Here's how I understand the current law: After the plan year, penalty interest on late quarterlies is charged at the max of funding interest rate, 175% of the federal mid-term rate, and the current liability rate (the max rate). So if your current liability rate is 5%, funding interest rate is 7% and 175% of the federal mid-term rate is 9%, penalty interest after the plan year is 9%. Notice 89-52 is fairly clear about that. Do you know how penalty interest is charged after the plan year when 175% of the fed mid-term is lower than the max rate? Is it charged at the max rate or at 175% of the fed mid-term?

My inclination is to conclude that it's charged at the max rate.

I am dealing with a situation in which one company with a 401(k) plan is purchasing another company with a 401(k) plan. It appears that Reg. section 1.401(a)(31)-1, Q&A 7 permits a plan (after giving notice and if no affirmative election is made) to rollover a participant's account balance into another plan without the participant's consent (in effect utilizing a negative election). Has anyone ever tried this, or does anyone have any insight into the matter? Note: Some participants will have account balances exceeding the mandatory cashout limit of $5,000. Thank you in advance for your help.

Ok I have been studying up on the Roth IRA. Have been doing my research on the net for awhile now. I have been thinking about looking into setting up a ROTH IRA thru vanguard. They seem to have the lowest rates. As far as I go I am a 21 year old college student going for Business. I realize not many of us know what the future will bring. I also realize that by the time i am old enough to college social security I wont even be able too. OK to the point. I am looking at starting with a balance of 3000 in my roth ira thru vanguard. I will make annual contributions of 4000 or the maximum allowed each yr. (I will set money aside each week just to make it easier and so I dont get behing). I have seen many roth ira calculators out there and would like to have a nice nest egg when i retire and I know the sooner i get started the more money i will have. My question for all of you is what is the expected return on roth iras? I've seen the average anywhere from 8-10% a year. Is this correct? What is the average? Thanks, Jason

If a plan sponsor has selected in their Plan document the per payroll method in determining match, but fails to calculate the match on a per payroll basis and instead waits until year end to determine match, what are the consequences? Here are some questions:

1) Some participants will receive more match using annual compensation than if the match had been calculated on a per payroll basis. If the participants are HCEs (which seems the more likely case as those with higher comp tend to max out at the deferral limit more quickly) is this an issue?

2) Are earnings due for not actually depositing the match per payroll?

3) Would this be considered an operational failure?

can an employer make additional contributions to a dc plan in lieu of cash incentives? can it pick and choose recipients so long as it doesn't "discriminate in favor of the hces"?

I am working on a cross-tested plan that has 8 HCE's. One of which terminated with less than 500 hours worked, and thus will not receive a profit sharing contribution. However, the term'd HCE did make deferrals during the year.

I believe this HCE should be excluded from rate group testing because he did not meet the conditions for an allocation.

However, I need to proceed on to the average benefits test. This term'd HCE did make deferrals, so must we calculate his average benefit ratio and include him in the test? It actually helps the test if I include him, but I need to make sure I'm supposed to include him because without him in the test fails.

Thanks in advance for your help!

KAG

Question has come up for two situations, and should these people who terminated during the plan year be included on Line 7h.

1. 0% vested with an account balance.

2. partially vested with no account balance.

The instructions are not, to me at least, as clear on this as I'd like. # 1 seems pretty clear that the answer is yes, should be included. # 2 seems a little more debatable. I'd still answer yes, but wondered what other people thought/did on this?

Thanks.

A US employer of more than 20 employees hires US citizens to work outside the US for a company which is part of the same controlled group. The employer provides fully insured group health benefits to those employes through a US licensed carrier.

When the employees lose group health coverage, must they be offered COBRA?

A DB plan covers only the owner and his wife who each consistently have annual compensations that are less than $10,000. Each has an annual benefit in the plan of $10,000 due to its de minimus provision. They are considering adding a deferral-only 401(k) plan, but I remember somebody mentioning a while back that you can't have more than one plan when your compensation is less than $10,000 and you're getting a de minimus benefit in a DB plan. Is anybody familiar with this? It seems there's not a lot of guidance about this topic available. The employer does not have any other employees. All help is appreciated.

Have a terminating 401(k) plan. One distribution remains that is over $20K. No annuity options in plan. Implemented $1K threshold earlier in 2005. Due to plan term, can this payout be made as a lump sum distribution (not rollover) without participant's consent?

I know I should know the answer to this, but am drawing a blank.

When determining the HCEs for 2005 (determination year) ... comp greater than 80,000 in lookback year, as indexed... would you use the COLA adjusted amount in effect for 2004 ($90,000) or 2005 ($95,000)?

For example if employee's wages in 2004 were $90,000, is he an HCE for 2005? Thanks.

