A participant is past normal retirement age in a plan being tested for coverage. His benefit is the actuarial equivalent increase of the prior year benefit.

The coverage rules under 410(b) will deem this person to be benefitting even though there was no actual accrual increase.

However, it appears that under 401(a)(26) that this person could fail to get a 1/2% increase (generating a meaningful benefit) and be deemed to NOT be benefitting under 401(a)(26).

Is this a correct interpretation??

An employer has decided that it can no longer afford to make matching contributions to the 401(k) plan. The last matching contribution was made for the pay period that just ended. However, employees won't be notified for several more days. It seems to me that employees should be notified prior to the the last match so that they can stop deferring if they choose to do so. What are the employer's obligations relating to the match?

now what?

using nice rounded numbers,

required loan payments = $750,000 300,000 is principal, 450,000 is interest.

25% of eligible comp = 150,000

plan prohibits making a contribution greater than the deductibility.

so, do the loan payments release shares that are simply held in 'limbo'?

and then this is carriedforward, along with penalty for nondeductibility?

yes, this looks like some 'poor planning' on someone's part because the future will have the same problem.

When the books were reconciled in early 2005, it was discovered two deposits from early in 2004 were not made. We have calculated the lost earnings using the greatest rate of return of all fund options and are basing the excise tax on Form 5330 on this amount. Deposits were promptly made in early 2005 when discovered.

Looking at the 5330 instructions, it appears there are two taxable periods involved here, one for 2004 and another for 2005, although only one prohibited transaction, which occured in 2004. Any insight on if two 5330's must be filed? One for 2004 and the second for 2005? Or can we just report it on one 5330 using the taxable period of 1/1/04 -12/31/04?

thanks for any help

I am asking for recommendations for the problem in the daily valued plan of establishing the 50% of vested account value. In cases where the market declines, the amount of loan requested may be more than 50% of the vested account by the time the loan is processed. I have heard of several approaches including:

1. Set the maximum in the loan policy to a lower percentage such as 45%

2. Go by the value on the date the required signatures were obtained (in cases where loans require signatures as in a QJSA plan)

Where the loan requires advance approval or spousal consent, are there other options than the above?

Thank you,

I'm looking for a discussion of the issues surrounding the sham where an employer has an "understanding" with a retiring employee to rehire that employee soon after the employee receives a distribution from the employer's qualified plan. Anyone know of any secondary sources that address this sham? How about a discussion of methods used to prevent this from occurring...such as a rehiring policy?

For a 401k contribution, is a pro rata contibution required if open up a new plan at end of year? On Dec., 2004 client opened a 401k plan using the protype at a major stock brokerage company. He then made a contribution thru employee salary deferal (no employer contribution). Now employer is filling out form 5500 and the question has been raised by the CPA, must a contribution for the max. employee deferral of $ 13,000 in 2004 have been made evenly throught the year (once a month), or can it be done towards the end of the year in one lump sum? Client was unable to contribute evenly each month because the 401k program was not opened up by employer until 12-2004. This is the new 401k "uni-k" for one person "S" corps, which is why the brokerage company did not make the protype available until Dec., 2004.

Can someone tell me the rules as to what the DOL considers acceptable enrollment election. For example, can a participant change their enrollment election percentage by emailing this request to the payroll department? Isn't there a requirement that the participant complete AND sign and enrollment election/change form? Can these forms be completed electronically in any way? THANKS!

What restrictions (where would I find something...) exist on changing the timing of the deductions?

The plan currently deducts contributions for the plan year ending in the fiscal year (12/31/05 deducted on the 7/31/06 return).

How can you switch to fiscal year in the plan year? (12/31/06 is also deducted on 7/31/06 return)?

Or are you stuck with original timing for life of plan?

Thanks for any help.

We have to issue a SMM to affected participants. It's an offset plan, so a lot of eligible employees do not have a benefit because it's offset by the other plan's benefit. A lot of them may get a benefit in the future, if the other plan benefits don't grow.

Do you think we should send a SMM to eligible employees who don't have a benefit at this time?

We will be updating our SPD in the fall and furnishing it to all eligible employees, even those who don't have a benefit under the plan because of the offset.

Thanks, Bud

Jane Smith dies. She has funds in a 401(k) Plan. Her beneficiary is the "Trust of Jane Smith". She has a four children. One is the executor of the will.

Who is the check made out to, where are her assets held, how are they disbursed and why would you make it out to a trust?

Thanks

Some IRS approved plans say that the Employer MAY force a distribution if the balance is $5,000 or less. It is apparently not mandatory. This sounds a bit too discretionary to me. I am rather surprised that the "MAY" got through the review.

The question is: Since the distribution itself may be discretionary, if the distribution is $1,000 or less, it is acceptable to make the FORM of that discretionary distribution (Cash or IRA) discretionary as well.

My feeling is that the participant should know in advance the form of the payment if no election is made and the benefit distribution is forced.

However, it seems that not all potential IRA providers have their act together regarding the conditions under which they will accept a forced distribution, especially if it is under $1,000. AND providers may change. The use of a mandatory IRA disbursement assumes that the Employer can find a provider willing to take it. Therefore, it would be nice if the form could be discretionary.

Comments?

I have a SH PS 401k plan with a 7/31/05 year end. The 401k was implemented as of 8/1/04. One of the HCE's (under age 50) contributed $13,000 in 401k deferrals from 8/1/04 - 12/31/04. From 1/1/05 - 7/31/05 he contributed another $7,000 in 401k deferrals, giving him a total deferral of $20,000 for the plan year.

