Our company closed a branch engineering office due to a project that was not getting off the ground. The closure did not have anything to do with downsizing, only canceling a project. With the termination of the project, we also terminated 56 employees. We had a total of 279 employees eligible to participate on the date of the termination. During a recent IRS audit on the 401(k) plan, we were advised that this could constitute a partial plan termination. What numbers should we use to determine if we are over 20%? What other facts should I look at to help make our case? I've been searching on the internet, but am having a difficult time finding any information on what we should look at.

Our company closed a branch engineering office due to a project that was not getting off the ground. The closure did not have anything to do with downsizing, only canceling a project. With the termination of the project, we also terminated 56 employees. We had a total of 279 employees eligible to participate on the date of the termination. During a recent IRS audit on the 401(k) plan, we were advised that this could constitute a partial plan termination. What numbers should we use to determine if we are over 20%? What other facts should I look at to help make our case? I've been searching on the internet, but am having a difficult time finding any information on what we should look at.

The incorrect amount was distributed as a death benefit and resulted in an overpayment. The beneficiary requested an overpayment waiver. What criteria can be used to determine if we should honor it?

The scene:

4 companies, all in one control group. 1 company receives a 5% employer discretionary contribution; the rest do not.

The question:

Does this arrangement have to pass a 401(a)(4) General Test?

The nexus of the question is that by NOT giving the 5% to other participants within the controlled group, you have some employees with one rate (5%) and some with another rate (0%). If the arrangement passes 410(B), are we done? And if the arrangement DOES NOT pass 410(B)....including the Avg. Bene. Test....what next? Do you look at the General Test?

Compensation to use for SE income: Issues the CPA is bringing up -

The document elects not to have 401(k) deferrals reduce compensation. We think 401(k) deferrals still reduce SE comp, but the CPA is thinking because of the document it does not.

What about IRC 179 depreciation? If we just pick up the SE number from Form K-1, does any adjustment need to be made for IRC 179 to get to the SE comp?

Thanks.

An employer has a 401(k) profit sharing plan and has decided to make employer nonelective contributions every pay period (bi-weekly). The employer also wants to allocate the contributions to the employees' accounts when contributed. The employer wants to have the discretion to increase contributions or stop contributions anytime during the year. I am now amending the plan to try to meet the employer's request, but am running into the problem of having to define a predetermined definite allocation formula. The problem is that if the employer contributes 2% of compensation per employee based on the employee's compensation for that payroll period, the employer also wants the 2% allocated to the employee's account. But next month, the employer may decide to make any contributions, then there would not be an allocation. Has anyone come accross a similar situtation? How have you dealt with it?

Is there any guidance on the duties owed to non-english speaking participants in order to comply with 404©? Even if there is no guidance, any thoughts on whether one would fail to comply with 404© if a prospectus is supplied in English to a non-English speaking participant?

In our situation, the employer wants to comply with 404©and has a few employees who only speak Spanish. The employer does not want to go to the expense of having each prospectus printed in Spanish. Any thoughts or experiences in this area?

A Plan provides that NRA is 65. For those working to age 65, they are paid their full accrued benefit. For those retiring prior to age 65, their benefit is reduced 5% per year from SSRA. So for eg. a person has a SSRA of 66, terminates at 61 w/ a vested benefit right. The Plan paid the lump sum based on his age 65 normal ret. benefit. And this benefit was reduced by 5% even though it was as of NR date. Can age 65 NRA base (not excess portions) benefits be reduced at NRA? Especially where it is done for certain participants and not others.

Any thoughts on this?

Due to a computer system error, neither an elective deferral nor a corresponding matching contribution was made for a 401(k) plan participant who had chosen to make a 1% elective deferral. The employer caught the error within a few months and would like to correct the problem. The employer has determined that a corrective contribution that would be based on the employee's selection of a 1% elective deferral (and the corresponding match) and that would be adjusted for earnings would cause the employee to (barely) exceed the 415 limit; if the corrective contribution were to be made without the adjustment for earnings, however, the 415 limit would not be exceeded.

(1) Disregarding for the moment the issue of the earnings, is it correct to base a correction on the elective deferral percentage selected by the employee?

