How are Highly Compensated Employees determined in Multiemployer plans? For the ownership %'s, is it ownership with a single employer? For the dollar threshold, it is based on compensation earned from ALL employers within the multiemployer plan?

Example #1: John Jones owns 100% of ABC Co. His son, Jake, is a member of a union that sponsors a multiemployer plan. Jake earned $50,000 for the 2004 calendar year, working all year for ABC Co. He clearly doesn't meet the dollar threshold. Would he be considered an HCE in the multiemployer plan due to attributed ownership?

Example #2: Mike Smith is a member of a union that sponsors a multiemployer plan. He works for Company A for 5 months and makes $48,000. He works for Company B for 7 months and makes 60,000.

Is his compensation combined for the year ($108,000) for HCE determination purposes?

Does anyone know if a fidelity bond would be required for a plan with only the owner and spouse, no employees? We recommended that they obtain a bond for 10% of plan assets, but they are questioning why one is needed since they are the only ones handling money. We have not been able to find any exception to the 10% of plan asset rule.

I'm trying to come to grips with the 404© requirements. One of major concern is the requirement that participant investment instructions be given to an identified plan fiduciary who is obligated to comply....

Usually self directed accounts are set up with a mutual fund company, the money is transfsered into these accounts and the participant can direct investment as he/she deems desireable. They make a phone call or invest via internet. There is no fiduciary involved at any level of this. At best the broker will respond to participant questions, but he is not a fiduciary and does not receive direction.

How are you dealing with this core requirement?

Pretty basic question, I'm sure, but are 403(b)s required to separately account for 401(k) rollover contribs?

Working on a proposal for a new 1-person DB plan effective for 1/1/2005. The sole participant (obviously a 5% owner) attained age 70 1/2 in 2004. NRD would be 1/1/2010 under the Plan. Trying to get a hold of the MRD calcs for the individual. No past service benefit is contemplated (so no AB @ 1/1/2005). Am I correct that under annual approach, MRD that would start @ 1/1/2006 would be 12/31/2005 AB reduced for early commencement and that adjustments for additional accruals would only have to be made annually?

What rules govern how a plan grants a participant service in a DB plan?

I know a plan can grant participants past service in some cases and even service with a predecessor employer, but what about grants of fictional service?

For example, assume a plan provides a benefit of $50 a month times years of service. When Jim retires, he has 10 years of service, but the plan sponsor wants Jim to get $1,000 a month from the plan, not $500 a month ($50 times 10). So the plan sponsor just decides, on a whim, to credit Jim with an extra 10 years of service in order to "gross up" his benefit. Is such a technique permissible? If so, is such a technique subject to any special nondiscrimination tests?

Are there any timing deadlines that apply when a plan is moving assets from one place to another? For example, Plan is moving all assets, lets say $1 million dollars, from insurance & annuity company A to mutual fund company B, does A have to comply within 30 or 60 or 90 days with the request? There is probably something in their contract that stipulates something, but is there anything prescribed in the regs in this regard?

Thanks

We have a couple of retirement plans that are sponsored by partnerships with complicated income allocation formulas. I was thinking that plan administration would be much easier if we could define compensation for purposes of the owners as an amount equal to the lesser of guaranteed payments or earned income. These are profitable partnerships so it would be rare that the guaranteed payments ever exceeded a partners earned income. This would greatly simplify plan administration as any profit sharing contribution would not change each time there was a slight adjustment to partnership income.

Do you see a definition of compensation like this as problematic? I worry about whether or not the IRS might argue that the profit sharing contribuiton is a deemed deferral becasue of the control a partner would have with regards to guaranteed payments. If the guaranteed payment amount was stipulated before the start of the plan year would it make a difference?

Thanks in advance for any advice you can offer.

Dean Huber

What if a taxpayer sells a security at a loss in his regular account (not an IRA account) but uses his tax-advantaged retirement account (IRA) to buy substantially identical securities within 30 days after the sale in his regular account, do the "wash sale" rules apply so that his capital loss would be limited?

My client has an account balance NQDCP. The plan provides that the value of accounts is determined by reference to various investment alternatives specified in the plan. One alternative is a mutual fund that is in bankruptcy. The independent fiduciary appointed to manage the fund while the bankruptcy is pending estimates that the value of the fund is approximately 90% of book value. Two participants, who have chosen this alternative have retired and are entitled to lump sum payments this year. The employer intends that a portion of the accounts representing post 2004 deferrals be grandfathered from the 409A requirements (not sure that really affects the answer to my question).

If the employer defers payment until it's rabbi trust receives payment from the bankruptcy estate, do I have a problem under 409A or prior law? I would like to argue that the provisions of the proposed regulations governing disputed payments would apply, at least by analogy. There is no guarantee that the mutual funds have any value at this point. I'm not at all comfortable that this is the type of dispute envisioned by the proposed regs.

What rules govern how a plan grants a participant service?

I know a plan can grant participants past service in some cases and even service with a predecessor employer, but what about grants of fictional service?

