wsp

plan year end is 4/30/2005 and the plan has last day and 1000 hour rule. Can we change the groupings or is it too late? Currently plan groupings are "HCE" and "Non-HCE". We want them to read "President", "Vice Presidents", "Key Employees", and "all others". The only individuals who would be moving groups are HCE's. Does moving HCE's to a lower contribution class constitute a reduction in benefits and thus disallow us to make this change? Ideally we'd like the "Vice Prsidents" to receive the same percentage as the "all others" and the "Key Employees" to receive a zero benefit.

Particpant requests distribution prior to age 59 1/2. Plan pays out money....but for some reason participant isn't in receipt of money for 4 1/2 months at which time (surprise suprise) the participant has reached age 59 1/2. Does the "year in which the even occurred" rule work for this scenario as it would in the separation from service at age 55? Trust issued check using code "1" but told participant they are ok and no penalty applies...however, did not reissue a corrected 1099-R. I would think that if they were truly backing that interpretation they would reissue. My guess is that the exception does apply for tax purposes as she did turn age 59 1/2 in year in which the distribution took place and the IRS is only concerned about where everything stands at 12/31. However, the plan processed an early distribution as they issued an in-service withdrawal of the participants account balance prior to the participant reaching age 59 1/2. Not seen any plan documents that say "in year...." so I would think a hard line approach is in order and 59 1/2 is 59 1/2 and not 59.475.... Can I get another opinion on this...am I being a bit stuffy in this interpretation?

Assuming a client missed the 9/15 deadline for making the profit sharing contributions so the deduction for 2003 is gone. We can still make the contribution today and it would be deductible for 2004 but considered a 2003 contribtion correct? Can we continue doing that for a few years until the deduction for the missed contribution has been recouped? IE making a portion of the contribution prior to September 15 to reach the 404 max and the rest after september 15; continuing to do this until she has "regained" her lost deduction?

So, I have two choices.... Make the amendment to delete the other contribution, based on the premise that the contribution has not been made and therefore not accrued. Thus, no cut-back making it ok to replace the formula. Formula added will be added retroactive to prior plan year. or Make an amendment adding on an additional formula making it retroactive to prior plan year. No cutback in this method either, simply not funding original contribution. With both scenarios do I have to have a VCP filing? or does the second scenario only require a determination letter filing since we are adding the comparability test and not removing a benefit?

Trustee is one of three executives and she said it was discussed. In conversations today, she did say that she's not sure if owner was ever made aware of the change. Didn't say yes or no, just not sure. She went further to say that she wasn't sure why it was changed and that in conversations with the administrator, their representative couldn't state for sure why it would have been changed either...so notes on the issue are sketchy. Keep in mind the Owner is not a trustee. Owner in a separate conversation is saying he was not aware that the formula had changed until after pye when draft allocation was supplied to him for his approval. Neither the owner or the other officer were aware that I was having conversations with each other as I was looking for truthful responses rather than what "should be said". As for IRS submission, it's doubtful there would have been an IRS submission as the timing of the new document coincided with GUST and EGTERRA restatements. Which leads me to think that's why the document was changed as the administrator says in an email that was copied to me that changing the formula would alter their prototype and require submission. So it's a guess that they talked her into it so that they wouldn't need to submit to IRS for approval for GUST. Either cause it was post deadline or some other reason such as they never got approval for a comparability test prototype document.

Funny you mention that because Scrivener's Error kind of does apply in that the owner of the company had no idea that the formula had changed because he's not the trustee of the plan. So, although the trustee signed off on the plan document, the plan is clearly not as the settlor of the plan intends it to be. This argument of course would be invalid if the owner were also a trustee, but he's not. But that's up to the IRS to decide...

Except that it's after the 4/30 PYE and thus too late for a new plan. An amendment to the old plan is the only alternative. So, now I'm thinking amend the old plan and add the comparability formula with the same eligibility provisions while leaving in the orginall formula. Which leads us back to the original VCP filing with a slight difference. Correct?

