Assume the following:

A owns shares in the ESOP company (S Corp) outside the plan. Therefore, he has no deemed owned shares.

B is A's nephew, is a plan participant and owns shares inside and outside the plan.

C is B's son, is a plan participant, and owns share in the plan only.

If we analyze A through the 409(p) family rules, B and C are included as family even though A has no deemed owned shares. However, since A has no deemed owned shares, he is not a DQP. If we do the same analysis for B, C is included but it does not appear as if A would be included in a family group b/c he is not a spouse, ancestor or lineal descandant of the individual or spouse, brother/sister or lineal descendant of a brother/sister, or spouse of any of those people. That is unless he is included as a non-lineal ancestor. Is he?

Assume B has 11% deemed owned. As a result, B and C are DQPs. Assume for purposes of the 50% test, they are at 20% when outside shares are included. If the answer to the first question is yes, then A's outside owed shares come into the test as part of an aggregate A,B,C family group. If the answer to the first question is no, then A's outside shares stay out of the test and there is only the B and C group. Agree?

DB plan fails 401(a)(26), which is discovered upon submission of the plan to the IRS. The plan was adopted in 2000 and submitted to the IRS before 1/31/04 to be timely under the GUST RAP. (Yes, they are just getting to it now.)

Let's say it fails 401(a)(26) because it's an offset plan and doesn't meet those requirements operationally. My understanding is that's a demographic failure and upon IRS discovery must be handled through Audit CAP. The IRS agent doesn't have authority to correct on their end. (Of course I am also assuming we are past the -11(g) period.) Agree?

However, let's say it fails 401(a)(26) because the document benefit is below the "magical" 0.5% benefit for enough people. I have to think this is a plan document failure that can be corrected without going through Audit CAP. I say document failure because under the terms of the plan with the participants eligible, there is no way to satisfy (a)(26) if you consider under 0.5% not benefiting. Agree?

Now what if it's a combination of the two. However, to correct the plan document failure the plan increases benefits to 0.5% and removes the offset altogether solving both problems. (a)(26) is saved! In other words, is the correction of the plan document failure limited to increasing that benefit and cannot change provisions that would solve other problems or is this allowable?

Has anyone else experienced a custodian that will not issue 1099 from IRA to reflect roll-over to 401(K) plan? I have a client who's employee signed up for an annuity with (please do not laugh) a 16 year surrender period. Employee may withdraw 10% per year so she has taken one and rolled it over to her employers plan (IRA rollovers accepted in doc), custodian issued 1099 as premature even tho they knew it was rollover and refuse to issue check to new plan. Now IRS wants around tax and penalty even tho it was rolled over 10 days etc. Anyone have any thoughts on this.

Say a self-employed has net earned income of 150,000 (after 50% SE reduction).

Say he bases his contribution on earned income of 50,000 and the computed maximum deduction is 150,000.

Say he contributes 150,000.

Then 100,000 (150,000 - 50,000) is deducted on that year's 1040 and 50,000 is not deducted and is a carry over. Assume that he is not subject to excise tax.

We know carryover's can be applied to future year's as a deduction, but does anyone know if such carryover can be applied to a prior year's tax return, instead, to reduce a prior year's tax bill?

Thanks.

A company has a profit sharing plan that has annuities as a distribution option. In the past they have bought an annuity from an insurance company when a participant wants an annuity. They are thinking of offering a rollover to their DB plan and paying the annuity from there based on the DB plan's lump sum factors. This would be totally at the option of the participant.

Has anybody seen this done? What issues should they be considering before allowing this

I have a company that has laid off an employee who is enrolled in an FSA. What our my options regarding her FSA since we don't know if this is going to be permanent or not. Any help would be grateful:)

Are the proposed regs effective for plan years beginning on or after 1-1-2007 or do they have to be finalized before they are effective?

Part 2 question 2e(2) under benefit payments has a line "To insurance Carriers for Provision of Benefits".

Any help on what this line means would be appreciated.

We will be offering nutritional counseling with an on-site dietician as part of our "wellness" programs. From what I have read, unless these services have been prescribed by an MD for treatment of a specific medical condition, they would not be reimbursable. Is my interpretation correct or is there some wiggle room?

A husband and wife each own 50% of Company A and there are no other employees. Company A (not the indivudual owners) owns 56% of Company B which has several employees. To me this looks like a parent-subsidiary group and a controlled group situation does not exist.

However, there's been recent evidence that instead of A owning the 56% ownership in B, it's actually one of the 50% owners of A that owns 56% of B. If this is true the two companies would be classified as a brother-sister group and a controlled group situation would exist due to the attribution of spousal ownership (each spouse would be deemed to own 100% of A). Am I interpreting IRC sec. 1563(a) correctly?

May a trustee "choose" to value bonds or CD's at par or cost?

