An LLC maintains a cross-tested & 401(k) plan. The LLC employs about 10 employees who are plan participants along with the two members, who are husband and wife and who each own 50% of the LLC ownership interests.

I would appreciate confirmation on the correct manner in which to calculate the two members' EBARs for calendar 2003. Specifically, I am questioning the "compensation" amount that should be used for the two members.

I suspect that I start off with each member's 50% distributive share of the LLC's income, as adjusted under Sec. 1402(a). Then, pursuant to Sec. 401©(2)(v) and (iv), I reduce this amount by:

(v) the deduction allowed for one-half the SE tax paid by each such member; and

(vi) the deductions allowed by Sec. 404 to the taxpayer.

Assuming this is correct so far, in arriving at "earned income," do I reduce the owner's distributive share of LLC income by the ENTIRE amount of deductible contributions made to the plan? OR only the amount that is allocated to each such member?

If the reduction is for the ENTIRE amount, does this include 401(k) deferrals?

RELATED QUESTIONS:

For purposes of the deductibility limitation of Sec. 404(a)(3), which limits the deductibility of profit sharing contributions to 25% of compensation paid to the participants ---

1. Does this same "earned income" amount get added to the compensation paid to the plan participants?

2. Are the LLC members subject to a separate deductibilty limitation equal to 25% of their individual "earned income" amount?

Thanks for the help. It's appreciated.

It's my understanding when a plan offers employer securities and allows a participant to use deferral money to invest in the employer securities, the plan is no longer exempt from registration under the 1933 Act. True? Citations? I've seen info under 17CFR230, Reg C, and Form s-8 that suggest it's true, but I'm looking for definitive cite/rules.

Thanks.

We have a client with a 401(k) PS plan. The plan originally years ago had a post-tax provision. The plan has changed providers several times over the years and the post-tax information has been lost. The current record keeper has their post-tax balance but has no idea what was contributed at any time to this source.

My question is.... has anyone ever run into this situation, and if so how did you handle it.

I know from my past conversion experience, if the prior provider was unable to supply certain data the client signed a letter stating they were responsible to supply said data at the time it was needed. Obviously this is not the case here.

Any help would be great.

Thanks

I am using a Volume Submitter document for a 401(k) Plan. The Plan currently has a discretionary profit sharing provision with a vesting schedule of 100% (full and immediate). The Client would like to restate to add a discretionary match provision. However, they want to use the 2/20 vesting schedule. Does anyone see any problem with restating to add the match and subject it to a different schedule? I know that it could be done if I was preparing a new document and providing both features with different schedules (at the same time).

Client has told us about a Keogh plan that was established in 1987. The plan covered the owner and one employee. Client "terminated" the Keogh in 2003 and transferred all assets to an IRA in 2004. Their broker has told them to file a final 5500 on the Keogh. It does not appear that the client EVER filed any 5500s. With that being the case, should they file a final one now? If so, wouldn't it be a first and a final?

I have been asked to amend the 5500 for 1999 - 2002 for an off calendar plan year. The sponsor/employer's EIN changed, and they never notified us about it. They have been advised to amend the 5500 to show the correct EIN. My problem is that last month, they moved. Which address should I put on the amended returns, their address that they had at the time (their old address), or their current address?

Medical plan is self-insured. It has only 5 participants. Monthy $amounts are withheld from each participant's salary ... which are kept in employer's checking account to help pay future medical bills for participants. The withholdings are small compared to the medical bills that the employer pays.

I would think that the plan has to file a 5500 for this welfare benefit plan, because although the plan has fewer than 100 participants ... the plan is NOT unfunded.

According to 5500 instructions ... "NOT unfunded" also means when the plan receives contributions from participants.

It is just hard for me to believe that ERISA requires a medical plan with just 5 participants to file a 5500, no matter what the circumstances are. What am I missing here ?

How can the plan prepare/file a Schedule I, if the plan has no assets? The medical bills are paid directly from the employer's checking account.

Plan testing was done incorrectly, which exacerbated the ADP and ACP failure, and 2 H/C received refunds of about $400.00 each. Plan would have failed ADP and ACP anyway, but correct refund amount should have been more like $150.00 each.

What's the proper correction for this? I don't find anything in Rev. Proc. 2003-44 that really addresses this situation. The H/C don't care, and want to just leave it alone. They have already filed taxes for 2003, both individual and corporate. While this is certainly a simple solution, I'm not comfortable that it is the correct solution. Would appreciate thoughts on how you might handle this? Thanks!

I am in the HR department of an organization that is part of a controlled group of employers. We exclude several of our affiliates from participation in our defined benefit plan. These excluded affiliates are composed primarily of home health care workers that usually work < 1000 hrs/yr. There are no HCEs employed with the excluded affiliates. We also exclude people that are categorized as "per diem" employees - if you are expected to work less than 80 hours a month then you are categorized as per diem within our organization (per diem employees general receive a very limited benefits package). Otherwise, eligibility is age 21 and one year of service based on elapsed time, and you enter 12 months after your hire date (or attainment of age 21 if later). There are no additional accrual requirements once eligibility is met

Our actuaries use a "snap shot testing date" for coverage testing purposes with the snap shot date being the last day of the plan year. As such, the payroll data supplied for coverage testing purposes is only those people employed on 12/31 of any given year. My interpretation from the ERISA Outline Book is that if you use the snap shot testing date, you shouldn't use the last day of the year so as to avoid unfairly carving out people who terminated within the year.