It's a 4/30 YE so we do have time to get it right. We are leaning towards creating a seperate account and funding that account with the comparability figure, but then splitting into individual accounts the smaller integrated formula figure. Then we can proceed with the VCR. Depending on it's outcome we will either split the rest or hold for following years allocation. Ok, just read MBozeks post. And I could be twisting words around to fit my needs but...If it's a discretionary contribution and thus no obiligation to fund then we can make a retroactive amendment changing the formula without it resulting any cutback so long as the contribution has not been deposited? Thus making this whole issue moot? or was that wishful thinking?

an accounting client of my firm came to us to help solve a dilemma. Their current service provider updated their document for GUST. In doing so and with discussions with clients management, they changed the allocation formula from a cross-tested comparability plan to an integrated one. Not sure why it was done, the client mumbled something about divorce proceedings with owner. Anyways...plan year is over and it's time to calculate the contribution amount. However, they want to use the comparability test to do so..... Since it's after the end of the year are we locked into the integrated formula? or can we file a VCP filing and provide documentation that it was intended to be a cross tested comparability plan. Client would be actually increasing the amount provided to participants under comparability plan. If we can change it, any ideas on the best way to do so?

Can an ERISA argument be brought into a state court or are they all remanded to the Federal Court System? Question in mind is a prohibited transaction: loan to prohibited party. Argument is valid, but plaintiff is trying to coerce client with holding up a summary of judgement in a state court with this "threat". I would think the state court would at worst hold over the summary of judgement until the ERISA suit is heard. Am I right?

A client asked if they had to file a 5500 for their cafeteria plan. They have AFLAC who takes in premiums to pay the employee portion of health insurance and other pre-tax benefits. Sounded to me like it's a basic premium only plan and doesn't require a filing. But, since I'm a pension guy and not a Health and Welfare guy I thought I'd check with the experts. File? Don't File?

One other thing....would this be a deductible contribution? Or has the client lost it's deduction due to time delay?

My client's plan paid the necessary contributions to the staff, but neglected to make the contributions for an HCE (the client) based on old and outdated information provided to them by their CPA (along with the typical assumption that the market would continually go up). The account is owed well over $100k (after earnings). Error occurred 7 years ago. Since the error occured a few years back, is my only method of correction through the VCP program? Any other ideas? Already tried to self-correct and the brokerage firm where the IRA is held won't accept the contributions as prior year contributions. Can't make it current year contributions as there is no current year income to support it...would raise a flag with the IRS if there is a current year contribution reported by the IRA institution but no current year deduction. Any ideas?

5500 was filed with a contribution amount that was higher than what was deducted on tax return. Please tell me this is a simple amended return issue. Will the IRS/DOL levy any penalties or fines in this case? The accountant's provided me an amount than changed it just prior to filing becuase the client didn't have the cash flow to support it. Didn't tell me of course. One person plan so redoing allocation is not an issue...

This is something that I just can't fathom. We always say go to the plan docs and do what they say.....then quietly whisper under our breath unless it's something we clearly don't want to do, then it's "the intent of the document was...." In this case, though I think you can make a case for exclusion as they were specifically excluded from the other contributions. But, now I've clearly thunk too much and have a haddock. So, I say "Abalone" and let the client decide.

Maybe I read this wrong in the the ERISA outline book but the correction to this is not a distribution, but rather done via a negative contribution in the payroll and a forfeiture of the match. Is that correct? If so, what's to stop the participant who doesn't max out his deferrals anyways, from simply raising his deferral percentage for a payroll to turn around and get the money back into the plan? If the plan document allows for deferral changes on a payroll by payroll basis, is this a viable option? Also, I read nothing about income...do I return income in this correction? Seems silly to do if they are going to put it right back into the plan. But, not so silly if they don't put it back in given the gains the participant had.

