Company A maintains a 401k profit sharing plan. The PS is discretionary. There is a group of 8 employees (managers) that the company would like to give an additional 3% ps contribution on top of the 2% it will give to all employees. All 8 of the "special" group are NHCE's although it is possbile that one or more may become HCE in the future. There is no way to know at the moment as compensation includes commissions.

Someone confirm for me that this is ok to do. I guess we need to name those specific people in the resolution stating this year's ps contribution.

Any comments?

Client has discovered that over the years it has been mis-counting the number of participants in its self-insured health plan. (Essentially it has not been counting a small group of part-time individuals who participate by taking limited hospital discount benefits under the plan because they are not eligible for the major medical portion.)

The actual number of participants is not material to the filing in the sense that the plan has always been well over 100 and has been keeping up with annual filing.

My inclination is to correct the error going forward but not worry about trying to come up with correction figures and amending the returns.

As anyone had any experience with discovering filing information errors that are insignificant or de minimus?

Existing MP plan with 1-year eligibility with rich formula with mostly doctors but a few employees. There is enough room under 25% deduction cap (404(a)(7) to add-on a modest DB plan for doctors only and still pass 401(a)(26), 410(b), and "maybe" 401(a)(4) depending on response to this quiry. The doctors would like the DB plan to have a 2-year wait to delay newly hired physicians into the plan. If both plan have different waiting periods can I still aggregate plans for 401(a)(4) general test for discrimination ? If so, do I use the 2-year wait and treat benefits earned before the 2-year wait (under the MP plan) as a disaggregated plan ? Thanks for any thoughts/opinions.

In the process of a 1/1/05 restatement, client wants to change the plan name to make it more descriptive.

Can we just start using the new name for 2005 filings without further explanation (employer name, plan number, etc still all the same)

I don't see anywhere on the Form 5500 to note that the name has changed.

Corp A is owned 100% by Owner A who is the sole owner and employee, who up until August of 2004 was also a 70% owner of LLC A. LLC A sponsors a 401k plan, to which no employer contributions have been made for 2004, including match. Owner A, who now does not have any ownership in LLC A, but is still the CEO, would like to set up a DB plan for 2004 for Corp A. This info may be a little vague, but its a start. Are there any controlled group or plan aggregation issues that would keep Owner A from setting up a DB plan for Corp A for 2004?? Thanks.

Hi everyone,

I was hoping that somewhere out there among all your expertise I would find an answer to this!

I have a 401k plan that terminated late 2003. Client has yet to pay out a few people. The one in particular I am worried about is a participant - still local - with a balance over 5,000. Distribution packets including special tax notice have been mailed and never returned.

The client knows the participant still lives there, they just won't respond. It is necessary to pay them out ASAP. All others are small balances that can be easily dealt with.

Any suggestions or anyone else know about anything the IRS will NOT approve? Our approach is that the spousal consent over 5,000 was not made to hold up a plan termination and perhaps an IRA rollover would be acceptable under a plan audit, if that ever may happen?

Thanks for any advice you can give.

Vicki

Corp A is owned 100% by Owner A who is the sole owner and employee, who up until August of 2004 was also a 70% owner of LLC A. LLC A sponsors a 401k plan, to which no employer contributions have been made for 2004, including match. Owner A, who now does not have any ownership in LLC A, but is still the CEO, would like to set up a DB plan for 2004 for Corp A. This info may be a little vague, but its a start. Are there any controlled group or plan aggregation issues that would keep Owner A from setting up a DB plan for Corp A for 2004?? Thanks.

Company has insured medical coverage available to all employees. Company pays premium for single coverage, employee's pay additional for family coverage thru 125 plan. Company also reimburses employees for medical claims until the insurance policy deductibles are met.

Question, can the nondiscrimination testing for the self-insured portion be limited to only those employees participating in the insured product? Many of the NHCE's have chosen to take family coverage through their spouse's plans. If they can be excluded on the basis that they chose not to participate in the insured portion there is no problem. If they cannot be excluded on that basis, there is a problem.

Any help is appreciated.

Can someone advise me on what is considered ok to reimburse for meals? From what I have read, I understand it to be only meals at a hospital or medical facility. I know in the past our company allowed meals at restaurants and such, but according to Pub 502 it doesn't include any of that. Grateful for any guidance I can get on this.

I would also appreciate thoughts and clarification regarding coverage of severance plans or severance arrangements under 409A and Notice 2005-1. Unfortunately, the discussion in Q&A-19(d) does not add much clarification to me on what arrangements are clearly covered or what is required of covered arrangements.

For example, assume a company provides, either under an employment agreement or an executive severance plan, the continuation of an involuntarily terminated employee's salary for a period of 18 months. Assume the benefits are provided to key employees among other non-union employees involuntarily terminated in a Reduction in Force so the transition relief provided in Q&A-19(d) is not applicable.

For cash-flow reasons, the company is forced to make the severance payments on a monthly basis rather than provide the severed employee 18 months of severance benefits in a lump sum upon termination. In this case, the employee arguably has a legally binding right during a taxable year to "compensation" that has not been actually or constructively received and included in gross income, and that, pursuant to the terms of the agreement is payable to the employee in a later year. The severance amounts cannot be unilateraly reduced or eliminated by the employer. I assume this arrangement constitutes a "deferral of compensation" under Notice 2005-1, Q&A-4?

If so, what does 409A require? The payouts of these severance amounts are to be made on a fixed schedule--basically at the time monthly payroll is paid to active employees so there will be 18 checks paid out to the terminated employee over the next 18 months. There is no option for the terminated employee to accelerate distribution of these amounts. The terminated employee never made an "election" with respect to such severance benefits except to sign the initial employment agreement and/or any general release required. The amounts are not funded so the rabbi trust and offshore rules are not applicable.

