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.

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?