Small 401k plan is terminating and its plan sponsor company is dissolving. One participant died recently and the participant's account was used to purchase annuity contracts from an insurance company for the participant's 2 children. The beneficiary designated by participant is a named custodian/trustee and the beneficiary designation specifies that the benefits be used by the custodian/trustee 50/50 for his two kids. The purchase of the annuities is consistent with the plan terms and the beneficiaries wishes, HOWEVER--the insurance company would only issue them to the PLAN and the insurance company does'nt want to transfer them to the custodian for the benefit of the children.

How do we handle the annuities if the plan is terminating and the sponsor dissolving?? Can or Why can't an insurance company allow transfer from the plan to the trustee/custodian?

Going crazy...short trip, I know...please help!

I have been researching RMD's for non-spouse's and almost everything I read is about IRA's. Do the same rules apply to 401(k) Plans?

There was a participant in our plan who was receiving his RMD. He passed away at the end of 2005. He was never married. He has several beneficiaries listed (nephews, neices, great nephews, neices). I know that they cannot rollover his account, however can they continue to receive his RMD?

If so, is it based on the oldest beneficiary (for the life expectancy factor)? Does the 5 year rule apply?

This also made me wonder about another question...how would it work if the beneficiary was a Trust?

Any help you can give me would be greatly appreciated.

HI,

We falied the TOP Heavy Test and we are required to pay the 3% non-elective contribution to the non-key employees.

Does the Company have to make the contribution? Are there other options?

Also, we failed the ADP/ACP test and the HCE were refunded the contribution. After the refunds, this would make the Top Heavy Test pass. Can the TOP heavy test be recalculated after the refunds?

How is TOP Heavy Test calculated before ACP refunds and after ACP refunds?

Sorry for so many questions. I am new to this and our TPA is not much of help.

Thanks in advance!

We failed ADP/ACP testing the the HCE's received their refunds. What is the next procesdure in terms of amending w-2's and amending DE6, 940, 941, and DE7?

Thanks in Advance!

Am I correct that an ERISA 403b is subject to ACP testing?

A single employee who waived medical at open enrollment got married

He now wants to enroll himself and his wife

can he do so before next open enrollment?

Hi,

We failed the top heavy tests and we are required to make the 3% non-elective contributions to the non-key employees.

This is for year 2005

Do wee need to amend w-2's for 2005 for all employees? if so how? oyr payroll vendor does not support this.

what do we need to do on our end?

the TPA is no help. This is what i received from them. "The top heavy money must be sent to us before the company files their taxes because it is to be included in the company and the individual 2005 tax return because it is income to the participants and was payable by the employer for 2005.

Thanks in advance!

Please bear with me -- I'm a newbie to this area, and not even sure this question will make a lot of sense!

I have a client with about 95% hourly workers. Of those hourly workers, the majority work a regular 9-5 shift (that is, 40 hours per week, OT is very rare.) A small minority of workers, however, have recently begun working 12 hour shifts and are scheduled on 3-4 days in a row, then off 3-4 days, then on 3-4 days, then off . . . Because of the way they are scheduled, these employees routinely receive some OT, even though at the end of the year they will have worked the exact same number of hours as the employees with regular shifts. For example, everyone works 2000 hours per year, for those employees working 9-5, all 2000 hours are regular hours; for those employees working 12 hour shifts, 1875 are regular hours and 125 are OT. Additionally, the employer anticipates that due to budget restrictions they will soon have a portion of the workforce working between 32-35 hours per week -- enough to still be considered full-time, but scheduled less than 2000 hours per year.