He did not violate the individual 401k limit based on a calendar year. Has he violated any other 401k limits based on the plan year?

Thanks.

I posted this in the Distributions Forum as well.....but just in case you missed it....

PSP holding approx. 130,000.00 due to deceased participant's two beneficiaries. One of the beneficiaries cannot be located. Plan doc. is a pre-approved volume submitter doc. that provides that after registered mail and "further diligent effort to ascertain the whereabouts of the participant or beneficiary" the amount to be distributed "shall" be treated as a forfeiture. Plan provision goes on to state that if participant or beneficiary is later located, then Plan shall restore the benefit first from forfeitures and second from an additional employer contribution "if necessary". Also, provision states that any benefit lost because of escheat under applicable state law is not treated as a forfeiture under the plan provision or as an impermissible forfeiture under the Code.....

Would sure be nice to treat it as a forfeiture, but would hate to have to restore $65,000.00 at some later date. I guess Plan and Employer could take position that based on its/their diligent effort prior to forfeiture, it is not necessary to restore the benefit......????? Anyone dealt with this befoe or have some words of wisdom? Thanks.

Our plan has both a health care reimbursement account and a dependent care account - can we just elect the grace period for the health care portion.

I retired from the Texas Department of Corrections in 1989, it was a forced medical retirement. at that time the code they used, texas administrative code chapter 34 title 73.17 stated that if I could not return to my original position or an equal paying state position, I must take a disability retirement. I tried to get re-assigned and was told that I coud not, I had to take the retirement (I was 28 at the time). I took the retirement, went to school and learned computer repair.

In 2001, chapter 34 title 73.17 was changed to read if I could not return to my original position, or ANY position of equal or greater pay, I must retire.

In 2005 I get a letter from the retirement system telling me that I make more money than my original position and I have to pay back benefits. I called and tried to explain that I had retired under a different rule, and that I had never been notified of the change which would require me to notify them of employment and wage status.

They basically said that it doesn't matter what the rule said back then, I have to submit wage reports from 1989 to 2005 to determine how much I have to pay back.

Can they do that?, I have been trying to get a lawyer, but cannot find one in my area that does administrative law, I will have to get one in Austin and travel back and forth (which I can hardly afford to do, my boss now will fire me, and I will loose all income.)

Any Ideas, sugestions?

Thanks

Clint

We know that one of the 404 limits is the 412 minimum.

The question is:

1. Should the minimum funding under 412 as it applies to 404, include the credit balance or ignore the credit balance?

So for eg.

Say the minimum is 100,000 before application of the credit balance and the credit balance is 20,000, resulting in a minimum of 80,000. Assume that there have been no carryovers to date.

For purposes of 404 is the minimum max tax (i.e. the 412 override) equal to 100,000 or 80,000?

Thanks.

I recently became responsible for a DC plan for a QSLOB. I am wondering if the QSLOB demonstration needs to be repeated after the first filing? Looking at the regs. I see that notification is only necessary once but must the QSLOB continue to meet the requirements on an ongoing basis? If so is the requirement daily, annual or what.

I hope this is just a coverage question -- not a plan defect -- but I couldn't find a better board and you all are the greatest!

PSP holding approx. 130,000.00 due to deceased participant's two beneficiaries. One of the beneficiaries cannot be located. Plan doc. is a pre-approved volume submitter doc. that provides that after registered mail and "further diligent effort to ascertain the whereabouts of the participant or beneficiary" the amount to be distributed "shall" be treated as a forfeiture. Plan provision goes on to state that if participant or beneficiary is later located, then Plan shall restore the benefit first from forfeitures and second from an additional employer contribution "if necessary". Also, provision states that any benefit lost because of escheat under applicable state law is not treated as a forfeiture under the plan provision or as an impermissible forfeiture under the Code.....

Would sure be nice to treat it as a forfeiture, but would hate to have to restore $65,000.00 at some later date. I guess Plan and Employer could take position that based on its/their diligent effort prior to forfeiture, it is not necessary to restore the benefit......????? Anyone dealt with this befoe or have some words of wisdom? Thanks.

Say a self employed has earned income of $600,000 (net of 50% SS taxes) carried over to the 1040. The person implemented a DB plan for that year as well.

My understanding is that the $600,000 is divided between income for pension purposes and the pension contribution (deduction).

Say 1st year val results are:

pension compensation of $200,000

max deductible contribution of $200,000

ERISA FFL of 800,000.

The individual decides to contribute 400k to pension where 200k is deductible.

Then my understanding is that 400k is taxable compensation.

Now for the 2nd year val results are as follows:

hypothetical scenario 1:

self-employed earned income is $150,000

say they choose 120,000 as pension comepensation and contribute 30,000, in cash where the minimum was 0 due to large CB and the max tax was say 160,000.

Clearly the 30k is deductible.

1. Is there any way they can deduct more than 30k (using 120k as pensin comp)?

i.e. deducting some of excess from prior year.

2. Or do they have to choose a lower pension comp (perhaps as low as $0) to deduct a larger amount (perhaps up to 150k) and have the available income?

Of course in this situation I believe the max deduction is 150k, based on $0 comp, even if the limit were higher than 150k.

Look forward to other views.

Thanks.