Due to the ADP test, excess contributions & earnings (>$100) were returned to the employee prior to 3/15/05. My understanding is that these are taxable in 2004 even though no 1099-R will be issued until January 2006. The difficulty is that the check stub accompanying the returned contribution shows 30% FITW. How do I report the withholding for 2004 without a substantiating IRS form?

I have a situation where six people that all quit the same company and started their own. They also brought two NHCEs over with them. They are ready to start a retirement plan and they wish to make everyone 100% vested as of the effective date of the document. My problem is that my prototype will not accomodate this. Now, if I design the plan to count all service with the company they were all formerly employed by, I could get by this. My question is would I have any discrimination problems with this design.

Also, I am going to assume they will want to amend the plan in the near future to eliminate prospectively the provision in regards to the service with the prior employer.

All thoughts and comments are appreciated.

The trustee has received an IRS levy on a participant's 401(k) account balance. The participant had rolled over to this plan a large balance from previous employer's plan. The document allows for withdrawals of rollover contributions at any time. The employee has agreed to the levy in order to stop additional interest and penalties from accruing on the amount due IRS. Is this distribution subject to the mandatory 20% withholding?

I am working on a plan with 2 owners and 6 NHCEs. Each owner has a 2003 hire date, and the NHCEs all have 2004 hire dates. If all of the NHCEs are excludable employees, is it true that they do not need to receive a PS contribution if the plan is disaggregated?

This plan has a safe harbor match, & no other non-elective contributions.

Thanks!

Small business owner adopted MPPP when he was the only employee and adopted a benefit formula equal to the lesser of 25% of compensation or $40,000. Great for when he was the only employee, not so great when he hired 3 new employees and did not know that he needed to contribute for them as well. I have looked through EPCRS and understand what the standardized correction should be, ie contributions for the excluded employees plus interest. However, his payroll for these 3 employees is $100,000 - he will not be able to finance this. Has anyone seen any provisions that may suggest that there is sometype of other correction available?

Regardless of actual ownership.... Wife is considered an HCE due to attribution.... right?

My client X sold the assets of its subsidiary Y to an unrelated buyer Z and spun off a portion of X's 401(k) plan attributable to Y's participation in that plan to an identical new 401(k) plan established by Z. This happened on August 1 of 2004. In performing the 2004 ADP for X's plan (prior year testing is used), I believe X needs to include deferrals made to its plan through August 1, 2004 by HCEs who were spun off to the buyer's plan. The ADP test for X's plan fails. How can we return excess contributions attributable to the HCEs whose accounts were spun off to Z's plan if we don't have any of their money in our plan? Since Z will be testing only for deferrals made under its new plan, should it care about our testing problems? I don't see how we can force Z to make a distribution of excess contributions from its plan to help our ADP problem, unless we can argue that not all of the monies transferred to the Z's plan in the spinoff were qualified dollars (because they exceeded the ADP limits and had to be distributed to the HCEs), and thus Z's plan needs to distribute these dollars attributable to excess contributions to preserve its own qualification. Has anyone ever dealt with this situation? I do not think the Notice 98-1 provisions on plan coverage changes (which are also included in the final regs) are relevant. My client could ignore the HCEs who were spun off in performing its ADP test (very dubious) or ignore this group of HCEs in making the refunds of excess contributions to the remaining HCEs (equally dubious). I am leaning toward writing to Z and explaining that it needs to distribute the calculated amounts of excess contributions (and interest) from its plan to preserve the qualification of its plan. I would appreciate any thoughts. Thanks.

Can the Trustees of the plan use plan assets to pay consulting fees.

Example: A consultant wants to examine the plan for a fee and the consultant said just use the plan assets to pay me. The consultants objective is to reduce plan costs to participants (ie. Lower expense ratios (costs) ) The consultant said take the money from participants accounts on a pro-rata basis, because expense ratios do the same thing. He went on to say if he couldn't show us how to reduce the costs by at least the amount of the fee that he would refund the money back to the plan.

Is it legal to use the assets in this way, if it will ultimately save the participants money? Is there IRS Code where this is explained? Can you put the money back?

Client acquired frozen defined benefit plan and subsequently amended the plan for current law, terminated the plan (board action as well as appropriate IRS and PBGC filings) and distributed benefits to participants. It has now been several years, and the Plan's trust still contains residual assets. The Plan has not been timely amended for EGTRRA, but client has, however, been timely filing IRS Form 5500. Client is contemplating either (1) taking the reversion or (2) merging the Plan with one of their current plans. If they decide to merge the Plan, must they amend the Plan for EGRRRA as well as file under VCP as a late EGTRRA amender (which requires a contemporaneous determination letter filing) to avoid risk of tainting current plan?

