I never really thought that this scenario was any problem, but now I have had someone tell me they don't think the premiums are deductible.

We took over DB plan with 2 partners (owners) and about a dozen employees. Both of the owners have a $250,000 life insurance policy. I have had some confusion on this policy because some years they pay a premium and other years they do not. I have been informed that it is a Universal Life policy and the Trust only pays a premium if the policy requires a premium that year so that it does not lapse.

The Plan does not have any death benefits as an incidental benefit. These policies are basically there because the partners felt that if one of them died the business profitibility would be negatively affected and be burdened with the DB plan. So the death benefit is being used to offset future costs. The way that I understand it, if a partner died the plan would receive $250,000 in cash to help offset future pension costs.

So my quesiton is very similar to Dougsbpc which is still on the front page here. Except in his situation I think the plan is providing the $500,000 as an incidental benefit to the participant. In my scenario the trust is the only beneficiary of any death benefit payment. We have been considering the insurance policy like any other asset. In the years they make a premium payment the cash value is higher then when they do not make a premium payment. There is never very much value in the policy from year to year anyway, never more than a couple thousand dollars. It seems like they pay a premium of about $2,000 and then over the next couple years the policy uses up that $2,000 and the Trust then pays another $2,000.

Now since the insurance is not being used to fund an incidental benefit, I have had a colleague question deducting the premium at all. We haven't given any consideration for the fact that there is an insurance policy in the plan at all. So saying that a portion of the annual contribution is not deductible because every couple years a small portion of the contribution is used to pay an insurance premium isn't making sense to me. Any thoughts?

C corp pays bonus after PYE for calendar year plan. Document allows deferral of bonus. Sponsor is trying to treat deferral in March 2006 as 2005 deferral amount. Need a reg cite to convince his accountant he cannot do this. If bonus is paid and reported as W2 in 2006 associated deferral has to be 2006 and count against 2006 402(g).

I have a grandfathered gov. 401K plan that is developing correction procedures for correcting incorrect deferral amounts when the correction would cross tax years. For example, in November an employee changed their monthly deferral from $1100 to $1499 in an effort to max out their 2005 deferral limit and we implemented the change for $1149 until notified by the employee in February. Thus, they did not max out their 2005 deferral due to our error.

Our procedure has been to correct the error going forward and increase future payrolls by the shortage amount, as directed by the employee. However, this correction procedure would not make the employee, in the example, whole (becuase they were not able to max their 2005 deferrals and will not be able in 2006 to "make-up" 2005 deferrals - unless 414(v) applies).

Although the EPCRS correction procedures do not address administrative errors, we want to model our administrative correction procedure on those under EPCRS. However, given that the employee is a cash-basis taxpayer and the error is corrected in the following tax year, I think this would preculde us from correcting the tax reporting to show the employee maxed out their deferral amount. Under EPCRS 6.02 or other available guidance, is there any permissible way to make a full correction for this type of administrative error?

Any thoughts would be greatly appreciated.

We are now offering a new benefit to our employees (dental insurance)and since it is mid-year, can the employees increase or decrease their unreimbursed medical spending accounts because of it? Is a new benefit a qualifying event to change their elected amounts?

If a participant leaves company A and begins to work for company B (both of which are in the same controlled group), can their account balance be transferred from A's plan to B's plan? Or is there not a distributable event because the participant hasn't left the employ of the controlled group? Does it matter if the change was initated by the company or the participant?

Gut reaction: you would be allowed to make the transfer; it would certainly make things like loan processing easier.

Thoughts?

Basic facts are as follows.....

Participant (P) was married for about 15 years and divorced his first wife (W) in 1995. The divorce decree awarded W a one-half interest in P's defined benefit plan and ordered a QDRO be drafted. No QDRO was ever forthcoming.

In August, 2005, P made application for an ancillary disability benefit with the plan. The administrator noted that a divorce decree had been filed and contacted both P and W concerning the need for a QDRO. Pursuant to the procedures an administrative hold was placed on the portion of the benefit payments that appear to belong to W.

P is now remarried to W2.

Questions...

1. Can W submit an order that provides for a separate interest? P is in pay status, but only due to disability. The J&S notice is not submitted to a disabled pensioner until he converts to a normal retirement at age 62. Is she limited only to a stream of payment order? (This does not make much sense...if he recovers tomorrow, all benefits would stop...then W would be left in a lurch).

2. Should the plan ignore the fact that P is in pay status and request a separate interest order that is payable upon P's attainment of early retirement age? The intent of the benefit is to assist a disabled pensioner, not to provide a subsidized windfall to the non-disabled ex-spouse. W would still get her portion of the benefits accrued through the date of divorce.

3. Should the plan ask for some sort of hybrid order that gives W a right to a proportionate share of the disability benefits, and a separate interest in the normal accrued retirement benefits?

Am I completely off base...?? As indicated in the caption, this situation has me thoroughly confused.

the plan passed the ACP test, yet a couple of participants received too much match, does the plan need to transfer the excess plus allocable income to a forfeiture/holding account and if the transaction does not occur prior to 2 and a half months after the close of the plan year, is the plan sponsor responsible for the 10 percent excess tax and filing 5330? if so, could they not pay the tax with the forfeited funds?

thanks

I have read through the threads and thank all of you for lots of good stuff! However I have a few remaining questions about general testing cash balance plans.

Are the following the basic permissible methods to general test a cash balance plan:

On a benefits basis - Take the current allocation and project it to NRD using the interest credits defined in the plan document. Then convert the projected balance at NRD to a life annuity using the actuarial equivalence definition in the plan document. Divide the resulting benefit by the testing compensation to get the EBAR.

