The idea for this came about a few years ago. Someone in the office was running about saying, "The plan needs an EIN, an EIN"

(back when we were making sure all plans had a trust EIN)

Old Macdonald

Old Macdonald had a plan

He needs an E-I-N

And in this plan he has match

E-I E-I-N

There’s a deferral here a deferral there

Here a match, there a match

Everywhere a match match

Old Macdonald had a plan

E-I E-I-N

Old Macdonald ran a scam

I-O I-O-U

And in this scam he stole the dough

I-O I-O-U

Steal a few bucks here steal a few bucks there

Here a buck, there a buck

Everywhere a buck buck

Old Macdonald ran a scam

I-O I-O-U

Old MacDonald is in jail

D-O D-O-L

He hasn’t got a chance of bail

D-O D-O-L

Steal a few bucks here serve a little time there

Here a year there a year

The judge gave him about 20 years

Old MacDonald is in jail

D-O D-O-L

Old MacDonald’s on parole

And living in RIO

He has a big fat Swiss Account

RIO – R-I-O

With a pretty girl here and a pretty girl there

Here a grand there a grand

He’s got about 500 grand

Old MacDonald’s on parole

And living in RIO

Old MacDonald should be alarmed

E-I E-I-O

His former help will do him harm

E-I E-I-O

There’ a gunshot here and a gunshot there

Here a shot there a shot

Everywhere a gunshot

Old MacDonald bought the farm

E-I E-I-O

ooooooooooooooo. my humor is dry.

I didn't attend the session where this was addressed, but an interesting issue was raised at the conference about how many unknown controlled groups might exist. the example given involved a child under age 21. If the parents have separated and both own businesses then a controlled group exists. In fact, technically, it doesn't matter even if there was no marriage. yeh right. how are you going to ask for that on your data request...

do you have any kids that no one is suppossed to know about whose other parent might also own a business?

I think my biggest highlight is to actually meet with some people who respond to this website- even if it is only for a few minutes. It is always great to connect a face with a name . I missed our fearless leader's talk, as I was off moderating another session.

I got a little carried away and actually had fun giving my talk. I don't know if that's permissable or not. even interrupted the talk with a pension song - I'll get the words posted under the humor forum.

Consider a typical Professional Service DB plan not subject to PBGC. The plan is terminated with $800,000 in the trust. Lump sums will be paid and total NHCE lump sums equal $600,000 and the lump sum to the only HCE is $400,000.

Most plan documents say something like: "In the event of termination of this Plan the rights of all affected Participants to benefits then accrued, to the extent funded, shall thereupon become 100% vested."

For the above situation I have always seen it done where the NHCE's get all of their benefit, in this case a total of $600,000 and the HCE gets the remainder of the trust, or $200,000 which in this case represents only half of his benefit.

The above language could lead one to believe that everyone gets 80% of their benefit otherwise payable, i.e. $480,000 to the NHCE's and $320,000 to the HCE.

I seem to remember a private letter ruling from a few years back that said the HCE cannont short himself to make the trust sufficient but I also know that the PBGC will allow certain HCE's to do just this.

Keeping in mind that my example plan is not subject to the PBGC, what is the correct approach in paying benefits from this terminated plan? NHCE's get all their benefit and what remains in the trust goes to the HCE or NHCE's and HCE's all get their benefit to the extent funded?

Also, what if the plan was subject to PBGC (prior to the provision of EGTRRA allowing for funding upon termination). Would we always pay the NHCE's 100% of their benefit and then short the HCE?

I'll buy anyone, who reads this message, a large ham po-boy sandwich from the best sandwich shop in New Orleans - if they can show me any place in Benefits Link which says that ... the only highly compensated employees & the only non-highly compensated employees that are considered when performing the ADP, ACP, and mutiple use tests are those HCEs & NHCEs that meet the eligibility requirements of the plan being tested.

(For example: If employer has 10 HCE and 30 NHCE ... but only 2 of the HCE & 5 of the NHCE meet the 1 year of service & age 21 requirement per the plan documnet ... then the ADP, ACP, & Mutiple Use tests are only performed on the 2 HCE & 5 NHCE).