The plan as it is currently written defines compensation to be the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Obviously, the employees who are now working the 12 hour shifts don't want to get short-changed by having a portion of their hours worked excluded because they are OT hours. (employees with regular schedules would get credit for the full 2000 hours while they would only get credit for 1875 hours). The employer still wants to exclude "real" OT -- that is, any hours over 2,000 per year. Could we use a definition like this: "Compensation shall mean the base compensation paid to an employee, excluding bonuses, OT, or other extra remunerations. Base compensation shall be the equivalent of 2,000 hours per year times the employee’s regular hourly rate for all employees working as full-time regular employees scheduled for 2,000 hours per year. For employees scheduled less than 2,000 hours per year but at least 32 hours per week, base compensation shall be the equivalent of the actual number of hours worked by the employee times the employee’s regular hourly rate. Base compensation for salaried employees shall mean the employee's annual salary excluding bonuses, overtime or other remunerations."

I realize that as long as there is an exclusion for bonuses, OT, etc. the definition does not fall into a safe harbor definition, but think this would work under 1.414-1(d). How does 1.414 -1(e) affect this defintion? Does anyone see any problems with this definition that I may be missing?

I suggest that the discussion of tax opinion letters, marketing materials, and plan designs, be moved to this thread as it has nothing to do with case studies of traditional 412(i) plans.

For those who do not know the "bloody history" of illegal 412(i), it started when promoters of 419(a)(f)(6) plans were under attack by the IRS. They had traditionally used a surpressed cash value product to remove assets from their plans. Needing to find another code section,(which was not tainted) the Insurance Gurus discovered 412(i). They took this to several law firms who issued opinions that they were not "springing cash value" products as techincally defined. Next, they wrapped the policy with marketing materials that stated you could purchase 100% life insurance, put $500,000 into the plan and deduct it and then buy the policy out at $87,000. The policy would grow quickly to $500,000 which you could withdraw tax free. Hence, tax deductible insurance going in-tax free coming out. Only creative insurance minds would of thought of this not the green eye-shaded actuaries- While the actuaries on this board were answering hypertechincal questions, the insurance industry sold (by some estimates) $250 million of premium into these plans. In 5 years over one billion will be collected. The insurance gurus claim the actuaries just are not creative, the actuaries stated foul play and we await the IRS (and plaintiffs attorneys maybe if the IRS is sucessful). Who will end up on the short end of this? Probably the taxpayer who purchased the scam/plan. If you look at it from the taxpayers viewpoint-Major Brokerage firm sold it-respected large law firm wrote opinion-large insurnce company issued the product-and major actuairal firm administered it-How could they know it was a scam? Do the insurance companies have any liability? What about the law firms? Will the taxpayers have any money left to fight after the IRS is done with them?

An S Corp owner has married one of his employees.

1. Can the employee continue to have medical premiums run through the 125 plan? and if so,

2. Can the employee pick up family coverage and have the whole premium run through her plan?

I need some guidance on this issue. We have a client with a 401(k) plan with a match. They just acquired another company and they want to set up a separate plan for that group and give them a different match formula. I know I need to do 410(b) testing for each plan using all participants in the denominator of the equation for each test. However, it seems like there should be more testing than just this (?). The 410(b) test is really only looking to see that someone received a contribution and isn't taking into consideration the fact that the employees got different formulas. Shouldn't that be taken into consideration?

Can I switch from a SEP to a 401k at anytime during the year?

If they made a contribution this year?

If they have not made a contribution this year?

Can SEP be rolled into the 401K?

participant must start receiving 4/1

is that the actuarial equivalnce of whatever the benefit was as of that date

and if one chooses to make annual payments, is it simply 12 * the monthly amount, in which case the particpant would seem to come out ahead?

A sole shareholder S-Corp guy isn't working on his own anymore. He got hired by a company, so he can't make any contributions to the profit sharing plan he had under the S-Corp. However, he's thinking of asking the company he works for to reduce his salary and give him a 1099 for some of the work he does for them. Then he wants to make deferrals into his employer's 401(k) plan and employer contributions to his own PS plan.

It's a small company, and he thinks they will readily agree. However, I'm thinking either you're an employee or you're not -- you can't get a W-2 and a 1099 from the same company year after year. Maybe in a transition year, but not on an on-going basis. He thinks his duties can be easily divided into employee type work and independent contractor type work. Am I being too cautious?

