I'm 100% vested in a Defined Benefits Plan at a former employer (big US defense firm). I'm a month away from 65 and must decide whether or not to defer taking benefits. Some facts:

I don't need the income now (I expect to keep working at least to 70.5). The plan will only pay about $500/mo even if I start taking 100% Life Only payments now. There is no cost of living adjustment.

My first choice would be to take this old pension as a lump sum, since I can roll that into a current 401(k). However...

The plan is now in restriction. So I cannot get a full lump sum now; only half. If I take that, I have to take the balance as a standard annuity, starting immediately. Once I begin that it's irreversible.

The plan probably will go out of restriction, but that is probably a year and may be several years away. I figure a 50% chance it will still be in restriction two years from now; maybe a 30% chance at three years - all guesswork. And it may or may not even allow lumps when and if it comes out.

The plan has told me that I defer now and start a full annuity at 70.5 (or probably at any time before) the plan will pay me the same amount monthly then as now, and they will also retroactively pay for the months in between.

They also told me that if I defer now and am later able to take a full lump sum they will simply recalculate it then based on interest rates at the time - there will be no retroactive payments.

So - I would like to defer hoping for a full lump sum "soon", and avoiding the tax bite of annuity payments that I don't even need now. But it seems to me that any recalculation of the lump sum in the future will (if interest rates remain the same) have to be lower, simply because I will be older. That seems like a guaranteed loss.

Plus, being in restrictions makes me wonder if the plan is more than usually shaky. Maybe I should get my 50% lump now while I can and let the residual payments start.

I can juggle the info I have, but I will certainly miss something that I don't know or understand right, Any advice will be appreciated. I need to decide in a day or so.

Thanks

Plan sponsor is part of a controlled group, the SH 401(k) currently covers just one entity, the other 3 entities do not have a plan at all. The current plan passes the 410(b) ratio test.

Can the existing 401(k) be amended to extend the coverage to the other entities mid year? I know some interpret IRS guidance on this to permit no amendments except that which they have specifically authorized, while others interpret this to mean SH provisions and perhaps other provisions in the SH notice cannot be changed.

If they don't want to amend the existing plan, can the other related entities adopt a separate SH plan for 2014? Or are they precluded because the "Employer" (as defined in 414(b) and ©) already sponsors a SH plan?

If they cannot adopt a new, separate SH plan for 2014, can the entities without a plan adopt a non-SH 401(k) or does the mere presence of the SH in the related entity somehow interfere with this as well?

The plan year requirement in the (k) regs allow a new SH plan less than 12 months unless it is a successor plan under 1.401(k)-2©(2)(iii). This section defines Successor Plans to be plans where 50% or more of the eligible employees were covered by a CODA of the employer in the prior year. In this case none of the newly eligible ees has previously been covered by a CODA maintained by this employer, so any new plan would not be a successor plan.

I hope that BenefitsLinks smart practitioners will help me think through some practical questions.

A few States have issued some guidance about tax-reporting for same-sex spouses.

Nebraska

http://www.revenue.nebraska.gov/question/same-sex_FAQ.html

North Carolina

http://www.dornc.com/faq/ssmarriage_faq.html

Ohio

http://www.tax.ohio.gov/Portals/0/communications/information_releases/DOMA_EWH_InforRelease11142013.pdf

Wisconsin

http://www.revenue.wi.gov/faqs/ise/samesex.html#samesex1

Some of these documents suggest that the amount an employer reports as its employees wages for State income tax purposes must add the amount that is the fair-market value of health coverage provided to the employees spouse if the spouse, even if recognized as a spouse for Federal taxes, is not recognized as a spouse under the States constitution or statute.

If followed, this would result in different wage amounts for Federal and State (and locality) tax purposes. (As a Pennsylvania and Philadelphia resident, I know that there can be other kinds of differences between Federal, State, and locality wages.) And it asks an employer to estimate a fair-market value for something that has no market.

What proxy or method should an employer use to estimate the value of the coverage attributable to the spouse?

