I had this post on the Correction Forum, but was given a suggestion to add into the 401(k) Forum (hopefully will generate some responses).

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I know this is fairly common issue, but I wanted some clarification from different previous posts. I apologize in advance for the length, but wanted to drill deeper into this issue. 401(k) Plan Sponsor has not been taking deferrals on Bonuses for a number of years. Plan document INCLUDES Bonuses in definition of Compensation.

FIRST QUESTION

Is this specific situation covered under Rev Proc 2003-44 Appendix B Section.02 - "Exclusion of Eligible Employees"? Specifically, is the "Expansion of Correction Method to Partial Year Exclusion" meant to correct the exclusion of deferrals from periodic bonuses (that were otherwise allowed to participate) or is this section meant only to apply to situations when a participant is excluded from participating at all for a portion of the year.

Many posts here seem to indicate that the proscribed correction in this section (using ADP and ACP % of respective employee group) would be appropriate.

Others indicate that the failure is not following the employee direction (i.e. standing deferral %) and that the correction would require using the actual employee deferral election in effect (under the general principle of putting the Plan in same position it would have been in).

Has anyone had specific interaction with the IRS on which correction is proper?

SECOND QUESTION

If you believe that the ADP and ACP %'s should be used, I have some clarification questions.

It is my understanding that using the ADP% and ACP% is suggested because this would ensure that the plan would still pass the ADP/ACP test and not need to be recalculated (e.g. if correction is for prior years).

However, in the case of bonus corrections, does this mean that ALL eligible employees would receive a corrective contribution (at the ADP%) or only those employees that have been otherwise deferring (on all other non-bonus Compensation).

For example, assume you have 3 NHCEs with the following Deferral %s

NHCE 1 10%

NHCE 2 2%

NHCE 3 0%

Average ADP for Group = 4%

Under the Correction in Appendix A & B, would all 3 NHCE's receive a correction equal to 4% of Bonuses or would the 4% only be given to NHCE 1 & 2? If the latter is used, it would seem that this would change the overall average ADP of the NHCE group (which contradicts the reason for using the ADP %).

To keep the Non-Discrimination Test results the same, it would seem reasonable that you would use a "modified" ADP% for "participating employees" in this situation (10% + 2% / 2 = 6% Average) and give 6% to NHCEs #1 and #2.

FINAL QUESTION

If using the ADP% for a correction under Appendix A Section .05, which ADP% would you use if the Plan is restructured for testing purposes? Would you use the ADP Test Results before or after restructuring? Language at the end of the Section .05 seems to indicate that you would use test results before restructuring (please clarify this reading is correct).

I have a new client whose money purchase pension plan and profit sharing plan are under audit. Apparently, neither plan had been amended to comply with regulatory changes starting in 1981. The IRS is instructing me that to bring the plans into compliance and not lose qualification, all required amendments must be drafted and adopted, starting with TEFRA/DEFRA/REA, and going forward to present day. It seems quite silly to execute these amendments when GUST and EGTRAA supercede them.

Notwithstanding the fact that I was 8 years old when TEFRA came out, can anyone point me in the direction of a good resource or model amendment for TEFRA/DEFRA/REA? I am not sure where to start in drafting such an amendment.

Can a company have 2 different eligibility dates if you are offering the 125 for health premiums and for FSA accounts such as medical and child care.

In other words could new employees join for health premiums within 3 months of employment but join after 1 year for medical or child care savings accounts? Any guidance would be greatly appreciated.

Nonprofit executive enters into a severance agreement in 1997 that provides him with deferred compensation each year for the rest of his life, equalling approximately $4,000/months.

Severance agreement does not reserve right to amend or eliminate the benefit.

Severance agreement does not require future performance of services other than consulting services for one year following termination.

As of one year following formation of the agreement (i.e., December 1998), the promised benefit is completely "earned and vested," and, I would argue, exempt from 409A, but for the following language:

"in the event that EMPLOYER discovers that EXECUTIVE, during his term as Executive Director, has engaged in any acts of financial impropriety constituting intentional misconduct or gross neglect, the EMPLOYER reserves the right to terminate any future payments to EXECUTIVE."

In other words, this "risk of forfeiture" is based on past acts, whenever discovered by Employer. Is this a "substantial risk of forfeiture" such that 409A applies to the deferred compensation?

..

If a Company allows a participant in a non-qualified deferral plan to terminate participation in that plan and take his account balance into income by december 31, 2005 can that same participant CONTINUE his participation in the Company's SERP? Can a participant who terminates participation under the Company's non-qualified deferral plan on December 31, 2005 - participate in a new company deferral plan for the 2006 plan year. In other words -- does the transition relief give participants a pass on the five year restriction (i.e. can't participate in another deferred comp plan for five years). Thoughts? Is this set out anywhere in the guidance?

Recently I have had several questions regarding HRA plans and the liability that they must account for on their Financial Statements. While I understand that the minimum would be nothing and the Maximum would be the total assets in the plan; I want to know if anyone can offer assistance on where I can get more detailed information. Could anyone direct me to a place I can find current industry standards or some benchmark information so I can offer this help to my company?

My client inheirited an IRA from his dad in 2002. His dad was 69 years old.

He missed the lifetime rmd deadline of 12/31/03.

The fund company says he can only use the 5 year rule now.

I read somewhere that he can revert to the lifetime RMD if he takes the missed RMD's for 2003 and 2005 and pays the excise tax.

Is this true ? Any references for his CPA ?

Thanks

Assume that married Employee signs up for a health care FSA and elects $2000. Before submitting any claims, Employee and Spouse divorce. If spouse elects COBRA for the FSA, what is her starting balance?

