A spouse beneficiary is under the age of 50 and elects to keep their spouses money in a separate account in their spouses' 401k plan. If they make a distribution a few years later will the premature distribution penalty apply? Thanks for all your help!!

I have a 1-person Keogh (sole proprietor) plan, not covered by the PBGC. This is a Fidelity Prototype plan. Normally, for a DB plan termination, we amend the plan document and submit to the IRS for a determination. I am assuming that Fidelity handles thousands of this type of plan and is equipped to do this.

1) I am planning on instructing our client to tell Fidelity to terminate this plan (since that is his wish) - I am assuming that this is all that I need to do for the termination (except for (2) below)? Anyone have any experience with this?

2) The owner is looking to roll the money into an IRA. What happens if the present value of the accrued benefit is 1) overfunded, or 2) underfunded? If underfunded, it would seem silly for him to contribute money in order to fund the plan just to get it right back. If overfunded, are there any problems?

Thanks for any input.

I've got an employer that sponsors two separate 401(k) plans. Each plan satisfies 410(b) and all other tests separately (i.e., aggregation is not required). The employer wants to make a 3% non-elective safe harbor election with respect to one, but not the other, plan. Employees participate in one plan or the other; no one participates in more than one plan.

I know you couldn't make catch-up contributions available in one plan only, but it seems to me you can limit a safe harbor to the participants who are eligible in just one of the plans.

Along the same lines, do you think that one plan could be cross tested and the other not?

Any thoughts?

I believe the IRS has gone on the record to say that a sponsor can end a 3% non-elective safe harbor committment Before the end of a 12 month plan year if the sponsor terminates the plan. I've got someone proposing to terminate such a plan and immediately replace it with 401(k) plan that does not have a safe harbor.

I can't believe this is possible. There must be a rule prohibiting a successor plan. Can any one cite an IRS pronouncement on terminating safe harbor elections and prohibiting successor plans? If you can, can you also tell me what a successor plan is? For example, would that be any plan adopted within 12 months?

Thank you.

Client made a 72t election and was paid for 3 years. He then changed IRA custodians who didn't set up his annual 72t distribution. 2 years have gone by without a distribution. He is not 59 1/2 until 3/2008. Anyone have experience with IRS on this type situation? Should he just go ahead and pay the 10% tax (and interest) on the 3 years of distributions, or is there another way to handle w/ IRS?

Has anyone seen a plan document that defines spouse? If so, how has it been defined? Does anyone think it's a good idea to define it?

Welfare Plan Filings

Original Plan year is 6/1/03 - 5/31/04

Amending to change plan year as 7/1/04 - 6/31/05

Policy year is also changing w/insurance providers at 7/1/04

File a 5500 for 6/1/03 - 5/31/04

File a Short Plan Year 5500 from 6/1/04 - 6/31/04

File new 5500 from 7/1/04 - 6/30/05

Can you verify for me those are the 5500's that need to be completed???

Also, what would I request from the insurance providers for the Short Year?? Would I request just policy coverage during that time period in the month of June, 2004???

Can someone give me some feedback!!!

Thanks

DB Plan. Owner, Owners Wife and one employee. Part of the business was sold and the employee was involuntarily terminated and paid 100% vested lump sum in April 2004. The plan year ends 8/31/04. The plan is ongoing. The owner wants to amend the plan now to increase benefits. Would that be a problem? It just seems like something that smells bad to let the only rank and file ee go, pay her out, and then amend the plan to increase benefits to the owners. Thanks in advance for any advice/information.

In a 401(k) plan that has J & S annuity rules, is spousal consent required in the following situation: Participant balance is over $5,000 with no current outstanding loan balance - participant requested a loan for $2,000. My question is whether the loan amount has to be over $5,000 to require spousal consent or is spousal consent required for all loans where the participant balance is over $5,000?

Thank you.

Can a VEBA sponsored by an employer to provide funds for employee health costs contribute funds to employees' HSAs?

Owner 1 has 98% of Company A which is a holding company with no employees. Company A owns 85% of Company B which has less than 50 employees and is a new business to Owner 1/Comp. A. Company B was ready to set up a Safe Harbor 401(k) until it was discovered it was part of a controlled group.

Owner 1 owns 85% of Company C which manages apt. communities. It has 150-200 mostly lower paid employees.

Owner 1 also owns 99% of Company D which provides investment and acctg. services. Company D is a "family office" that has about 20 employees some of which are HCEs. They also have the following 401(k): one year of service, two entry dates, match of 100% up to first 1.5% deferred, 3 year vesting.

Company D wants to exclude Company C from the plan under QSLOB rules and improve the 401(k) it currently provides by possibly adding safe harbor provisions.

Since Company C has at least 50 employees, I believe it may be able to be tested separately under Sec 414®, but i do not feel it can be excluded altogether. I am of the opinion and to make administration as easy as possible and avoid problems(minimum coverage, contribution limits, ADP/ACP), that if they incorporate individual plans, each plans provisions should mirror the other.

Am i missing something? Company B who was ready to set up a Safe Harbor wanted shorter eligibility, quarterly entry, etc for its plan. now, that plan is on hold. Also, and i am not 100% sure, but I do not think Company D's 401(k) has been offered to Company C.

Any opinions?

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?