Has anyone found a good investment solution for a 401(k) plan with 2 - 5 participants? We would prefer not to have to set up separate brokerage accounts for each person because of what's involved in the deposit of contributions from weekly payroll. These plans are too small for most of the daily platforms we use for other plans.

Assume plan (not VS or M&P) has been amended to make major change to its structure not dictated by legislative developments. When should determination letter application be filed? Wait until the new staggered system says to go ahead? Or ASAP?

I am reviewing a plan document which has the "fail safe" provision so that the Ratio Percentage Test must be passed for coverage and you do not have the option of passing coverage by using the Average Benefits Test. The plan as a whole will pass coverage under the Ratio Percentage Test.

If the plan is cross tested, does each rate group also have to satisfy the ratio percentage test?

Any help or advise on this would be great.

PS Plan effective 1/1/04. 401k effective 7/1/04. Deferrals did not begin until 9/1/04. The client made the 3% SH nonelective with each payroll after the 9/1/04 date. Do we need to true up to comp from 7/1/04? Or can we do it from 9/1/04 and 414s it?

Sh notice simply states that the er will contribute 3% of your compesation.

If a member who is purchasing "air time" under an installment payment plan terminates employment before completing payment for the service, does IRC Section 415 prohibit the member from continuing to make payments during years in which he is not an active member of the plan?

For example, the member agrees to make 5 annual installment payments, but he terminates employment after 2 years (only 2 payments made). Under 415©, annual contributions are limited to the lesser of 100% of plan compensation or $42,000. My thought is that because the member terminated employment and is no longer covered by the plan, his compensation is zero. Consequently, the inactive member can't make an annual contribution because of the 415 limitation. Thus, he can't complete his air time service purchase under the installment payment plan.

Any thoughts would be greatly appreciated.

What is the process and IRS penalty if a client can not locate a copy of the signed plan document. I believe we have the original plan document signed and dated from 1997, but the GUST revision appears to either never have been signed or lost. We attempted to go back to the law firm who may have prepared it, but they have since gone out of business. Thanks.

If a partner has negative earned income - but makes 401(k) deferrals during the plan year is there money refunded as a 415 refund?

Would they still be included in the ADP testing with $0.00 income?

Controlled group of many companies, one of which has a DB that must be general tested. Other related companies have DC plans with nonelective contributions.

The DB plan does not pass coverage (or more to the point the NCT part of the general test), so it is aggregated with one of the DC plans that has nonelective contributions of about 3%.

The DB plan has HCEs that accrue more than 35% of pay, which means that the DB/DC gateway would be 7.50%.

Assume that 100 NHCEs benefit in the the DB plan but that plan needs 125 more NHCEs to pass the NCT part of the general test (and 410(b) as well). One option would be to aggregate a DC plan with a nonelective contribution and make sure that all NHCEs get or average an accrual of 7.50%. That would be very expensive.

Question: Instead of providing all NHCEs with the 7.50% gateway, could I do an 11-(g) amendment and provide 26 NHCEs in one of the other companies with a DB accrual for the year? This would make the DB/DC combo have 126 NHCEs with DB benefits and 125 with DC accruals, making the combo primarily DB in nature which avoids the gateway.

Is there anything prohibiting this?

I am preparing a Form 5500 for an ERISA account that has Foreign Investments.

My question is : On Shcedule H, Financial Information, where would I record the amount for Currency Gain / Loss?

I do not see a seperate line item for it. On Part II of Schedule H, section b(4)(A) records the Aggregate Proceeds, and section b(4)(B) records the Aggregate carrying amount. However, I do not see anything for Currency Gain / Loss.

Any help will be appreciate. Thank you.

Anthony Milano

An IRA owner had systematic distribution on a monthly basis from his IRA. he died in September 2004, but the distributions continued.

The Bank was never notified of his death until Last week (February 2005). Now the beneficiary wants us to change the reporting and issue the 1099-R for the September, October, November and December distributions in the name and TIN of the beneficiary (and the name of the deceased- like an inherited IRA).

The Bank is saying they cannot do that, because the beneficiary did not request a the distributions, and that the beneficiary should have their tax person handling any correction on the tax returns.

Is the Bank required to fix the reporting?

Thanks very much for your help.

Jane

PS. Also posted in Distributions Forum.

We re-hired an EE midway through 2004 who had always been classified as HCE. However, since we don't have her salary history for the last years, and in 2004 she didn't make over 90K do we need to list her as NHCE for testing? It doesn't seem right, I like any insights. Thanks.

An IRA owner had systematic distribution on a monthly basis from his IRA. he died in September 2004, but the distributions continued.

The Bank was never notified of his death until Last week (February 2005). Now the beneficiary wants us to change the reporting and issue the 1099-R for the September, October, November and December distributions in the name and TIN of the beneficiary (and the name of the deceased- like an inherited IRA).

