katieinny

Two small companies have merged. The new merged company will offer group life insurance coverage, similar to the coverage one of the small companies had. But the other company had individual life insurance policies. The new merged company would like to grandfather those employees, allowing them to keep their individual policies if they would rather not switch to the group life coverage. Can they do that -- or is there a discrimination issue?

A single member LLC set up a DB plan about 7 years ago. He owned other businesses, but his investment advisor told him that since those businesses weren't related to his LLC, he did not have to include the employees of those businesses in the plan. Fast forward seven years, and the employer discovers that there is indeed a problem. Financially, it makes more sense for us to do a VCP application under the premise that the plan was never qualified from day one. There would be 1041s filed for the taxable trust, and amended personal tax returns for the client. The plan document does not automatically bring in employees of a related business. It says "Furthermore, with respect to a Non-Standardized Adoption Agreement, Employees of an Affiliated Employer will not be treated as "Eligible Employees" prior to the date the Affiliated Employer adopts the Plan as a Participating Employer." My question is should we be concerned that the IRS might refuse to allow the plan to be disqualified, and instead force the employer to go back and cover those employees from the beginning? Since there's nothing new under the sun, perhaps someone has run into a similar scenario?

My agenda for this afternoon includes going through the document page by page to make sure that my suspicions are correct and no changes were made. The employer has NOT signed the document yet, so no, QDROphile, I'm not asking if it's legal to dispose of a signed document. If there are no changes, I'd rather they chuck it instead of sign it. I was asked to review the document to make sure it's "okay" before signing. I just don't want to have to explain to an agent the next time they restate that the 2011 document had no real purpose other than that the employer was confused and requested it.

I'd like to know if I'm making moutains out of molehills. A volume submitter plan was restated in 2009 and submitted at the same time we were all scrambling to get our restatements done in early 2010. There was a problem with the submission because the GUST document wasn't signed on time. The employer paid a penalty and the Determination Letter was finally issued for the 2009 document. For a reason that I don't entirely understand, the employer asked their provider for a new document. I think they may have been looking for an SPD, but somehow they ended up with a 2011 restated plan. The next submission is years away, and they will probably need to restate again at that time. Of course, I'm going to go through the 2011 document just to make sure that changes weren't made, but assuming everything is status quo, my thinking is to toss the 2011 document, get a new SPD for the 2009 document, and get back on track. Or should I just let them keep the 2011 document and stop worrying about it?

The ER discovered that EE and ER matching contributions weren't made to the company's SIMPLE IRA plan for a period of about 18 months. He immediately made arrangements to make the missing contributions including lost earnings. He filed under VCP and will be getting a compliance letter. However, the draft of the letter says that the IRS will not disqualify the plan, but it doesn't make reference to any penalties. I've determined that 4972 doesn't apply, but I'm not so sure about 4979. The IRS says 4979 penalties don't come under the scope of VCP. I want to make sure that our client covers all his bases. Should I be concerned about 4979?

Thanks, Masteff. I couldn't see the forest for the trees for a minute there. I will check the definition of comp. Thanks for pointing me in the right direction.

Under the section entitled Crediting of Hours of Service the 401(k) plan counts each hour for which he is paid due to vacation,......or leave of absence. So, am I right in thinking that there will be no break-in-service and the executive will simply pick up where he left off when he returns to the office. I suppose he can continue to defer into the plan based on his continued pay, but he would not be entitled to a match or profit sharing contribution while he's away, right? I'm getting hung up on the break-in-service definition that says "no Employee shall incur a "break in service" solely by reason of temporary absence from work not exceeding 12 months...." This leave does exceed 12 months. Is it the fact that he's being paid during the leave make the difference?

The company employs about 80 people, 5 of whom are highly skilled, well paid (but not HCEs), hourly employees. Because of their unique skill set they are often approached by competitors trying to lure them away. The employer would like to set up a Top Hat plan for these guys, but the "select group of management or HCE" language has us wondering. From the reading I've done, it seems that there is some room for interpretation about the rigidity of that language. We would be interested in hearing the thoughts of our peers.

mbozek: I read the section of the plan document relating to claims. It says that if the claimant's written request for benefits is denied, he or she is entitled to request a hearing within 60 days after the denial, which the claimant did. I agree that there isn't any more to be said. The document says it all as far as I can tell, but I guess beating a dead horse is what some claimants do.

A claimant has gone through the process of requesting retirement plan benefits and is now up to the point where there will be a hearing. My only involvement is to watch and learn, so I have nothing at stake here. I was told that no court reporter or other mechanism for recording what goes on at the hearing is necessary. The claimant (or the attorney) makes his or her case verbally and then the Plan Administrator responds in writing at a later date. It's as simple as that. It just seems weird to me that there's nothing on the record. For those of you who have participated in this type of hearing before, is that correct?

A DB plan participant passed away without a spouse and no beneficiary designation form. The plan says that installment payments must be made to the participant's estate because the plan is underfunded and cannot pay out a lump sum. As a result, the estate must remain open for an indeterminate amount of time to receive these payments. I'm wondering if the executor can assign the benefit -- or if there isn't some way to get around keeping the estate open. Is the plan administrator just being stubborn, or is there really no other option?