For example, assume a plan provides a benefit of $50 a month times years of service. When Jim retires, he has 10 years of service, but the plan sponsor wants Jim to get $1,000 a month from the plan, not $500 a month ($50 times 10). So the plan sponsor just decides, on a whim, to credit Jim with an extra 10 years of service in order to "gross up" his benefit. Is such a technique permissible? If so, is such a technique subject to any special nondiscrimination tests?

Here is my story ... Hopefully someone can help me.

I was employed with a company for 5 years and I was in their 401k plan. I left this company and totally forgot about the money in my 401k plan. A few years later this company was bought out by another comapny and the 401k plan had to be terminated. At the time of termination I had $5068 dollars in my old 401k account. The plan administrator made a distribution for me (I was considered a lost particpant) and not until 2 years later, when the IRS tried to match 1099r's with my tax return from 2003 did I have any idea that a distribution was made for me. The distribution I got was 96 shares of the company that bought out my old company. Unfortunatley since this was in the general sense a distribution I owed the IRS additional tax along with the 10% penalty (approximately $1400 all told).

My questions are ... Can the pa do this since my account was over $5000? Is there any legal action I can take against the pa for not making an effort in trying to find me? (All they had to do was do a google seach on my name and they would find my current address). I though it was their fiduciary responsiblity to a make a responsible effort in locating participants. ( they could have ask the IRS or SSA for my current address)

The other funny thing I forgot to mention is that of the $5068 dollars in my account when the plan terminated, $97 went to some holding company while $4971 was distributed for the other company's shares. This was the amount on my 1099r. That why I am asking about the $5000 limit.

Thanks for any feed back

I learned recently that a lot of fees were being paid for services that were not needed. We are submitting a plan we aquired, how many of you know the fee structure for the form?

Any help would be appreciated

We have a husband and wife plan with no employees that want to fund for post-NRA medical benefits. They still have 10 years before the assumed NRA so as I review some of the summaries available on these medical accounts I'm not sure how to fund for these benefits since they must be "reasonable and ascertainable". Probably the "ascertainable" issue bothers me the most as I'm not sure how future medical benefits are easily ascertained, unless maybe I just fund for the current medical insurance premiums with maybe a COLA assumption (not to exceed the 25% aggregate cap). I'm assuming the discrimination rules don't preclude them since they have no NHCEs. Does this type of funding typically take an actuarial funding approach or more of a pay-as-you-go approach for only those in retirement ? From the limited info I've provided can anyone suggest whether it's even reasonable to continue to pursue and research this, or am I'm blown out of the water for some reason from the limited facts given.

An employee at a company has maxed out on his 401(k) deferral. This individual also has a consulting business where he earns additional income. Can he establish a SEP for the consulting business in order to defer more than the $14000 max? If yes, how much does the 401(k) limit the amount he can put into the SEP?

Okay, I have a very odd situation. For a number of reasons, which I would rather not get into, I have a nonqualified arrangement that does not meet the top hat exemption because it is considered to be a funded plan. Amounts contributed to the plan are directed to individual trusts (created for each participant) and those contributions are taxable to the plan participants in the year in which they are contributed (these are employee-grantor trusts). Those individual trusts operate under the terms of a general or master trust document.

I believe that we only need one 5500 for this plan. Is that correct or does the fact that we have mulitple trusts change that? Assume that we only need to file one 5550 since it is one plan, what would happen if we added a second plan that used the same master trust...would we then be required to file a second 5500 for that plan?

Told you it was odd.

If an employer has a frozen account balance grandfathered plan, and it adopts a new account balance plan in 2005 (subject to 409A) for basically the same employees, can the new plan allow for initial elections in the first 30 days? or does the grandfathered plan mean that this is not a new plan for the purposes of the 30-day initial election period?

I have a participant who in 2005 became a more than 5% owner and an officer. In 2004 he was only an HCE no ownership or neither was he an officer. For the 2005 Top-Heavy test determination date 12/31/04, is this employee considered a key employee? In summary is his 12/31/04 balance counted toward the balance of the key employees or the non-key employees?

Assume a plan offers more than one coverage option (example, HDHP and traditional PPO) and allows active employees who have a change in status under 125 to change their elected coverage consistent with the change in status. Assume further that the plan provides that a significant change in the cost of coverage is a recognized change in status and that the employer subsidizes premiums for the plan for active employees but not for COBRA beneficiaries.

When an employee has a COBRA qualifying event, does he need to be offered the ability to elect cobra coverage under either of the coverage options (and not just the option that he was in).

The 125 rules aren't really applicable because the premiums are all paid with after-tax money by former employees (or non-employee dependents / former spouses). But, since an active employee whose premium cost more than doubled would have a status change that would enable an election change, I think that the "identical to the coverage provided under the plan to similarly situated beneficiaries" requires the offering of both coverage options.

What do you think?

Posting under a new name but still me -- Jduns

Hello all!

We prepared a proposal for one of our TPA clients for a husband and wife plan. Before the plan could be adopted, the husband dies. Can the wife still adopt the plan?

I know that this depends on what the business structure was (the client's receive earned income, so I have the TPA verifying the business structure), but are there any other pitfalls to be aware of?

Thanks!

Dennis