An Executive has reached his retirement age but he and his employer want him to continue employment or consult to the employer. The employee wants to receive both the SERP payment and continue to receive compensation for continuing to work and the employer is agreeable to that. One thing the employee wants is to continue 401k contributions. Is there any problem with the employer paying the 1st annual SERP payment and continuing to employ the executive?

The question is how does the 5-year delay rule for subsequent deferral elections (under Reg. Section 1.409A-2(b)(ii)) apply to a form of payment change where the plan pays on the earlier of a fixed date designated by the employee and separation from service.

Fact pattern: Plan pays upon the earlier of a specified distribution date designated by Employee and Employee's separation from service and offers payment in either a lump sum or fixed installments. Employee timely makes an initial election to be paid in a lump sum and designates January 1, 2020 as his specified distribution date. Employee files a subsequent deferral election by December 31, 2018 changing his elected form of payment from a lump sum to fixed installments and moves his designated distribution date to January 1, 2025. If Employee incurs a separation from service in, for example, 2023, must his benefit be paid in a lump sum pursuant to his initial election or installments pursuant to his subsequent deferral election?

Example 15 makes clear that with respect to a payment deferral he still gets paid on separation from service.

Any citations, guidance or authority on point would be helpful.

Suppose a corporation has a 401k, but never makes any contributions to it - this is an additional twist on a question from last week. Plan established only to allow a participant loan for owner, from funds rolled in from another plan. Employees eligible, but never notified. NOT a safe harbor plan.

Please ignore the qualification implications of the above for purposes of this question.

Client in a subsequent year establishes a SEP. Let us assume for the moment that is a prototype SEP, and not an IRS model SEP.

Client makes a contribution to the SEP for a given year. Under the terms of the SEP, he is the only one eligible (3 year eligibility) - BUT, since the plans are aggregated for TH purposes, doesn't this trigger a contribution requirement in the 401k plan? Or am I dreaming?

P.S. - poll question - I've never actually heard of this being a problem raised on audit - anyone ever encountered a situation in real life like this? If you start a new 401(k) plan for an employer who freezes a SEP after the prior year, do you always get all the SEP contribution/account balance data for all prior years when determining TH status for the new 401k?

In mid-September 2015, a lawyer received a form letter confirming that the IRS had received her client's application, on Form 5307, for a determination. (The plan has modest variations from an approved volume-submitter document.)

The IRS's letter states: "You may normally expect to hear from us within 145 days."

Is 145 days normal or realistic?

Now that more than 200 days has elapsed (without any further communication), should the lawyer contact the IRS? Or should the lawyer wait until something more like a year has elapsed?

I'd appreciate your sharing of experiences and suggestions.

If a participant has a pre-tax deferral balance and a Roth deferral balance in his 401k plan account and is required to take an RMD, can the participant choose to take the Roth money first?

Assuming that the funds have been in there for 5 year and is a qualified distribution, there would be no tax due on the Roth balance, right?

I have a calendar year plan with a 3% SHNE contribution. A participant terminated in February 2016 so she will be entitled to a 2016 SHNE contribution. She will be working very infrequently as a fill-in employee. The plan sponsor is asking if she can go ahead with a distribution for this participant. The plan allows for distributions immediately after termination.

Should she be paid out or not?

A plan participant just passed away and there is a non-spouse beneficiary. Assuming that the survivor benefit will be rolled over to an inherited IRA, is there any time limit on how quickly this rollover needs to occur (other than the 12/31/2017 distribution deadline of the first RMD)?

Any responses would be appreciated!

for those who don't look at the daily news link

https://www.federalregister.gov/articles/2016/03/31/2016-07217/proposed-collection-comment-request-for-the-annual-returnreport-of-employee-benefit-plan

this is kind of nice - there are a couple of charts that provide a reason / explanation for the question

Doing a DFVC program for a 1 Participant Defined Benefit Plan. The Corporation is a member of a controlled group as was reported on the last 5500 filed. Since this Plan is a 1 Participant Plan it meets the EZ criteria. When looking at the instructions under Plan Characteristics code 3H is an available answer so I would think an EZ can be filed? Also, any problem switching to an EZ from a full 5500 with Schedules I, R and B? Forms last filed in 2007. Client has been over $250,000 for each year.

Thanks for your help and assistance.

We have a safe harbor 401K with pre-tax and post-tax employee deferrals.

Plan document mentions safe harbor match in terms of both employee contributions.

How is the compensation determined for purposes of the SHM?

The document defined compensation as W-2, box 1 plus pretax deferrals.

Since post-tax deferrals are included in Box 1, I would think the definition of compensation would be the same, whether employee pre-tax or after tax contribution.

I know this would probably be better under the continuing education board, but I think it will be seen more here.

does anyone have any prior year DC-1 and DC-2 books for sale? These are the defined contribution textbooks for the first two ASPPA proctored exams.

I have several friends who want to take the exams, but don't have a lot of money to spend. Considering the topics covered are fairly basic and haven't changed much using a book that is a year or two out of date really shouldn't be a problem.

Even if they are marked up / highlighted etc. I'm interested if people are willing to sell.

I'm looking for up to 4 of each.