There are 412(i)/profit sharing carve out arrangements being presented in the marketplace. It appears that the way the plans are meeting general testing is to calculate the accrued benefit at retirement in the 412(i) plans by taking the guaranteed interest and mortality in the contract, let us say, for example, 3% pre retirement and 1.5% 2000IAM at post retirement, and then comparing this with the profit sharing contribution projected at the mandated 7.5%-8.5% and 1983GAM mortality. My first question is how the folks doing 412(i) plan out there are addressing the most valuable accrued benefit issue (if the participant can take a distribution in the form of a lump sum). My second question is how the rights, benefits, features issue is being handled.

Since everyone's tires of talking about 412i plans...ummm...I mean 415 limits....can we talk deduction problems?

Here's my situation:

Client has both DB & 401(k). Outsourced actuarial firm (us) never new about the 401(k) plan. By random chance, in our annual data request from the TPA, we saw a note hinting to the existance of a 401(k) plan. After discussion with TPA, we discovered that matching contributions were being made to the 401(k). Client had coincidentally decided to make a very large contribution to the DB plan.

The DB minimum was far below the 25% deduction limit. The DB minimum + the Matching contributions were below the 25% deduction limit. However since they contributed well above the minimum in the DB plan, they now have a non-deductible contribution.

I know that in the case of a lone DB, there is an exemption from the excise tax if the DB contribution is less than the Accrued Benefit Full Funding Limit (which is the case here), but I don't know what happens when a DC plan gets thrown into the mix.

I did see in the ERISA Outline Book that there is also an exemption on the DC side if the non-deductible does not exceed matching contributions made for the year (or something like that), but I'm just to green to properly advise on this situation.

In the end, I advised the TPA to work with the client's CPA to find the best solution, but I would like to know better for next time.

Thanks for any input!

Have a 4 participant DB that terminated 12/31/2005. It is a PBGC covered plan and they would like to terminate as a standard termination. PVAB's are $2,700,000 and assets (after 2005 contribution) are $2,400,000. The company owner and his wife are entitled to 80% of the benefits. They wish to fund the difference (approx $300,000) now. We always thought that a contribution (in the year of termination) would be deductible. After all, it is a necessary business expense to make benefits whole in the pension plan. Why would it not be deductible?

The 100% owner could waive benefits if necessary but would prefer not to.

Thanks much.

We have an LLP (taxed as a partnership). For 2005, the owners received a W2 and Schedule K1 income and are looking for us to add the two amounts together to get the plan compensation. We think the W2 compensation should be changed from W2 income to schedule K1 income. Is this correct? What should be used as plan compensation?

where would one start a roth IRA without a fee,if there is such a thing.also in layman's terms explain the difference in a roth and a conventional ira. thanks

We have been approached by another TPA firm about our interest in purchasing it. We are not in an acquisition mode and might not be again, but at first glance this one seems to fit. Does anyone have a resource for us to find out due diligence procedures, reasonable price, etc. Are multiples of core revenue or the like used to determine price? Any assistance will be appreciated.

Assume that you have a nonqualified wrap plan. Participants in the plan can elect to have a portion of their nonqualified deferrals transferred to a 401(k) plan after the permissible contribution limits of the 401(k) plan are determined. For example, a participant elects to have $50,000 deferred to the wrap plan and then have that amount reduced by the maximum permissible contribution to the 401(k) plan. The PLRs that I have read all say that if a participant elects to transfer an amount that is greater than the maximum contribution allowed to the 401(k) (for example, the ADP results for the 401(k) prohibit a contribution greater than $8,000 even though the participant elected to contribute the 402(g) limit) that the difference between the permissible contribution and the elected amount ($8,000 and the 402(g) limit) will be paid to the participant in cash by March 15 of the following year. The cash payment apparently preserves the CODA requirement. My question is if this cash distribution is required, then what is the benefit of creating this type of arrangement? Why wouldn’t you just have a 401(k) plan and an unlinked NQ plan? Did I miss a PLR or something else?

Been a while since one of these questions has been brought to my attention so I am requesting your assistance. I think the answer is cut and dry but I've been wrong before.

Employee is married and elected family coverage in our medical plan but only lists one child Spouse has individual coverage at her current employer. She gives birth 2 weeks ago and is currently out on short term disability with her employer. Employee has requested one of 2 actions: (1) add spouse and newborn to our medical plan or (2) drop coverage entirely with us and join spouse's plan

Can he do either under HIPAA? With respect to #1, it is the addition of the spouse that has me unsure despite everything that I've read and for #2 it is dropping coverage outside of our Open enrollment period.

Your help/comments are greatly appreciated.

We have a plan where an ineligible employee made 401k deferrals back in October - December 2005. In 2006, we have forfeited the improper deferrals and instructed the employer to make the employee "whole" outside of the plan. The amount forfeited will then be used to reduce future employer contributions.

Does the employer need to revise the participant's W2 to reflect no deferrals for 2005?