A 401k plan for a 1-man company holds a life insurance policy for the owner/sole participant. We have been showing the value of the policy in the plan's assets as the accumulated amount of premiums that have been paid (all paid by the plan) rather than the policy's actual cash value, as the total premiums have always been less. The owner has now informed us that there will no longer be any premiums due, so it would appear that we would just show it having the same value every year from now on - is this the best way to account for the policy? Thanks for any help offered.

Has anyone considered the issue of what to do with refunds from a 403(b) plan? The situation is that a vendor (TIAA-CREF) is recalculating its fees retroactively, and is paying the employer (a governmental entity) the excess of the fee originally paid over the fee calculated based on the new rate structure. The employer is trying to determine whether the refund can be used to pay administrative expenses of the plan (in this case, expenses of the bid process for selecting vendors), or must be allocated to employees.

The plan is a deferral-only plan. The plan document provides that deferrals are to be invested in annuities/custodial accounts as soon as administratively practicable. There is no provision for the payment of administrative expenses. And there is no provision for the receipt of any amount other than deferrals.

In theory, it seems to me that the employer should never be given the refund in the first place, because the amount is in effect a distribution from an annuity that is supposed to be owned by the employee. However, crediting employee accounts is not one of the options offered by TIAA-CREF.

However, given that the refunds are going to be made, what does the employer do now? Can it argue that using the money for the bid process is using it for the benefit of employees (because the bid process is basically about getting the best investment options for employees)? Or must it contribute the refund to the accounts of those employees in the TIAA-CREF products?

5500-SF was filed for 2011, extension exists for 2012 calendar plan year - owner the only participant at beginning and end of 2012 - can a paper 5500-EZ now be filed for 2012? Will EBSA send a form

letter asking for the 2012 SF return? Assets over $ 250,000.

I have a client and they failed the ADP test for 12/31/2012. When the TPA calcuated the refunds, they noted one HCE terminated in 2012 and rolled his account balance to an IRA.

In addition to the refunds, there were match funds attributable to the refund that needed to be forfeited

1. Doesn't the IRA need to return the match attributable to the refund to the plan? Otherwise he recevied a higher match than the NHCEs

2. Doesn't someone need to tell the IRA custodian to much was rolled into the IRA. The refund portion is not eligible for rollover, and needs to be distributed to the participant?

TPA has done nothing for 8 months. The client pays for TPA work but it seems this TPA could not be bothered to correct an issue that occured on their watch.

Thanks

Requested a Certificate of Coverage from Health Insurance Carrier. Was told that I cannot get one until coverage has been terminated. I do not want to terminate coverage but would like a certificate of coverage. Can I get one?

I'm having a disagreement with a colleague about a proposed 409A design and wanted some feedback from the forums.

Background

A private equity firm has proposed a "phantom carry" plan for its non-partner employees. The firm creates funds which invest in companies over the course of, for example, 15 years. Periodically, the fund will pay earnings of those companies out to investors. The payment of these earnings is "carry."

Proposed Plan Design

An employee is granted a phantom ownership interest in a specified fund managed by the partnership. As with phantom stock, this is not an actual ownership interest and does not dilute the ownership interests of actual owners. Rather, each time the fund pays carry to its investors, the firm pays an amount to the employee equal to what the carry payment would have been for that employee had their ownership interest been real. The firm would pay cash in the next semi-monthly payroll cycle, and there would be no further deferral. The employee's entitlement extends for the life of the fund; potentially beyond termination of employment.

Is there Deferred Compensation?

As a threshold question, we must ask if there was any deferred comp. When are the amounts earned. If the employee is entitled to nothing until the payment of carry, then there would be no deferred comp as amounts are paid out immediately thereafter. However, if we say that it's the grant of the phantom carry rights that creates the entitlement, then subsequent payment of benefits for years down the road would certainly be deferred compensation subject to 409A. I think we're OK on our end saying it's the latter, but wanted to float this in case anybody felt strongly that there was no deferred comp.

Is the Payment Scheme 409A-compliant?

Alternate Arguments:

No, it is not compliant. In this case, the payment of carry out of the fund triggers payment of NQDC to the participant. Such an event is not a permissible distribution event under 409A.

Yes, it is compliant. Each semi-monthly payroll cycle is a stated date, which is a permissible distribution event under 409A. On most of these dates, there is a zero balance in the account, thus no distribution. Following each payment of carry, the NQDC account has a balance which survives only until the next scheduled distribution date (the semi-monthly payroll).

Any thoughts/feedback?

Thanks.

Two companies are in an ASG - Company A and Company B. Partner 1 is a partner in both Company A and Company B (he actually owns 100% of Company B and is its sole employee). Company A sponsors a 401k Plan, and Partner 1 signed an irrevocable election out of Company A's plan. Now (years later) Partner 1 wants to establish a Plan under Company B. That's OK, because he didn't elect out of any plan ever sponsored by the ASG. But we also want Company A to adopt Company B's new Plan. The B Plan would exclude anyone covered by Company A's plan. We want to do this so we can use his comp from both Company A and Company B. Again, he did not opt out of any plan ever, just the one that Company A adopted.

