Hello all,

I'm back in the defined benefit arena after an extended time period.

I have a client who says their actuarial equivalence definition is based on 417(e) segment rates with a 3-month look back, so October, 2014 segment rates are used for benefit commencement dates in 2015.

Is it permissible to apply an actuarial increase using 417(e) segment rates at the time of commencement? For example, they have a vested term who reached NRA in 2008 and wants a BCD of 1/1/2015. they want to use the October, 2014 segment rates for the whole increase.

I'm seeing some unusual changes in the late retirement benefit at 12/1/2014 vs. 1/1/2015. Because of the change in segment rates from October 2013 to October 2014, the late retirement increase at 1/1/2015 is less than the late retirement increase at 12/1/2014. So the resulting benefit at 1/1/2015 is less than what the benefit would have been at 12/1/2014. Does anyone know if this is permissible under the most recent IRS Regs?

Any guidance would be much appreciated.

Happy Holidays everyone and a prosperous New Year!

Employer is suffering real financial hardship. They cannot fund the 2013 3% safe harbor contribution. What do we do here? My thinking is that this is an Operational Failure and the Plan should file under EPCRS. Proposed correction would be to retoractively amend the Plan to remove Safe Harbor provisions. I'm questioning whether IRS would approve this proposed correction because this would clearly not put participants "back where they would have been had the operational failure not occurred".

Is there any solution here?

Thanks.

For 2014, my wife and kids were able to be on a health plan not compliant with the ACA (which saved us a lot of money). I was on a separate, ACA-compliant plan. Both plans were HSA compliant. Starting in 2015, we will all be on the same plan again.

Previously, we were all on the same plan and we had an HSA in my name.

The question is: In order to be able to make the full family contribution for 2014, must we open a separate HSA for my wife? Am I limited to the individual contribution?

We will file together. We are a family. We just have this one flaky year.

Thanks!

Gary

Anyone have any advice? Custodian will not open IRA unless participant signs the forms. Is there a custodian that will allow the employer to open the account without the employees signature, etc.?

What code should be used for a distribution from a 401k plan into a Roth IRA with the participant requesting 20% federal tax withholding?

I realize that if the participant does not request any withholdings, we use code G and indicate that the distribution amount is taxable. However, the issue that I have is that when a participant requests a 20% withholding, shouldn't that 20% amount be considered a distribution (early or otherwise, depending on age)? And if so, it does not seem like it would be possible to send only one 1099-R request with those instructions since code G cannot be used with code 1 (or 7, again depending on age). Should there be two 1099-R requests filed?

When I became an ERPA in 2010, I got a PTIN. Notice 2011-91 states that Section 10.4b of Circular 230 requires individuals who want to become an ERPA to have a valid PTIN and Section 10.6d3 requires ERPA to have a valid PTIN to be eligible to renew their status as an ERPA.

someone told me yesterday that it isn't mandatory. have "the rules" changed since this Notice was issued?

From the payee's side, a 401(k) participant's non-spouse beneficiary failed to take a full RMD after five years. The plan document required a five-year full distribution. Year 5 ended several years back. No RMDs have been taken, and the entire original balance is still in the plan.

Not concerned about the plan sponsor's side, except to the extent their submission through VCP would help avoid payee's excise taxes.

I'm reading 54.4974-2, Q&A 5 to say that the RMD for each year after Year 5 represents a separate RMD failure for each subsequent year based on the entire remaining balance in each subsequent year.

Say Year 5 end-of-year balance is $100,000. Failure to remove everything results in a $50,000 excise tax in Year 5.

Year 6 end-of-year balance is $110,000. Failure to remove everything during Year 6 (the required RMD for Year 6 per Q&A 5 is the entire remaining balance) results in an additional $55,000 excise tax for Year 6.

Year 7 end-of year balance is $120,000. Failure to remove everything results in an additional $60,000 excise tax for Year 7.

And so on. After three years, the excise tax would be greater than the original plan balance,

I don't see any relief except potentially the IRS's consideration of waiving the excise tax for "reasonable error."

Would someone point out what I'm missing?

From the payee's side, a 401(k) participant's non-spouse beneficiary failed to take a full RMD after five years. The plan document required a five-year full distribution. Year 5 ended several years back. No RMDs have been taken, and the entire original balance is still in the plan.

Not concerned about the plan sponsor's side, except to the extent their submission through VCP would help avoid payee's excise taxes.

I'm reading 54.4974-2, Q&A 5 to say that the RMD for each year after Year 5 represents a separate RMD failure for each subsequent year based on the entire remaining balance in each subsequent year.

Say Year 5 end-of-year balance is $100,000. Failure to remove everything results in a $50,000 excise tax in Year 5.

Year 6 end-of-year balance is $110,000. Failure to remove everything during Year 6 (the required RMD for Year 6 per Q&A 5 is the entire remaining balance) results in an additional $55,000 excise tax for Year 6.

