An employee of an HVAC company which sponsors a 401(k)sop wants to start his own company and rollover his acccount balance (appx $70,000) to his own company's plan. He will be the onnly employee and wishes to have a loan provision in the plan, obtain a $10,000 loan to assist with start up costs and effectively repay the loan back. I'm thinking this may be a prohibited transaction and that he could do a partial distribution of say $15,000, pay the taxes, use the net towards the start up costs and roll over the balance of appx $55,000.

thoughts?

Any ideas about how to address potential withdrawal liability after an employee led de-certificaiton of the union. There was no employer involvement/pressure but now no bargained employees are employed and it will be a technical withdrawal we are afraid.

Any ideas/similar experiences?

Can a multiemployer fund sponsor a cafeteria plan for the benefit of the employees of its member employers? Q-3 of the proposed 125 regulations seem to indicate not because a "cafeteria plan is a plan maintained by an employer for the benefit of its employees." Is there any way that a cafeteria plan (with premium payment, FSA, and DCAP features) can be structured to be located at the fund level and with only one Form 5500 filing for the FSA feature? Any suggestions are welcome.

I need a clear answer to this question after reading RP 2005-66, Sec 17, and the latest IRS FAQs.

Client in Cycle A has an individually-designed plan, GUST approved and up to date with all amendments (EGTRRA, RMD, cashout). Our firm has a Vol Sub specimen plan with IRS for approval. Client wants to switch to our volume submitter.

Sec 17.03 and 17.04 of 2005-66 and Q-6 of the IRS FAQs seem to dance around this issue, but I just can't make out the song!

MY QUESTION: Does client simply sign 8905 by 1/31/07 or must client adopt an interim plan, which is our specimen plan currently under review, by 1/31/07?

Thanks.

I have a client with a target benefit plan with the target age of 65.

Many of the employees are working past this age and are upset because they are not receiving any benefit from the plan.

Is there any way to amend the plan to enable employees working past 65 to continue to accrue a benefit?

My understanding of the target benefit plans is limited but I don't think it is as easy as just changing the target age to 70.

I was thinking of suggesting that they amend and restate this plan as a profit-sharing plan (as no one can seem to remember why they have this type of plan in the first place).

Has anyone encountered this situation with a target benefit plan before?

Any advice?

Many thanks.

We're looking for specific guidelines for plan audit's in respect to the participants in the plan. Specifically, does the IRS and DOL use beginning plan year participant count or end plan year count? We're under the impression that there is a breakdown of audit guidelines based on the number of participants. I've found the fee structure based on participants but nothing about other audit rules.

Participant has taken 50% of vested balance as loan. Several months later, the participant would like to take out the remainder of his monies as an in-service distribution. In-service distributions are allowed by the plan for any reason. Loan payments are still being made on the loan. Can the plan disburse the remaining funds as an in-service distribution or do the funds need to remain in the participant's plan account to support the oustanding loan balance? Thanks for your help!

The proposed Pension Protection Act of 2006 contains provisions that clears the disparity between ERISA and state payroll laws related to automatic enrollments. The disparity was that certain states prohibit the withholding of payroll without the employee's consent. In clearing up the disparity, the Act contains an omission concerning mandatory contributions which could be viewed as creating a violation.

I'm with a non-profit that has a 403(b). The contribution structure includes an irrevocable election. Eligible employees must make a decision to contribute during the first 60 days of employment. Once they begin contributing, the must continue for their full period of employment or re-employment. For those eligible employees who elect not to contribute, after five years they will be automatically enrolled and participation must continue so long as they remain employed. Contribution levels are 2% of wages (employer contribution of 7.5% of wages into a 401(a)) below the Social Security Wage Base and 4.7% above (employer contribution of 10.5% into a 401(a).)

I am looking for feedback/opinions concerning the mandatory irrevocable election of our plan structure and the proposed legislation. Is this omission viewed as creating a conflict with our plan? If so, any suggestions of how this could be resolved while maintaining our plan's structure?

We have a prospect that wants to consider getting out of his current 412(i) arrangement. Has anyone "converted" a 412(i) Plan to a plan funded through a trust?

Yesterday the US ct of appeals for the 7th circuit issued issued a unanimous decision (3-0) reversing the lower ct decision finding that IBMs cash balance discriminated on account of age because the benefit accrual formula included an interest component. The ct's rationale was the opposite of the district ct opinion which held that using interest to determine a benefit accrual formula for each year's benefit was discriminatory (because the compounding of interest would always result in a larger accrued benefit payable at normal retirement age (NRA) for any year 's accrual for a younger person who had a longer time before reaching NRA than an older person.) Age discrimination in pension plans protects employees under 40. The district ct had held that using interest in the annual benefit accrual formula to determine the amount of the accrued benefit paid at NRA was nondiscriminatory only in a DC plan. The 7th circuit held that ERISA does not forbid a benefit accrual formula in a DB plan from using an interest component since benefit accrual (the annual amount which is credited to the participant) cannot be defined to prevent the use of interest in computing the accrued benefit payable at NRA since each employee will receive the same % of pay at the same interest rate for each years accrual even if the accrued benefit at NRA for that benefit accrual will be greater for a younger employee because of the compounding of interest over a longer period.

