I am getting conflicting information and I was hoping someone could help demystify theexcise tax on funding deficiences. My background is in DC administratioin so I am very green with DB issues. I am wanting some insight or a cite that tells me if the % is 5 or 10 and how it relates to the single and Multi employer. I read 10% in some places and 5% in another. I am not sure if I was reading outdated information because the regs have changed.

Any help would be greatly appreciated.

There are many situations with daily valued plans where a distribution is made and then dividends or other earnings become payable later. This can happen when a plan changes recordkeepers or when a plan terminates. For example assume that the plan transfers assets either to all participants or to a new recordkeeper. When the check for additional earnings comes in, it is for such a small amount that participants would be entitled to either less than $10 or $1. If a participant terminates and receives a lump sum, the receipt of the additional check would require the plan administrator to chase after the former employee and pay it to him/her. These small earnings checks are recurring and the administrative burden of both allocating the earnings and attempting to pay them to participants substantially exceeds the dollar amount of these checks. What are recordkeepers and plan administrators doing in this situation?

I always thought in order for a plan to be considered a 412(i) plan, the plan must be funded solely with whole life insurance products. But now an insurance guy is suggesting that if the plan has only fixed income individual annuities via an insurance company, that can be considered as meeting 412(i). This doesn't sound right, does it??? It has to be life insurance, right?

H & W get divorced. A DRO in good form is issued and processed as a QDRO. It turns out as part of the DRO W gets 1/2 the building where H's business is located. H does not have the money to buy her out. H & W now want to go back to court & get a 2nd DRO. The DRO will give additional retirement plan money to W; H will get building flat out.

1. Assuming subsequent DRO is drafted carefully and has a provision just allocating additional retiement plan money to W & has a separate provision giving entire building to H; does anybody see a problem?

2. Lets says DRO not drafted quite as carefully (We do not draft DRO's, just help the plan sponsor apply plan's QDRO rules); assume it says W gets $xxx amount from retirement plan in return for her 1/2 interest in building. Does anybody see a problem?

I'm a little uneasy about this situation. I don't really see a problem with #1, but I'm not so sure if they come back with #2.

Thanks for any guidance.

I have a situation where a divorce decree was entered granting the former spouse an interest in 1/2 of the participant's account balance. Before the QDRO was completed and entered, the alternate payee died. Does anyone have any idea what to do in this situation. It appears that some courts would hold that the divorce decree created her right in the Plan and some courts would say that the QDRO had to be in place. Assuming the judge will sign a QDRO now, can the Plan pay the 1/2 benefit to the Alternate Payee's estate?

A participant is overpaid in 2003 and this is not corrected until later in 2004. How should this be reported on Schedule I of the 5500 for the 2003 plan year?

I need some ideas on how employers exclude temporary employees (i.e. employed via an agreement with a temporary staffing agency) if the plan has immediate eligibility?

If you exclude them by class (and then define the class in the document) is this still treated as a disguised hours requirement like the exclusion of part-time employees?

Or does it boil down to the fact that temporary employees are not common-law employees of the recipient employer and thus can't be eligible for the plan if the plan only convers common-law EES?

I have been reading and reading but nothing is coming together. Any help is greatly appreciated.

We sent the notice regarding his eligibiity for a distribution under the plan to his last known address but have since learned that he is in prison. A search for the guy on the state's department of corrections web site shows that he is in prison. Do we send the notice to the prison? Has anyone ever encountered this issue? Thanks!

It's my understanding that there are two kinds of 403(b). The kind established & maintained by employer (this kind is an ERISA plan) .... and the kind not established/ maintained by employer (not an ERISA plan).

I'm not sure which of the two types I am dealing with (because I have not yet gathered all the info from employer to enable me to determine if they are ERISA 403(b) or personal 403(b) of employees.

Nevertheless, contribututions are made to these 403(b) through elective deferrals.

The employer and employees want to switch to a 401(k) plan.

The only assets of the 403(b) are mutual funds. No annuity contracts.

My questions:

1) If the 403(b) is an ERISA plan, can it be merged into the new 401(k) ?

2) If the 403(b) is not an ERISA plan, can each employee participant roll his 403(b) assets into the new 401(k)?

Don't know any details yet, not a plan we administer. But apparently a participant died, and the beneficiary of the plan is a trust. Don't know who the trust beneficiary(ies) is/are.

There was stock in the participant's account. Assume for the moment that it was NOT employer stock, and assume a non-spousal beneficiary.

The question was - if the stock is transferred directly to the trust, is there current taxation on the whole amount, the net unrealized appreciation, or nothing whatsoever until stock is sold?

I'd appreciate any thoughts on this. Thanks.

I took over a plan recently and the Form 5500 must be amended for 2002. It is a one man plan, so was eligible to use Form 5500-EZ for 2002 but did not. Can I amend using 5500-EZ?