Year 7 end-of year balance is $120,000. Failure to remove everything results in an additional $60,000 excise tax for Year 7.

And so on. After three years, the excise tax would be greater than the original plan balance,

I don't see any relief except potentially the IRS's consideration of waiving the excise tax for "reasonable error."

Would someone point out what I'm missing?

Plan year amended from 2/28 plan year end to 12/31 plan year end. Short plan year from 3/1/2014 to 12/31/2014. Adoption agreement states entry dates are the first day of plan year, fourth, seventh and tenth month of the Plan year.

So for this short plan year, would the entry dates be 3/1, 6/1, 9/1 and 12/1? I was thinking the entry dates would be 3/1, 4/1, 7/1 and 10/1 based on the calender year, but rereading it, that does not appear to be correct.

As an example, someone hired 9/23/2013 would enter on 12/1/2014 and would they also be statutory excludable for testing at 12/31/2014?

thanks for your help!

If a plan under contributed to a former participant (for example, due to an incorrect definition of compensation) and now owes a small additional amount under the EPCRS procedures, is this a corrective contribution, a corrective distribution, or both? I am asking to figure out how to apply the de minimus exception. From Rev. Proc. 2013-12:

"If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan."

It seems to me that this paragraph (and particularly the last sentence) is attempting to distinguish between corrective contributions to current accountholders (for whom providing a corrective contribution would require almost no administrative cost) and corrective distributions to former participants who no longer have an account balance (and for whom providing a corrective distribution would result in a (potentially) significant cost).

Is this the way that others are reading this guidance? If not, how are plan sponsors handling very small contributions due to former participants?

Is there a window for how far back you can correct an ACP test? If it's failed 5 years can I do SCP? Only affects 1 HCE in all years.

Using last day of quarter rule on matching contributions. Would it be permissible to have as an allocation condition that states you are not eligible for the matching contribution unless you are actively employed 15 days after the last day of the quarter? So employment on 4/15 for the quarter ending 3/31.

We are trying to avoid people requiring residual distributions after the match is funded.

Happy holidays y'all. This is the first time we've had a client make late quarterly payments and were wondering if an IRS audit would likely be forthcoming once they see line 20b on the SB being answered 'no' indicating such, along with the required attachment? I would guess it would be an easy target for the IRS - what is everyone's experience with this?

Just curious how necessary a TPA is for a barebones Solo(K) Plan held in a brokerage account? Assume client uses a current prototype document to set the plan up and is smart enough not to overfund the plan, makes contirubions in a timely manner and restates the plan/makes ammendments as necessary. No other employees, no loans, no hardship distributions and plan assets would be rolled over to an IRA at retirement and before distributions are taken. I understand this message board is for benefit consultants whos job it is to administer plans, and it is seemingly not in your best interest to say that a TPA isn't necessary. In that regard, I'm not implying in any way that a TPA isn't worth the money they're paid. Just trying to determine the risks a clients is taking on in administering their own plan withing the above constraints.

Thanks!

I've managed to confuse myself here on something I shouldn't be confused about.

Say you have a 401(k), immediate entry for deferrals, and semi-annual entry for PS contributions - new comp with everyone in their own group. Plan excludes compensation prior to the time you become a participant in the particular component of the plan.

So, when you are doing your average benefits percentage test, and you are calculating the benefit percentages, do you calculate using compensation only from July 1 if that is when the participant entered the plan for contributions other than deferrals? Clearly you can do this purely for Gateway, but I'm getting confused about the rest. And even though deferrals are added back in, for this purpose, seems you would not add back in deferrals prior to July 1?

This will probably all be clear tomorrow morning after I've had a chance to step back for a bit...

The TPA of a self-directed IRA administrator has just discovered an account that had a prohibited transaction in 2010. The TPA will report the prohibited transaction via the 1099-R. Should the TPA file the 2014 1099-R, or should a 2010 1099-R be filed showing the prohibited transaction?

Never ran into this.

LLC is "taxed like a sub s". Some income is taken as w-2 the rest goes on a k1.

In a sub s, we cannot use any sub s "pass through" as compensation. Is that true with a LLC taxed like a sub s?

I think this is pretty obvious since you have to aggregate 401(k) plans and SEP IRAs for top heavy purposes, but I'd like confirmation -- if an employer has a 401(k) plan with all employees eligible (no service requirement), and a SEP IRA with no non-owner employees eligible (under the 3 of 5 prior years option), and makes a contribution to the SEP IRA, wouldn't that trigger a top heavy minimum contribution in the 401(k) plan?

This is assuming the SEP IRA agreement allows it to co-exist with a qualified plan.

Thanks.

Summary - A plan has a payroll by payroll fixed match. They may want to amend the plan retroactively to allow for a match true up. Does IRS Regulations allow for a match true up essentially at year end retroactively to 1/1?