(2) If the correction should be based on the elective deferral percentage selected by the employee, should earnings be credited or not? On one hand is the need to fully correct the violation; on the other is the risk that a "full" correction would create another operational failure. If earnings are credited, the 415 limit will be exceeded, and, based on .08 of Appendix A of Rev. Proc. 2001-17, the remedy would be to place the portion of the excess attributable to the match in a suspense account and to distribute the portion of the excess attributable to employee deferrals. Section 6.02(2)(d) of Rev. Proc. 2001-17 states that "the correction method should not violate another applicable specific requirement of section 401(a)," and this proposed correction arguably would violate Code section 401(a)(16). That same section of the Rev. Proc. goes on to state, however, that any additional failures created as a result of the use of an EPCRS correction method should also be corrected under the Rev. Proc.

Consider a single employer DB plan with $1.5 million in assets. Active PVAB is $600,000 and term vested/retiree PVAB is $300,000, so total PVAB is $900,000.

Assume that all PVAB's are calculated on the appropriate basis.

The active's are transferred to a multiemployer plan. Do we need to transfer $600,000, just enough to cover their PVAB or do we need to transfer $1 million, their pro-rata share of the entire $1.5 million of assets?

What if all participants are transferred to the multiemployer plan? Can we transfer $900,000 or do we need to move all the money?

I realize that IRC 401(a)(12) and 414(l) do not apply here. I also realize that ERISA 4232 addresses transfers between a multiemployer and single employer plan but really pertains to the transfer from multiemployer to single employer.

Hi,

I recently received an offer from a company. The offer mentions that I have been granted an option to purchase 3000 shares of this company. I don't know much about stock options, does any one know what are the usual stock options offered by some good companies for the position of senior engineer. Does a figure of 3000 sound OK?

The offer indicates a Salary of $75000/-, sign on bonus of $7000/-, all relocation expenses will be paid.

Does this offer sound OK.

Please respond with your opinion.

Thanks

Vijay

I'm wondering if it is possible to have a discretionary matching contribution in a prototype plan where the cap on the match is also disrectionary from year to year. For example, one year the employer could choose to match a certain percentage on the first 6% of salary deferred and then only match the first 4% next year.

Thanks for any input.

Does anyone know if there is a "work around" whereby a QDRO can be attached to post retirement medical? My understanding is that welfare/medical plans are not subject to QDRO- but something I read back in October,2000 (Nixon Peabody LLP) makes me think that the possibility exists that the pension and post retirement medical may be subject to marital property, if somehow the medical is referenced in the pension plan. (FYI-The participant has filed for a divorce after 32 years of marriage and his wife is currently covered under his post retirement medical plan and she is his contingent annuitant w/r to the pension benefit.) The publication said "The Department of Labor recently concluded that every benefit payable from a pension plan, even if it's not a pension benefit and even if the plan's terms don't permit its payment to an alternate payee, can be assigned to an alternate payee pursuant to a qualified domestic relations order . ERISA Op. 2000-09A, 2000ERISA LEXIS 9 (7/12/00)."

Is there any laws out there that protects the employee when the employee has hired them under false pretenses? My husband was was heavily recruited, then after 9 months layed off. No benefits, not even accured vacation time. The have agreed to a two week severance package, but with a salary in the 6 figures, this seems like a kick in the pants. Anything we can do?

My client has a safe-harbor 401(k) plan. He contributes the 3% non-elective contribution. He wants to make an additional non-elective contribution and have it integrated. Can someone explain how that works? Can he count the 3% safe-harbor contribution in the base percentage for his integrated contribution?

Do all of the plans of the employers of a controlled group have to be aggregated for top heavy purposes?

It is my understanding that the schedule T is required to be filed every third year. There is a rumor going around in the office that if a plan started in 1999-or never filed a C/R that a schedule T never has to be filed for them. The question is, what exactly is the rule on when to file the schedule T. I couldn't find any documentation that would prove or disprove the above. The instructions just say you don't have to file one if your using the three year testing cycle and your relying on coverage information from prior year.

We have a NQDC plan for highly compensated employees and an employee has asked for a hardship distribution (which our plan allows) to purchase a second residence. He has stated that he has no other avenue for obtaining the money needed to buy the house. First, is there any IRS guidance relating to the issue of hardship distributions from NQDC plans (besides the section 457 regulations)? Second, if we make the distribution and the IRS later determines that it should not have been made, what are the possible consequences (e.g., will all plan participants be considered to be in "constructive receipt?")? Thanks!