If an employer fails to do this reporting (and a States tax agency detects that the employer didnt do it), do you think that a State will be aggressive or lax in its enforcement efforts? Why?

If an employer cant settle (with little or no money, and a sin no more pledge) a States enforcement effort, will a State really take this to litigation?

Is an SAR required for a plan that has merged into another plan?

Thanks!

A financial advisor has indicated that a client of his through his CPA has set up a SEP plan that indicates an employee has to be employed as of the last day of the plan year to be eligible to enter the plan. The company has seasonal employees and doesn't want to cover them even though they have met the eligibility requirements.

From my research, there is no indication that entry dates apply to SEP plans and therefore once an employee has meet the eligibility requirements they would be in the plan even if they were seasonal employees who only worked during certain periods of the SEP plan year (12/31).

I would greatly appeciate it if someone can confirm that I'm on the correct path. There are examples of determining eligibility on the IRS/DOL website for SEP plan but thought I would pose the question on here as well.

Thank you in advance for your response.

Dianne

Just a repeat, but it is April 16th... to the tune of the Beatles' "Yesterday"

Yesterday...

Income tax was due, I had to pay...
All the funds I tried to hide away...
I don't believe, I'll eat 'till May.

Suddenly...

I'm not sure that I am fiscally...
Ready for responsibility...
Oh yesterday, came suddenly.

Why, I

Owed so much, I don't know, I couldn't say
May be
Forms were wrong, how I long, for yesterday.

Yesterday...

Seemed like prison time was on its way...
Now I need a place to hide away...
While keeping IRS at bay.

Why, I

Owed so much, I don't know, I couldn't say
May be
Forms were wrong, how I long, for yesterday.

Yesterday...

Taxes due, I filed come what may...
Losing all deductions that's my way...
Of giving IRS my pay.

mm - mm - mm - mm - mm - mm - mm.

I was curious as to opinions as to how on the income statement of the 5500 the lost earnings that an employer deposits to the plan due to late deposits of employee contributions and loan payments (or any type of restorative payment) should be shown? We have been showing as “other interest” or I suppose since we are now doing more calculations using highest performing fund and not DOL calculator maybe this should go under “other income” or possibly lumped in with earnings of the type of investment in the plan (e.g. mutual funds).

Perhaps this could be shown as an employer contributions? Does anyone do this? This is not an employer contribution from the corporate side of things as not part of the 404(a) limit and the IRS has said it is just a business expense. Thoughts and opinions?

I tried to find some formal clarification but could not find anything so if anyone has anything definitive that would be helpful too.

A plan failed its 2012 ADP test but the refunds were processed in 2014. Can EPCRS be used?

I have a client that allows loans for harships only. One of their employees (an NHCE) is in some financial trouble, but not for any of the hardship reasons (primary residence, medical, funeral etc.) The client would like to help out this employee but does not want to open the floodgates to the other employees, so I have a few questions:

1. What kind of evidence for the hardship is required by IRS/DOL (not by the plan)? Can we take the employee on their word only?

2. Can we amend the plan to allow for loans specifically naming this employee?

3. Can we amend the plan to allow for non-hardship loans for a specific period, say 5/1-5/31?

4. The loan is for a car - can we amend the plan to only allow loans for harship and transportation to and from work?

The bottom line is the client wants to help put their employee, but not does want all the other employees to start taking loans for "non-hardship" reasons.

Let me know what you think.

Thanks

A 5% owner turned 70 on 03/28/2013 and then was no longer a 5% owner on 04/01/2013. Was this participant required to satisfy their RMD require for 2013? (Knowing that they could push off the initial payment until April 1, 2014.)

Death distribution: minor beneficiary. We received the paperwork regarding the custodian and we know how the check needs to be made payable: Adult Name Custodian of Child Name Minor (they did not elect inherited IRA - they want lump sum distribution). We know it is subject to mandatory withholding as it is considered an eligible rollover distribution.

