Lori H

3 HCE's in a 401K missed out on the 2006 catch up for pye 12/31/06 due to their payroll dept not coding for it. I am thinking it is too late for them to go back and deposit these amounts, am I right? Do they have any other options? IRA funding? Or would their AGI's be too high? (They all earn in excess of $150,000) Thanks

Thanks guys n gals. Have a great day.

A financial institution is currently the trustee of a small 401(k) plan. They are charging ridiculous admin/trustee fees to the plan administrator. What process should the plan admin take to remove them as trustee? A letter and board resolution?

i think the plan administrator wants the participant to pay the $1500 back with interest.

A small 401(k) plan has a participant who went to the financial advisor to request a distribution of $1500 of her account. The advisor processed the request and no taxes were withheld. This was done without the trustees knowledge. Obviously the advisor was in error, but ultimately the trustee/plan administrator is at fault. What options are there to the plan? 1) Retroactive amendment to allow for the distribution? 2) VCR filing? 3) Fire the advisor Any thoughts? I looked back at about 18 months worth of topics but did not see a pertinent one.

Thanks, it appears as if the doctor is just not wanting to give 20% of his income to the IRS when he is planning on being in a lower bracket hence an interest free loan to the government.

I just advised this Doctor that his in service distribution would be subject to mandatory with holding and he replied via email with this: "just so you understand, I fully intend on paying W/H as I go but my tax rate at the end of 2007 will be nowhere near 20% (i.e. it will only be about 11.5% for 2006). Does your definition of "mandatory" mean a 20% minimum? Additionally, my plans are to draw down funds as I need them at no particular time of month (or indeed I may draw done a large amount at once to last me 3-4 months). This, from a practical standpoint, will be very "periodic". There will be nothing "regular" about my timing in drawing down the funds, i.e. the first of every month, etc. Let me know what you think." Thoughts please

Bird They are not periodic payments because: 1) they are not being made over the period of the Doctors life, 2) they are not going to be equal or 3) they will not be taken for a period of 10 years??? He has made a pledge to his church and is wishing to satisfy that pledge with these funds. Thanks a heap!

Can someone recommend a gentle way to convey this to him as both his CPA and financial advisor have told him he does NOT need to withhold 20%. That it is not subject to mandatory withholding since it is a periodic payment and not a lump sum.

I read IRC 3405 (thanks for the ref) and b2kates and belgarath you are both correct in your statements, 20% mandatory with holding is only required if the periodic payment is an "eligible rollover distribution". However if an "eligible rollover distribution" is a dist. of all or any portion of the balance to the credit of an employee's account in a qualified plan and an exception to the general rule defining "eligible rollover distributions is "any distribution that is part of a series of substantially equal periodic payments made not less frequently than annually over the life of the employee" or for a period of ten years or more, it would seem that if the Dr. is wanting to take out periodic payments for a couple of years and then at some point take the remaining balance in lump sum, then this would constitute a eligible rollover distribution and BE SUBJECT TO 20% with holding since the intention is not to take them for a period of at least 10 years. Incidentally, the Dr. in question is wanting to give 50% of his income to his church.

the plan is termed by corporate resolution. They have held off on distributions due to good investments. All but one Dr is classified as Terminated. So, no, all assets are not distributed. Maybe a better term would have been Frozen?

OK, here is the Drs. intention, he just received this month a $21,250 in service dist of which $4250 was to go to pay the 20% with holding. His intention is to take annual in service distributions until the PC, of which he is now the only employee, goes out of business. The 2006 401(k) answer book states that "In service withdrawals are taxable as ordinary income when received and generally are treated as installment distributions". It mentions nothing regarding 20% mandatory with holding. I know hardhips are not subject to 20% mandatory with holding, but I am not sure about In Service Withdrawals.

A doctor(age 60), who is the only active employee in a terminated pension plan, wants to take a portion of his account balance ($17,000). He has been advised that 20% with holding is not required. From reading prior posts, it appears as if he is being given incorrect information. He is not terminated and will not be taking installment or periodic payments. Is he subject to the 20% and ordinary income or just the ordinary income?

I don't think this plan should allow this transaction either. But just for the sake of arguement, let's say the trustee purchased the house with plan assets and then rented it to someone other than a family member. Would it make any difference?

Well, its a small orthopaedic practice and the doctor in this case is the sole trustee, so there are really no other fiduciaries outside him and his financial advisor.

The trustee of a plain psp wants to take appx $240,000 of the plans assets to buy a house so that his daughter can live in and pay rent. I am not quite sure if this would be considered a prohibited transaction. I know plans can own real estate and they need annual appraisals, but this does not sound sound.

Is the $95,000 compensation threshold during the look back year the only stipulation in determining an HCE for a TSA plan? thanks and Merry Christmas

Irregardless, in what instance would a TPA require or want to obtain costly E & O insurance. There are so many plans who do not even have a TPA!!!! Ultimately the plan sponsor/trustee is responsible for maintaining the qualified status of their plan.

under what circumstances would a TPA need e and o insurance especially one that does not sell products? TPA's do not have fiduciary liability.

Thank you kindly, PiP

The employee is not making up deferrals, but is there any defined period of time that the employer has to fund the ps and if applicable qnec/qmac contributions to the trust? I have not seen anything in reference to a time period. I just know they are not required to make up any earnings.

let me ask this, in 2003 he received a contribution, however he left for iraq in 03, is the employer obligated to make up additional funding based on comp he would have earned in 2003? same situation applies when he came back in 2005 with a 5% pay increase. For 2004(no earnings) the employer would have to make up the profit sharing AND QNEC/QMAC contributions? Finally, I understand the employer does not have to make up earnings, but how long does the employer have to fund ps and QNEC/QMAC if applicable? Basically, is the employer responsible for additional 2003. 2004 and 2005 employer contributions?

An employee went on military leave during calendar year plan 2003 after working 1560 hours. He received a profit sharing allocation and QNEC for that py. For py 2004 he received no income however the plan made QNEC/QMAC/PS/Match contributions. 2005 py the employee came back to work, clocked in 560 hours and received a QNEC/PS allocation. The employee was on 2 year military leave so he would have 5 years to make up any elective contributions he would have been entitled to make. The employee received PS/QNEC/QMAC in 03 and 05 based on actual hours worked and comp received. My question is would the employer have to: 1) make additional contributions for the 2003, 2004 and 2005 plan year based on the hours the employee would have worked had military leave not occurred and 2) if the employee decides to make up deferrals within 5 years, then the employer must match those deferrals, if not he receives just a QNEC/QMAC/PS?

Well, the company was wanting to adopt the plan retroactively and were under the impression that as long as the plan was in place prior to the the initial contribution being funded, that it would be in compliance.

A c-corp. is adopting a psp for the plan year ending 8/31/06, they want to ultimately have a CODA added. Question is can the document be drafted to incorporate the CODA retroactively to 9/1/05(beginning of first plan year)or MUST it be restated when they decide to add it? I'm thinking that it will need to be restated at least 30 days prior to allowing the participants to defer.