Stay tuned. This case is nowhere near over. The plaintiffs can appeal to all of the judges of the 7th circuit or directly to the Sup Ct to reverse the decision, although there is no certainty that either ct will agree to hear the case or reverse the decision. The parties could settle for some amount less than the $1.4B exposure that IBM previously agreed to pay if found liable for age discrimination to avoid the risk of a total loss to either side (and save legal fees). There are cases pending in other federal courts on the question of age discrimination in CB plans. The pension reform act passed last week provides a safe harbor for CB plans on a prospective basis only but does not address the question of age disrimination in prior years.

For our 401(k) plan minimum coverage testing, we do snapshot testing and a three-year testing cycle, per rev. proc. 93-42.

Does the new Schedule R's part IV, that requires you to answer how you passed your minimum coverage test (ratio percentage v average benefit), mean that you can't use a three-year testing cycle any more? The instructions say that the three year testing cycle no longer provides an exception to filing the schedule as it did with the former Schedule T that contained all the minimum coverage testing information. But can you file the new Schedule R and mark "ratio percentage" in a year in which you didn't actually conduct the test? Or does the new form effectively repeal the three-year testing cycle option? This result doesn't make a lot of sense to me - I'm inclined to stick with the three-year cycle and check the box for the test that was originally passed - but I think the form's instructions aren't entirely clear.

Does anyone have any ideas regarding uncashed distribution checks (i.e. what to do with them?).

I'm not talking about uncashed deminimus distribution checks (lumpsums under $1k), rather checks that have been issued due to participant direction, and not cashed.

Currently, our service provider does not put a 'void-after-date on checks, so theoretically, a participant can hang on to his check for x-years, and then cash it. Meanwhile, the money is "out" there somewhere (gaining interest? that's another question!).

We've been advised by our provider than we cannot roll the outstanding money into IRAs (either Roth or pre-tax) because the participant has already provided direction.

Any ideas of what we can do with these monies?

A distribution from a participant's account was made from our 401(k) plan as a result of a termination of employment. The participant says that she didn't request the distribution. Our review of the distribution request reveals that she didn't sign the form. The check was made payable to her and sent to the PO box listed on the distribution form. Help! What are our obligations to the participant?

If an employer indicates that the SEP does not include employees whose total compensation during the year is less than $450, does this requirement apply only to determining when the employee first becomes eligible or does it apply to all years that the employee makes less than $450? For example, if A makes $ 400 in the first year, $3,000 the second year and $350 in the third year, is the employer obligated to make a contribution for A in the third year?

We have a plan that missed making contributions for two employees when they were eligible last year because the participant did not return an enrollment form.

We have determined that the client will need to make up the contributions plus earnings. Are they also obligated to file under the Voluntary Correction Program or is that only for employee deferrals.

Company X has a DCAP FSA as part of its cafeteria plan. For 4 recent plan years, the plan failed the 55% average benefit test. Is there any design change that can be made that will make it more likely for the plan to pass (other than excluding HCEs)? What if the company provides a matching contribution to NHCEs? Also what about tax reporting for the prior years? Any thoughts?

I was just curious as to whether anyone had an opinion on a TPA choosing to only make EOB's available online to participants. Instead of issuing EOB's to participants, each month a single monthly statement would be issued covering all medical claims for the previous month. EOB's for each single claim would be available online.

I was under the impression that plans- whether they be welfare or pension- may only use the internet to make disclosures if the employees were able to access the information at their worksite.

The employees in question here do not have access to computers in their day to day work.

Co A sponsors a safe harbor 401(k) with basic match.

Co B sponsors a safe harbor 401(k) with an 100% up to 6% safe harbor match.

Co. C will be formed. Co. C will purchase both Co. A & Co. B in asset sale 10/01/06.

They are hoping not to terminate the plans & trigger distribution.

They want to maintain safe harbor status.

They are not adverse to merging the plans.

I don't see how they can merge the plans in 2006 & maintain the safe harbor status because they use different match rates. Even if they were willing I don't see that they can increase the match rate under Co. A's plan to 100% up to 6% in 2006; it wouldn't meet the uniform formula requirement for the match. Am I missing something?

Is there any reason Co. C couldn't maintain both plans for the remainder of 2006 just to maintain the safe harbor status for both plans?

Thanks in advance for any guidance

I have converted the Explanation of the PPA (JCX-38-06, a pdf file) to a Word file. See attached (393 pages).

PPA_of_2006_JTC_Technical.doc

Can top heavy contributions have a vesting schedule?