We normally pay in arears and take benefits deductions based on the pay cycle (i.e., if the deduction beginning date falls within the pay cycle then the benefit is deducted). At times this may mean that an employee whose benefits begin on the first of the month doesn't see the deduction in the first paycheck they receive in the month if the first does not fall within the pay cycle. Our most recent pay cycle ended on December 31 with the pay date being January 7. Should the paycheck received on January 7 reflect benefits elections and new deduction rates that went into effect on January 1 even though January 1 was not included in the pay cycle being paid out on January 7?

a profit sharing plan has been in existance for many years, nursing home, makes a small contribution each year($10K). ER inquiries about changing plan to only include supervisors/owners. In course of our conversation, he says, I do not want to include union employees. The plan has always excluded union ee's! He just never revealed them as such on the census.

Any ideas as to corrections, if any?

Thanks.

Linda Michals

Assume I am calculating the varible rate portion of the PBGC Premium for the plan year and premium payment year beginning 1/1/04. The client made a contribution of $100,000 on December 15, 2003 for the 2003 plan year (reported on the 2003 Schedule B).

I am using the alternative calculation method, therefore, I use the actuarial value of assets and current liability as of January 1, 2003 (reported on the 2003 Schedule B).

Can I include the discounted value of the $100,000 contribution on line 3©? The $100,000 is not included in the value of assets as of January 1, 2003, but it was deposited prior to the PBGC filing date and is for the year preceding the premium payment year.

I am doing an amended 2002 & 2003 form 5500 for a new client. I remember doing some of these a few months ago for someone else, and can swear that they get mailed to a different address than the EBSA in Kansas. Anyone know? At my old employer, we had one of those 5500 tips books. They don't have it here, and the gov't has not answered my inquiry yet (surprise).

thanks!

This Schedule D stuff makes me cross-eyed.

Probable takeover case where a Schedule H is required, and one question led to another, ad infinitum - you know the routine.

Plan investments are all through the "John Doe" Trust company, which allows participants to direct their accounts by purchasing only mutual funds. They are limited to (x) funds - I believe around 50 of them.

I find the form 5500 instrructions and DOL regs referenced to be somewhat less than a model of clarity on Schedule D and DFE issues. The Trust company does NOT file a 5500 as a DFE, and they say that a Schedule D is not required as this is not a PSA, or a CCT, etc.

This is the conclusion I also rather belatedly arrived at, although I originally expected the opposite. But since this is the first time I've wrestled with this particular question, I'd appreciate any comments from others who may have gone through this same exercise. Do you agree or disagree that a Schedule D is not required? And assuming not, then the value of the funds should be listed on 1©(13) on the Schedule H?

Thanks in advance!

For ease of access, I wanted to post the following link to a couple of minor IRS clarifications to Q&A 19 and 20 in Notice 2005-1. This clarification was released on January 5.

http://www.ustreas.gov/press/releases/js2180.htm

We restated all of our plans for GUST and EGTRRA and the adoption agreement we used had a choice to distribute as a lump sum or rollover into an IRA. My understanding is with the latest regulations, a lump sum is no longer an option. There are no de minimus amounts, everything is supposed to be rolled into an IRA.

1. Are we required to prepare an amendment for the adoption agreement to take out this choice?

2. Has anyone actually rolled a balance of less than $100 into an IRA? If so, can you give us a name of who accepts them?

Is anyone aware of any formal language that must be contained in the notice to participant/alternate payee that a DRO has been received? I realize the Plan Administrator will need to provide both with the plan's QDRO procedures. But, I'm not sure if the actual notice needs to say anything except that one was received and a copy of the procedures is enclosed.

I initially thought an employer could freeze their "old" Non-qualified Deferred Comp Plan, thereby preserving the participants' ability to make elections under the "old" Plan as to time and form of payment, then start a new Non-qualifed Deferred Comp Plan effective 1/1/2005 for post-2004 deferrals. And, that only deferrals under the new Plan would be subject to new Section 409A.

But, as I read Q-18 of Notice 2005-1, it says that a "new arrangement" after 10/3/2004 is presumed to be a material modification of the pre-2005 Plan.

I think this means that if the Employer wants to continue a non-qualified deferred comp plan for employees after 12/31/2004, the pre-2005 deferrals have to be brought under the new rules, i.e., the pre-2005 deferrals won't be grandfathered.

Is this correct?

I've always "understood" that 415 limitats applied to distributions out of a DB plan whether or not some/all of the benefits is coming out of a 414k account within the DB plan. In other words, if a participant segregates his benefit in a 414k account and self-directs the investments which do so well that the ultimate distribution would exceed 415 limits, can he receive the full 414k account if as of the time he segregated the assets into the 414k account the 415 limit was not violated back then. I think 415 limit still applies to the current 414k account. Any thoughts or disagreement on this ?