Then he wants to hire a NHCE (can't be a family member due to attribution), and include him or her in his PS plan to keep it protected from creditors. Seems like a lot of jumping through hoops to me, but maybe I'm just getting lazy in my old age. What do you all think?

We administer a two participant DB covering husband and wife.

Last year their insurance agent purchased a $500K policy for one of the paticipants in the plan. It is less than 100x projected benefit so we think that is ok.

The premium is being paid from plan assets and not from the company.

Question: Our understanding is that insurance usually must be purchased for each participant of the plan. However, they are both HCE's so perhaps only one is OK?

With the few DB plans that we have that contain insurance, we usually use the envelope method that adds the premium to the normal cost and it just becomes part of the employer contribution. In this case, since premiums are being paid from plan assets, we are inclined to just treat it like any other investment of the plan (i.e. reflect CV on the balance sheet and a withdrawal for the premium on the income statement and run the valuation as usual). Does anyone see a problem with this?

Also, this client is considering being a sole proprietor next year. Our understanding is that at least a portion of the premium is not deductible to sole proprietors. However, they are paying the premium from the plan and indirectly this affects the contribution.

Has anyone experienced these issues?

Thank much.

I would appreciate any comments from board members on this topic.

I recently read a letter to the editor at InvestmentNews.com. (Sorry, I can't provide a link as it is a subscription only service.) The author described an audit situation where after the initial data collection had been completed the IRS called again asking for the "endorsements mandated by the Economic Recover [sic] Tax Act of 1981 and the Econonomic Growth and Tax Relief Reconciliation Act of 2001." When the documents could not be produced the IRS stated that the plan "was out of compliance and would either be subject to an immediate disqualification of the trust and an assessment of tax at the trust level - $60,000, plus interest and penalties - on [the] $145,000 Keogh." As an alternative the IRS indicated they might be able to negotiate a one-time sanction of $10,000. The latter was the result after $13,000 in legal fees.

Personally, none of our clients who have been selected for an audit have been asked for such documentation.

My questions:

1) Can anyone elaborate on these "endorsements"?

2) Do you think such a situation is an aberration or an area of increasing IRS focus?

3) Do you think most plans are out of compliance in this respect?

Thanks for your indulgence.

We have a defined benefit plan, that pays a special $2,000 death benefit to the beneficiary of a deceased participant. Can we eliminate this death benefit (paid from the assets of the plan) or is this considered a protected benefit? What are the notice requirements if we can eliminate the payment?

Is there an issue with an employer issuing checks or processing ACH debits before the actual payroll check date?

For example, employer has capability of going online with Nationwide, posting their 401k deferrals and processing an ACH debit when they have the payroll DATA. Let's say this is done 3 days before the employees actually receive their paychecks. Also, let's say, Nationwide takes 2 days to post the 401k and remove the funds from the employer's account. So in actuality, the employee's 401k is in their Nationwide account on the exact payday(or maybe even a day before).

Anyone see an issue with this? Thanks.

Linda Michals

Have a client who has discovered the compensation has not been limited in their payroll system for purposes of calculating the match, therefore some of the HCEs have received too much match and the TPA did not catch this violation during testing process. How far back do they need to go to see when the problem started and what is the method of correction for prior years. There are a couple of HCEs who have left and since took a distribution. Also the match formula in the document is reflected as discretionary. thanks!

Can someone help a newbie? My firm has a new group health plan. It is an ERISSA filed Trust and I am in Washington state if that matters.

Our certificate booklet says that for firms of less then 20 employees (like ours) the plan is going to pay claims for those employees over age 65 with Medicare primary. It assumes that employees over age 65 have Medicare A & B.

I have an employee who never signed up for Medicare B. He is still an active employee. I don't think our old plan had this provision. Can the carrier do this? My employee had a claim where the carrier paid secondary but since employee doesn't have Medicare B carrier is saying he is responsible for all the costs med B would have paid.

Is the carrier right? I don't know where to start researching can someone give me some direction?