Why is something so basic not mentioned in any message or Q&A in Benefits Link ?

Does anyone know whether, after EGTRRA takes effect, it be possible for participants in 457 plan maintained by tax exempt employers to roll their assets to IRAs? Does the isue turn on whether or not the plan is an eligible 457 plan? It would seem that now that after-tax contributions can be rolled to IRAs, it would make less of a difference.

Two questions:

1. I am almost certain that an employee cannot seek tax credit for medical expenses (7.5% of adj gross income) and participate in the medical reimbursement plan too. But someone asked a good question - if an employee elected say the maximum our medical reimbursement plan offers per year of $500, and in the plan year the employee has an unexpected $4000 medical bill, is the employee essentially out of luck as far as claiming that on his/her taxes? It seems unfair if the employee has an unexpected huge medical expense and can't claim that on his/her taxes. Do they have to simply choose one or the other and then hope they don't have a huge expense?

2. I am reading two different things regarding over-the-counter (OTC) drugs and medical reimbursement plans. One items says that OTC drugs are not covered even if your doctor prescribes them (such as pre-natal vitamins) another says that OTC drugs are reimbursable if your doctor prescribes them.

Any help out there?

Has anyone given much thought to the "relief" from the same desk rule offered by EGTRRA's change in the 401(k) distribution event from a separation from service to a severance from employment? It seems that this change will help in asset sales where there is a change in employer, but not in stock sales. Rather, in cases where a subsidiary is being sold, one still has to rely on 401(k)(10) to make a distribution, which means that there remains a problem if the seller or buyer is a non-corporate entity such as an LLC or a partnership since 401(k)(10) is not available in those situations. In other stock sales where the entire company or group is being sold, Buyer has to deal with either continuing the Seller's 401(k) plan, merging it with Buyer's 401(k) Plan or possibly having the Seller terminate it before closing in order to allow distributions. Anyone with additional or contrary thoughts out there about the repeal of the same desk rule? Thanks.

I am interested in contributing to a Roth IRA. What do I need to do?

Employee A at the beginning of the year knows that she will have a baby in March. To prepare for the extra costs associated with child birth, she elects to have $3,000 for her Medical FSA. After the birth she finds out that the medical plan actually covered more than what she thought (this is a made up example obviously!!) and thus owed much less in out of pocket expenses. Since having a child is an allowable change in family status, she decides to change her contributions to $1,000 (at the time she had only paid in $900). The questions is:

1. She can do this, right?

2. Can she only take out $1,000 or is it similar to ending employment where a person can actually use the original elected amount which may be more they original put in at the point of termination.

Howdy

I have a divorce situation where both husband and wife are participants in the plan. I haven't seen a DRO yet, but the question came up regarding moving balances between the two accounts in the plan.

I don't see anything wrong in doing that. I'm wondering about recordkeeping the accounts after the QDRO. I'm thinking the QDRO dollars would need to be accounted for separately...mainly because of the fact that an alternate payee isn't subject to the early withdrawal penalty on a QDRO distribution.

I assume that things like this aren't totally uncommon. Anyone out there have any insight on this situation or disagree with any of my assumptions? I get this feeling there are things that I haven't thought of.

Thanks for any input.

When amending a DC plan to a safe harbor DB plan is it possible to use service from 5 years prior to the effective date of the DC plan or is the 5 year rule only from the effective date of the DB plan?? If you can only use the 5 years prior to the DB effective date, what needs to be done to allow all prior service as far as testing and document issues??

Thanks.

I have a client with two plans, DB and PS. Assuming he would be able to deduct a contribution in the PS plan as he has in the past, he has made contributions to the PS plan for 2001 during 2001. The assets in the DB plan have not done well (suprise) and the DB contribution looks like it will excee 25% of elig comp. If this happens, would it be acceptable to move the PS contr to the DB plan as a mistake of deduction and if so when would the contribution be considered made to the DB plan, the date it was contributed to the PS plan or the date it was moved to the DB plan??

Thanks.

An attorney is drafting a GUST document for one of my clients. One of the sections explains the rates used to calculate the PVAB. It says to use either the Act. Eq. rates (which includes language for the 30 yr rate) or the PBGC rates, whichever rates produce the greater benefit. I don't think that the PBGC rates should be included in this document and I'm looking for some confirmation.