I know that the preamble to the Final COBRA regs that took effect 1/1/2001 (54.4980B-5) indicates:

The one addition is a clarification that, to the extent a health FSA is obligated to make COBRA continuation coverage available to a qualified beneficiary, all the general COBRA continuation coverage rules apply in the same way that they apply to coverage under other group health plans, including the rule for how plan limits on coverage apply to someone on COBRA continuation coverage. This addition was made in response to the request of one commenter and numerous inquiries about how the annual election of a certain dollar amount by an employee under a health FSA applies once there is a qualifying event.

If a former employee electing COBRA would start with the account balance ($2000), it seems that this implies that Spouse should also start with $2000 (putting the employer at risk for $4000 in claims for a $2000 election).

I have never had a spouse or no-longer dependent child apply for COBRA coverage for the FSA so never thought about it but now that I have I feel compelled to find an answer.

Hello:

We are working through the information required to be reported on a W-2 for the new rules under 409A.

Since the new requirements as indicated in the Instructions for Form W-2 reflect as follows: "Code Y—Deferrals under a section 409A nonqualified deferred compensation plan. Include current year deferrals under a section 409A nonqualified deferred compensation plan. Any earnings during the year on current year and prior year deferrals must also be reported here. See Nonqualified deferred compensation plans on page 6."

If I am reading this correctly, it will require a calculator to determine the earnings on both the current year deferrals and earnings on the the immediately preceding year's deferrals but not earnings on years earlier.

Is this something that anyone has actually decided can be done? Culling out only the current and one prior year's deferral earnings seem to be incredibly onerous from a recordkeeping aspect.

Any thoughts will be appreciated.

Sincerely,

Andmik

ok, here is a test for a real live crystal report

allocation report, will show def match profit sharing, and % of pay for profit sharing.

sorts by division

I have been using this for cross tested plans.

just made some recent modifications which I hope havent screwed anything up.

who knows, sometimes when you tweek something for one thing you break it in another area.

used Freezip to compress the file if that makes a difference.

I am changing the measurement date from 12/31 to 9/30 for FAS87. The employer's fiscal year is 1/1/05 to 12/31/05. I left the service cost as a full year but I pro-rated the interest calculated to 9-30-05. The audtitor says that the net periodic pension cost has to be for the full 12 months although the gains/losses are calculated to 9-30-05. I can't do that because the numbers all tie in together. What is the correct way to make this change? Is there anything in writing?

Can an employer that maintains a frozen 401(k) plan and is a participating employer in a multiple employer 401(k) plan terminate the frozen plan and "park" the frozen accounts in the multiple employer plan? Or must either (i) a plan merger occur or (ii) wasting trust be created?

Is it permissible to crosstest two plans, if one is a DC plan with NRD=55 and the other a DB plan with NRD=65?

In looking at the regs, it appears that it is OK to do this, with testing age =65.

Am I correct? And if so, do any adjustments need to be made to take the disparity of the NRDs into account?

The final 1.408-8 MRD regulations require an IRA custodian to report certain information to affected IRA owners for MRD purposes. Could you please tell me when this must occur and where I can find the guidance (e.g., revenue ruling, notice, etc.). Thanks.

Plan permits any participant with account balance =>$10,000 to have a segregated, self-directed account. Everyone else stays in a pooled account with Trustee investment direction.

Currently 65% of the NHCEs have the ability to self direct. 100% of the HCEs have the ability. Is this discriminatory?

Is there a specific percentage of NHCEs that would have to be allowed to self direct that would not be discriminatory?

I am preparing a 5500 form. This is a single employer plan. The assets go into a brokerage account . The broker usually makes the decisions on where the funds are going.When the market was soft the trustee put the assets in to a certificate of deposit with the bank.

Question for line 8 Only the secretary/trustee and president is making this decision.There is one more employee participant who really has no say. Should box 2g be checked ( Total participant directed account plan be checked) or 2 h partial participant directed account plan be checked.

Thanks

Can anyone point me to any commentary that discusses the impact of 409A on self-funded retiree medical plans that discriminate in favor of highly compensated individuals?

I know, I know. This topic has been discussed before. But I came away from a client meeting scratching my head this afternoon. We are setting up a new 401(k) plan for a client with a DB plan that they are on the cusp of terminating. They are using a sophisticated, worldwide actuarial firm and high-brow law firm. The actuary is advising them that those not eligible for the early retirement benefits as of the Plan termination date will only be eligible for the unreduced benefit at age 65 and any subsidized factors will not apply since they did not qualify for them on the date of plan termination. The Plan does not have a lump sum option and they do not intend to add one

Rev Rul 85-6 seems to preclude this, and our firm has terminated several plans over the last several years, and always preserved the subsidized benefits in the annuity form of benefit. In fact, I believe Form 5310 asks the Plan sponsor if "the benefits upon termination include any subsidized benefits..."

Has something changed recently that would permit a Plan sponsor to not allow a "grow in" to the subsidized benefits? If yes, and it is now permitted to do this, I have a couple of "terminations in waiting" that will proceed quickly.

I did not want to object too strenuously to the Plan sponsor, given that the worldwide actuarial firms have access to vast research resources that we do not have.

Any opinions would be appreciated.

If an employer has a predecessor plan, then a new plan cannot exclude service prior to the new plan's effective date.

What if the employer maintains two plans concurrently? For example, an employer has a 401(k) or a Profit Sharing plan which will continue in existence. The employer now wants to establish a DB Plan. For vesting, can the DB plan exclude service prior to its effective date?

What happens if the non-DB plan is terminated after 2, 3, 4 ... years?