MPLSLAW

The requester does not mention if the company is an S Corporation or an LLC which have rules for reporting most owner's health insurance premiums as taxable income on W-2 or K-1 and the self-employed owner then claims a deduction on their individual income tax return. that might be happening here. Agree - not part of the 125.

The short form does not reveal much in terms of operational compliance. To the extent that the IQPA audit report (filed as an attachment to the long form) includes footnotes or notes financial adjustments as a result of compliance errors, I would think the chance of DOL or IRS examination would be higher. But I have no information to prove that these agencies read the full auditors reports.

You didn't say but we are assuming the account was invested during the 70 days until it was processed. If the investment was put to cash when the original request came in and there were no earnings during a stock market run up, there may be a breach of duty claim. Just saying.

Agree with the others. I have had a long standing battle with accountants who advise business owners to set W-2 artificially low to save FICA taxes without explaining the limits that is putting on their deferral opportunities into tax qualified plans.

It seems like over 80% of the Minnesota QDROs I get for review on behalf of plan sponsors are drafted by Tom Hughes firm in Minneapolis. www.thomashughesltd.com

Ditto on the operational error under VCP. the key to getting a compliance letter (I have received a number of these) is finding written communication to the employees, no matter how informal, to support the operational procedures used. The IRS reviewers often use the words "employee expectations" in this context.

S Corp ESOP transferred shares for a number of years to profit sharing accounts within the ESOP to avoid a non-allocation year under 409(p). The company revoked the S election early in 2019. Can they transfer the profit sharing shares back to the ESOP? Assume appraised value would be used for the transfers.

Accounting firm is searching for a custodian for its 401(k) plan. It interviews several providers. One of the two finalists is a client of the accounting firm (tax - non-attest). Any problem if the firm selects the client???? These relationship questions can get sticky sometimes.

Over 10 years ago I had a governmental nursing home that had adopted a 401(k) plan improperly. We filed under VCP requesting to convert the plan to a 457(b) plan and received a compliance letter approving the correction via restatement. Funds remained in trust. I have not looked at the later Rev. Proc's to see if they closed the door to that remedy but it made sense to us and the reviewer.

K2retire doesn't say if this is a DC plan, but if so, see FAB 2014-1. I agree with jpod. The DOL says if participant is missing or fails to provide distribution instructions on a plan termination, the fiduciary can distribute to an IRA or if unable to find an IRA custodian willing to accept the rollover, a bank account in order to complete the termination of the trust. this would solve the disqualification issue for failure to distribute within the 5 year requirement.

Agree with Mike P. Code section 410(a) says if waiting period is more than a year of service, vesting must be 100%...

Client purchased all the assets of a company that had recently terminated its defined benefit pension plan. All benefits were funded and all participants received annuity contracts or lump sums. Several years after the termination, the buyer was contacted by insurance company which had funded the terminated plan, that it was holding demutualization shares distributable to the terminated plan. Buyer plans to claim the surplus assets pursuant to the purchase agreement. Will it be subject to the reversion excise tax if it was never the plan sponsor?

The responses track with our initial conclusions. Could the plan instead provide for the 3%SHNEC (not a match) and also provide for a 25% match on deferral contributions up to 4% (maximum employer contribution of 4%) without having to test the match?

Thanks for the response Lou. No. actually the client wants to match 3% of pay on deferrals between 0% and 3% and 50% on deferrals between 3% and 5%.

Client wants to amend plan to provide for the 3% non-elective safe harbor (no deferral requirement) and then match 50% of deferrals between 3 and 5% for an additional 1 % "safe harbor match". Is there a way to design the safe harbor so that both pieces qualify as safe harbor contributions? The regulations have an example with a discretionary match, but client wants to fix the match formula into the plan.