Another issue came up. The question is when the GATT rates replace the PBGC rates prior to the adoption of the GUST document. I was under the impression that prior to 2001, valueing lump sums would be based on the greater of benefits provided by using GATT rates or rates specified in the plan doc (including PBGC rates). And beginning in 2001, PBGC rates would no longer be used. The attorney thought the cut off date for using the PBGC rates was the adoption of the GUST document, not 2001. Any confirmation or correction would be appreciated.

Thanks.

Background

The assets in a 401(k) consist of mutual funds and employer stocks. At the time of service seperation, in a lump sum distribution, the mutual fund amounts are transferred to an IRA as a direct rollover and the balance is paid as employer stock certificates. The IRA amount is thus exempt from withholding. Under IRC section 402(e)(4), the “net unrealized appreciation” of the employer stocks can be treated as deferred income as an option and hence not subject to immediate withholding. Thus the only taxable amount in the year of the distribution is the “cost basis” for the stocks.

Question

Can an exemption from withholding be claimed on this “cost basis” amount under Internal Revenue Code section 3405(d)(8)?

Administrator has the option of either (1) transferring these funds to the PBGC or (2) purchasing an annuity. I am familiar with the PBGC option, but wondering if anyone has any experiences to share with the purchase of annuities option. What due diligence is required? Fixed or Variable? etc... Thanks for any feedback!

How is the 15% excise tax, due to a late deposit of salary deferral contributions, computed for purposes of completing Form 5330? Is it computed based on 15% of the late deposit or 15% of the intersest on the late deposit?

Defined benefit plans that permit the repurchase of refunded service credit typically require that the member repay the refunded account balance and also require that the member pay an interest payment or withdrawal fee. That payment or fee is typically not credited to the member's account and will not be repaid to the member if the member subsequently refunds his account balance before retirement. Assuming the plan accepts rollovers of eligible rollover distributions to be used to repurchase the refunded service, is it also permissible for the plan to accept a rollover to pay the interest payment or withdrawal fee?

Client has a Living Revocable Trust that includes the following:

1) Credit-Shelter ("Family") trust and QTIP Marital Trust;

2) Pecuniary credit-shelter funding formula

Grantor intends that his IRA funds the QTIP marital trust. There is language included in the Trust document that will allow the QTIP to qualify for the marital deduction according to Rev Rul 2000-2.

BUT: I am concerned that the pecuniary funding formula under this trust document may cause IRD issues.

ISSUE: Will the use of the pecuniary formula trigger IRD/income tax for the spouse as beneficiary of the QTIP when the IRA is used to fund the QTIP?

My reading thus far has given conflicting info: I have read that the ENTIRE value of the IRA may be treated as IRD when a pecuniary formula is used. Elsewhere I have read that when a client designates a QTIP trust as beneficiary of an IRA, this does NOT cause recognition of IRD because it is similar to a specific bequest of property.

HELP!!

Should I advise client to restate trust using Fractional formula?

Thanks in advance -

AmyK

We have a plan that the employer wants the broker to perform the following actions for the plan:

Transferring funds over the internet. (The participants give them their PIN and he makes the transfers.)

Receives contributions from multiple locations, consolidates them, and sends one wire.

Sign distribution forms as the plan representative.

Receive all correspondence that we would normally send to the plan, including nondiscrim results, statements, and 5500 reporting.

These are in addition to the normal investment advisor functions he performs for the plan.

Is he disqualified and would these be prohibited transactions?

Does anyone know what an "age neutral" plan is?

A client has asked if this would benefit him. Owner is 35 and new-comparability won't work. He was advised by friends to look into an age-neutral plan.

From everything I can find, we would define 3 rate groups - owner, nhce1 and nhce2. We would then classify the younger nhces into the nhce1 group and the older nhces into the nhce2 group.

Nhce1 would get a higher allocation rate than the owner and nhce2, while nhce2 would get a smaller rate.

Everything is then tested using the general test.

Is this correct? or am I missing something?

Any help would be appreciated.

Thanks.