Does the IRS charge a fee to review an application submitted under Treas. Reg. 1.408-2 (i.e., an application to obtain designation as a non-bank trustee)?

Appendix B to Rev. Proc. 2003-44 provides two permissible methods for correcting the exclusion of eligible employees from a profit sharing plan: (1) the "Contribution Correction Method" and (2) the "Reallocation Correction Method".

Assume that a plan provides that profit sharing contributions are made pursuant to an integrated allocation formula that uses "allocation points" or another method, so that the integration rules are always met regardless of the amount of the plan contribution (i.e., the plan does not specify a certain percentage amount above and below the wage base). Also assume that the plan discovers that a prior year's allocations to certain participants were based on inaccurate compensation (not including some fringe benefit amounts that should have been included, and including other fringe benefit amounts that should have been excluded).

I interpret Appendix B to mean that the plan sponsor may correct the allocations that are based on inaccurate compensation by first determining what was the effective allocation formula for the other participants (whose compensation in the original allocations was correct) -- e.g., for participants whose compensation was correctly determined in the original allocation, this may have effectively resulted in an allocation of 8.334% of all compensation plus an additional 5.7% over the wage base. Then, the plan sponsor would make a corrective contribution, adjusted for earnings, to each affected employee who did not have sufficient compensation considered, and apply an appropriate forfeiture to employees who had too much compensation considered, based on this formula. No reduction or other adjustment would be made to the accounts of the employees whose allocations were based on accurate compensation.

However, the plan sponsor's recordkeeper believes that because the allocations were made pursuant to an integrated profit sharing formula, the mistaken allocations may only be corrected under the Reallocation Correction Method, requiring the plan sponsor to redo allocations for all plan participants (even those who were not affected by the error) and notify all participants of the change.

I have not been able to locate any information to support the recordkeeper's argument that this correction must be made using the Reallocation Correction Method. The fact that the allocation formula initially used was intended to maximize benefits to highly compensated employees doesn't seem to have any bearing on the proper correction method.

Does anyone have any thoughts on the proper correction method to be used in these circumstances?

A DB plan participant retired and elected a direct rollover of his accrued benefit. Two months later the plan realized that the lump sum paid was too small because it did not account for certain service. The plan is now ready to make a second payment to the participant. We want to rely upon the original distribution election for this second payment. Any reason not to do that? Should the participant be able to elect again?

If a company makes a $500 per year employer contribution into the FSA for their employees, can the employer contribution amount be pro rated for individuals that do not participate for the entire year (for example a new hire)?

Can a Roth IRA contribution be made this year using earned income from past years of employment if person is now retired and not employed?

We are acquiring another company (assets only, not assuming the plans). However, b/c there is a collective bargaining agreement - we have to mirror the plans they currently have place. One plan is a 401(k) and (m) plan. The main difference is that we (base company) provide a match of 2% up to 50% of comp and the new plan (new plan for purchased assets) provides a match of 2% up to the 100% of comp.

We crunched the ADP/ACP tests on a controlled group basis (based on info we rec'd in due diligence) from both plans' (testing it as the base company's controlled group AND then testing it as the new company's controlled group) - we passed the ratio percentage test both times.

Is there anything we are not thinking of (other than 401(a)(4) ND) and how would we report this on the Form 5500 (I'm thinking of Schedule T)?

I don't do much with SIMPLE plans and someone has asked if the SIMPLE can be aggregated with the person's personal IRA accounts for purposes of the 70 1/2 RMD calculation and distribution. It seemed logical to me that this would be ok, but I couldn't find an answer in print. They are aware that any Qualified Plan distributions must be taken from the plan as a stand alone. Any help is appreciated.

I'm getting ready to submit a VCP filing and was wondering about the expected turnaround time.

The filing deals with 9 employees being excluded from the 401(k) plan for part of the year.

Thanks in advance.

What is the appropriate correction for a distribution made to an employee who was actively employed and did not quality for in-service or hardship? The employee is an HCE.

Does anyone have any insight into the expected release date for the EPCRS update?

If the document states the interest rate assumption for testing is hard coded in the document as 7%, could an amendment be made after the plan year end to change it to 8.5%?

