OK, so we know about the substantial and recurring deposit rule in 3 out of last 5 for a PSP&T, but we now have a Plan that was submitted for terminaton in 2005 that the reviewer wants us to go back basically to the last year a substantial contribution was made and vest prior terminees who received distributions in the subsequent year.

IE: 2 terminated ee's in 1999 (last year of PS contributon), received distributions in 2000.

Company had a MP/PS combo that was merged in 2000. Company fell on hard times and although intended to resume PS contributions when conditions improved, finally decided to terminate plan in 2005.

Agent wants those 2 partically vested terminees fully vested, in effect going back to a plan termination date of Jan 2000, citing the regs that the termination occurs "not later than" the last day of the following plan year.

I personally think this is a pretty hard line to take. In effect, if we fully apply this logic, we should never make a distribution in a Plan year where the Employer "might not" make a contribution, since we might have to go back and fully vest a paid out terminated employee. Of course, we won't know until the end of the year that the employer cannot make a contribution, so we have to wait for the following year, and have the same problem. Sounds like a catch 22 to me.

Presumably, this agent's supervisor agrees with him. I kind of think that using the 3 out of 5 rule would at least get us out 2 years to the end of 2001.

I have been wrong before, but this seems kind of Rube Goldberg to me.

Anth thoughts?

Suppose you have a company with a 1/31/06 year end but a plan year beginning 10/1/2005 and ending 9/30/2006. The plan is a db and would have a beg of year valuation. My understanding is the deduction can be for the plan year beginning in the fiscal year.

Question: could a 2006 deduction be had if the plan were adopted after 1/31/2006?

Does the loophole still exist where you can get around Roth IRA contribution limits by contributing nondeductible amounts to a traditional ira for previous tax year then immediately convert it into a Roth IRA?

e.g. 2005 MAGI is 98K meaning you are limited to contributing a maximum of $3200 to your 2005 Roth IRA. After Jan 1, 2006 and before April 15th, 2006 you make an $800 nondeductible Traditional IRA contribution, the next day you convert your new Traditional IRA to a ROTH IRA which is a tax-free conversion since there are no gains (your MAGI for 2006 will be less than 100K).

You just effectively contributed the full $4000 to your ROTH IRA. This trick works as long as you MAGI stays under $100K

Is there anything to prevent this from happening?

(This technique was published by Roy Lewis on the Motley Fool back in 2001)

Hi folks. Hopefully somebody here can point me in the right direction.

It is my understanding that in 2004 Congress passed legislation that granted funding relief for some pension plans, and that relief is set to expire. I'm looking for more details on this act, and unfortunately, haven't gotten too far using google. I am also interested in whether or not Congress is going to extend that funding relief. Any help or links are greatly appreciated.

TIA

The official IRS website indicates that the new user fees take effect in two phases ... one in February, 2006 and the second in July, 2006. It would appear from this site that the $125 VS user fee for 5307 applications is July 1, 2006.

However, a representative on the IRS Hotline indicates that the new fees are effective for filings made on or after 2/1/06. She indicated that while the IRS website was confusing, they are processing applications under the impression that the new user fees are in effect. The Appendix to the appropriate Rev. Proc. is not all that clear. On the fourth page of the Appendix, it indicates that some fees are effective on July 1st.

Most posters here believe that the new user fees applicable to determination letter applications are effective February 1.

Any thoughts? Thanks. Ed

IRA contributions are limited to the lesser of a set dollar amount and 100% of compensation. Assuming the 100% of compensation is the lower amount, can an individual invest 100% of compensation into the IRA and pay any sales charges by check (from passive income)?

Picked up a new client. Client hasn't filed 5500s or PBGC Forms since 2001. I know that client can go under the DOL Deliquent program for the 5500s. Does the PBGC have something similiar? What would be the fines be for not paying PBGC premiums and not filing with the PBGC?

An employer would like to change their plan's Health FSA limit from $3,000 to $5,000 mid-plan year. May they make this mid-year amendment? Can they allow participants to make a mid-year election change based on this amendment? Or is the new limit ($5,000) only available to those who have a qualifying mid-year change in status event or those who become newly eligible after the effective date of the amendment?

ok. I should know this, but.......can you use different eligibility provisions for different groups of employees? I'm thinking of one Y of S and 5 year graded vesting for one group and 2 years/100% vesting for another group. First group is predominately NCE - passes 410/401(a)(4). Second group all NCEs.

A client has immediate eligibility for the employee salary deferral portion of their 401(k) profit sharing plan, but a 1-year service requirement for the employer cross tested profit sharing. The plan is top heavy.

Would a "participant" hired October 1, 2005 that salary defers beginning October 15, 2005 get a 2005 top heavy minimum of 3%, or the 5.2% gateway cross tested contribution, or no employer contribution at all?

