An executive was granted phantom stock in 2001. Under the arrangement, on the "payment date", he will receive in cash the excess of the stock's fair market value over the "initial value" of the award, which was the fair market value of the stock at the time the award was granted. The payment date is the earliest to occur of (i) 10 years after the date of grant, (ii) a change of control, or (iii) termination of employment (provided that if he is fired for cause or resigns other than for good reason, he will forfeit the award.

The employer is about to be purchased, which will trigger a payment date. The executive, who will continue employment after the change of control, doesn't want to receive the payment yet, and the company wants to accomodate him if possible. The proposal is to amend the arrangement to remove change of control as a payment date so that he will be paid at the earlier of (i) 10 years after the grant, or (ii) termination of employment.

Will such an amendment cause any problems under 409A?

As it now stands, it appears that the phantom stock award meets the SAR exemption from nonqualified deferred comp under Q&A-4(d)(iv) of Notice 2005-1 because it was granted under a program in effect before October 3, 2004, the initial value ("exercise price") is not less than the fair market value at the date of grant, and the award does not include a feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the award.

I can see an argument that the proposed amendment might cause the award to be subject to 409A. In light of the fact that a payment date (the change of control) is pending, the amendment could be viewed as adding a "feature for the deferral of compensation" that would blow the SAR exemption above.

Under that scenario, the award would become nonqualified deferred comp, and since it was not earned and vested as of 12/31/04, it would be subject to 409A. Under 409A, it seems that the amendment would constitute an election to delay a payment, and since the change of control will occur within the next couple of months, I'm not sure that the election would satisfy the requirements of 409A(a)(4)©.

Does anyone have any thoughts on this? Am I totally off base, or do you think the proposed amendment could pose a problem?

NJ state tax return allows employees to exclude 401(k) salary deferrals from taxable income. Does this apply also to sole proprietors and partners? There doesn't seem to be any place on the NJ1040 to deduct deferrals for a sole proprietor. For a partner, the deduction is usually already taken out of the K-1.

sugarfree

Does anyone have a Short Term Disability program which excludes coverage if a request for a medical leave is due to cosmetic surgery? It is my understanding that SDI programs cover elective surgery so I am assuming this would include cosmetic surgery. Thanks.

We have a client that consistently( for two years) has made late 401(k) deposits( on average 1 month from the maximum statutory limt). The late deposits have been reported on the 5500, we have a a large amount of correspondence with the client on the issue but the 5330s and earnings makeups have not been done. The client is very profitable and has no other issues other than the one mentioned. Would anyone out there terminate this client? What liability do we really face given that we have no control over the timing of deposits? Any input would be appreciated.

I'm trying to figure out whether a DB plan is a 412(i) plan. Is there anyway to figure this out by looking at the plan document and nothing else?

We have an existing calendar year profit sharing plan which was amended effective 11/01/04 to include a 401(k) feature. When calculating the ADP/ACP for the 2004 plan year, do we consider compensation for the full plan year if it is defined so in the plan document or is it required to consider compensation only from the effective date of the CODA?

I have a sole proprietor client that has a SEP. He contributes for himself and all eligible employees.

He is over 50. Can he make a catchup contribution to his SEP?

From the research I have done previously it appears that he could only make a catchup contribution if he had a SARSEP. Is this correct?

Any help or advice will be greatly appreciated.

A small company that shall go nameless sent us the data to run their tests, but there were many discrepancies and odd things in the data. There are two categories of discrepancies: (1) matching contributions were allocated to participants who made no deferrals; (2) most employees hired in the last two years were admitted to the plan seemingly at random (actual requirements are 21 & 1 year with semi-annual entry; plan year=calendar year).

The match formula is 100% of deferral up to 3% of comp. There are no service requirements for the match. None of the actual contribution amounts bore any relationship to the formula.

I finally got hold of the plan administrator, also the company president, and discussed refunds and alternatives. He now claims the plan is safe harbor.

There is nothing in our records to indicate that the plan is, in fact, safe harbor. They never formally amended or notified employees or informed us about the plan's new status - until now. In any case, the plan has not been administered properly. Employees are participating that shouldn't; employees who terminated during the plan year received no "safe harbor" contributions; contributions are not 3% of comp; the one NHC who actually deferred in 2005 was allocated this pseudo-safe harbor contribution but no match; etc.

