The IRS' proposed regulations lists certain fields that will automatically be considered as service organizations, even if capital is a material income producing factor, one of which is "insurance." Is an organization that is a licensed insurance company that is in the business of issuing insurance included within the meaning of the "insurance" field on that list? I am asking because an insurance company is buying less than 80% of a service organization, so there is no 414(b) or © affiliation, and they will satisfy the other criteria for A Organization ASG status, but the point is moot unless the licensed incurance company is a "service organization."

I've got a question on the maximum percentage amount of the paycheck that can be allocated to contributing to a 401(k) plan.

I was told by my company's accountant that not more than 75% of my paycheck can be allocated to my 401(k) plan (managed by Fidelity Investments). My question is: is there a federal law on such a limitation -- or this is just a company-invented rule? If this is just a rule, have anybody heard of similar limitations in other companies? What could be a reason for such a restriction?

Thank you.

When calculating for owners the tax benefit of their plan, do we include 401(k) in that analysis? I've always said "no" because more likely than not there is some level of 401k that can be done with no employer contribution at all. But if the Plan is top-heavy, I suppose the 3% is the cost of doing the 401k quite literally.

But it also occurs to me that I'll bet someone has done quite a bit of research on this analysis. I wouldn't be surprised if one of the large accounting firms has written something about this. If not, they should, because I have this conversation with clients all the time.

Does anyone have any info they can share?

Husband/wife 2-person DC plan w/QJSA provisions being restated.

Wife has early alzheimers. They are in agreement they want to set up beneficiaries so that if husband predeceases wife, so that wife now has her account, and her husband's account as beneficiary in the plan, no future husband could ultimately end up with both wife and husband's accounts, rather than the children. How would this be approached?

I also posted this in the 125 topic but have not gotten a response.

Hoping to get some guidance. I see in the 125 regulations that deferred compensation under a 401k plan can be a qualified benefit in a cafeteria plan. I think the issue is if the cafeterial plan has flex employer dollars available, and the employee has an election to receive the cash as taxable income or defer it under the 401k plan, how do we do this? Is it a matter of providing this benefit in the 125 plan document and then giving the employee a 125 deferral election form and a 401k election form?

What is the Gateway Minimum for the NHCEs in the following scenario?

HCE is receiving the Safe Harbor Match (capped at 4%) and a 10% Profit Sharing Allocation.

Assume NHCEs did not receive any SHM because did not defer any 401k. Also assume 401(a)(4) testing is passed with as little as a 3% PS allocation to the NHCEs.

Is the Gateway Minimum additional allocation requirement 0.34% (3%PS + 0.34%GW = 3.34% * 3 = 10% PS allocation to HCE)?

OR

Is the Gateway Minimum additional allocation requirement 1.67% (3%PS + 1.67% GW = 4.67% * 3 = 14% total SHM+PS allocation to HCE)?

Hoping to get some guidance. I see in the 125 regulations that deferred compensation under a 401k plan can be a qualified benefit in a cafeteria plan. I think the issue is if the cafeterial plan has flex employer dollars available, and the employee has an election to receive the cash as taxable income or defer it under the 401k plan, how do we do this? Is it a matter of providing this benefit in the 125 plan document and then giving the employee a 125 deferral election form and a 401k election form?

thanks!

So this may be a silly question but if a plan sponsor is looking to establish a Cash Balance plan with the goal of sheltering a large chunk of money from taxes but is concerned that the variability in funding requirement that may occur due to fluctuations in the market may cause higher required contributions than he wants, could he simply set the interest crediting rate to ZERO (0%) and set his pay credit at $100k for himself and 5% for NHCEs and then invest in some ultra conservative money market account paying basically nothing?