Okay, I will get confirmation to make sure that I didn't misunderstand. For argument's sake, let's say the beneficiary is the plan (as it should be). Then even if it's called key-man insurance, it certainly isn't benefitting the employer as key-man insurance is meant to do. And I still don't know if a different beneficiary (other than the plan, if you're right) can be named for the amount that's the difference between the current cash value and the death benefit. Although, I don't think this question would have come up if the plan had been named as the beneficiary, because then the assets would have gone the participant's beneficiaries anyway. I think the question came up because he wants his family to get some of the proceeds instead of the employer getting all the proceeds from the policy.

A retirement plan holds a key-man life insurance policy. The plan is the owner and employer is the beneficiary. The question I was just asked is can someone else be named as the beneficiary of the difference between the current value of the policy and the death benefit amount? I've never had a good grip on the nuances of life insurance in a plan. From my perspective, the plan is the owner and beneficiary -- period. When the participant dies the proceeds go into the plan and are paid out in accordance with the beneficiary form on file. I haven't been able to find information on how key-man insurance is handled in a plan. Thanks for any insights you can offer.

If I understand the rules correctly, employers under a multiple employer plan are allowed to take the contributions made by both companies and allocate the total to ALL the employees, e.g., every employee gets a 5% contribution, even if one company contributed a greater percentage of the total contribution than the other company. Alternatively, they can treat each company individually by contributing to its own employees, e.g., Co. A contributes $100,000 and allocates 5% to its EEs and Co. B contributes $50,000 and allocates 3% to its EEs. If they go with the latter method, they have to run a benefits, rights and features test. In this case, the ERs thought they were a controlled group. They spread the total contribution out to all the employees as an equal percentage, e.g., 5% to everybody even though one company made a larger contribution than the other. They also treated all employees the same for all provisions of the plan. So, it would seem to me that no harm was done. Initially, I was concerned that the EEs of the larger company got less than they should have because their company made a greater overall contribution which resulted in the EEs of the smaller company getting more than they would have gotten otherwise. If my thinking is correct, there doesn't seem to be an operational error, but only a document error. The document should have reflected the multiple employer status, not a controlled group. Am I over simplifying this?

I understand that if even one account remains open, the plan is not considered terminated. So they are scrambling now to get the missing 5500s prepared and get the small account rolled to an IRA (the participant couldn't be found). It seems to me that we need to restate the document since it hasn't been updated since GUST, which means a VCP filing because we're beyond the EGTRRA restatement date. Clearly this is going to involve time and expense that goes way beyond the small dollar amount that was left behind. I guess it is what it is, but I just thought I'd ask if any of my peers might handle this differently.

Tom: Yes, I see your point. In this case, the snail's pace works in my clients' favor.

Is it your understanding that EZ filers will be able to stick with paper filings for the foreseeable future? I was thinking that they would be forced to switch to the online SF for the 2010 filing, but it seems not. Some of these clients have been operating their one-person plans for many years and would prefer to keep doing paper filings if possible. One of them had their CPA do a 5500SF last year, and would now like to go back to the paper EZ. I'm hoping that the SF filing doesn't preclude him from going back to the EZ.

It was thought that 2 businesses were a controlled group for many years. Therefore, for plan purposes they were treated as a single employer and operated under a single employer plan. Upon closer examination it was determined that they were not a controlled group after all. They adopted a multiple employer plan last year and began treating themselves as separate businesses under that plan. However, someone has asked if being treated as a controlled group caused a problem during all those earlier years. The question specifically relates to the allocations to participants, since the allocations were handled differently when they were being treated as a controlled group because the employees working for the smaller company benefitted by the larger contribution the bigger company made. Your thoughts would be greatly appreciated.

No problem -- I should have said that the age was listed in the document up front. I'll send out an amended page and stop obsessing about this.

The document says up to age 19 or 24 if a full-time student. I guess what you're saying is that some documents don't provide an age, but refer to code sections instead. Since this document includes an age, it must be amended.

Okay, now I'm really confused. The POP is a cafeteria plan. The intro says "It is intended that this plan qualifies as a cafeteria plan under 125 for Health Insurance Benefits as elected by eligible employees." I've been reading as many articles as I can find, including the IRS Notice, and it sure looks to me like the plan needs to be amended to include the "up to age 27" language. What am I not understanding?

KHanvey: I happened to be reading Notice 2010-38 today, and had the same question you did, so I turned to Benefitslink. I was glad to see your question posted. In our case, we are dealing with clients that have POP plans -- no Health FSAs. Some also have Dependent Care plans, but it seems those aren't affected by changes. One person was saying that the POP cafeteria plan doesn't need updating -- only the underlying health care plans must reflect the "up to age 27" language. However, it seems to me that there is little doubt that the POP plan must be amended. So the next question is are we already too late since we're 6 weeks into 2011 for a calendar year plan? Based on LRDG's edited note, a retroactive amendment is okay, since the new age requirement must be implemented this year as a legal requirement, not at the employer's discretion. Am I interpreting that correctly?

rcline46: My fear is that there is no such person (who knows what's going on). We certainly can't rely on the investment provider, and the employer is as shocked by this turn of events as I am. Thank you all for your thoughts and suggestions. It has really helped to get input from others in the field.

Deflector: I don't know the answer to that, but I sure hope it doesn't go that far. There has to be a better way. I was wondering if anyone had any comments on the 5500 information I posted above.

I pulled the 2008 5500 from FreeERISA. The title of plan confirms 401(k). Under funding arrangement and plan benefit arrangement boxes 1 (Insurance) and 3 (Trust) were marked. There's a Sch D (DFE). The Sch H shows assets under only 2 catagories -- some under pooled separate accounts, but mostly under registered investment companies. I don't prepare 5500s, but it looks normal to me.