We normally deal with pretty small plan sponsors and when distributions occur, our clients typically use an 8109 coupon to forward withheld taxes, usually with their bank. But recently an accountant told us that one of his clients got a $500 fine for not sending this repayment electronically, although the amount was correct and the timing was fine. Does anyone have any further information on whether electronic filing is now required?

Employee is promoted. Changes from one union affiliation to another. Original union provided 100% reimbursement of family health premium. New union provides 80% reimbursement, resulting in employee cost of approx. $180 per month for same plan. Employee wants to drop dependent coverage because of the new out-of-pocket cost. (Dependent has long-standing other coverage in place.) No change in plan eligibility has occurred, just employer reimbursement.

Would you permit employee to drop dependent due to "significant change in cost"?

The accrued benefit of a participant is $6,000. The participant names two beneficiaries and dies. Can the amount payable to each beneficiary, $3,000, be automatically cashed out?

I understand that I can withdraw money from a Roth IRA for college expenses. I just want to clarify a couple things. Does the person using the $$ for college expenses have to be me or can I use it for one of my kids? Also, is this a penalty free withdrawl or do I have to pay the 10% of earnings fee (I'll be under 59 1/2 when I do the withdrawl)?

ASPPA lists The Pension Answer Book by Stephen J. Krass as recommended (not required) reading for its Pension Administrator courses, which are pat of its QKA designation. At $200 per copy, thought I'd see what others think of the book before buying. Any opinions?

My mother unfortunately failed to received certain survivor benefits due her after the death of her husband. After we noticed this "oversight" the employer made a lump-sum payment to her of about $70,000. According to the IRS we can account for this using the special rules for 10-year averaging (she qualifies). However this would result in a tax due of about $9,000, whereas if she had received the survivor benefits payments on a timely bases (monthly) she would have had no tax liability (i.e., her income would fall below the minimum). Somehow this does not seem reasonable. Is there any provision in which we could "recast" her income into prior years due to "reasonable error?"

- Andy

My mother unfortunately has failed to received certain survivor benefits due her after the death of her husband. After we noticed this "oversight" the employer made a lump-sum payment to her of about $70,000. According to the IRS we can account for this using the special rules for 10-year averaging (she qualifies). However this would result in a tax due of about $9,000, whereas if she had received the survivor benefits payments on a timely bases (monthly) she would have had no tax liability (i.e., her income would fall below the minimum). Somehow this does not seem reasonable. Is there any provision in which we could "recast" her income into prior years due to "reasonable error?"

- Andy

Can you still make a prior year contribution to a Roth IRA until April 15, 2005, if you file your tax return before the April 15th deadline?

On Dec. 28, 2004, having previously taken my 2004 MRD, I did a direct trustee-to-trustee rollover from my Keogh account at a bank to a rollover IRA at an investment firm, which at the time had only a small prior balance.

The Keogh now shows a 12/31/04 balance of zero.

However the investment house did not receive the funds and credit them till the first week of Jan, 2005. Therefore the IRA also only shows a very small 12/31/04 balance, which does not reflect the larger amount transferred in.

How do I calculate the 2005 MRD due from this IRA? Do I add the transferred amount back to the bank Keogh, or do I take a MRD from the IRA as if the total had in fact been present on 12/31/04?

Thanks for your help.

I am reviewing calculations for an acquaintance who is employed by a school district. This school district's DB plan allows the participant to purchase additional benefit service for military service that happened PRIOR to his employment by the district. When I told him to check it out, I assumed that the cost of the additional accruals would be in line with the value of those additional benefits, or even that he would get a break because of his service to the country.

He just got the "bid", and we were both surprised by the results. I calculated a value at 65 of the additional benefit of approximately $40,000, and a value today of that deferred benefit of approximately $16,000. The cost that they are quoting him is over $75,000.

So my question is whether anyone has experience with a situation like this, and if so do these numbers seem reasonable?

RCK

During the GUST restatment process we included a "default" $5,000 cash out level

for our prototype plans. The corbel ammendment package allows the document sponsor to 1.) keep the $5,000 threshold andprocess automatic IRA rollovers, reduce or eliminate the provision. Only one may be chosen at the prototpye sponsor level. Our initial impression was to keep the $5000 threshold as our sponsor level amendment but we are begining to think that this will require us to be proactive with our clients on this issue and do more "unpaid" work. What are others thinking in relation to adminstrative complexity?