S404(a)(1)(D)(iv) allows a minimum deduction of "... the amount required to make the plan sufficient for benefits liabilities (within the meaning of 4041(d) ....)."

Thus one can deduct an amount equal to the total Plan PVABs (taking into account S417's minimum PVABs) less Plan Assets.

Questions:

1. Must the deduction exactly equal that amount or can it be less, eg. employer does not want to contribute the full amount of the shortfall (owners will take a hit).

E.g. Plan's funding cost is zero in the year of termination and the assets are $150k less than the PVABs. The employer wants to contribute $100k. Is $100k deductible or must the employer contribute $150k to take a deduction.

2. Is this deduction still available, if a plan is covered by the PBGC and the owners signed waivers to make the plan sufficient for PBGC's standard termination purposes?

Is there anything else one should be aware of?

I understand that (1) hardships can be used to purchase a primary residence, (2) hardship withdrawal amounts can be grossed up for taxes and penalties and (3) withholding is optional.

I have a hardship withdrawal on my desk with a Good Faith Estimate indicating that the ee needs to bring $5,480 to home purchase closing. The participant is requesting $8,000 with no withholding. The client is looking to me to bless the amount needed to satisfy the "immediate financial burden". Since no one really knows the tax liability, i.e. tax rate, until the end of the year (except the rich folks, of course) is there any guidance from IRS on the appropriate tax rate to assume when grossing up the hardship distribution for taxes and penalties? I am inclined to recommend 15% plus 10% which would put the actual hardship distribution amount at $7306.67, but I really have no basis for that thinking.

Also, not that I want to make up rules, but it doesn't seem logical that an employee can elect to have the distribution grossed up for taxes and penalties, then turn around and also elect no withholding. Of course, logic is not law or guidance for that matter!

Sal's book says "reasonable".

What would you do?

I have a company that only has two employees. They are both key employees. 2003 is the first plan year. Is the plan automatically deemed to pass the top heavy test? If it is top heavy do they need to make a min. contribution for 2004?

For purposes of determining final average comp, it has always been my understanding that all years in which a participants accrues credited service is counted, even years prior to a break-in-service, if applicable. Suppose an employee accrues credited service in years 1980 through 1995, incurs a break in service from years 1995 through 2001, comes back in 2002 and retires in 2006. The plan's definition for final average pay is the highest 5 out of the last 10 consecutive years. How exactly is final average pay determined in this case? The last 10 consecutive years would put it at 1996, where no comp is earned, so it is just figured on the last 4 years since out of the last 10, those are the only years the participant had compensation?

And will that final average pay apply to all service both pre and post break service? It has always been my understanding that the final average pay will apply to all the service (1980 through 1995 and 2002 through 2006). Any guidance, citation, authority will be greatly appreciated!!

Thanks

For purposes of determining final average comp, it has always been my understanding that all years in which a participants accrues credited service is counted, even years prior to a break-in-service, if applicable. Suppose an employee accrues credited service in years 1980 through 1995, incurs a break in service from years 1995 through 2001, comes back in 2002 and retires in 2006. The plan's definition for final average pay is the highest 5 out of the last 10 consecutive years. How exactly is final average pay determined in this case? The last 10 consecutive years would put it at 1996, where no comp is earned, so it is just figured on the last 4 years since out of the last 10, those are the only years the participant had compensation?

And will that final average pay apply to all service both pre and post break service? It has always been my understanding that the final average pay will apply to all the service (1980 through 1995 and 2002 through 2006). Any guidance, citation, authority will be greatly appreciated!!

Thanks

Our contributory DB plan terminated in 1985. The assets of the plan were distributed to plan participants in accordance with section 4044 of ERISA and the remaining assets reverted to the employer. Subsequently, the mutual life insurance company converted to a stock life insurance company and the demutalization proceeds received as a result of the demutualization remain in escrow.

My question is whether Advisory Opinion 2003-05A applies in this situation in that our plan is a contributory DB plan and if Advisory Opinion 2003-05A does not apply, has anyone made an argument that the market value of the demutualization proceeds at the time of the original reversion was zero and thus the plan participants received all that they were entitled to received under section 4044 and the entire demutualization proceeds can be distributed to the employer?