A plan participant's spouse got sentenced to 125 years in prison. She wants to change her beneficiary designation to her children. The spouse in jail will not consent to waive his benefits. Does she have any recourse other than divorce?

FYI- I HOPE THIS HELPS THOSE WHO STILL HAVE INVALID ROTH CONVERSIONS- IT SEEMS , THERE IS HOPE

LTR-RUL, UIL No. 9100.00-00 Extension of time for making certain elections, Letter Ruling 200120040, (Feb. 20, 2001)

Letter Ruling 200120040, February 20, 2001

Uniform Issue List Information:

UIL No. 9100.00-00

Extension of time for making certain elections

This is in response to the *****, letter, submitted by your authorized representative, in which you request relief under section 301.9100-3 of the Procedure and Administration Regulations. The following facts and representations support your ruling request.Taxpayer A, who is unmarried, maintained IRA X, an individual retirement arrangement described in Code section 408(a) , with Company M. On or about December 28, 1998, pursuant to the advice of Individual B, his financial advisor employed by Company M, Taxpayer A converted IRA X to a Roth IRA, IRA Y, also with Company M.Taxpayer A's adjusted gross income for 1998 exceeded the limit found at section 408A©(3)(B) of the Internal Revenue Code. Individual C, an accountant, assisted Taxpayer A in completing his 1998 Federal Tax Return. However, Individual C did not advise Taxpayer A that he was ineligible to convert his traditional IRA, IRA X, to a Roth IRA, IRA Y. Additionally, Individual C reported Taxpayer A's December 28, 1998 IRA conversion as a rollover and did not report any portion of the converted IRA proceeds as taxable income. Thus, Taxpayer A did not pay Federal income tax on the IRA X proceeds which were converted to IRA Y.During the 1998 and 1999 calendar years, Taxpayer A believed that he was eligible to convert his traditional IRA, IRA X, to a Roth IRA, IRA Y. However, during calendar year 2000, Taxpayer A changed accountants and began using the services of Accountant D. Accountant D advised Taxpayer A that he was ineligible to convert IRA X, a traditional IRA, to IRA Y, a Roth IRA, because his income exceeded the Code section 408A©(3)(B) limit.Because Taxpayer A believed that his conversion of IRA X to Roth IRA Y was valid, he was unaware of the need to recharacterize IRA Y to a traditional IRA and, consistent with his belief, was unaware of the time limits found in Announcements 99-57 and 99-104 for recharacterizing an amount that had been converted from a traditional IRA to a Roth IRA. This ruling request was submitted before the Internal Revenue Service discovered the failure to recharacterize pursuant to said Announcements.Taxpayer A timely filed his calendar year 1998 Federal Income Tax Return.Based on the above, you, through your authorized representative, request the following letter ruling:That, pursuant to section 301.9100-3 of the regulations, Taxpayer A is granted a period not to exceed six months from the date of this ruling letter to recharacterize her Roth IRA, IRA Y, to a traditional IRA.With respect to your request for relief under section 301.9100-3 of the regulations, section 408A(d)(6) of the Internal Revenue Code and section 1.408A-5 of the Income Tax Regulations provide that, except as otherwise provided by the Secretary, a taxpayer may elect to recharacterize an IRA contribution made to one type of IRA as having been made to another type of IRA by making a trustee-to-trustee transfer of the IRA contribution, plus earnings, to the other type of IRA. In a recharacterization, the IRA contribution is treated as having been made to the transferee IRA and not the transferor IRA. Under section 408A(d)(6) and section 1.408A-5 , this recharacterization election generally must occur on or before the date prescribed by law, including extensions, for filing the taxpayer's federal income tax returns for the year of contributions.Section 1.408A-5 , Question and Answer-6, describes how a taxpayer makes the election to recharacterize the IRA contribution. To recharacterize an amount that has been converted from a traditional IRA to a Roth IRA: (1) the taxpayer must notify the Roth IRA trustee of the taxpayer's intent to recharacterize the amount, (2) the taxpayer must provide the trustee (and the transferee trustee, if different from the transferor trustee) with specified information that is sufficient to effect the recharacterization, and (3) the trustee must make the transfer.Code section 408A©(3) , provides, in relevant part, that an individual with adjusted gross income in excess of $100,000 for a taxable year is not permitted to make a qualified rollover contribution to a Roth IRA from an individual retirement plan other than a Roth IRA during that taxable year.Section 1.408A-4 , Q&A-2, provides, in summary, that