A dispute is brewing between the TPA and the financial advisor that appears at this point to be boiling down to the fair market value of bonds. TPA reconciles the trust and determines that the plan experienced a loss of 3%. Bonds were valued at fair market value by the brokerage house. Obviously, bonds lost value as interest rates have begun to rise.....plus a couple of GM bonds were downgraded adding fuel to the fire. Financial advisor explains to client that he hasn't lost money at all.....hold the bonds til maturity and everything will be just fine.....no losses to the plan. TPA says that ERISA requires the valuation of all assets at "fair market value".....very clear for purposes of 5500 reporting.

Assuming TPA is correct and all plan assets must be reported at fair market value for 5500 reporting purposes, could the trustee decide to value the bonds at cost or par value for purposes of the valuation without jeopardizing qualified status of the plan? Trustee does not want to show a loss to plan participants if the loss is strictly unrealized and he has every intention of keeping the bonds until maturity.

Of course, a Form 5500 that doesn't tie to the valuation doesn't sit right with me, just wondering if anyone else has run into a similar situation.

CD's present the same problem. Had a case recently where the trustees bought CD's at various banks for 15 years. They were always valued at par until they decided to start buying them through a brokerage house. Banks always reported the value of the CD at par.....the brokerage house reported the value at fair market value. So simply because the CD's were held somewhere else, participants began to see losses in their accounts even though the portfolio was invested entirely in insured CD's.

Just wondering if anyone else has come across these issues and if so how they were dealt with.

The actuary uses a specific pre-approved method in the first year of the plan.

Then for year two, the same actuary in the same firm makes a change to another pre-approved method.

As I read 2000-40, the automatic approval is ok, because there was only one change in method. The method adopted in the first plan year is not labeled a change.

Any disagreement?

I am trying to put together a benefit statement (my first one ever) so that the participant can decide what form they want to take the distribution in. I was going to ask for someone to help talk me through it, but I have a feeling that would be too complicated. I have asked for help here at the office but everyone seems too busy to really give me good help.

I am trying to get the Life and 10 annuity amount at NRA and also a Joint and 100% Survivor annuity at NRA. The gentleman's accrued benefit at NRA is $2,000. His wife is actually three years younger than the participant.

The perfect solution is if someone has an Excel file that can assist me with the calculations.

I know this is complicated, but hey that's what message boards are for. Throw it out and see if someone can help. Thanks everyone.

The instructions for Schedule SSA indicate that for the participant's balance in 4(h) should be the value at 'time of separation'.

Does anyone really put that value in there? Or do you put the balance at the end of the reporting period? Or even just a current vested balance? Does it matter?

Your thoughts are appreciated...

We have an ESOP that has a frozen money purchase portion (it was merged into the ESOP years ago). We filed Form 5500 and included the codes for both an ESOP and a MPP (since that portion of the plan is subject to J&S, etc.), and completed Schedule R to report plan distributions. We left part II of Schedule R blank because the form says to skip this section if the plan is not subject to Section 412 minimum funding. We got a reject letter. DOL is not buying our response, and says that if you have a money purchase plan/feature, you MUST be subject to minimum funding, and to call IRS since it's an IRS schedule. IRS has no clue what to do. DOL person suggested that we put 0's in for the amount of funding.

From my Googling, this seems to be a common problem for which there is no right answer. (i.e., you can't properly fill out the 5500 for a frozen money purchase plan.) Has anyone had a successful response to the DOL on their reject letter that I could learn from?

Thanks in advance!!

Took over a 401(k) plan in late 05 - we restated document effective 1/1/06. Just notice that both documents (1/1/04 & 9/16/05) from prior administrator did not name a trustee. What are the ramifications of this? How should it be handled? Or is it not a big deal? Please advise.

On 1/1/05 Plan a plan had 97 participants. In the previous year, they were an audited plan. Here is what there accountant informed them:

" If a plan had 80 or more employees that were participating, eligible or eligible to participate, the plan must file the same Form 5500 and therefore need an audit"

The client says the accountant must be right. The DOL rep at the accounting office in Washington told me: "I always have problems with what TPA's do. IQPA's have a code of ethics, you don't and I don't care what TPA's say."

Please help me. I have always understood that if a plan has less than 100 lives they file as a small plan and if they have between 80 and 120, they MAY file the same way as last year.

Thanks!

A 401(k) plan terminates in 2006. There are 4 eligible ee's. When can they implement a simple 401(k) plan? What is the earliest possible date?

The Board of Directors will not meet until mid-December to determine whether the defined benefit plan will be frozen as of December 31st. May the 204(h) notice that is distributed in mid- November state that the freeze will be effective December 31st or not all, depending upon the decision of the Board?

I have an employer that used qualifying employer security (a promissory note) to fund its DC plan. The ER now wants to terminate the plan and:

1) Distribute to each participant a pro rata share of the promissory note; and

2) Advise the employees to roll it over into an IRA.

Can both (or either) be done? If so, is there caselaw and/or Code/reg guidance on the issue?

Thank you in advance to anyone who may be of assistance!