I was unable to attend the ASPA summer conference but heard through the grapevine that during the IRS Q&A, that question # 6 was going to address the discrimination in BRF when a DB plan with an insured death benefit that covers one group of employees is pared with a DC plan that covers the other employees (no two employees are in both plans).

Would someone who attended the conference tell me the outcome of this discussion?

I have a plan which, in 2003 (I think it was August) switched from being self-trusteed to having an insurance company as trustee.

Can the auditors do a limited-scope audit for the entire plan year? Or do they have to do a full-scope audit for the portion of the year the plan was self-trusteed, and a limited-scope for teh remainer?

I need a bit of help digesting how a frozen plan is able to pass the prior benefit structure test under 401(a)(26).

DB plan covers only owner and wife for many years. Over time, one employee sticks around long enough to meet the plans 2-year eligibility so the plan is frozen and amended to bar new entrants.

Wouldn't this plan fail the prior benefit structure test since only HCEs have accrued benefits?

Thanks for any help.

Any insight is greatly appreciated.

DB plan is very overfunded. Sole participant is no longer accruing additional benefits.

A suggestion has been made to purposefully disqualify the plan by adding plan language to raise/remove the 415 limit and then pay out all plan assets as taxalbe income to the sole participant to avoid the reversion/tax issue.

Thoughts?

Does an employer have to offer the FSA as part of COBRA? We have an employer that uses COBRA serve & they administer the dental & medical. FSA is not offered. An employee terminated & was considering electing FSA under COBRA? How does the FSA & COBRA work together? Any input or advice would be much appreciated!

An IRA holder dies without naming a beneficiary. The documents say that his estate is the beneficiary by default.

If the estate is divided among three children (no survivng spouse), can each of the children--beneficiaries of the estate--set up "inherited IRAs", that is, an IRA in the name of the deceased for the benefit of child x?

I have a client who filed as a large plan in 2002 (133 - Line 6). Line 6 for the 2003 plan year is 108. Can the client switch to a small plan filing? The rules and exceptions, as I understand them, were specifically designed for a plan going from small to large and not the other way so I am having difficulty determinig which way the client must file.

Thanx in advance!

I have a situation in which the investment advisor is telling the plan sponsor that he need personal financial information such as net worth, personal investments, etc. in order to set up accounts at American Funds for new enrollees. Understandably, the new enrollees no longer want to participate. Is this a common practice?

I've reviewed some proposals where we instruct Partners to take their contributions as a ps contribution rather than 401k to avoid SE tax. I can't see where partners contribution is excluded from the SE tax calculation. Can someone confirm that the partners share of the ps contribution does not avoid se taxation? How about an LLC, whose income is reported on a K-1? How about a sole prop? I believe their share of the contribution does not reduce their schedule C income, reported on page 1 of the 1040, thereby incurring S/E tax on their share of the PS contribution amount.

Client wants to take an in-service distribution. Doc says as long as the participant has 60 months of participation it is allowable.

What are the taxes? 20% withholding (Minimum), 10% excise (EE is 57)... am I missing anything?

Tks!

I have an account with 50k in it. 40k invested and 10k is loan #1. We want to re-fi. Let's assume that Loan 1 will be repaid according to it's original schedule in the re-fi.

Is the maximum re-fi loan 20k or 25k?

I understand the "use it or lose it" rule with Section 125 plans. However, I just recently turned in my 2 week's notice at my employer. My boss informed me that on my final paycheck, they will be deducting an addition $180 from my paycheck to bring my total Section 125 allocation up to $480 (what I had originally allocated). I understand that if I don't use the Section 125 money, I lose it...but in this case, the money is not there yet. So, effectively my employer is putting my money into the plan so I will then use it. Has anyone heard of this? Can they do this?

Can the owner waive his benefit in the year the plan terminated for funding purposes? The plan will terminate 9/30/04 and the accruals were frozen 7/1/04.

Thanks, Sue

What disclosure are you giving to rehired employees who have taken a partially vested lump sum payment from a DB plan?

I understand that you don't have to allow payback when the employee was fully vested, but you do have to allow it when a forfeiture of benefits could have resulted.

Any sample wording would be appreciated.