Participant has a normal retirement age of 69 as of 12/31/04, the valuation date I am working on. He is a sole proprietor and had a previous DB plan that was terminated, when he was 65. Full benefits were paid out as a lump sum. He is subject to the 100% comp 415 limit.

Last year his maximum benefit was calculated by updating the prior plan benefit of $6,887 from age 65 to age 69, using the plan rates and mortality in effect at the time the new plan was started. Then this updated amount was subtracted from the 100% comp limit, to determine the benefit he could have under the new plan. When the new plan was started, the plan was a 412(i) plan, so the interest rate used was 3%. The plan is no longer a 412(i) plan and the actuarial equivalent interest rate is 7.5%.

My first question is, since the plan interest and mortality rates were changed after the efrective date of this new plan, shouldn't the update in the prior benefit be using the current plan rates for the year of valuatiohn, or was the offset in effect set at the time the new plan was started.

My second question is, under the proposed regulations, to be effective in 2007, I believe that I will have to update the old benefit to the greater of the amount using 5% 1995 GAR or the current plan rates - according to the multiple annuity start date rules of 1.415(b)-2, regardless of the answer to the above. Agree?

A client wants to pay his contribution in "Kind"... wants to transfer stock to the plan to cover his 2004 employer contribution receivable. Is this fine? If so, what documentation needs to be in place to a future audit?

Thanks!

HELP!!!!! I just started work as the HR Manager of a museum that has a 401k plan (they piggybacked onto the parent companies plan). We have to get out of that plan by 12/31 and I need to decide which is better, a 401k or a 403b. I always thought 403b's were for non profits, 401k's for profits. Heck, I didn't even think non-profits could have 401k's. So, I need to know what the differences are, what the employer contributions can be like for both, and basically what do I present to my board. HELP!!!!!! I need to pick brains here!

I started working this week as the HR Manager for a museum (a non profit organization) that offers a 401k because they piggy-backed onto a parent (profit company) plan existing plan. However, the jig is up and we have to start a new plan, either a 401k or 403b as of 1/06. I need to determine if as a non profit, we can even have a 401k (I always thought non profits had to have 403b's). Basically I need to know the differences between 401k's vs. 403b's, pros and cons and if we opt for a 403b can there be an employer match, if the employee does, or does not contribute into the plan. HELP!!!!!!!!

We would like to eliminate all QJSA options but one in defined contribution plans that require the QJSA option. 1.411(d)-4 Q&A 2(e) was effective January 25, 2005 and seems to indicate that all optional forms of benefit can be eliminated as long as a lump sum option is retained (our plans are otherwise required to keep at least one QJSA option). However, 1.411(d)-4 Q&A 2(b)(2)(ii) is specific to QJSAs and states that a plan with 3 or more QJSA options may be amended to eliminate any of them, as long as the smallest and largest are retained. Any thoughts regarding if we have to keep the smallest and the largest, or does the new 2(e) allow us to eliminate all but one QJSA option?

Would it be permissible to have different eligibility rules for different classes of employees as long as it did not discriminate in favor of HCEs? Based on the fact that you can completely exclude a particular class of employees from participating, it seems like you should be able to do this.

My young daughter's company is going public. Employees may buy stock at the issue price. She also has stock options which would allow her to buy stock at a cost approximately $5 below the issue price. Management sent out an e-mail discouraging employees from exercising their options (they told employees there's a 180 day lock in period during which they could lose money if the stock price goes down, and the purchase might create an alternative minimum tax issue). It seems to me that if she buys the stock at the issue price, she could lose more money (but she'd only be locked in for 25 days if she buys stock at the issue price.)

Her options do not expire for a while, but she might leave the company to return to school (next January, before the expiration of the 180 lock in period, so it's likely she couldn't do a cashless exercise of the options). I don't have the stock option plan document or SPD but I wonder if her options might expire either upon termination or within some time period after termination, and if she'd be better off exercising her options at the lower price than buying the stock at the issue price.

Does anybody have any advice? Thank you!

I have a plan that is an LLC. Both of the partners k-1's show a loss in box 1 (Ordinary business income). Both of the partners also received w-2 income for the 2004 plan year. The company filed as a partnership. Which compensation should be used for testing??? I have not run across this situation before so any advice will help.

Carson

carson@dailyval.com

www.retirementplansolutions.com

We have had a death in one of our take overplans during transition. The participant never completed a beneficiary designation form. She has Revokable Intervivos Trust for her assets.

Because there is no bene designation, does the plan have the right to name someone else as beneficiary, not the trust. Can the plan name the children the benes - her spouse is deceased. How do I handle this??

I divorced 6 years ago. The settlement agreement allowed for a 50/50 split of the 401k. A Qdro was never developed. I have since remarried and am 18months from retirement. Do I still have to split the 401K and give half to my ex? I have been reading the boards and it appears that my ex has no rights to the 401k after I remarried. Can anyone help? Qdrophile?

The EPCRS rev. proc. indicates that to the extent an overpayment cannot be recovered from a participant, then the employer or another person must contribute that amount to the plan. In the defined contribution multiemployer context, who makes the payment to make the plan whole?

If an employer sponsors a DB and a MP, how do you adjust the 25% combined deduction limit for the liability for terminees that are not benefitting under the MP? The plan funding method is modified aggregate and the teminated participants are included in the funding calculation.

