A CLIENT OF OURS HAS THE FOLLOWING MATCH FORMULA BASED ON YEARS OF SERVICE

1 Year of service: they match 33.33% of a participants annual deferral amount up to 6% of annual compensation.

5 Years of service: they match 66.67% up to 6% of annual compensation.

10 Years of service: they match 100% up to 6% of compensation.

They now have an Adopting Employer Effective 1/1/05.

They want the employees from the Adopting Employer Company to receive 100% match immediately (basically as if they worked with the company for 10 years) but any new employees hired after, or any current employees of our clients are still subject to the wait. Is this discriminatory

A client is asking a question regarding the following formula:

20% of compensation plus .65% per year (maximum of 35) of compensation in excess of covered compensation

The issue is with an employee who has 40 years of service at retirement. The plan calls for fractional accrual based on service.

They are being questioned on whether they can accrue the benefit over more than the 35 years.

I am not aware of anything that prohibits the above formula from being accrued on a fractional basis. Am I missing something??

A company is downsizing and would like to go from a 401K plan to a simple-IRA plan. They stopped contributing to the K plan in 2004 and submitted paperwork to terminate the plan in December of 2004. Can they immediately start a simple-IRA plan in 2005 and not violate the exclusive plan rule?

Independent contractor (insurance agent) participated in a non-qualified deferred compensation plan. In each year during which income was deferred, contractor's non-deferred income exceeded the maximum FICA wage base and contractor paid maximum FICA taxes during these years. Now, contractor has retired but has not yet received plan distributions. Company notifies employee that distributions will be reportable on 1099 misc. Question: Will contractor be required to pay FICA taxes on distributions? Or, is income exempt givent hat contractor paid the maximum FICA taxes in the years in which the income was deferred? Thank you.

Well... I am not much of a football fan.. wasn't much of a baseball fan either. I am a fan that waits till the end to see if there is a local sports team that has the fortune to have made it to the final games with hopes to be the one holding the trophy when the last game is over. Living in Boston has been good for sports fans this year.... especially for footbal fans the last couple of years.

I did watch the Steelers/Patriots game on Sunday. Have to admit, the Patriots are a fun team to watch. I think coach Bill has a knack for mixing it up. The players appear to be having fun as well... The Sox set a record coming back agains the Yanks... I think if the Pats win the Super Bowl then they will be one of 2 teams to ever win 3 Superbowls in 4 consecutive years. I think the only thing new englander's can ask now is for it to stop snowing!

We have a case that uses a 3% non-elective safe harbor provision.

Company is in hard times, and laid off most of the employees in 2004.

Is there a way to eliminate the safe harbor provision for 2005, or to have the HCE's waive the safe harbor contribution since there are no R&F employees?

Can the owners waive the safe harbor allocation on their behalf for 2004, and only fund the safe harbor for the R&F?

Thanks.

I have heard that money market accounts are great for retirement. How do they compare to the 401k in terms of yields and the ability to diversify?

John Diaz

Online tutor, homework help, term papers

In our NQDC plan, top-hat employees must make a deferral election before the plan year and they are locked in for the plan year. Deferrals to our NQDC plan begin when the participant hits the 402(g) limit in the 401k plan. Participants are allowed to change their 401k election at any time and it will be effective on their next paycheck.

Under the new deferred comp law (Code section 409A), NQDC plan participants are not allowed to increase or decrease the amount of their deferrals during the plan year. If a participant changes his or her 401k deferral election during the year, it affects when he or she will hit the 402(g) limit, which in turn affects when NQDC deferrals begin. If they begin sooner, the participant effectively increased his or her deferral amount into the NQDC plan. If they begin later, the participant effectively decreased his or her deferral amount.

Under the transition rules for 409A, deferral amounts for 2005 have to be locked in by March 15.

Does anyone have this problem and what are you doing about it? If you don’t have this problem, what do you suggest we do? I suppose we could lock-in 401k election for NQDC participants or require NQDC participants to elect an amount for the year, rather than a percentage per pay.

To be grandfathered there must not be a substantial risk of forfeiture under Section 83 concepts. The Section 83 regs seem to state that there is a presumption that a non-compete does not create a substantial risk of forfeiture, but that presumption can be rebutted based on certain facts or circumstances (Compared to a substantial risk of forfeiture under 409A in general which can never be created by a non-compete)

Has anyone given any thought on whether the IRS would ever try and rebut the regulatory presumption and argue that a non-compete does create a substantial risk under Section 83 for purposes of saying that amounts deferred under a NQ plan are not grandfathered? I would think that they would be hesitant to make such an argument since it could come back to haunt them in "normal" Seciton 83 disputes.

Plan allows two classes of employees to make one-time elections to defer specified percentages into the Plan. These amounts are made on a salary-reduction basis. Does the Plan have to offer this to all participants? Is this election a BRF and must pass coverage to be nondiscriminatory?