And if anyone has DC-3 as well, I think one of those might be good too.

Hi - I am wondering whether the employees of entities owned by a fund; e.g., a Mutual Fund, must be aggregated with employees of the Fund's management company. It seems there should be an exemption but I am not aware of any.

Facts: An investment fund (the "Fund") obtains its employees from a Management Firm. Ownership of the Fund and Management companies is not sufficient to make them a controlled group; however, they are likely an Affiliated Service Group.

The management firm sponsors a qualified plan covering its own employees.

The Fund owns 100% of several companies that offer retirement benefits with much lower contributions/benefits than those of the management org’s plan.

Some of the companies owned by the Fund are held as passive investments only ("Passive" entities). Other companies are actively managed by a small group of employees of the management company ("Managed Entities").

Issues:

1. Must employees of the Passive entities be included in coverage/discrimination testing of the Management Org’s plan?

2. Same question as above with respect to employees of the Managed Entities.

Proposed Answers:

1. The passive entities need not be counted in discrimination testing because:
a. They are not part of a controlled group with the Management Company
b. They do not render or receive services to/from the Management Company.

2. The managed entities need not be counted in discrimination test because:
a. They are not part of a controlled group with the Management Company; and
b. Whatever compensation they pay for service from employees of the Management Company will represent an insubstantial portion of gross revenues of the Management Company

Additional Thoughts: I believe there are clear rulings in the area of Prohibited Transactions providing that passive investments are not treated as prohibited parties. I would think a similar exemption should apply to entities that are primarily owned as investments, even if they get some services from employees of the investment fund.

Thanks very much for your feedback.

Hi - I drafted a question in MS Word. I want to copy and paste the text into a new topic. I can't do it. This is so whether I right click and hit paste or if I use the icons above to Paste from Word or as plain text. Is there any way I can copy and paste, or must I retype the question?

Thanks

Plan sponsor discovered several people that were not auto-enrolled, dating back several years on some. Plan document specifically states "Effective for Plan Years beginning after the adoption of the 2010 Cumulative List (IRS Notice 2010-90) restatement, forfeitures cannot be used as Qualified Non-Elective Contributions, Qualified Matching Contributions, Elective Deferrals, or actual deferral percentage test safe harbor contributions (Code section 401(k)(12))", so we know that the QNEC cannot be funded with forfeitures. What about the earnings adjustment on each QNEC - could they use forfeitures for this?

Does anyone know why there is the belief among the CPA & Financial Advisor community that once owners reach 70 1/2 and start taking RMDs that they can no longer continue to contribute to a 401(k) Plan?

I think there is a school of thought that says it is very bad to take a loan from Roth accounts. Can someone point me to an article that explains this, or please enlighten me on the logic?

I have a client whose prior provider said it was a fiduciary violation to allow for Roth loans.

A New Jersey small-group health insurance contracts says an employee is a full-time employee if his or her normal workweek is at least 25 hours.

The employer would prefer to make eligible only those employees that Internal Revenue Code § 4980H would require the employer, if it were a large employer, to treat as a full-time employee (generally, 30 hours per week).

May the employer consider the insurance contract as the insurer’s obligation for what the insurer must cover (if applied for), but not necessarily a constraint on the employer’s choice of whom to make eligible under the employer’s ERISA-governed health plan?

(Assume the difference between 30 and 25 hours a week would not result in less than 75% enrollment of those employees the insurance contract defines as full-time employees.)

Is there anything that binds the employer to offer health coverage to those whom the insurance contract describes as full-time employees?

Is it permissible for the employee to contribute the maximum ($18k + catch up if eligible) into the 457b plan and the employer put up to $53k in the 401a plan?

I am working on a SARSEP (established years ago) and the adoption agreement states that the employer contribution is integrated. Is it permitted for a SARSEP to have both elective deferrals and integrated contributions if this is written in the adoption agreement?

What exemption does a mutual fund company use to invest the assets of its' own employee plan into its' own mutual fund and still receive full management compensation (expense ratios)?

I don't see anything in 4975(d) exemptions. While PTE 96-62 allows individual requests of party in interest exemptions, it doesn't apply to anyone but the applicant.

There are 3 PTEs that seem to cover the situation, but I’m unsure of the application.

1. PTE 1977-03 Open-End Mutual Funds In-House Plans: Permits the purchase and sale of open-end mutual fund shares by a plan which only covers employees of a mutual fund, its investment adviser or principal underwriter, or an affiliate. There are two key points that make me think this does not apply:

a. “…the investment adviser for which is also a fiduciary with respect to the plan (or an affiliate of such fiduciary) and is not an employer of employees covered by the plan

b. The plan does not pay an investment management, investment advisory or similar fee with respect to the plan assets invested, in such shares for the entire period of such investment

2. PTE 1977-04 Open-End Mutual Funds Investment Advisor Permits: the purchase and sale of open-end mutual fund shares by a plan when a plan fiduciary is also the investment adviser for the investment company marketing the mutual fund.

3. PTE 1979-13 Closed-End Mutual Fund In-House Permits: the purchase and sale of shares of closed-end mutual funds by plans which cover only employees of either the mutual fund, its investment adviser or an affiliate.