Anyone have a problem with this? It sounds too easy, but it also seems perfectly legit.

We have a cleint that wants to (has been) allocating forfeiture on a flat dollar amount to every person who is a participant that did not enter the plan this year.

Is this possible? Currently the plan document does not allow this, but is it possible to change this for the future (i.e. document with two classes)?

I have a plan that is sponsored by a company that has just sold its assets to another company. The employer intends to make a contribution for the short 2013 plan year and then terminate the plan. There are some employee-participants who terminated BEFORE the sale who are not fully vested and are looking for distributions ... before the final contribution (which will not be shared in by the terminated participants) is made.

As I read the regulations, everyone (including former employees) must be fully vested upon plan termination. In a 1998 6th Circuit case, the court held that a participant who was terminated before the dissolution of a plan sponsor was not an affected employee and full vesting was not required.

Just wondering if people out there are using this ruling as a guideline or if it would be more prudent to vest everyone in the plan now that the employer has sold its assets.

My personal thought is that it makes logical sense that the former employees would not vest because the sale of the company had no impact on the fact the employee would not have vested ... his termination took care of that ,,, well before the sale. I just wish I had been told they were in negotiations as I would have urged them to get all of the affected former employees paid out!!!

Thanks.

James

I have an EOY plan with the following information:

· AVA = 1,848,635

· CoB = 51,672

· PB = 153,808

· Adj Assets = 1,643,155

· FT = 1,699,835

Prior S/F amounts:

Date Initial Amt Installment PV

12/31/2008 234,405 39,399 112,101

12/31/2009 -97,069 -16,252 -60,066

12/31/2010 -77,269 -12,535 -56,432

Total 10,612 -4,397

Any opinions on how to handle the above scenario.

It just keeps getting more interesting. I'd love anyone's thought on the following, which relates to the intersection of the new world of the Affordable Care Act and Health Reimbursement Accounts (HRAs).

Here's what I know:

1. HRAs, to comply with the ACA, must be 'integrated' with the health plan.

2. Stand-alone HRAs are out - unless its a retiree-only HRA.

I have clients (public sector) who have an Active Employee (integrated) HRA (employer makes contributions to active employees) AND a retiree-only (stand alone) HRA (employer makes specified contributions for a limited number of years to retirees.

Here's the the @#%# hits the fan:

Client may want to rehire a retired individual (who still receives the retiree HRA contribution in the retiree-only HRA account) for part-time work. In the re-hired position, the individual is eligible for the active employee HRA contribution.

Some vendor/promotor types, locally, are scaring a lot of employers by pointing out the conflict here, and saying that the active-employee HRA made for the retiree will "blow up the retiree HRA" (which, if it is not for retirees-only [by receiving a contribution for an 'active', does not satisfy the ACA).

I believe that an assumption is being made here that there is only one HRA and that an active-employee's HRA is 'converted' into a retiree-only account when someone retires.

In actuality, I believe that we should actually be talking about two separate HRAs here: one for actives (integrated) and one for retirees. Contributions make to a retiree should go into a literally different/segragated account than for when the person was active.

Additionally, I would think that the 'problem can be addressed' by adopting a rule under which a person is eligible for only one type, but not both types, of HRA contribution at a time. (Maybe freeze the retiree HRA contribution while the person is a rehired active.

Alternately, perhaps the rehired person could simply receive both types of contributions at the same time, so long as the active-portion goes into the active sub-account and the retiree portion goes into the retiree sub-account. (The person did, after all, attain 'retirement' status at some point, and barring plan language to the contrary, arguably remains entitled to a retiree contribution).

Hmmmmm.....

I imagine this is an area where we'll see more regulation/guidance, but for now - it provides a window for local trouble makers to rattle the nervous employers. Sigh.

Our 401k plan specifies that we use w2 wages for compensation, but I don't believe that it stipulates which method to use...top 20% or the compensation income limit ($115,000 for 2012 I think). Can we use either top 20% or compensation limit if not defined by the plan documents?

Also, are companies required to use the same methodology and compensation definitions for Health and Welfare testing as their 401k testing? Can a company use top 20% and W2 compensation for 401k, but use the basic 415©(3) definition of compensation and comp limit of 115k for Health and Welfare testing? If companies are required to use identical definitions, can someone point me to the specific section of the law spelling out this requirement.

Thanks.

I was wondering if someone can tell me whether a plan's nondiscrimination results are reported on the Form 5500. I do not see a specific spot on the Form for such information, but I'm curious to know whether that is something that is addressed in the auditor's report in connection with the Form 5500? Any guidance is appreciated.