Would an "employee" hired August 1, 2004 that never salary deferred get a 2005 top heavy allocation or would that employee need to wait until 2006 for their first top heavy allocation? In this instance I presume they'll need to wait until 2006, but thought I'd double-check to be sure.

I have a plan with a new comp allocation in which there are 3 designated groups. Group A is all of the HCEs, Group B is all of the other full time emplyees (NHCEs) and Group C is the other NHCEs. The allocation rate are as follows: Group A 1.47%, Group B 1.97% and group C is .5%. I say that this passes the gateway minimum, but another administrator says it doesn't but gives no reason. What do you think?

Participant exceeded 402(g) by aggregating deferrals in 2 unrelated employer plans. Deferrals in each did not exceed the 402(g) limit. Must earnings be paid out? How would it be calculated?

We have administered a 10 participant DB since 1996. The plan is covered by PBGC.

The business was sold in 2001, so all employees terminated at that time. The owner retained the corp for another year before terminating the plan in 2002. After 2002 he had no more income so it made no sense to have the plan.

The owner became very uncooperative after he signed the termination amendment. He has been cooperative in keeping the plan compliant (GUST, EGTRRA good faith etc.) and all filings are current. Since 2002 we have not received adequate plan asset information. In addition, we conducted a search for former employees and only turned up one.

It is clear he does not want to pay benefits even though he has the vast majority of them.

We did not file the termination with IRS or PBGC because we need more information. The worst is that we somehow lost the termination amendment and he did not keep a copy.

I dont believe SCP or VCP would allow a retroactive amendment to terminate the plan.

We think the value of plan assets has increased since 2002 so I dont think there will be any funding issues, but we probably would have to go back and file schedule B's for 2003 and 2004.

Any thoughts on this?

Thanks much.

Here are some issues related to choices a plan sponsor might need to make when adding Roth to a 401(k) plan:

1 - If roll-ins from other plan's Roth Account are to be allowed, is it permitted to accept them if the participant inherited it from a deceased spouse? From a non-spouse?

2 - Same question as #1 except that spouse didn't die, just became an ex-spouse: can participant roll-in to a Roth Account the amount received pursuant to a QDRO?

3 - Participant terminates employment and receives a distribution from the Roth Account from a 401(k) plan, can his next employer accept it from him into its 401(k) plan's Roth Account? or only if it is directly transferred from the former employer's plan?

Sorry if this has already been covered elsewhere.

Back in 1997 I converted an IRA to a Roth IRA. I paid taxes on it at the time of the rollover. A few months ago, I needed to take the majority of money from my Roth IRA due to a house purchase. I did this under the assumption that I'd already paid tax, therefore wouldn't owe again. But when I did this I was advised to have tax withheld, which I did just to be on the safe side. Is this right? I shouldn't have to pay tax on it again, should I?

Like many other larger 401(k) plans, we have recently converted the company stock fund within our plan to an ESOP to make the dividend payments deductible. And as part of that process we have to give the participants the option of receiving their dividends in cash instead of being automatically reinvested in their accounts.

We have just completed the first quarterly process under these rules and 75 of the checks were for less than $1. My question is whether we can apply a deminimus limit on those cash distributions without jeopardizing the deductibility of the dividends.

When finalized, the proposed regulations will formalize the long standing position of the General Counsel. A non-profit organization which controls 80% of the board members of another non-profit will be deemed the "parent" of a "subsidiary" for purposes of Section 414.

Prior to that finalization date, I believe that the IRS does not have the legal basis to establish that a controlled group exists in such a situation. Is anyone aware of a successful enforcement action (or even an attempted enforcement action) to establish a controlled group between related non-profits ?

I've been reading about IRA's for awhile now and have decided that the Roth IRA is the way to go for me.

The one thing I can't seem to find any advice on is WHERE to buy one. Is there much difference between just going through my regular bank/credit union (simply for the convenience) vs somewhere else?

What do you look for when deciding where to setup the account?

Company A, a C-corporation, sponsors a DBPP. Company A has two employees, both of whom are HCEs. Employees of Sole Proprietorship (the "SP") also participate in DBPP. SP is controlled by one of the HCEs employed by Company A. Everything is fine so far.

Assume DBPP funding is $250,000. Can the entire amount be paid by Company A and be deducted by Company A? I'm guessing the answer is yes because Company A and SP are part of the same controlled group. It just looks bad, on tax returns, that Company A is taking deductions for employees who don't get a W-2 from Company A.

Your thoughts? Thanks in advance. Ed

A company had a 401(k) plan for several years back in the 90's. Business got bad, they terminated the plan in 2002 and paid out in 2003. There were only 5 employees, 3 of which were HCEs/Key's and the plan was top heavy.

Business is better now, and the employer wants to start a new 401(k). Same three HCEs/Key's but with about 8 NHCEs now. Would the distributions to those 3 keys still count toward top heavy in a new plan? It's possible that the new plan would not be top heavy starting fresh in 2006, if we do not have to count anything from the prior plan.