A client with a Defined Benefit Plan wants to amend their plan to exclude an employee by name effective prospectively. This employee had entered the plan in 2001. The Plan started in 2000 and has always been top-heavy (and will continue to be top heavy). If the employee is excluded, we believe that the plan will still pass the 410 ratio percentage test for coverage, and they will pass 401(a)(26) for participation.

Can you think of any plan qualification problems that might occur doing an amendment like this?

Will this employee no longer be eligible to accrue any future top heavy minimum benefits?

Can his future compensation be excluded when considering his average pay for top heavy purposes?

Since the plan passes ratio percent, is it ok to exclude him by name, or does that not even matter?

Should the plan provide a 204(h) notice to this employee?

My client is currently having the plan participants pay all the Admin fees through an additional "wrap" or asset-based fee calculated by the insurance provider.

Is there any benefit to the plan sponsor if the vendor bills the recordkeeping fees directly to the company (and eliminates the "wrap" charge that participants are paying)? They are an S Corp.

Are these recordkeeping fees deductible?

I've got a controlled group (technically a group under common control, since at least one of the entities is a partnership) where the same four individuals each own 25% of each entity H, G, and S. H and G each have their own plans, which are mirrors of each other (deferrals only), while poor S has no plan at all.

Luckily, S is a staffing company that provides per diem employees to H and G, and both H's and G's documents specifically exclude per diem employees, so the vast majority of S's employees are not eligible by class, and since most work less than 1,000 hours, they would never meet the statutory guildelines and therefore don't impact the coverage testing. I know there are issues with long-term employees from S possibly being considered employees of H/G after a year, but that's a question for another thread (though it may be coming soon!).

From reading Tom Poje's responses in this thread:

http://benefitslink.com/boards/index.php?showtopic=29893&hl=

it sounds like I have to make the same aggregate/disaggregate election for both coverage (410(b)) and 401(k) testing, but am free to select either option. Have I got it right? Are there any circumstances that would force my hand one way or the other (besides, of course, that doing it one way fails and the other passes!)?

This is my first time dealing with something of this complexity, so if I'm overlooking anything else, please feel free to let me know.

ee from date of initial participation could have worked 42 years NRD = 1/1/30

they worked 5 years, quit 1 year then returned and worked another 12 years. (thus when they returned they could only work 36 more years to retirement)

[entered plan 1/1/88, quit Dec 92, returned Oct 93, calendar year plan]

what is the fractional accrual?

rev ruling 81-11 seems to say you would calculate as follows:

first accrual period + second accrual period

5 / 42 + (1 - 5/42)(12 / 36) = .4127

so this person comes out ahead of someone who never quit and worked 17 straight years?

e.g. 17 / 42 = .4048.

the second method under this rev ruling looks like you would have

17 / 41 = .4146

If a plan qualifies for transition relief from coverage under IRC 410(b)(6)©, can they test otherwise excludable employees for nondiscrimination purposes? In other words, if the plan does not formally run coverage testing on the otherwise excludable employees due to transition relief, can they disaggregate their adp/acp tests for those who meet the statutory minimum requirements and those who do not?

Employer owns two subsidiaries and would like to set up a safe-harbor 401(k) plan to cover them. Because the subs have very different workforces, Employer is considering setting up the employer contribution differently for each. Specifically, it would like to use the "mandatory 3%" safe harbor for one of the subs and the "100% of the first 3% plus 50% of the next 2%" safe harbor for the other.

Employer's question is, can it use both safe harbors in the same plan? If not, can it have two valid safe harbor plans within its controlled group, but use different safe harbors for different subs?

Thanks for any insight.

LJ

Any thoughts on the valuation of annuity contracts that have a higher death benefit than current account value and how that will affect RMD calculations? This seems just asinine to me. We now have to base current income recognition on possible future benefits?

I know this is a response to the Roth conversion schemes, but the Service seems (to me) to have gone beyond all common sense with this one. You could conceivably have a situation where the RMD is greater than the account value (e.g. $1000 account value with a $100,000 death benefit). If the actual funds available are less than the RMD, would you get penalized (in addition, to losing the potential death benefit if you had to surrender the contract!).

I started a Roth IRA about 8 years ago and only contributed to it for a little while, then stopped. As far as I know, I still have the IRA somewhere but I have no idea how to find it. I'd like to start contributing to it again but need to find a way to track it down. Does anyone have an idea of how to do this? I've moved cities and locations a few times since then so they have no way to mail me anything. I need to find it and give them my new address, start contributing again, etc.

Thanks!

I have been approached by a county-owned hospital to look at the investment platforms for their 457(b) and 401(a) matching plans. It has been brought to my attention that the contracts for the physicians employed by the hospital specifically preclude them from receiving contributions to the 401(a) plan. There is no such provision in the plan document that excludes them from receiving these matching 401(a) contributions. The hospital's attorney (who admits no knowledge of retirement plan matters) claims the contracts takes priority over the plan documents. My understanding is that the plan document overrides any other agreements.

Can anybody shed some light on which is correct, and possibly provide a citation that explains the answer? Thank you.