Is there any transition relief for elections in the case of new (rather than amended) plans? We intend to freeze existing deferred compensation plans and adopt new plans (to be effective as of 1/1/05) in compliance with 409A once most, if not all, of the guidance is issued; however, since we will be adopting new rather than amending plans, does that mean that initial elections will have to be made within 30 days of 1/1/05, the date individuals become eligible to participate? Is amending a plan the only way to be eligible for the March 15, 2005 transition relief? I'd appreciate any thoughts.

Notice 2005-5 says that the automatic rollover rules apply to governmental plans.

However, it says that a governmental plan "will not be treated as failing to satisfy the requirements of § 401(a)(31)(B) if the automatic rollover provisions are not applied to mandatory distributions from such plans that are made prior to the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after January 1, 2006."

Question: What about a governmental plan that isn't sponsored by a governmental employer that has a "legislative session," such as a governmental hospital that is controlled by a local board? Would that type of governmental plan have the delayed compliance date, or would it have to comply by the date applicable to ERISA plans (March 28, 2005)?

A question, a note, and a comment on the interplay between 457(f) and 409A -

1. Question - Notice 2005-1 says that 457(f) arrangements are subject to 409A - that the requirements of 409A are in addition to the requirements of 457(f).

So far as elections to defer, this would seem to require that the arrangement would have to provide for the election to defer to be made prior to the year the compensation was earned.

But I don't know what this means regarding the payment rules because 457(f) controls the timing of the taxation, not the constructive receipt rules that applied before 409A.

My question - So really - 457(f) plans aren't affected by 409A that much, are they? Because the timing of the taxation is governed by 457(f) not 409A. The primary changes that would have to be made include: the initial deferral election, and conformity with the new definition of "substantial risk of forfeiture" if there is one.

2. Note - Rolling vesting schedules seem to be gone under Notice 2005-1, which says: . . . any extension of a period during which compensation is subject to a substantial risk of forfeiture . . . is disregarded for purposes of determining whether such compensation is subject to a substantial risk of forfeiture." Q-10

3. Comment - 409A has liberated the IRS on these deferred compensation plans. I only do a handful of these arrangements each year, and I'd always taken a conservative approach - pretty much in line with the IRS ruling position. Personally, I was surprised at how aggressive lawyers and consultants had become with these arrangements - financial triggers, haircuts, acceleration clauses. I saw one law firm's newsletter that said that rolling vesting schedules were the "norm" - well they weren't for my clients, and this makes me feel like something of a chump. I suppose this firm now has a lot of extra work - fixing all the 457(f) plans it's put into place all these years.

Comment 2 - When will Congress allow the IRS to be effective again?

Locust

What are the required disclosure obligations to participants investing in Employer stock as only one of the alternative investments in a 401(k) plan. For example, under the Securities Act, participants must receive prospectuses of investments in a mutual fund. Are there similar obligations to participants who are investing in ER stock?

At this point, I don't believe there are, but I would like some confirming info., if someone would be so kind.

I understand calculating COBRA rates isn't as easy as using the 4 tier rates and adding 102%. Any feedback regarding a practical method to determine COBRA rates for a partially self-funded group would be greatly appreciated. This group does not have high turn-over. Currently group has 280 employees and only 3 COBRAs....

Is the common "rolling vesting" technique in 457(f) plans eliminated by 409A? I've heard varying opinions on this, with the most prevalent being "wait and see". I'd be interested in your opinion. Thanks,

Joe

If a performance based bonus is paid to an employee by March 15 of the year in which it is earned, is the arrangement exempt from 409A; i.e., can the parties dispense with the otherwise-applicable requirement that the deferral election precede the end of the performance period by 6 months?

I am working on a Safe Harbor 401(k) plan where the employer has elected to contribute the 3% SHNEC.

The plan allows entry into the plan on the first day of the month following the date of employment for the 401k deferral portion of the plan only. All of these people will receive the 3% SHNEC.

Forfeitures are reallocated in the plan. In order to be eligible to receive a profit sharing contribution or fofeiture reallocation, the person would have to have the standard eligibility of age 21, 1 year of service and employed on the last day of the plan year.

Do you have to run separate 410(b) tests - one for the 3% SHNEC and another based on the PS cont/FFT reallocation?

Thank you for any insight.

I have a client who wants to know if a participant with a 401k loan and is in default as he is out of work on Workers Comp (and cannot be fired), whether there are any provisions or regulations to prevent issuing a 1099R for the outstanding loan balance at the end of 2004. I believe that for military leave, the loan cannot be defaulted, but thats a separate issue. The participant was having loan payments deducted from their paycheck which there are not currently receiving. He did not make alternate arrangements in repaying the loan.

Happy New Years!

Due to a programming error, the payroll provider for one of our clients failed to take any 401(k) deferrals out of the final 2004 paychecks.

I searched thru prior threads and didn't see anything exactly on point, but I am thinking that the correction will need to be an employer contribution equal to the missed deferrals (for which they would obviously expect to be reimbursed by the payroll provider).

Is there any less onerous correction that would be correct? The expectation is that it will be revenue-neutral to our client, but I am sure the payroll provider will try to argue for something less costly to themselves.