WDIK

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Treasury Regulation 1.414(s)-1(d)(2)(iii): (iii) LIMITS ON THE AMOUNT EXCLUDED FROM COMPENSATION. A definition of compensation is not reasonable if it provides that each employee's compensation is a specified portion of the employee's compensation measured for the otherwise applicable determination period under another definition. For example, a definition of compensation that specifically limits each employee's compensation for a determination period to 95 percent of the employee's compensation using a definition provided in paragraph © of this section is not reasonable. Similarly, a definition of compensation that limits each employee's compensation used to satisfy an applicable provision with a 12-month determination period to compensation under a definition provided in paragraph © of this section for one month is not a reasonable definition of compensation. However, a definition of compensation is not unreasonable merely because it excludes all compensation in excess of a specified dollar amount. (emphasis added) This, however, does not necessarily give give a carte blanche.

From Publication 590: You can convert amounts from a traditional IRA into a RothIRA if, for the tax year you make the withdrawal from the traditional IRA, both of the following requirements are met. • Your modified AGI for Roth IRA purposes (explained in chapter 2) is not more than $100,000. • You are not a married individual filing a separate return.

Thanks everyone for the responses. It does appear that this is probably just an issue of incompetence and not some obscure point of law that I was afraid I missed. mjb: It appears to me from the letter that an ERISA attorney was retained after the fact and only for negotiation with the IRS. Quite unfortunate for the client.

It is certainly a possibility that the author of the letter did not understand the situation and was actually talking about the required document updates as opposed to some specific "innocuous forms" (as the author described them) relating to spousal controls. However, I am confused by the use of the specific terms "endorsements" and "additional spousal controls".

Sorry I wasn't clearer, but the endorsements are not referring the the document amendments. According to the letter, they are endorsements that "grant [a] spouse additional controls on [the] pension plan."

I would appreciate any comments from board members on this topic. I recently read a letter to the editor at InvestmentNews.com. (Sorry, I can't provide a link as it is a subscription only service.) The author described an audit situation where after the initial data collection had been completed the IRS called again asking for the "endorsements mandated by the Economic Recover [sic] Tax Act of 1981 and the Econonomic Growth and Tax Relief Reconciliation Act of 2001." When the documents could not be produced the IRS stated that the plan "was out of compliance and would either be subject to an immediate disqualification of the trust and an assessment of tax at the trust level - $60,000, plus interest and penalties - on [the] $145,000 Keogh." As an alternative the IRS indicated they might be able to negotiate a one-time sanction of $10,000. The latter was the result after $13,000 in legal fees. Personally, none of our clients who have been selected for an audit have been asked for such documentation. My questions: 1) Can anyone elaborate on these "endorsements"? 2) Do you think such a situation is an aberration or an area of increasing IRS focus? 3) Do you think most plans are out of compliance in this respect? Thanks for your indulgence.

What is the methodology described in the plan for allocating gains or losses to a participant's account? (and what options does the document give for determining the allocable income for the returns?)

Isn't an eligible plan expense paid from trust assets just that, an expense rather than a distribution (whether qualified or not), which is allocated with the other gains and losses to determine a participant's account balance?

I hope no one gets whiplash from my change of direction, but I agree with the $200,000 based on 404(a)(7)( C).

He should still be able to make profit sharing contributions based on his compensation. Don't forget that you can utilize an appropriate vesting schedule, to delay the required minimum distributions.

404(a)(7) allows the greater of: 1) 25% of compensation; or 2) the amount necessary to meet the minimum funding standard. If I'm understanding things correctly, in this case: 1) $150,000; 2) $0.00 (since that is the minimum contribution required for the DB) So the deduction limit is $150,000.

Code Section 404(a)(7) addresses deductibility rules. Forfeitures are annual additions, but not deductible contributions.

Treasury Regulation 1.401(a)(9)-8, Q&A-1

Please forgive a silly question, but a doubt has been placed in my mind. An individual working for a public school system participated in a 403(b) plan, left employment, found new employment working in a for-profit corporation, and is told by 403(b) custodian that deferrals from the corporate wages can still be made into the existing 403(b) account. Does this make sense?

See subsection (b)(4) here.

It is not permissible to place different conditions on the safe harbor contributions than are required for deferrals. My impression from the original post was that the eligibility requirements were only being changed for the deferrals, so the plan would not be considered a safe harbor plan.

The prototype documents that I am most familiar with address the top-heavy requirements (including contribution and allocation language) in a section separate from other types of contributions and allocations. These documents also either allow an employer to indicate that the plan does not provide for "non-elective" contributions or require an affirmative election by the employer that discretionary contributions will be made.

Doesn't the following statement from 29 CFR 2520.104b-10(d) imply that an amended SAR would be appropriate? "The information used to complete the form shall be based upon information contained in the most recent annual report of the plan which is required to be filed in accordance with section 104(a)(1) of the Act." (emphasis added)

Yes. I would think that the plan language itself would require "top heavy contributions" rather than profit sharing contributions.

My recollection is that any allocations (including forfeiture allocations) besides the safe harbor contributions that are actually made will be subject the plan to the top heavy rules, however merely having the provision in the plan does not.

You might want to review the recent 412(i) threads before you prepare your acceptance speech.

My understanding was that the opportunity to file Form 5500-EZ was available to business parterships (which are unincorporated) and not to corporations.

Although the site may be poorly worded, my guess is that it is trying to address the situation of a corporation with multiple owners (partners) rather than a partnership in the strictest sense of the word....

Would you be willing to link to the site?