an individual with modified adjusted gross income in excess of $100,000 for a taxable year is not permitted to convert an amount to a Roth IRA during that taxable year.Section 301.9100-1 , 301.9100-2 , and 301.9100-3 of the Procedure and Administration Regulations, in general, provide guidance concerning requests for relief submitted to the Service on or after December 31, 1997. Section 301.9100-1© of the regulations provides that the Commissioner of the Internal Revenue Service, in his discretion, may grant a reasonable extension of the time fixed by a regulation, a revenue ruling, a revenue procedure, a notice, or an announcement published in the Internal Revenue Bulletin for the making of an election or application for relief in respect of tax under, among others, Subtitle A of the Code.Section 301.9100-2 lists certain elections for which automatic extensions of time to file are granted. Section 301.9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in section 301.9100-2 . The relief requested in this case is not referenced in section 301.9100-2 .Section 301.9100-3 of the regulations provides that applications for relief that fall within section 301.9100-3 will be granted when the taxpayer provides sufficient evidence (including affidavits described in section 301.9100-3(e)(2) ) to establish that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief would not prejudice the interests of the government.Section 301.9100-3(B)(1) of the temporary regulations provides that a taxpayer will be deemed to have acted reasonably and in good faith (i) if its request for section 301.9100-1 relief is filed before the failure to make a timely election is discovered by the Service; (ii) if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control; (iii) if the taxpayer failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election; (iv) the taxpayer reasonably relied upon the written advice of the Service; or (v) the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.Section 301.9100-3©(1) (ii) of the temporary regulations provides that ordinarily the interests of the government will be treated as prejudiced and that ordinarily the Service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statute of limitations before the taxpayer's receipt of a ruling granting relief under this section.Announcement 99-57, 1994-24 I.R.B. 50 (June 14, 1999) provided that a taxpayer who timely filed his/her 1998 Federal Income Tax Return would have until October 15, 1999 to recharacterize an amount that had been converted from a traditional IRA to a Roth IRA.Announcement 99-104, 1999-44 I.R.B. 555 (November 1, 1999), provided that a taxpayer who timely filed his/her 1998 Federal Income Tax Return would have until December 31, 1999 to recharacterize an amount that had been converted from a traditional IRA to a Roth IRA.Taxpayer A timely filed his 1998 Federal Income Tax Return. As a result, although he did not treat the balance of his IRA X as taxable income on his 1998 Federal Tax Return, he was eligible for relief under either Announcement 99-57 or Announcement 99-104. However, he missed the deadlines found in said Announcements. Therefore, it is necessary to determine if he is eligible for relief under the provisions of section 301.9100-3 of the regulations.In this case, Taxpayer A was ineligible to convert his IRA X to Roth IRA Y since his adjusted gross income exceeded $100,000. However, until he discovered otherwise, Taxpayer A believed that he was eligible to convert his IRA X to a Roth IRA. Taxpayer A filed this request for section 301.9100 relief shortly after discovering that he was ineligible to convert IRA X to a Roth IRA and, as noted above, before the Service discovered his failure to comply with the Announcements referenced above. Calendar year 1998 is not a "closed" tax year.With respect to your request for relief, we believe that, based on the information submitted and the representations contained herein, the requirements of sections 301.9100-1 and 301.9100-3 of the regulations have been met, and that you have acted reasonably and in good faith with respect to making the election to recharacterize your Roth IRA as traditional IRAs. Specifically, the Service has concluded that you have met the requirements of clauses (i), (iii) and (v) of section 301.9100-3(B)(1) of the regulations. Therefore, you are granted an extension of six months from the date of the issuance of this letter ruling to so recharacterize.No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations which may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6100(j)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this ruling letter is being sent to your authorized representative.

Sincerely yours, Kenneth T. Yednock, Manager, Employee Plans Technical, Tax Exempt and Government Entities Division.