Assuming the above-described arrangement is subject to 409A, does it really need to be amended to comply with the new rules? Are there issues that I am missing. If the employer is publicly traded, would the 6-month delay on distributions to Key Employees apply to "distributions" of severance benefits as well? Doesn't that in many cases defeat the whole purpose of offering the severance benefits. Also, what if the severance benefits are all to be paid out in the same taxable year--say over 6 months--would that avoid 409A? What if it is only a 6-month payout but it starts at the end of one year and finishes early the next year--different result?

Any thoughts would be appreciated.

I realize this has been discussed many times, but I couldn't (easily) find a full, definitive answer to how this works. (I have not worked with small plans before.)

A PBGC-covered plan only has the owner left (closing down business at retirement, everyone else has been paid out at termination of employment). It is underfunded and doesn't want to contribute anything.

I understand they can sign some type of waiver. Who is this going to? Isn't this just to let the PBGC know that all benefit liabilities have been satisfied? What happens when the IRS finds out the plan was terminated and not all accrued benefits were paid?

I am confused as to what i has been dotted and t has been crossed (or not dotted and not crossed), with open liability (to the actuary or TPA) still hanging out there.

This is more in the realm of executive compensation than some of the other posts with regard to Notice 2005-1 but I am curious about everyone's thoughts on curing discounted stock options. I cannot say I found the broad definition of deferred compensation or the lack of grandfathering for previously granted but unvested discounted options a surprise given earlier IRS discussions but I think it is unfair to loop in unvested discounted options granted before 2005. Okay if you want to do away with that going forward but rewriting the rules for previously granted options raises a lot of questions and concerns.

I also appreciate the IRS allowing us to cure this by letting companies reissue options as fair market value options and giving us until the end of 2005 to get that done but am curious if others have thought of other alternatives that cure this problem without setting a fixed exercise / distribution date. Also, is there any variation on the general rule in Q&A-18(d) where the current stock price is less than the FMV of the shares at the time of grant? Is there any consideration for discounted options held by executives in very thinly traded companies that are not able to immediately sell all their shares received from options, etc?

I see the distinction the Service draws between stock-settled SARs and discounted options but it seems highly unfair for individuals with discounts on options (some not that great) to be so heavily penalized compared to SARs that in many ways equate to 100% discounted options.

A DB plan was terminated in mid-2004 and the lump sum distributions were calculated as the present value of accrued benefits as of November 30, 2004 (the assumed distribution date) using an interest rate of 5.07%.

One participant has not signed the application for benefits and that person's distribution is going to slip into 2005.

Question: Will that person's lump sum distribution change? If so, how? In particular,

(a) Will the interest rate used to calculate the equivalent present value change? If so, how will the new rate be determined?

(b) Will the assumed date for distribution change?

© That person's benefit at retirement was at the allowed maximum of $165,000. Will the distribution in 2005 be adjusted to reflect the increase in the allowed maximum of $170,000?

(d) Are there any other changes?

Thank you.

Just checking...the fact that a participant defaulted on a 401(k) loan does not impact his ability to take a hardship withdrawal. Any feedback?

I have always understood from all the books I have read on the topic, that the beneficiary may aggregate RMD for inherited IRAs from the same decedent...But a poster at another forum indicated that one financial institution has indicated that the aggregation rule does not apply if the IRA owner dies on or after the RBD. §1.408-8 Q&A 9 seems to suggest that this is correct, as it states in part “…However, amounts in IRAs that an individual holds as a beneficiary of the same decedent and which are being distributed under the life expectancy rule in section 401(a)(9)(B)(iii) or (iv) may be aggregated, but such amounts may not be aggregated with amounts held in IRAs that the individual holds as the IRA owner or as the beneficiary of another decedent.”

The question then becomes, “ why does it appear that aggregation is limited to 401(a)(9)(B)(iii) or (iv), which applies to the life expectancy option when the participant died before the RBD? And does not appear to include 401(a)(9)(B)(i) which applies to when the participant died on or after the RBD?”

Am I missing something?

Clients often like to use pension assets to purchase real estate. They ask whose name can be put on the loan application, since they cannot get a loan to the pension plan.

Is there any reason why a participant/owner/trustee cannot use his name on the loan app., assuming the investment is otherwise purely for the pension plan?

Same question for an employee/non-owner/participant?

Thanks.

ABC Construction is a Chapter S Corporation formed by two brothers.

They also have 50/50 ownership in an LLC with several holdings:

An Equipment Leasing Company that leases to ABC.

A Holding Company that handles management of their 65% ownership in a product they import and that holds 100% interest in the trademark for that product.

A Distribution Company that handles the distribution and sales of the import.

Would the employees of the LLC have to be included in the Profit Sharing Plan of ABC?

Can they establish a separate profit sharing plan for the LLC?

I am seeking confirmation on the following:

Part 1.

A DB plan offers a disability benefit to a participant who

has not yet attained NRA. This benefit is "auxiliary" meaning

the receipt of the disability payments do not affect the participant's

right to his vested, accrued benefit at NRA. In other words, the

normal retirement benefit will be the same regardless of

whether he received a disability benefit or not.

As an auxiliary benefit, my understanding is that the

plan is not required to make payment in the form

of a QJSA. The spouse of the disabled participant is

protected by the QPSA rules. Is this correct?

Part 2.

(Same facts as above except that participant is single when he

becomes disabled.)

If a single participant marries while receiving an auxiliary disability

benefit, the spouse can earn a right to the QPSA or QJSA

by being married for 1 year prior to the annuity start date.

Is this correct?

In some states, divorce automatically revokes a beneficiary designation, where the former spouse was the designated beneficiary. I think CA and Illinois are two such states.

…anyone know the rules for Pennsylvania?