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?

Anyone know of a good reference for explaining how testing is done?

Thanks.

This is probably a dumb question, but I'll ask it anyway.

I am running an earned income calculation for a partnership. There are two partners (50-50), each has K-1 self-employment earnings of $120,321 (line 14A); however, they both have a Section 179 deduction (Line 12) of 1,656. When calculating the partners' earned income, do I subtract the 179 deduction from their self-employment earnings or not? I guess my question is: is my starting point $120,321 less the staff's contribution, etc. or is it $118,665? I've seen it done both ways, but I don't know which way is right.

Thanks for your help! Any input would be greatly appreciated.

Has anyone updated their Special Tax Notice (402(f) notice) to reflect Roth 401(k)s? If so, would you be kind enough to post it for myself and others.

A TPA is offering HSA claims adjudication as a service. The client employer writes it's checks (which include employee/employer contributions) directly to the TPA. The TPA deposits the money into an "HSA account".

All employers and employees monies are commingled in the HSA account. Is this type of account required to meet ERISA trust requirements?

Say a plan does not have language to exclude NON-residents with no U.S. income from a 401(k)/Profit Sharing plan.

1. Does that mean they would have the right to defer into the retirement plan & their income would be included in the ADP test? I know they would be included in coverage.

2. Would they be eligible for a profit sharing allocation based on their foreign source of income?

3. If Q1 or Q2 could be no, then what would happen if the plan failed coverage due to these NON-residents with no U.S. income?

Single location employer is adopting a new plan and applying for a determination letter. Under Treas Regs 1.7476-2, the notice to interested parties allows for this notice to be posted in a place which is 'customarily used for employer notices to employees with regard to employment and employee benefit matters'.

Anyone know how long this notice must remain on the wall in the break room, so to speak??

I have an employer who wants to switch from a simple IRA to a 401(K). What are the necessary steps in accomplishing this switch. I understand that if the simple has started the calendar year you cannot have a qualified plan during that year. Would the employer be able to start the 401(K) as of 1/1/07?

A 401(k) plan has an immediate distribution option for terminated participants, regardless of any other factor. To be eligible for a distribution, they are hoping to change the plan:

A. to require 5 one-year breaks in service, with the exception of reaching Normal Retirement and mandatory cashouts. But, if that is not an option, then instead:

B. to require the payment to be delayed until the first quarter after the plan year in which the participant terminates, again with the same NRD and cashout exceptions.

Can (A) be done to affect all accounts of all participants now (actives and term vesteds alike)? What about (B) instead? Or would current accounts retain a right for immediate distribution upon termination of employment?

Hello,

I am looking for a seminar or a 1-2 day course on international benefits (preferably Europe). I have seen the message regarding the seminar provided by International Foundation. However, this is not what I would need since the course is covering too much information that I will not need.

I appreciate any recommendations for the seminars that will cover benefits for European countries.

Thank you.

I'm reviewing an actuary's draft of a SERP that has been proposed for the boss of a governmental hospital. It provides for 100% vesting of the benefit immediately, but the formula is a defined benefit formula based on final pay at normal retirement with an offset for a qualified plan benefit and Social Security. Payment is made in a lump sum (actuarial equivalent of benefit) right after retirement.

The assumption I think is that the executive won't be taxed for income tax or FICA until he retires, because the amount payable to him won't be "ascertainable" until then.

I know that the FICA rules do not require taxation until the benefit is ascertainable, and that won't occur until the boss terminates employment. [However, I believe that the rules allow the employer to include in FICA when earned, even though not ascertainable.]

But what about for income tax purposes? There's an IRS Technical Advice Memo (Ltr 199903032) that says that the rules are different and that in this situation, the executive is income taxed when he is vested - which would mean in this situation that he's taxed every year that he accrues benefits. You'd have an unusual situation - income tax in one year and FICA taxes later.

Question: What is the practice out there for defined benefit 457(f) arrangements? Would you feel comfortable with delaying income tax until the benefit is "ascertainable"?

I originally posted this in the 401(k) Forum but thought it may also be appropriate here:

I have a question regarding the handling of a nonqualified wrap plan linked to a 401(k) plan. The current design calls for irrevocable deferrals into the nonqualified plan with a "pour over" at the end of the year into the 401(k) of the maximum amount possible. Because of the screwy 409A guidance that limits the amounts deferred under the nonqualified plan to the 402(g) limits, we want to "delink" the plans. Basically the thought would be to prohibit anyone who defers into the nonqualified plan for a year from making any change in his deferral election under the 401(k). However, I am concerned about the rule in the new 401(k) regs. that says that participants must have an effective opportunity to make (or change) an election at least once during each plan year. See Reg. Sec. 1.401(k)-1(e)(2)(ii). I think an argument can be made that those who elect to defer under the nonqualified plan voluntarily waive their right to make any change to the 401(k) deferral election for the upcoming year and this is not a violation of that rule. In effect, it is a voluntary choice made by the participant. Does anyone know whether the IRS has any viewpoint on this? Or does anyone have a better idea?

If an eligible plan expense is paid from Roth 401(k) contributions / earnings, would the basis recovery rule apply?

Assume employee has no W-2 income for a year b/c on leave without pay. Employer provides domestic partner benefits and employee has a domestic partner, so FMV of coverage is imputed income. How does employer meet withholding obligations (fed. inc. & FICA) if there is no cash to withhold from? Anyone ever run into this?