Santo Gold

So even if the participant rolls the RMD to an IRA, and then (before 12/31/05) takes a larger RMD determined on the basis of all assets in the IRA (including these newly rolled over plan assets), that still is no good, correct? Thanks

Terminated participant is age 75 and has been taking RMDs for several years out of his plan account balance. He now wants to "consolidate" his monies and move his plan money into 1 big IRA with all of his other IRAs. Question: If he currently has $60,000 in plan money, and lets say his RMD for 2005 for this balance is $3,000. Can he roll the entire $60,000 now (May, 2005) into this IRA, and take an RMD by 12/31/05 from this IRA, which will have to factor in all of the other IRA monies?

The EGTRRA tax credit of up to $500 for the first 3 years of plan operation......Does anyone know exactly where (eg what line) this is reported at on the company's tax return? In this specific case, its a sole prop. Thanks

If the employer decides to go with offering another investment option/firm and assuming all other things are equal between this investment firm and the current one, and if the only one who takes advantage of the new investment firm is this 1 HCE (there are 3 hce's total), would that be considered discriminatory?

Kirk Maldonado: The employer does not want to retroactively reduce the match back to 1/1/05. Rather, they would like to amend the formula, effective 7/1/05 (the match is deposited each month). Would these actions be sustainable?

Janet M - Thanks for the reponse; I'm a little suprised it would be that easy. I was worried that since we have a set match formula in place at the beginning of the year and to change it in mid year would mean some participants could get a smaller match as a result of the change, that this would result in a cutback of benefits. Nothing to worry about?

In a non safe harbor calendar year 401k plan, there is a non-discretionary tiered match formula. The employer would like to modify this formula in mid year (as of 7/1). I have not yet seen his proposed change, but it sounds like the match will be greater on the first 3 percent deferred, and smaller on > 3% deferred. Since the current match formula is written into the document, can it be changed in mid year if a portion of the match will be subsequently be smaller?

Currently, a 401k plan allows for full participant self-direction of assets, but restricts it to one family of funds. One of the owners recently decided that he does not like this arrangement and wants to direct his money to another place. Allowing him to do so would require giving all others this option, which could get messy. While the owners sort that issue out, he inquired about another way to achieve this via taking in-service withdrawals periodically (eg, quarterly, semi-annually, or annually). The plan does not currently allow for in-service w/d's although it could be amended. Still, this seems to not be do-able, since the money would have to accumulate for 2 years before taking it out. Also, the participant is only 45 years of age. I haven't come across a situation where a participant wanted to use an in-service withdrawal feature in such an ongoing manner and it sounds like it wouldn't work. Does anyone agree?

You can always cop-out and say that both are important and you should have both. But for more detailed and thorough answers, you have to go with the Outline Book. Our office stopped ordering the Answer Book (in favor of the Outline Book) several years ago and have not regretted it. However, for topics that you are unfamiliar with and perhaps need just a good read-able/explainable understanding of, then I think the Answer Book is the better source. It is easier to pick up on a topic's "basics", where as you can get lost in detail in the Outline Book.

We normally deal with pretty small plan sponsors and when distributions occur, our clients typically use an 8109 coupon to forward withheld taxes, usually with their bank. But recently an accountant told us that one of his clients got a $500 fine for not sending this repayment electronically, although the amount was correct and the timing was fine. Does anyone have any further information on whether electronic filing is now required?

2 large 401k plans are permissively aggregated for 401k testing. Both are calendar year plans, both have eligiblity requirements that are more lenient than 21 & 1. Plan A allows for entry on the first of the month following employment. Plan B has a 6 month wait and allows entry on 1/1 and 7/1. For the combined 401k test, do I apply the eligibility for each plan separately to determine who is in the test, or do I use the most lenient eligibility (Plan A's) and apply it to all employees, including Plan B. I think the former is right, but would appreciate and comments.

For determining 415 compensation, are any of the following included: Car income car allowance severance group term life insurance income Am I correct that possibly in addition to the above and barring barring any other "unusual" forms of compensation, 415 comp is basically W-2 plus elective deferrals?

Thanks to all for giving me a lot to think about. The plan sponsor does not explicitly know that I am talking to the FA right after I hear about the employees termination. However, this particular plan is self-directed (albeit in pooled, not individual accounts), so the sponsor is aware that the FA will have a role in getting the individual paid out. Our firm gets $0 from the FA whether the EE keeps the money with the FA or not. Full disclosure however might yield indirect benefits though; The "goodwill" that is generated by informing the FA early might be manifested in continued new business being brought our way. I scratch your back, you scratch mine......... But is this really illegal/unethical or just good business? There is nothing "automatic" about the FA getting this as a rollover and in this specific case, the EE has already met and spoken to the FA. EE can always say no to the FA. Years ago I worked for a TPA and they took it 1 step further; as part of their distribution forms, they had the option to keep the money in the same plan investments, just renamed as an IRA, and named the FA whom to contact. That seems a little more strong-armed than this.

Ours is a TPA firm, no product, so we work with a lot of different financial advisors, many of whom bring admin business to us. When an employee terminates employement or retires (particularly those with larger balances or benefits), we normally let the financial advisor know ASAP so that she can get a jump on talking to the employee about rolling the money or providing other advice on how to handle their money. Is there anything wrong with this, technically or ethically? Normally the advisor would know about it anyways when it comes time to move money to pay the person out so I don't really see a problem here, but wanted to check to see what others think.