If a 401(k) plan provides for immediate entry and vesting for prevailing wage contributions, is the employer/plan subject to the California law in regards to “Annualization” of the employees hours worked for both private and public jobs?

Hello - I am unable to find any guidance on how to treat the following in my TH Tests. I'm hoping to find some guidance for some of you that may have had a similar situation.

I have two separate entities within a single plan. The two entities are not controlled nor related and therefore, I am required to perform all compliance testing separately for each entity. (For a quick understanding - "entity A" is owned by a father, son and grandson. The other entity ("entity b") is owned by the son from entity A (at only 33%) and two daughters of the father from entity A). I believe the two entities are not controlled due to the ownership of the second company being owned 66% in total by the father's two adult children.

The son in entity A was an employee of entity A and accumulated a large balance in the plan. He recently switched companies, and now is an employee of entity B, however, still an owner of entity A and owner of entity B. When computing the top heavy tests, how would I account for the son's large account balance? Would I show the portion of the account earned while an employee of entity A as a "former key" balance. Would the amount be tested in the top heavy test of entity B, even though the balance was mostly accrued while an employee of entity A?

Thanks for your help!

a participant terminates with a loan and is over 70 1/2. the loan gets defaulted and the participant receives a taxable distribution. can he use that distribution to make up some or all of his RMD for that year?

If an employer agrees to provide employees a flat % of their sales revenue as a commission to be paid in the following year, is that arrangement subject to 409A?

I came upon the following - although I haven't seen (or perhaps noticed) a SH matching plan for ADP purposes only, with allocation restrictions on the additional DISCRETIONARY matching contributions as described, I also can't say that I'd ever really thought about it. Do you agree with the conclusions, or do you think that this paragraph is referring to SH matching contributions only, and not to additional discretionary match? It seems counterintuitive that a plan where the safe harbor match formula is correct would have the ADP SH blown by tossing in discretionary match.

ADP Safe Harbor Pitfalls

Treas. Reg. 1.401(k)-3©(4) (the ADP Safe Harbor rule) provides as follows regarding a plan that satisfies the ADP safe harbor with safe harbor matching contributions:

(4) Limitation on HCE matching contributions.-

The safe harbor matching contribution requirement of this paragraph © is not satisfied if the ratio of matching contributions made on account of an HCE's elective contributions under the cash or deferred arrangement for a plan year to those elective contributions is greater than the ratio of matching contributions to elective contributions that would apply with respect to any eligible NHCE with elective contributions at the same percentage of safe harbor compensation.

It is of utmost importance to note that the "ratio of matching contributions" mentioned in the regulation above does not differentiate between safe harbor matching contributions and any other matching contribution type. Therefore, if a plan is designed to use a safe harbor match to satisfy ADP testing, and it also provides for a discretionary (and/or additional fixed) match, then in order to maintain the benefit of the safe harbor match, no HCE can receive a rate of match at any level of deferral that is greater than the rate of match received by any NHCE at the same level of deferral. Unfortunately, this rule can be easily broken simply by including some very common restrictions on the discretionary and/or fixed match portion of the plan. Plans that require participants to meet a last day requirement or hours of service requirement in order to receive the discretionary match put the plan's safe harbor status into jeopardy.

For example, assume that a 401(k) plan includes a safe harbor match as well as an additional discretionary match. This plan requires participants to meet a last day requirement in order to receive the discretionary match. Charles is an NHCE who makes elective deferrals into the plan each year, including in 2012. Charles terminates employment in October 2012, and therefore is not eligible to receive a discretionary matching contribution for 2012. Janet, an HCE, also makes elective deferrals to the plan each year, including in 2012. Janet remains employed with the company for all of 2012 and receives both a safe harbor match and the discretionary match. Janet will receive a higher ratio of matching contributions since she receives the discretionary match and Charles does not. The plan is therefore in violation of the rules discussed above, preventing the plan from benefitting from the safe harbor rules and requiring it to satisfy ADP testing, even though the safe harbor match must still be made and be 100% vested.

P.S. - I should point out that I've always followed this procedure above automatically, but without ever really thinking about it - and after looking at it, I'm just wondering if I've always been doing it correctly by assuming this was the "rule." I think it is, but I'd be happy to be proven wrong...

Hello,

I know this is generally facts and circumstances and the 20% number is based on all active participants as of the beginning of the year plus eligible during the plan year.

Can we exclude otherwise excludable from that calculation?

I also understand that based on recent comments that not only those participants that terminated in-voluntary but all participants that terminated during a year that is determined to have a partial plan termination are to be given all benefits.

Thanks

I have a potential client who is a 1/3 owner of a law practice in which he works part-time. He also is a sole proprietor and works on separate cases outside the firm. He recently won a large case (outside the firm) that was started 4 years ago (before he was a 1/3 owner in the firm).

Is he able to set up a plan just for himself, outside the firm, with the dollars earned from outside cases and not affect the plan inside the firm? Are there any affiliated service group issues?