When counting participants for purposes of applying the small welfare plan filing exception, does 29 CFR 2510.3-3(d) allow you to exclude eligible employees who are not "COVERED" meaning those who: (1) have not met the plan definition of "participant," and (2) are not subject to the occurrence of the contingency for which the benefit is provided--I'm not sure what this means--I assume it means the employee applying for the benefit/requesting reimbursement, etc.; and (3) never make a plan contribution.

I have been appointed by my company to create a disaster recovery plan/business continuity plan. Has anyone had any experience with this? Any recommendations or pieces that you could share?

Does anyone know if the IRS will be issuing an updated 401(a)(9) model amendment soon (or at all) for defined benefit plans?

I gave this a go on the 401(k) board, but no responses, so I'll try here:

Company A maintains a KSOP for itself and its subsidiary, Company B. Participants can direct the investment of their deferrals among several investment funds, including Company A stock. Company matching contributions are initially invested in Company A stock, but participants can redirect those contributions into any other fund.

The company is about to spinoff Company B, which will be an S Corp. After the spinoff, the account of every participant in the plan who is invested in Company A stock will hold shares of Company A and Company B stock. Because Company B stock will no longer be employer securities, and because Company B stock will subject the plan to UBIT, Company A plans to close Company B stock as an investment fund and prohibit plan participants from investing any future contributions in that stock and, over time, the plan will attempt to get rid of its Company B stock. However, it may take a while because of the limited market for Company B stock.

One idea that is being contemplated is for Company B to establish an ESOP, to which the accounts in Company A's plan of the Company B employees will be transferred. As a result of the transfer, both plans will hold stock of both companies. The two plans would then do a "stock swap" (i.e., Company A's plan exchanges Company B stock with Company B's plan for Company A stock of equal value). After the swap, the Company B plan would hold only Company B stock, while the Company A plan would still hold some shares of Company B stock, but fewer than it did before the swap.

A few questions:

1. Because participants have the right to direct their investments, can Company A unilaterally do the stock swap and replace shares of Company B stock in participants' accounts with Company A stock?

2. A similar question with respect to Company B stock remaining in Company A's plan after the stock swap (or all Company B stock if the swap does not occur). Does the participants' right to direct investments impact the ability of the plan to sell Company B stock over time?

I realize that an investment fund is not a protected benefit and a plan sponsor can eliminate a fund whenever it deems it necessary, but in most cases, the fund being replaced is a mutual fund, and the replacement can be done on a single day. Just curious as to how the gradual phase-out of Company B stock can/should be done.

Any thoughts?

I had a few questions about the JOBS/AJCA bills.

(1) If an employer maintains more than one account based qualified plan and only allows participant direction on some of them, do you think that the investment options for the non-qualified plans are limited to the shortest list for all of the account based plans or the shortest list for participant directed plans?

(2) If an employer has a fiscal year that starts in either the last week of December or the first week of January (e.g., ending on the sunday closest to 12/31) and adopts a bonus plan based on that fiscal year, for a bonus earned for a fiscal year that starts in December year 1 and would otherwise pays out in year 3, must the deferral election be made (a) prior to 12/31 of year 0 or (b) prior to the start of the fiscal year in year 1.

(3) If distribution elections may only be changed if the change is not effective for 12 months and defers payment for at least 5 years, may a plan permit a change to the form of payment that does not push out the payment commencement date. For example, if a participant has elected quarterly installments over 10 years, may he change his election (more than a year in advance) to elect either a lump sum or installments commencing at the same time but paid over 20 years.

(4) May a plan continue to provide for accelerated payout on plan termination?

(5) May an employee who is promoted into an eligible classification during the year still elect to defer a bonus attirbutable to service both before and after the date of promotion if the election is made within 30 days of becoming eligible?

We have a plan that had a group of employee's become unionized 1/1/2004. The plan had no other union ee's in the previous year. The question is, since the plan uses the prior year NHCE %'s, what percentage would we use when teting ADP/ACP? I am thinking the 3.0 for both ADP/ACP, but just wanted to get clarification.

Thanks.

What benefit is it to roll a Roth over as opposed to just putting it in Savings or spending it. Thanks, Bob

We have a client who would like to set up a cafeteria plan for it's employees. They are a C-Corp with only 2 employees. Both employees are owners. Can we set up the plan for them even though there are no other non-key employees? Do we have to perform testing since there are no other non-key employees?

When counting participants for purposes of applying the small welfare plan filing exception, does 29 CFR 2510.3-3(d) allow you to exclude eligible employees who are not "COVERED" meaning those who: (1) have not met the plan definition of "participant," and (2) are not subject to the occurrence of the contingency for which the benefit is provided--I'm not sure what this means--I assume it means the employee applying for the benefit/requesting reimbursement, etc.; and (3) never make a plan contribution.

EBIA seems to think 2510.3-3(d) limits those eligible employees counted to "covered participants" -- ERISA Complioance volume p. 574.