OK, I've been waiting for someone else to ask this question and no one has. Either the answer is obvious or no one is paying attention. The question is when is it necessary to amend an individually designed (non-safe harbor) 401(k) plan to comply with the final 401(k) regulations. Some of the changes in the final 401(k) regulations are EGTRRA changes, and thus, (at least I think) do not have to be made until the end of the applicable EGTRRA remedial amendment period. What about the other changes (i.e., safe-harbor hardship distribution, ability to no longer do bottom-up QNECs, definitiion of successor plan following plan termination, treatment of a participant with 401(k) deferrals as fully vested for 411 purposes, etc). Assuming that a plan did not elect to follow the regulations in 2005, is is necessary to adopt an interim amendment by the end of the current (non-EGTRRA) RAP????? by some other time?????

Also, for those of you with M/P plans. Are you providing your adopters with interim amendments while the IRS reviews your restated plan???

Thanks.

I have DB plan that I believe is a "Church Plan" for both US-based and overseas-based missionaries. I believe that all participants are US citizens. The mission pays their wages, but only withholds taxes for the US-based missionaries.

I can't tell yet whether the plan is an "electing" or "non-electing" church plan w/re participation/vesting/funding, etc. I believe that they are acting as if they are "electing" but I don't know whether or not they have "elected" :-)

Ok, so the question here is whether distributions under this plan are subject to the 20% mandatory withholding rules, the elective withholding rules (10% unless elected otherwise), or neither set of rules.

The mission also has a 403(b) plan where the vendor is applying the mandatory (20%) rules, fwiw.

In the current Pension Answer Book, there is a sentence in question 35:33 (dealing with TSAs for church employees) that says

"In the case of foreign missionaries, amounts contributed to a plan by the employer are treated as investment in the contract or basis since the amounts, if paid directly to the employee, would have been excludable from gross income."

I think the issue hinges on the distributions being considered "eligible rollover distributions", and the answer may be Yes for the US-based folks and No for the overseas-based folks. If yes, then the 20% rules apply, if No, then the elective w/h rules apply.

Anyone?

What do I tell my client who did deduct 401k deferrals from a terminated employee's severance pay? What is the correction method when this occurs? I'm sure it happens all the time. Thanks.

Linda Michals

Gee, I hate to be a party pooper to the Michigan politicians, but does anyone out there know how the proposed Michigan 401k plan (see http://www.plansponsor.com/pi_type10/?RECORD_ID=32399) is going to be allowed by the IRS without law changes?

It appears to me that it would have to be a multiple-employer plan and as such, would still need to perform all of the discrimination tests at the employer level.

Is it allowed to recharacterize HCE's deferrals as catch-ups to help pass ADP testing? If a HCE deferred $5,000 in 2004, can the plan treat this HCE as deferring only $1,000 (with the balance as catch-up) for 2005?

457(f) plan provides for payment of benefits following separation from service. Plan further provides that benefits are forfeited if (a) employee is terminated for cause, or (b) employee quits without giving employer 18 months advance written notice.

Do you think these conditions constitute a substantial risk of forfeiture under 409A and 457(f)?

Does any have any good resource material outlining what groups/classes of individuals should be represented on a 401k committee? Its a privately owned corporation, and thankfully we do not have any employee unions. 95% of our employee base would be considered professional or highly skilled technical individuals. We have a committee that was created to direct/oversee the plan, however its all Accounting/HR individuals. Do I need to have "normal" employee representative whose involvement is not related to their job function (vs. HR Manager, Payroll Manager, etc).

What is the Employer's responsibility for segregating and remitting 403(b) contributions to the recordkeeper? [Also, does anyone know the code / reg under which this is listed?]

What are the penalties if contributions are not timely remitted?

Thanks for your help!!

I have never given this much thought, but this was presented to me today from a broker:

A company has two employees, a husband and wife. Both are over 50. The owner makes $188,000 and the spouse makes $44,000. Both defer $15,000 for 2006 and make use of the $5,000 catch-up. They make an employer contribution of 25% of the payroll in the amount of $58,000. They split the contribution between them, $29,000 each. In this example, the spouse, who makes $44,000 will receive total benefits of $49,000. At first look, this seemed incorrect, but after a quick review, it passes 404 and 415 limits and looks fine. Anyone disagree?

Thanks.

Tom and Alice are married and 50/50 owners of a company with a 401(k) plan. They have owned the company 30 years. They have two kids, John and Jane. John is married to Sally and have a child Billy. All work for the company and are eligible to participate in the plan. As far as HCE's go:

 Owned more than 5% of the interest in the business at any time during the year or the preceding year. For purposes of determining ownership, an individual is considered as owning the shares of stock owned by the individual’s spouse, children, grandchildren and parents.

Does this leave Sally put as she is the daughter in law to the owners?

I have a question for all of you who use these boards that may be involved in the hiring process. I have recently passed the final test for the QKA designation from ASPPA. Unfortunately, unforseen events have caused some financial difficulty for my family, and I find myself unable to pay the annual membership fee that would make me a full member, and able to use the QKA intials.

In addition, I am halfway through the APA designation offered by NIPA. Again, the cost of the next test is more than I can currently afford, and unfortunately, I am 1 year away from the 5 year point of taking my first test.

I am of course extremely disappointed that I worked so hard, and come this far, and now have to stop.

My question is this. I will most likely be looking for a new job at some point in the future, and am wondering if it is worth it to try to find someway to pursue this. I don't want to ask if these designations make me "look better on a resume", but I guess that is exactly what I am asking. Would I be looking at a higher salary if my resume showed "QKA, APA" after my name, or would it give me more negotiating power? I don't want to cause my family hardship and sacrifice if it really isn't worth it. I can certainly take advantage of all of the self-education opportunities offered by my company.

Thanks for your time. It is greatly appreciated.