The MP document does not contain any language that would limit the MP funding in the event that the MP and DB contributions exceed 25%.

The DB also provides a life insurance benefit. Please confirm that the insurance cost is included in the overall 25% maximum.

Neither Code Section 318 nor the its regulations defines the term value. How is value defined for purposes of Section 318? I would assume it means FMV, but that is of little value when I am potentially looking at two classes of stock and only one of them being publicly traded.

An employer who sponsors an ERISA 403(b) plan would like to discontinue its current Group Tax Sheltered Annuity contract with its current carrier. When the employer discussed the idea with the rep, the employer was told that if it terminated the contract it would be liable for the exit fees, which are estimated to be quite substantial. However, this is not a situation of just wanting to switch to a new carrier but rather there are performance issues involved and the employer is unhappy with the service of the current carrier. Is there any way to transfer employee balances to a new carrier without the exit fees? Is there any way to avoid these exit fees? Any guidance would be greatly appreciated. Thanks!

Company currently sponsors a Profit Sharing Plan. As a result of an asset sale as of 05/31/05, all employees - other than the two owners - were terminated (some went to work for the entity that bought this company's assets). The original company remains in business, with two employees - the original owners.

The majority of the terminated participants were terminated late enough in the plan year so that they were credited with more than 500 Hours of Service. Consequently, it would seem that, if the company's two remaining owner participants want to make a PS contribution for 2005, there will obviously be significant "minimum coverage" issues, possibly requiring employer contributions for at least some of the terminated participants sufficient to pass the ratio percentage test (assumes the Plan doesn't pass the ABT).

Query - Any problem with adding a safe-harbor 401(k) provision, using an enhanced 6% match, effective 09/01/05 that would cover only the two remaining owner participants, allowing them to at least make a $14,000 employee salary deferral contribution and receive a 6% safe-harbor match - and forget about making a PS contribution for 2005 due to the coverage issue?

Thanks for any and all responses.

I have a PS plan terminating on 8/15/05. All of the HCE's have individual self-directed accounts. Dr. X has an old stock in his account that is worth about $10. The issuing company was going to charge $100 to $150 to change the registration on the stock from PS to IRA, so Dr. X decided to take a taxable distribution on this stock. However, the stock is still registered to the plan.

Dr. X is now asking - what if this stock miraculously goes up in value over the next few years and a dividend check would be issued. The check would go to the name of the PS Plan which doesn't exist. Also the corporation adopting the plan no longer exists.

How should a situation like this be handled? Thanks.

Ours is a hardship Q, but may be an issue for other distributions.

Non-rollover, of course.

We assume it violates anti-assignment or alienation to make out distribution check to thrid party (escrow agent for hardship on principal residence or mortgage company for forclosure).

Others have stated that since withholding goes to IRS, that it is ok to make the check out to someone esle.

Ultimately we want to prevent the participant from taking hardship money and spending it on something else and using the same hardshp reason again in the future (We know the hardship part is a different issue and have limited the number of hardships available per year to indirectly address the question).

Is the anti-alienation response too uptight?

Company has sponsored a deferred compensation plan for over a decade. Plan allows select employees to make elections to defer amounts that exceed what can go in Company 401(k) plan and receive a vested matching contribution up to a percentage of compensation. In December, passed resolution to freeze or separately account for grandfathered amounts under plan and comply with 409A for future benefits. Participants make deferral elections for 2005 before end of 2004. Fast forward to summer of 2005, Company is being purchased, effective before year-end, in stock sale. Company now wants to terminate the deferred comp plan effective ASAP. Can this be done?

Notice 2005-1 appears to allow for the amendment of the plan to terminate it and make distributions with no referrences to pre-409A vs. post-409A amounts. In addition, sale will meet change in control definition later this year. SO, plan can be amended to terminate, without adopting 409A amendments, and distributions made of total account balances either at termination or by the sale?

OR does Notice 2005-1 only allow termination and distribution of grandfathered amounts? Thus, plan can be terminated, but only pre-2005 amounts can be distributed and 2005 deferral must wait until change in control event?

Can Q&A-18 be used to amend the plan to allow participants to revoke their 2005 elections and receive these deferrals (but maybe not the match) immediately or concurrently with the termination of the plan? Should both amendments be made?

The Notice seems to NOT answer these questions and I am seeing commentary all over the possible spectrum.

Do I sound like I am seriously wishing for some real transitional guidance from the IRS???

Our client is considering adding a HDHP with an HSA as a full replacement. They have a number of foreign nationals who are mostly in higher management positions. Does anyone have experience offering an HSA program as a full replacement with foreign nationals? What experiences/problems did you have? Did you consider offering a seperate non-HDHP for the foreign nationals?

For plans subject to 419(e) deduction limits, it is understood that the deduction is limited to the "qualified cost", where such cost is computed as the level premium for the death benefit coverage of a life insurance policy.

The question is when determining the qualified cost, is it necessary to compute the death benefit based on the guaranteed policy rates or the assumed policy rates?

With the assumed rates the death benefit is higher or the coverage extends to an older age, due to the greater return on the investment.

The guaranteed v. assumed rates are shown in the policy illustrations.

Thanks.