My opinion is that we are materially skewing our testing results to pass coverage testing. We are carving out all terminated people regardless of hours worked, and the majority of the people that do terminate within the year are with the excluded affiliates or the per diem employees. Are our actuaries performing coverage testing correctly?

Copying from the Pension Answer Book, I see that, from the denominator, you can exclude union employees only if 90% of all employees are covered by the CBA.

My question is, "How do you determine the total # of employees?" Would it be all individuals that performed an hour of service during the plan year?

6. Employees who are covered by a collective bargaining agreement. This exclusion applies, however, only if 90 percent or more of the employees are covered under collective bargaining agreements and the plan does not benefit employees covered under such agreements.

Thanks

We have terminated an employee for stealing from the company. However prior to his termination, he met the eligibility conditions for our retiree medical plan. The retiree medical plan does not contain language currently permitting us to deny him coverage due to his gross misconduct. Is there any way we can deny him coverage?

I remember seeing a PLR or GCM that stated proceeds from a class action suit or similar settlement involving the investment within a plan may be deposited in the plan without being considered a contribution. I did find the PLRs regarding restoratiive payments from employers but I'm unable to find any regarding class actions regarding investments etc. This particular case involves an investment within an IRA.

Thanks for any information that you have.

what are the ramifications if a participant over 59 1/2 wants to take a partial distribution of her account? The plan allows for it - it is my understanding that such a distribution is not subject to the 10% early withdrawal penalty - but is it subject to the 20% mandatory withholding? The distribution is taxable as ordinary income and reported on Form 1099-R, is that correct?

Has anyone noticed the little provision in the proposed regs on statutory options that came out last summer that would provide that an option grant is not complete (and hence the date of grant not fixed for purposes of Sections 421 through 424) until the "maximum number of shares that can be purchased under the option and the minimum option price are fixed and determinable"? How would a Section 423 Employee Stock Purchase Plan look-back plan (e.g., price is 85% of lesser of value on grant date or exercise date) be able to work since the minimum option price won't be known until exercise? It almost seems that this means for purposes of Code Section 423's look-back provisions, date of grant would de facto be the date of exercise and the price, holding period, etc. would all have to be keyed off of that date. I haven't seen any commentary on this issue. Any input would be appreciated. Thanks.

Unfortunately, a company with an ESOP is experiencing dire financial woes, and is seriously considering declaring bankruptcy. How will this affect the ESOP shares? What are the duties of the ESOP fiduciaries in connection with the bankruptcy? Should the ESOP fiduciairies cause a mid-year valuation of the shares? If a participant has requested a diversification distribution and such distributions are made in cash (per the ESOP plan document), should the distribution be made even though the prior year's FMV will be used (which is obviously much higher than the bankruptcy value)? Any help would be appreciated.

I have a situation where an individual who was a participant in an FSA both last year and this year incurred a medical expense last year but due to consistent screw ups by her regular health insurance provider never knew how much of the medical expense would be reimbursed (and hence how much of the net cost she had to pay) until this year. While I understand that the rules provide that the FSA reimbursement must be made generally for the year in which the medical care was provided and, thus, it may be too late, there is also a substantiation requirement that would arguably prohibit FSA reimbursement until it is known how much, if any, is reimbursable from another plan. Does anyone think it would be permissible to approve the reimbursement of this participant's claim this year?

Unmarried participant dies and leaves benefit to children. 2 of the beneficiaries are minor children. How do you handle distribution to minors? They obviously can't complete distribution forms.

A DRO for a DC plan gives the AP 50% of P's vested benefits as of a certain date, adjusted for earnings and losses from that date to date of distribution. The DRO does not treat the AP as surviving spouse of P for any reason.

P then dies before the AP receives a distribution.

What is the result if P dies before the plan receives the DRO?

What is the result if P dies after the plan receives the DRO but before the DRO is qualified?

What is the result if P dies after the DRO is qualified (but before the AP takes a distribution)?

What if (1) P never re-married or (2) P re-married and was married at death.

I have the following situation and need assistance in determining whether spousal consent is required for the loan:

401(k) Plan subject to J & S rules

Participant has current outstanding loan balance of $1100 and is taking a second loan for $4900. The second loan by itself is less than $5000 but the second loan will bring the total outstanding loan balance (and accrued benefit used as security for the loans) over $5,000. Is spousal consent required on the second loan?

Any help would be greatly appreciated.

Thank you.

We have a plan we are currently auditing. The client used to work at a large CPA firm and is telling us that the participant loans for the trustee must be broken out and reported separately from all the other participant loans on the schedules to be filed with the Form 5500. We have never done that and it doesn't seem logical if the trustee loan is done according to the plan's loan policy and the trustee is subject to all the same rules as all other participants (no prohibited transaction type action).

What are everyone else's thoughts and do you have a reference you can point me to? I am sure this person will not believe us without proof.

Thanks!