Here's the example:

Sponsor is 10 years out from retirement. His income is 345k. He sponsors a cross-tested profit sharing plan where he maxes out each year. Those assets are invested appropriately to take advantage of market growth. In addition, he wants to accumulate another 1 million dollars and he wants to do it by taking $100,000 each year, sheltering it from taxes, and squirreling it away. He doesn't really need this 100k to earn much, getting the tax break (which brings his income from 345k down to 245k) each year is enough reason to do this. What he DOESN'T want is to have 2008 happen again and, not only see his balance reduced by half (which he'll see in his DC plan anyway) but he especially doesn’t then want to be on the hook for making a large contribution to his staff to make up for market losses. So that's the question. Would it be possible for a sponsor to choose a pay credit of $100k for himself, 5% for staff, and a ZERO percent interest rate and an investment vehicle yielding almost zero and just kick back and enjoy the tax deferral-- Thanks!

Have a plan with 3 partners. The 3 partners don't want to be responsible for the investment decisions of the other two. What's more, they don't want the other partner listed as the "account owner" (these are brokerage accounts) on what is for each of them a very substantial balance. So we have each partner listed as trustee of their own personal accounts, and just one of the partners serves as Trustee for the other employees.

It just so happens that one of the other employees who is semi-retired is the founder of the partnership, and he also wanted the same set up (i.e., trustee of his own account). This person obviously has a lot of clout and the 3 partners for political reasons do not want to say no.

There are no rules regarding who can serve as Trustee - any one have a problem with this?

We know from recent guidance that this is a HIPAA violation to make such an offer to just the sick employees but what if you do it for everybody?

Employers like to say "If you have coverage elsewhere we'll pay you more than if you take our coverage".

Thoughts?

I've been anticipating some employer wanting to do this and it's finally happened.

Each employee will be required to pay 9.5% of their Box 1 wages as their share of the premium for the lowest cost minimum value coverage and the employer will pay the difference.

I can't find a problem with this approach (other than the administrative challenges) and I suspect it won't violate the yet-to-be-released non-discrimination regs since it favors the lower paid employees.

Anybody disagree?

tripped across the following in the 1099R instructions

I've seen this topic discussed before, but never the comment about putting something in the margin of the 1096. (Never had this situation before, not quite sure how you would do this if you file electronically)

If you make a total distribution in 2014 and file a Form
1099-R with the IRS and then discover in 2015 that the
plan failed either the section 401(k)(3) actual deferral
percentage (ADP) test for 2014 and you compute excess
contributions or the section 401(m)(2) actual contribution
percentage (ACP) test and you compute excess
aggregate contributions, you must recharacterize part of
the total distribution as excess contributions or excess
aggregate contributions. First, file a CORRECTED Form
1099-R for 2014 for the correct amount of the total
distribution (not including the amount recharacterized as
excess contributions or excess aggregate contributions).
Second, file a new Form 1099-R for 2014 for the excess
contributions or excess aggregate contributions and
allocable earnings.
To avoid a late filing penalty if the new Form 1099-R is
filed after the due date, enter in the bottom margin of Form
1096, Annual Summary and Transmittal of U.S.
Information Returns, the words “Filed To Correct Excess
Contributions.”
You must also issue copies of the Forms 1099-R to the
plan participant with an explanation of why these new
forms are being issued.

A plan has an employee on leave for uniformed service. The plan would like to make current contributions to her profit sharing account while she is gone and also include her for testing purposes (she was a critical cog to testing).

I can't find anything to preclude an employer from funding a person on leave's account currently and if they do so, is there any reason not to include that participant in 401(a)(4) testing.

Thanks

If a DBP is amended to provide for a benefit formula that would require the plan to pass nondiscrimination testing under IRC 401(a)(4), but that amendment is treated as if it were never adopted pursuant to Treasury Regulation Section 1.436-1(a)(4)(iv) because an AFTAP restriction under IRC 436© is in effect for the plan year that the amendment would have been effective, then is the DBP still subject to the nondiscrimination testing for the plan years that the restriction is in effect?

1. AFTAP for DBP not certified.
2. DBP treated as frozen due to presumption AFTAP less than 60%.

3. DBP amended to change benefit formula but cannot take effect during plan year because of IRC 436© restriction.

4. Plan amendment treated as never adopted.

Is the amendment treated as never adopted solely for purposes of benefit accruals, such that the DBP still must pass nondiscrimination testing as if the change in the benefit accruals had been made (but for the treatment of the plan amendment as never adopted), or is the amendment treated as never adopted for all compliance and nondiscrimination testing purposes? A citation to the official authority would be very much appreciated!