A client did not make a contribution to the SEP IRA of a participant for a few years, based upon erroneous information provided to them. We are now trying to rectify that and make a lump sum contribution (including appropriate income) before the IRS catches up to them and makes self correction not an option. However, the IRA Operations Department at the brokerage firm where the assets are held will not accept or allocate (ie label) contributions for prior years saying they are prohibited from doing so. Can anyone provide me some insight on why they would say this? Not doing so would disqualify the plan so something has to give on this one... Unfortunately it's not so simple as having them deposit and label as a current year's contribution as the amount is well over $100,000. Yes, it was an HCE that was missed... Any advice would be appreciated

I have a client who is in the entertainment industry. She currently employs two individuals and all others associated with her are paid on a contract basis. Years ago they switched the plan from a profit sharing plan to a SEP-IRA. At this time her balance was sufficiently high enough that she didn't make contributions for herself, only her two employees. I wasn't involved so I'm not sure of the logic there. So, the question is can an employer opt out of receiving a SEP-IRA contribution. I know that they can write it into a qualified plan document that HCE's are excluded from contributions but I wasn't sure about the SEP. Since there was no amendment in place opting out years ago and I am assuming she should have been covered, what income gets used to determine a contribution? is it only w-2 and schedule c income? And if there is a loss on the Schedule C? Do they then legitimately not make a contribution for her? And going back and making her whole..I am assuming that I go about it the same way is if a person was ommitted from a profit sharing contribution? Any help would be appreciated...

We have found with a new client that they did not follow the directions of the loan policy when preparing new loans. Policy states prime plus 2....client provided all loans at 7.5%. A bargain when the rates were at 8-10%. However not so good when rates were much lower. Now to correcting it. Do we reamortize all the loans over the orignal time frame using the current balance? Or do we have to take each loan and calculate the actual-should be balance differential and either force extra payments to catch up or process distributions based upon the balances? There are a number of loans involved so obviously not an easy chore. A number of participants who have benefited from a reduced rate are almost done with their loans so a large payment would be a bit unweildy for them. The are allowed multiple loans so new loan/payoff options are possible in some cases.

except the penalty gets assessed back to July 31. So at $75/day that obviously is not the route to take unless 1) the have the leeway to apply the penalty from 10/15 or 2) they will apply some intermediate amount as a penalty given an appropriate excuse. The plan is a relatively small plan so even $800 is a bit much for everyone to swallow.

Just received a phone call from a client who came back from a two week vacation to find a form 5500 sitting on her desk dated October 10 . Yes, that exact form 5500 that was to have been signed and mailed last week. Now, I know that the penalties are $10 a day under DFVC and are levied back to the July 31 date, so this vacation just cost us $800. Can anyone give me a valid reason not to do the DFVC program? I know I'm grasping at straws, but is there any possibility of avoiding a penalty in this situation? or having the penalty reduced to a lower amount? Is there any hope at all for this lost soul?

I have a participant who's hardship withdrawal request includes enough to cover his withholding and his 10% penalty. Is anyone aware of any reason that he cannot include that 10% penalty amount with the deposit of the federal withholding for the distribution? He works for a small company so they are flexible if this is allowed.

A client is a two person 401(k) Profit Sharing Plan. The trustee of the plan (Owner and Participant #1) would like to use the assets of the plan to purchase a building. The owner would locate the corporate offices of his two companies in this building paying lease payments (market value equivalent) back to the plan. It is my understanding that this is self-dealing and impermissable under IRC 4975©. Am I correct in this assumption? Or is it permissable since there is no benefit to the employer other than finally receiving a reasonable return on his assets inside his 401(k) plan. Would the same ruling hold true if the assets of the owner's spouses IRA would also be used in the purchase of the asset thus making it a partnership interest in the real estate?

Essentially, the financial advisor is telling the client that he can set up the individual 401(k) for him effective 12/31/02. He is going to reclassify 11k of his pay into earned income, pay the self-employment tax, and then defer that into the newly setup 401(k). The reclassification of pay, I don't have the issue with..it's the creation of the individual 401(k) effective 12/31/02 that I wasn't sure about because we are dealing with an S-Corp and an individual. If the reclassification occurs after the signing of the documents isn't that persuant to the arrangement? Or must the documents physically be signed prior to 12/31/02 itself?

I know you can't have deferrals prior to the signing of a plan document. Does that apply to individual 401(k)'s whose plan sponser is an s-corp? I don't believe so but are there any section citings that I can provide to the client telling him that he can't as his financial advisor is adamant that he can.