1. Deferrals are just for a percentage of compensation (i.e. "10%") 2. Yes, they are maxing out deferrals 3. payroll by payroll match 4. Some execs (not all) have total comp in excess of 401(a)(17) I recall that we looked and the match would have been different if plan comp had been used

Plan definition of compensation is W-2 plus 401(k) and 125 elective deferrals and reduced by the safe harbor taxable fringes in IRC Section 414(s) regulations. This includes "deferred compensation". The plan sponsor has an elective deferred compensation plan ("SERP") in which senior executives participate. The 401(k) master plan document (national prototype) allows the sponsor broad discretion in designing procedures for participants to make elective deferrals and limit is the 402(g) limit. The sponsor's payroll dept has been applying 401(k) deferral election percentages by the senior execs to their gross pay, before the SERP deferrals. The match is fully discretionary - no formula or limits in the document. Company announced that it would match "100% of deferrals up to 4% of pay". Sponsor also uses gross (before SERP deferrals) pay for applying the match. Recordkeeper believes sponsor needs to do voluntary correction under EPCRS as it was using a compensation definition not in the plan. The recordkeeper uses the 414(s) definition of compensation for ADP and ACP testing and the plan passes both tests every year. Code section 401(k) and (m) cite to 414(s) compensation in describing the ADP and ACP test. For deferrals, section 401(k) just describes a plan that allows an employee to elect cash or deferral into the plan. 1.401(a)(4)-1(b) regs say that deferrals and matching contributions are deemed to pass 401(a)(4) if the ADP and ACP tests are passed. Does the sponsor have a good faith argument that its administrative procedures and practices are not violating the plan document and 401(a)? I recall that on a previous post it was suggested that the sponsor amend the plan to adopt Medicare Wages to solve this issue.

I have been asked to help terminate a 401(k) plan that was adopted (signed by an officer of the employer) in December 200X. The plan and the 401(k) arrangement were "effective" several months earlier according to the plan documents. If the employer started accepting deferrals before the plan was approved and signed, arguably those deferrals are non-qualified deferrals. The 401(k) regulations provide that non-qualified deferrals will not automatically disqualify the plan. If the initial plan year is a closed year and the plan document is silent about the timing of the initial plan year deferrals, is there a plan disqualification issue? If so, what is the correction?

If neither of you will, I will. The new notice 2007-62 clearly states that the new definition of "substantial risk of forfeiture" for 457(f) purposes will be "prospective". "No inference should be made" with respect to prior periods. The notice requests comments as to appropriate "transition guidance" and what that should include. My interpretation is that prior to the new regulations, it will be facts and circumstances with the burden being on the employer to prove that the non-compete restriction is a substantial restriction on the employee's right to employment in his or her field and that the employer intends to enforce the restriction to the result of a complete forfeiture. As long as the plan satisfies the fixed payment date and restrictions on elections contained in 409A, a 457(f) plan can comply with 409A. I would not rely on the 83 regulations for a new 457(f) plan however....

Just received a compliance letter for retro adoption of a missing in action SAR-SEP plan document. We had no employer documents to submit other than the SEP-IRAs.

Employee retires at age 60 and begins to receive joint and 50% survivor annuity. 5 years later he divorces and former spouse disclaims her interest in the 50% survivor annuity in exchange for a lump sum settlement outside of the plan. The plan has a "pop-up" provision if the spouse dies before the employee. Can the parties do a QDRO to assign the survivor benefit back to the employee and "deem" the former spouse deceased??? any thoughts?

Our client (years ago) permitted participants in a profit sharing plan to purchase life insurance policies on self or spouse. these are single life policies (not second to die). Kirk's post from a while ago cites to 401 regs as permitting purchase of policies on a family member, subject to the incidental benefit rule. The DOL exemptions do not appear to address this situation. The class exemption from 1992 deals with policies on participant's life. A more recent advisory opinion expanded the interpretation to include second to die. Can a participant purchase a policy on his or spouse from the plan without violating 4975 prohibited transaction rules?

I agree that this design should work so long as the carve out class stays out of the HCE classification. I have seen flex plans designed with different employer benefit allowances for 6 different classes of employees. The key is passing the key employee and HCE tests in 125 and 105.