A foreign corporation has two U.S. subsidiaries. Corp A and Corp B which are treated as QSLOB's. Periodically an employee will terminate from one QSLOB and be hired by the other. Each Corp has its own management, payroll, benefit Plans etc.

The plans grant predecessor service for eligibility and vesting.

The questions:

If employee leaves Corp A and is immediately hired by Corp B should vesting service continue under the Corp A plan? Currently Corp A would treat the employee as terminated.

All the QSLOB rules I've read deal with testing but I find no exemptions for related companies as it relates to service and vesting credit. Should the "termination" even be treated as a distributable event?

EE named her estate as the death beneficiary of QRP benefits.

EE's will leaves her entire estate to one person.

Can the estate with one beneficiary qualify as a 1-person trust for purposes of paying out the death benefits over the life expectancy of that one estate beneficiary?

Can the benefits be rolled into an inherited IRA given that there is just 1 beneficiary of the estate?

The Plan Document specifies "as soon as administratively feasible". It is not uncommon for the annual valuation and participant statements to be prepared well into the 2nd quarter of the following year.

I am just curious in hearing what other people do with the timing of these distributions. Do you base it only on when you get the form or also on the date of termination? And do you have set deadlines to say that if you receive the form by _____, you will process based on the most recent valuation but after _____ they need to wait until the next val is done?

Thanks.

I have a client that currently operates a Simple IRA plan. he would like to terminate or freeze this plan and start up a Safe Harbor or Traditional 401(k) Plan.

Since he missed the November deadline to notify his employees, what are his options?

Can he start up a Safe Harbor (his target date is Feb 1, 2015)?

Does he have to start up a traditional 401k until Jan 1, 2016?

Is it possible to operate both plans at the same time throughout 2015?

there is also an issue that 3 of the 12 employees are HCE's and the non-discrim test might fail if not a safe harbor.

Please help advise... thanks

plan is 'merged' into a MEP during the plan year. all the assets are transferred.

if I file the 5500 as a plan termination with a short year then does that mean the data can't be aggregated for ADP testing (because you can't aggregate plans unless they have the same plan year) or is this simply one of those things the regs don't truly address ...e.g. nothing changes at the company, everyone is still in the same boat, etc. so treat it as if nothing else has really happened. The rule for looking at an HCE says you combine all plans for deferrals, but that is if they have the same plan year as well.

interestingly enough the old plan has not been 'terminated' yet by amendment, simply everything transferred an no more contributions...

Got into an interesting conversation with a small business (4 employees) owner who currently has a small group plan. The small group plan has raised their premiums to the point where the state exchange policies are MUCH cheaper. So the owner will drop the group health plan for all employees and give them all a raise from which the employees can pay for the state exchange policy and the taxes on the increased compensation and still come out ahead. Sounds like a win-win. The employees have the same insurance coverage and a few more bucks to spend. The employer's expense is dramatically reduced.

One glitch: the insurance for the owner herself. Before the ACA the employer *could* have provided employer paid health insurance just for herself (of course, she didn't *want* to restrict coverage in that way, but she could have, unless it was self-insured, of course). Now, with the ACA $100/day penalty for providing what the law apparently refers to as discriminatory coverage, she is a bit concerned about what her options are.

Poking around on the internet I found a page or two referencing an announcement from the IRS that the penalties for providing discriminatory coverage will not be enforced until the IRS issues regulations in that area.

Have those regulations been published? Is there any chance that, if they haven't been published to date, they will be finalized in 2015 with a 1/1/2015 effective date, thereby ensnaring those that do so?

A $36,500 penalty is something that most small business owners would prefer to avoid, eh?

Assuming the penalty is off the table for 2015 and assuming all of the employees get individual coverage from the state, can the small business owner continue the coverage she has always enjoyed, have the company pay for it and have the company deduct the premiums?

For reasons I don't understand, the policies for everybody other than the owner are significantly less expensive through the exchange.

Thanks

mike