves among several employers having identical Defined Contribution plans will reach retirement with the same level of retirement income that would have been produced staying at one of the employer’s for an entire career. On the other hand, a person who moves among several employers having identical Defined Benefit plans will reach retirement with substantially less retirement income than by staying at one of these employers for an entire career.

Consider Jack and Jill. Jack is covered from age 30 to age 65 by the 12% Defined Contribution plan illustrated. He will receive $14,718 a year at age 65, or about 52.4 percent of his final-5-year average salary whether he remains at one employer throughout his career or moves among several employers having identical plans.

Jill is covered by the Defined Benefit plan illustrated, and if she stays at one employer from age 30 to age 65 she will receive a retirement income of $14,756 a year, or 52.5% of final-5-year average salary. But if, for example, she changes employers at age 40 and again at age 50, remaining at the third employer until age 65, her retirement income will be $10,246, even though all three institutions have identical Defined Benefit plans and provide full and immediate vesting. This occurs because when she leaves an employer the defined benefits earned at that employer are related to the participant’s 5-year average salary just before leaving, not to the 5-year average salary just before retirement.

The “cold storage vesting” of Defined Benefit plans provides no way for vested benefits to increase between termination of employment and retirement. The calculation is shown below.

Table III

Average Salary

Last 5 years Years

at Each of Yearly Income

Employer x Service x 1.5% = at age 65

Employer 1 $10,543 x 10 x .015 = $ 1,581

Employer 2 15,606 x 10 x .015 = 2,341

Employer 3 28,107 x 15 x .015 = 6,324

Total $ 10,246

Advantages of Each Plan

The main advantage of a Defined Benefit plan is that it assures retiring employees with equal periods of service at a given employer a consistent ratio of retirement income to final average salary. And this ratio (although not the amount of retirement income) is predictable if it can be assumed that the employee will stay with a given employer until retirement.

A major advantage of the Defined Contribution plan is that it adds a consistent and visible percentage of salary to each employee’s total compensation at the time the compensation is earned. If one person’s salary is more than another’s, the deferred compensation is greater by the same percentage, not warped out of proportion by age or length of service. This pattern of funding, unlike a pattern that defers most of the employer’s commitment to the final years of long service, helps keep the pension plan a neutral factor when the person is deciding about joining or leaving an employer (also when the employer is making the decision). Shouldn’t the individual have a full measure of benefits whether staying at one employer or moving among several?

The Defined Contribution plan also has budgeting advantages for the employer. Pension costs are a constant percentage of salary each year. And the employer’s pension obligation for each person is fully and permanently funded at the time the obligation is incurred, not left as an open liability tied to whatever salary levels the future brings.

I am trying my hand at drafting an SAR for a client for whom we did a Form 5500 for its Health Care Plan. I am following the format outlined in Sec. 2520.104b-10(4). It states that if any benefits under the plan are provided on an uninsured basis, the SAR should include language that "Sponsor has committed itself to pay (all, certain) (state type of) claims incurred under the terms of the plan." Here's my question: how do I phrase this if the sponsor has excess coverage that pays for anything over a certain $$ amount?

If I understand how the excess coverage works, the employer/sponsor is responsible to pay all claims incurred by participants, but once the claims go over the set $$ amount, the excess coverage carrier will reimburse the employer/sponsor. So I'm thinking the SAR should state that "sponsor has committed to pay all claims incurred under the terms of the plan."

Anyone have any thoughts on this? Thanks!