Hi, all,

I'm not a QDRO expert, and am confused:

A family member of mine divorced (in Indiana) shortly AFTER her spouse's DB plan entered payment, due to the spouse's retirement. A form of annuity was selected and commenced (in the form of a joint and 50% survivor annuity). My family member was named, at the time of the annuity selection, as the recipient of the future 50% interest. The divorce was relatively friendly, and both ex-spouses (both still living) agree that my relative should receive the future 50% interest.

At the time of the divorce, attorneys told her that no QDRO was needed, because the annuity was already in payment status. This advice strikes me as possibly wrong.

Were the divorce attorneys correct? Or does anyone recommend getting a QDRO, anyway, to clarify that my relative maintains this future 50% interest, despite the divorce.

Perhaps it also depends on whether the divorce judgement so specifies. I also need to look at that.

Thank you for your insights.

1. Attempting to satisfy meaningful benefit requirement in cash balance plan. Do I project contribution at accumulation rate and divide by factor using plan assumptions or can I divide by standard discrimination testing assumptions factor?

2. If we need 50 participants to have meaningful benefits can we count participants who terminate during the year that accrual a benefit? Or because it has to be satisfied each day of the year we can't count them during the period after they terminate?

Prior to 409A, beneficiaries could typically petition plan committees to accelerate payment of deferred compensation. Often this was necessary to raise money for estate taxes. Beneficiaries who did not do this were never found (to my knowledge) to be in constructive receipt of lump sum equivalents because of this right to petition.

Under 409A, does a Committee violate the no acceleration rules if it grants such a petition? 2005-1 does not list such an acceleration as a permitted exception. However, death is an event that always permits payments under 409A.

I'd like to think that beneficiaries still may petition for acceleration without risking 409A penalties.

Your thoughts?

Assume a cross-tested 401(k) with profit share eligibility requirements of 1 Yr, 1,000 Hours and 1/1 and 7/1 entry dates. For the participant entering 7/1, only comp earned in the second half is eligible for an allocation. The Plan, however, allows for participation in the 401(k) upon commencement of employment.

The Average Benefit Percentage Test is needed to pass the cross-test. For the Participant who becomes eligible for a PS allocation on 7/1, only the 2nd half comp is used for calculating the PS contibution. However, do I use this participant's full year comp and full year deferrals when calculating the EBAR for the Average Benefit Percentage Test?

If you think I should use full year comp and full year deferrals, would your answer be different if the Plan did not allow for immediate participation in the 401(k), but a participant could only defer starting the 1/1 or 7/1 after having met the 1 Yr, 1,000 Hours requirements?

Thanks.

An employee made elective deferrals into a SIMPLE IRA plan during the year. She received a statement from the financial institution and noticed that no deposits were being made. The employer was unresponsive. Finally after several months of putting her off, the employer issued a check to her refunding her elective deferrals. She has since terminated employment.

Can she report this situation, and to whom - the IRS? The DOL?

She has check stubs showing the deduction for the SIMPLE IRA contribution, but has not yet received her W-2 for 2004.

Thanks!

I have a client who has a 401(k) Plan with a discretionary match in a Corbel volume submitter. Over the past year, they have incurred a large amount of forfeitures from the match source. They wanted to know if they could use the match forfeitures to reduce a possible match contribution or a possible profit sharing contribution. Is the forfeiture limited to the source from which it occurred? The document states (Section 4.4©) that the forfeiture is (among other things) used to reduce Employer contributions. It does not specify matching or profit sharing.

Any help would be greatly appreciated.

Since Code section 411(a)(11) doesn't apply, a church plan can provide for cashouts of benefits up to a ceiling higher than $5000. Notice 2005-5 confirms that the automatic rollover requirements apply to church plans. Though it is not very clearly written, section 401(a)(31)(B) seems to apply the direct rollover requirement only to cashouts up to $5000 -- meaning that church plan cashouts in excess of $5000 could continue to default to a cash distribution.

Has anyone else considered this question?

We have a company that allows loans in their plan and regularly lay off some employees in the winter for 3-4 months. Obviously then they cannot deduct the loan payments out of the employees payroll. And trying to get loan payments from them while laid off is proving to be very difficult! Does anyone know if there is a way these guys could be set up on an 8 month payoff - with bigger amounts during the time they are working and then no payments during the time they are laid off? I think it would be easier on both the participant and the employer. Any suggestions on how to handle this? Thanks!

I was wondering who else out there in pension world is concerned/confused regarding the DOL forcing plans into VFCP who reported late deposits on a 2001 5500. Wasn't VFCP effective in 2003? What guidance did we have back in 2001? The 401k/loan payments were deposited, so the principal would be considered restored, but no gain was allocated. Thanks.

Linda Michals

I had a broker ask me...does a SIMPLE IRA offer any protection from bankrupcy or lawsuits as other Qualified Plans do?