Can a participant's plan assets be attached for child support payments? I've never heard of this reason. I thought the only entities that could attach participant's retirement assets were federal tax liens and QDRO's. We received a notification to pay out a portion of a participant's balance. Thanks for your help.

A db plan participant terminated 4/26/04 (calendar year plan) with 600 HOS. The value of her vested benefit was $4685. I think she's not excludable for 410b because of her hours, but she's excludable for 401a26 because her vested benefit was < than $5000. Is that correct?

I've seen varying responses to the following scenario and am trying to get some consensus.

Employee elects to contribute $480 to his Health FSA. He pays a pro-rated amount on a monthly basis via payroll deduction (i.e. $40/month). He does not request reimbursement any time during his participation, terminates employment with only $240 in his account, but has saved up receipts for $480 incurred prior to his termination. His SPD states that coverage under the HFSA ceases when his contributions cease and he is otherwise ineligible to participate (e.g., no longer an active employee).

Question:

1. Could employee submit his claims within 90 days after his termination date for the entire $480 even tho he only has $240 in his account? If not, then

2. Would employee have to be offered COBRA to get the full benefit of his original election?

3. If employee is offered COBRA and only makes one add’l month of contribution at $40 + $2 admin fee, can he request the entire $480 in receipts during that month and then terminate?

Your thoughts are welcome!

I thought Relius had the new deduction rules built into the DB system, but I can't find the report.

Where does it show that the unfunded current liability is deductible?

Does it require 100 lives? Is there a plan spec parameter that must be coded?

I have a client who has an IRA that owns some commercial real estate. The IRA is set up and managed well by a custodian who specialized in IRA real estate investments. The lease is coming due on the real estate and in not expected to be renewed. In addition, the value of the real estate is appriciating significantly causing concerns about RMDs down the road. The client would like to distribute the real estate and own it personally but doesn't want to pay tax on the entire amount now. Can he sell the real estate, form his IRA to himself, or do prohibited transaction rules prohibit it?

Thanks for any suggestions on how to get the building into his name personally.

Dean Huber

A DB plan’s death benefit is the greater of PVAB or the (insurance) Policy proceeds. The face amount of the insurance policy to fund the death benefit is 100 times the projected benefits.

The plan has been purchasing Whole Life policies. The sponsor now wants to:

1. Prospectively stop buying additional insurance for existing participants resulting from increases in their projected benefits and for future new participants.

2. Somehow reduce the premiums burden on the existing policies of all participants so more money can be invested in non-life insurance investments.

As to 2, is there an anti-cut (or any other) problem if the policies are converted to Term assurance? I don’t see anywhere in the plan document where it is says that the policies have to be Whole Life – it just says life insurance policies.

Two more fun questions:

1. If you combine a 403(b) plan with a 401(k) plan for the ratio percentage test, do you have to combine the plans for 401(a)(4)? The 403(b) plan is an ERISA plan with both match and discretionary.

2. When doing the ratio percentage test for a 401(k) plan you can exclude the employees in a not for profit entity if they are eligible to make deferrals to a 403(b) plan. What if the 403(b) plan has an exclusion for employees that normally work less than 20 hours per week. Should these employees not be excluded when doing the ratio percentage test for the 401(k) plan?

Thanks

I was wondering how others have handled the following situations with the idea of preserving 404© compliance:

(1) elimination of a fund (give participants x amount of time to get out and if they don't, ...); and

(2) imposition of a cap on how much participants can invest in a fund.

Some fun questions....

There is a parent company that owns two not for profit entities and two for profit entities.

The parent company sponsors a 403(b) plan for the two not for profit enties and one 401(k) plan for the for profit entities. Both plans have deferrals, match and discretionary.

The parent company is a not for profit entity. The employees in the parent company are particpating in both the 403(b) and the 401(k). Don't ask me why or what benefit they think they are getting from it, I don't know.

Since the parent company employees are participating in both plans, I don't think the 401(k) plan can any longer exclude the employees in any of the not for profit entities from the ratio percentage test. Would you agree or do you think they can still exclude the employees in the two not for profit entities, just not the employees in the parent company?

I'll put my other questions in a separate post as not to overwhelm.

Thanks