I'm sure this is an easy question but I can't find a concrete answer:how is the tax reporting done for the withholding? I've read that the beneficiary is liable for the income taxes of the distribution - does this mean the tax reporting is on the minor child, therefore we need her social security #? Or is the tax reporting on the adult custodian and we need his social security #?

Do you generally recommend that your clients maintain a fidelity bond for SIMPLE IRA's? What factors should be considered in making the determination? The guidance that "such plans are generally structured in such a way that if any person does handle funds or other property, that person will fall under one of the financial institution exemptions" seems to lean toward the bond not being necessary. However, if the employer or a payroll company handles funds, how does this fall under the scope of the financial institution exemptions?

The employer maintains a 3% Safe Harbor Plan. Currently distributions are issued the plan year following a one (1) year break in service. SInce this is a daily valued plan, the employer wants to change the payout to immediately followign the date of termination.

Although this change has no impace on the 3% safe harbor contribution, I do not believe any guidance that would allow this mid year amendment.

The employer would need to wait until next year for this change. Amend the document prior to the close of the current year and then effective 1/1/2015 allow for immediate distribution

Do you agree?

On application for a favorable determination letter the IRS website states

Interested parties generally include all:

• Present employees of the employer who are eligible to participate in the plan, and
• Other present employees of the employer whose principal place of employment is the same as that of the employees eligible to participate in the plan

I noticed today while perusing the new ASPPA website that the yearbook link is missing. I called them to inquire and was informed they are not planning on offering the yearbook anymore - online, in-print, at all. It's still listed on the website as a "member benefit."

Boo, ASPPA. Anyone else think you're going to miss the yearbook?

Accountant came to me this morning with an odd one -

Instead of e-filing for an extension on Sunday, she inadvertently e-filed the tax return itself. So she's all freaking out, because now our common client has a day to come up with his 2013 retirement plan contributions for himself and the staff.

I inquired why she couldn't just STILL file for an extension, either on paper or electronically, and that way the employer (sole prop) could still take until October 15 and use the extension to file a perhaps-amended return?

She mentioned that once you've filed, you can't then request an extension.

Anyone know the statute on that, of the top of their head? Thanks.

--Bri

It was always my understanding that if a participant elected an optional form of benefit prior to his/her annuity starting date, then died, the plan could permit that election to stand and honor that election. I can't seem to find the appropriate Treasury regulation. If you think this is doable or are aware of the regulation, please let me know. Thanks.

Just took over a plan where the definition of compensation is W-2 without adding back salary deferrals. So for the regular employees, that's easy enough - just use Box 1 from the W-2.

The partners, though...the basic plan document says that it is their Earned Income, which is defined as

...Net earnings shall be determined without regard to items not included in gross income and the deductions allocable to such items but with regard to the deduction allowed to the taxpayer by Code section 164(f). Net earnings shall be reduced by contributions to a qualified plan to the extent deductible under Code section 404.

I'm not sure if this really gives me the authority to subtract the partner's deferrals from what the K-1 calculation yields. Of course I want to, because that makes sense, but is that how this reads? And no, the K-1 amounts aren't over $255K.

Thanks for your input...

Hello all,

So my wife decided to stay on with the new born and out three year old this year

and hasn' worked since Sept 2013 and I have some questions regarding

contribugtions to her IRA Account.

1) Since I am the sole earner now, can we still still contribute to BOTH of IRA's for the 2015 calendar year?

I make IRA contributions at the begining of the year.

2) I've heard that she has to earn income more or matching the amount that we contribute to her IRA.

Is that accurate?

So if she earns $5,500 in 2014, we can contribute $5,000 in 2015?

3) Does stock dividend interest payments from a non IRA account qualify as "earned income"?

4) Does the sell of publicly traded common stock qualify as "earned income"?

IE: purchase shares low and sell high

Thanks for the answers.

Sole proprietor with no employees.

Setup SEP/IRA and has made max contribution for 2013.

Can she also contribute $5500 to a traditional IRA?