On a contributions basis - the safe harbor of 1.401(a)(4)-8©(3) - Take the current allocation and project it to NRD using the interest credits defined in the plan document. Then get the present value of this, discounting back to the current age, with standard interest and standard mortality. Divide this present value by testing compensation to get the equivalent allocation for testing.

We administer a small pension plan sponsored by a medical group. The three physicians in the group want to allow their children to work part time.

Currently, the pension plan has no age or period of service requirement. One of the doctors has his two children (ages 11 and 13) doing filing 3 hours a week. They have no problem with them being covered by the plan.

Generally, we have told employers that they cannot consider employees under age 14. However, in reading the department of labor Federal Labor Standards Act on-line, they indicate there is an age exception for children working in a business for their parents.

For plan purposes, we think there could be a potential discrimination in operation issue. That being a 13 year old son or daughter could work and be a participant in the pension plan, but an unrelated nonhighly compensated employee age 13 could not even be employed and therefore not be considered for participation in a qualified plan. We are inclined to amend the plan to have an age requirement.

Has anyone experienced this before?

We have an ex-employee eligible for COBRA move out of our medical plan coverage ara

Do we need to get coverage for him ?

In light of the regulations requiring separate account tracking for tax and withdrawal rights purposes, will you be recommending that your clients not offer or remove hardship withdrawal and loans for Roth 401(k) accounts?

Do you think there is a nondiscriminatory feature issue if regular 401(k) elective deferrals can be accessed by hardship withdrawal and loans, but the Roth 401(k) account cannot?

We are looking to consolidate 3 Trustees into 1 for our defined benefit plan.

Does anyone have a good RFP for a Trustee serach

What type of fiduiciary "due diligence" is necessary in selecting a new Trustee or satying with 1 of the 3?

We have a plan that has 2 locations. A participant moved from one location to another in January 2005. When she moved, the payroll company forgot to enter her previous deferral % (3%) into their system. Therefore, she did not have deferrals and therefore the company match as well for over a year now. (She just realized this when she went to file her taxes!) Under the plan's matching formula, she would have received a match of 1.5% of compensation.

According to what I have been able to find, the suggested correction is for the employer to make a QNEC equal to the ADP and ACP of the NHC's for the year. However, the ADP for the NHC is 3.68% and the ACP is 1.57%.

It doesn't seem fair that she would receive more in contributions than she would have if the mistake had not been made.

Any comments or suggestions?

401(k) plan w/ a match. There is an hours requirement and active at last day of the plan year requirement for the match.

There are 5 participants who are not on the ACP test because they do not satisfy the match requirements, therefore they are not eligible for the match and are not included in the ACP test. They ARE however, included in the ADP test.

Assume the ADP passes and the ACP fails. One option is to shift deferrals from the ADP to the ACP. If this shifting is done, is it okay to keep the 5 participants above off the ACP test?

Since we're now including deferrals on the ACP test and these deferrals do not have a requirement, I'm wondering if these 5 people need to be included on the ACP test.

Any thoughts?

A profit sharing plan was merged into another profit sharing plan effective January 1, 2006, with "assets and liabilities ... transferred to [the surviving plan] as of that date." What is the current thinking on whether the disappearing plan needs an audit and Form 5500 for the one-day period of January 1, 2006? I found some posts from 2002-2003 on this, but wondered if there is anything more recent.

I've had a couple of situations in which a participant decides to just stop making payments on the loan, recognizing that it will be considered a deemed distribution.

What I'm not sure about is whether it is also a prohibited transaction.

Does it make a difference if the plan does not permit in-service withdrawals?

Does it make a difference if the participant is not a party-in-interest?

I'd been taught previously that this would be a prohibited transaction because (a) they are no longer following the loan provisions by not making payments quarterly, and (b) the plan does not permit in-service withdrawals, so it can't be recharacterized/offset. My co-worker says differently.

Which of us is correct?

POSTED ON 401(k) BOARD YESTERDAY (but hardships may be appropriate here as well) -

Anyone have experiences/thoughts about adopting or administering this provision. We are worried about a run on hardship distributions if it makes it too easy to avoid plan loans.

Final 401(k) Reg Section 1.401(k)-1(d)(3)(iv)(D) provides "Employee need not take counterproductive actions. For purposes of this paragraph (d)(3)(iv), a need cannot reasonably be relieved by one of the

actions described in paragraph (d)(3)(iv)( C ) of this section [insurance reimbursement, asset liquidation, stopping elective deferrals, other currently available distributions and nontaxable loans] if the effect would be to increase the amount of the need. For example, the need for funds to purchase a principal residence cannot reasonably be relieved by a plan loan if the loan would disqualify the employee from obtaining other necessary financing."

We have participants who can't afford loan repayments. They want to argue that loans would drain their cash flow and create more future hardships (or alternatively that loans would be defaulted and that would create tax liens and new hardshipt).

What do people think about how broadly to interpret this new provisions of the final regs?

What is a "Super" Safe Harbor 401(k). How does it differ from a traditional SH 401(k)? Is this referring to new comp?

Does anyone know of a pre-packaged set of DC/DB plan administration forms I could purchase? What I have in view are new business/conversion, distribution/contribution processing, information request, plan termination, testing results, etc. related documents

Thanks!

Does anyone have a recommendation for a valuation expert to prepare a valuation for the stock of a closely held energy corporation? This would be on a minority interest and they have had difficulty finding someone who understands their business.