The Bank is saying they cannot do that, because the beneficiary did not request a the distributions, and that the beneficiary should have their tax person handling any correction on the tax returns.

Is the Bank required to fix the reporting?

Thanks very much for your help.

Jane

Newborn baby dies 10 days after it is born. Parents have not enrolled baby to date but they are still within the 30 day special enrollment period. Can they enroll the child to cover child during the 10 days child was living. They also want to increase health FSA election to cover expenses during the 10 day period.

HIPAA gives 30 days to enroll with retroactive coverage back to date of birth. I can't find anything that won't allow them to enroll to cover child for 10 days and then revoke the coverage due to a status change (death of the child). Any thoughts?

Have a client who previous to 9/1/2004 sponsors a stand-alone 401(k) profit sharing plan via a standardized prototype. On 9/1/2004, employer stopped sponsorship of the stand-alone plan, merged the assets and adopted a PEO 401(k) plan sponsored through Mass Mutual & ADP Payroll. We are attempting to run a 2004 ADP/ACP test on the old plan. Is the old plan required to aggregate compensation; deferrals & match from the PEO plan to perform a combined 2004 ADP/ACP test? Can separate ADP/ACP tests be done as long as coverage under 410(b) is met separately? Does the PEO plan need to aggregate the old plan data as well? Did the employer sponsor two 401(k) plans in 2004? The HCE’s actually deferred their 402(g) limit to the old plan, and did not contribute at all to the PEO plan in the second part of 2004.

Plan sponsor made true-up contributions to a 401(k) plan when the plan document did not provide for true-ups. We plan to correct under VCP with a retroactive plan amendment that permits true-ups. Are there any problems with the fact that the plan sponsor took a tax deduction for the true-ups? It seems to me that submitting under VCP would correct any qualification issues and thus preserve the deductability of the contributions. Any comments?

I understand that for an employer who sponsors 2 401k plans, you test under 410(b) to determine if the plans pass 410(b) separately. If not, they are combined, and then it follows that other non-discrimination tests are tested on a combined basis.

But when testing under 410(b), these 401(k) plans have at least 3 components - non-elective contributions, elective deferrals, and employer match contributions. So, to see if the Plan #1 passes separately, you would test all 3 of these components separately. You would then do the same for Plan #2. What if the elective deferral component of each plan passes 410(b) separately but the other 2 components do not pass separately? Would you still be able to perform the 401(k) test separately for each plan? Or is it the case that all components must pass separately in order for the plans to test other non-discrimination tests separately?

Thanks for your comments.

I recently noticed that Form 5309, application for determination of employee stock ownership plan, was revised as of December 2004. The revisions are quite substantial in the portion of the form applicable to 4975(e)(7) ESOPs. Has anyone spoken to the IRS regarding whether the answer to all of the 4975(e)(7) questions must be yes in order to obtain a favorable determination letter? The plans I deal with do not contain provisions regarding the terms of the exempt loan and all have obtained favorable determination letters in the past. I am concerned that I will need to amend all of those plans in order to pass the form 5309 questions. Any thoughts?

Thank you!

A 412(i) defined benefit plan has a benefit formula of 100% of compensation reduced 1/25 for years of participation less than 25 years. The participant will have 30 years of participation at normal retirement date, and benefits accrue pro rata over years of participation. The participant's compensation is $50,000. Therefore a deferred annuity is set up for $50,000/year beginning at normal retirement date. Level annual premiums are paid from now until the year of normal retirement. Compensation is 3 year average compensation for years of participation. Next year the compensation is $45,000. I assume I am now funding for a benefit of ($45,000 + $50,000 /2). How is the adjustment made to decrease the benefit at retirement?

Can a deferred annuity be set up assuming a salary scale?

Or is a deferred annuity purchased each year for only the amount of the benefit accrued that year? - and if so, how does that tie in to the requirement for level annual premiums for funding?

Susan Eissler

Or does the business have to be incorporated? I'm unsure of the IRS ruling on this, so need some help. Thanks!

1. If a new business (first year of operations) wants to make a SEP contribution for its employees, does it need to put special eligibility requirements in its Form 5305-SEP (or adoption agreement or plan document)? The 3-years-out-of-5-years rule is simple enough to understand. So, if a new business would like to make a SEP contribution for Year 1, doesn't it have to adopt less restrictive eligibility requirements (i.e. 0-years-out-of-5-years).

2. If I'm correct in #1, is there any problem with the business amending its eligibility requirement each year, until it hits the 3-years-out-of-5-years standard? The employer's goal is to provide a benefit to its start-up workers, not to give special treatment to everyone hired in subsequent years.

I seldomly run across SEPs and don't have much of a background working with them. Thank you, in advance, for your insights.