I've run into a murky situation involving the 404(a)(3) deduction limit. The actual example is really confusing, so I'll try to just present the general question: An individual owns 100% of company A and B, both of which are adopting employers of a Target Benefit plan. There are 2 employees plus the owner all 3 of which work and draw compensation from both companies. Let's say that the total contribution required to fund the plan for 2004 is $100,000. Company A is responsible for $25,000 and Company B is responsible for $75,000. But the problem is that the maxumum deductible contribution for Company B is only $70,000, while Company A's max deductible is $35,000. Can Company B deposit (and deduct) the full $75,000 since they are being treated as a single employer under 404? There seems to be a lack of regulations on this specific topic. ERISA Outline Book (2004 ed, pg 7.410) confirmed this, while stating that you "should" be able to take the higher deduction for Company B. Does anyone have other ideas on handling this situation? Thanks

Employer had only 1 key employee and has maintained a SEP for about 8 years. SEP was not funded in 2004 since a PS plan was adopted in 2004. All SEP participants rolled money from SEP into the PS plan in 2004. Key employee rolled over only a small portion of his money. Should the SEP rollover money be counted towards determining top heavy for the new PS plan in 2004? If so, should the money not rolled over by the key employee be counted towards top heavy as well? For how many years? If we count only the rollover money, the plan is not top heavy. If add in the key employees money not rolled over, then it is top heavy. Thanks

A sponsor of a DB plan wants to amend the plan so that participants who terminate employment for reasons other than death, disability, or retirement, will have to wait until either early or normal retirement age in order to be paid out. Right now, the document allows for immediate distribution upon any termination of employment. Would amending the plan to delay the distribution availibility be a protected benefit violation? Thanks

Quinn - I did some research on your response via the 2004 Erisa Outline Book which served to further amplify your comments. It seems pretty clear that in the case of a business that was not around for a full 12 months before a plan is adopted, you either use the "short period" - in this case 11/1/03 through 12/31/03 without pro-rating the HCE comp. limit - or in the case where a plan and business are both started on the same date (eg 1/1/04), then there simply are no HCE's via compensation for the 2004 year. Mr. Tripodi did caveat his information by saying that this is the case unless subsequent guidance is provided. I have not heard of any though.

Since the business was not around for the prior full 12 months, would the look back year be 1/1/03 - 12/31/03, or 11/01/03 - 10/31/04?

One last thought on this.....for eligibility, require a year of service with retroactive entry date back to 1/1/04. So, the owner and employee will have 1 YOS on 11/01/04, bringing them into the plan 1/1/04. Employee #2 will not have 1000 hours and will not be employed on 11/1/04, so he never enters. I think this will work. Would the employer still be entitled to a full year of funding the plan since entry is 1/1/04? Another question related to this. For determining HCE's, can I simply look at 2004 compensation since for 2003 there were only 2 months? Is there a cut and dry way to determine HCE status when the lookback year is only 2 months?

Unfortunately, only 1 of the 2 individuals is an owner (100%) and they are not married. The other employee is an HCE though. I will have to check on whether they are liscenced to perform their services. I would have to believe that they have some certification to do what they do, but where is the line drawn for determining whether that satisifies the PBGC exemption? Although software designers was not specifically mentioned in the list of occupational exceptions, I was hoping that since engineers was on the list of exemptions this could apply to them.

I have a software design firm (S-corp) consisting of 2 individuals that will adopt a DB plan for 2004 (cutting it close). Do you think they are subject to PBGC premiums? Would you consider this a professional service corporation? Thanks

Couldn't he also use say a 7/1, or 10/1 effective date, still using full year comp? I understand the 401(a)(4)5 issues, but would this really be considered an amendment? Its actually a plan adoption. Would it really be applicable in this case anyways? The employee #2 has been gone since 3/31, the plan will not be signed until 12/29 or so. The paper trail shows that it was only in August, 2004 that talks of a retirement plan first came about. Making the the effective date a few months away from ee #2 DOT should help too? And, the plan is open to other NHCE's if any were to be hired. I guess I'm doing a good job convincing myself that this would all be OK, but would anyone else agree with me?

Not sure if my first reply made it through, but the departure of E#2 was not pleasant with lawyers now involved, etc. So, the owner does not want E#2 in the plan at all, regardless of whether he never vests. Also, the owner would not be keen on starting a plan and he himself not being vested in it right away. I'm sure if there was no other way, he would accept it, but that will not be his first choice.

I have an odd situation that maybe someone has had before and can provide some advice on how to proceed. A small business was started in November, 2003. When the company began, there was the owner and 2 other salaried employees. On March 31, 2004, employee #2 left, leaving just the owner and employee #1, and it has stayed that way since. Employee #1 will make over $90,000 in 2004. Employee #2 did not make over $90,000 (and would not have even if still employed). The owner would now like to start a DB plan for the business, effective 1/1/04. The plan is intended to cover only owner and employee #1. I want to arrange eligibility to keep employee #2 out. Can the plan require a year of service, but allow for immediate entry for employees employed on 4/1/04? Alternatively, if there is no way to keep employee #2 out of the plan, then the next question is keeping him from getting a contribution. Since there are no other NHCE's, I would need him to work 500 or less to be able to keep him out of the 410(b) test. But him leaving on 3/31/04 is right near the 500 hour breakpoint. How should hours worked be counted for him? If we use 37.5 hours as a standard work week, that would produce 487.50 hours worked (37.5 * 13). If we use 40 hours, then we get 520 hours worked (40 * 13). I have a hunch that I should not be able to arbitrarily pick between 37.5 vs 40, but if they are all salary ee's, how should hours be counted? Thanks