It's plain that two of the three HCEs must take refunds of excess contributions. And the plan should go into EPCRS. But, at the moment, what should happen to all of the bogus safe harbor contributions?

I'm a retired 57 year old and collecting a pension, would i be able to open a Roth IRA. i want the stretch for my grand kids.

Thanks

We have a defined benefit plan that is terminating and we are putting together the Notice of Plan Benefits. Can we advise participants that their choice will be between a lump sum and an annuity to begin paying monthly as soon as the plan termination is approved, or do we have to offer them an annuity payable beginning at their retirement date, too?

Thanks.

Plan fails adp testing. Client's nonqualified plan provides for a "transfer" of adp refunds to the nonqualified plan. Once they have made a qualified coda, I did not think that those monies could be transferred to the nonqualified arrangement because of the constructive receipt requirements under IRC 409A.

Am I missing something?

Please let me know if I am crazy on this one:

We have two agreements. One signed on 12.1996 and one on 12.2004 (different people).

Once signed in 1996 - ex-exec signed it, company took deduction, ex-exec included full amount in income tax (payments last for 10 years). We are taking the position that this entire agreement is grandfathered out of 409A.

Second agreement signed in 12.2004, ex-exec included full amount in income tax for 2004 (and the benefit is payable over ten years); however, this appears to be a material modification after 10.3.2005 - but is it a no-harm, no foul b/c he paid the tax? Do we have to do anything further at this point (amend the plan, etc.)? There is a non-complete (which I understand is generally ok - but there is also a confidentiality provision).

Thank you for any assistance on this. They will not let me call legal and I want to make sure we do not make a mess out of all of this. I won't hold you to any response, just want to see if we are going the wrong way on this.

Does anyone copy the state when filing 5500's? A CPA insists it is required. We have never copied the Plan's state income tax division on a 5500. Does anyone else do that?

Thanx,

Rene

Interesting question (I think) because nothing seems to address it directly.

A participant has the following compensation history:

Year Salary Hours

2004 15000 1000

2003 14000 1000

2002 1000 500

2001 10000 1000

The participant did NOT receive accrual credit for the 2002 plan year and therefore the compensation is not included for benefit averaging purposes.

What is their 415 compensation limit??

a) 15000 + 14000 + 1000 = 10,000.00

b) 15000 + 14000 + 10000 = 13,000.00

I was under the impression that no year of compensation is ignored for 415 purposes regardless of whether accrual credit was received.

Any and all thoughts are appreciated.

Has anyone run up against a situation where the State law (i.e Constitution, etc.)

regarding a State pension plan differs from the Internal revenue Code? If so, what is the result...does the plan not qualifiy as a "qualified plan", which seems to be a harsh result.

I have been investing in my roth ira for approx. 3 1/2 yrs, I am 33 years old & I contribute the max each year. I have noticed that the only increase in my roth is the monthly contribution I am putting in. I had a financial advisor who gave me poor advice & I am looking for advice on how I can get my roth ira to grow.

Thanks!

Lisa

The gains in our flex account continue to accumulate each year and we are thinking about refunding some to participants. Each year we refund ourselves for the admin fees, and even after that we should have over $5k left over. If we do choose to make a taxable refund to participants, should it be done equally to each, or proportional to their annual election? Also since this past years experience gains include experience gains from previous years, is it proper to just refund based on the most current participants or should participants from all years with gains be included? Is it permissible to split the gains between health and dependent care based on actual experience, or does it all have to be lumped together?

A participant dies before receiving his minimum distribution from a defined contribution plan in 2005. Spouse, who is 68 years old, is sole beneficiary. I know the RMD is not subject to rollover, but to whom does it get paid, beneficiary (spouse) or the estate?

Is this plan top heavy by virtue of forming a multiple Employer Plan.

Company A is not TH. Joe from Company A goes to Company B. Company B adopts A's plan to form a multiple employer plan. They are not a CG.

Since Joe has 100% of B's plan assets on the first day of Co. b's plan year are they a Top Heavy Plan?

Do we include Joe's account balance from Co. A in Co. B's TH test?

Any thoughts on what is standard practice with individually designed SEPs on whether to apply for an IRS ruling or not?

I'm working with an individually designed SEP that has a non-standard definition of compensation, but I'm confident the definition satisfies Code § 414(s) & regulations. Of course, an IRS ruling on it (& the plan) would be the most conservative route. Before I discuss with the employer whether to spend the money on a ruling, though, I'd like to know what other individually designed plans are doing.