himt4

Yes, I read 2.02 and 3. But that does not get me anywhere if the first sentence of 77-2 is... "The purpose of this Revenue Ruling is to provide guidelines for determining the charges and credits to be made to the funding standard account to reflect changes in benefits that become effective after the valuation date." if taken literally, that first sentence says to me that everything below it isnt applicable to end of year valuations. But if the conventional wisdom is that 77-2 also applies to end of year valuations, then let me know that.

If a small plan freeze is effective 7/1/05 with 204h notice handed out 6/15/05, how may this be reflected for an end of year 12/31/05 valuation? Must you use the proration method by running one val with frozen benefits and the other val run as if no freeze was made, and prorate the two costs? Are you allowed to just run the val with the frozen benefits? Are you allowed to just run the val as if no freeze was made. Somebody referred me to rev ruling 77-2 but that starts off by saying... Rev. Rul. 77-2 The purpose of this Revenue Ruling is to provide guidelines for determining the charges and credits to be made to the funding standard account to reflect changes in benefits that become effective after the valuation date. ....which implies to me that 77-2 only offers guidlines for changes effective AFTER the valuation date and not changes made BEFORE the vauation date.

OK, so my understanding of the tally is 4 votes to file the B anyway and 3 to not. Do file B - mwyatt, pax, bird, rcline46 Don't file B - flogger, effen, norman I couldn't glean official votes from Socalactuary, Preston, AndyH, and carolthewriter but appreciate their comments. If any one else would like to make to make their vote, please chime in. After we have a staff meeting, I'll let you know how we leaned here.

Yes, rcline46's answer is the kind I am fishing for. Will TPA's tell their client's to file the B & P, either because of rcline46's reason or some other? What are you other's doing? One other reason we were thinking here is that technically if a client is a control group then he is supposed to file 5500 instead of 5500ez, even if he is the only participant and has no employees. I would imagine that often the TPA does not know about the client's control group status and does a 5500ez. By filing the B and P, if it turns out the client should have filed a 5500, he would only get in trouble for that and not for not filing a B, P etc.

well, since you already maxing out the match you can get in your 401(k) plan, I don't see any obvious monetary advantage to putting in the extra to the 401(k). The advantages of putting the money in the roth IRA is that it might be less red tape. 401(k) plan's require a trustees signature to do a lot of things, the individual has more control in an IRA. Another advantage of the roth IRA is that you are always permitted to take out the principal from a roth IRA without penalty or taxation. So in a financial emergency, you could get your hands on that roth ira money. Possible monetary advantages of the 401k plan, as you hinted at, is that the IRA might have higher fees than the 401(k) and the 401(k) might offer some great investment choices you can't get with your IRA's institution. That's just some thoughts...you should hear others.

2005 5500ez instructions say... "Effective for calendar plan year 2005, filers of Form 5500-EZ will not be required to file any schedules or attachments (including the Schedule B (Form 5500)). Filers, however, will be required to collect and retain completed and signed Schedules B and P, if applicable." I also saw a reference to an Asspa asap that stated.. "Also, IRS sources have confirmed to ASPPA that filing a Form 5500-EZ without a Schedule P will nonetheless start the statute of limitation running on the plan filing." So it seems that one does not have to file the B and P anymore. However, sometimes you guys and gals out there come up with compelling reasons why you think it should be filed anyway. So what are you people doing with your clients? Are you having them file the B & P with the EZ? If yes, then why?

Did a couple of threads get crossed here? First Santo Gold takes credit for starting this thread, and then there's mention of some vitriolic attacks, that although I have seeen them in other threads, I havent noticed them in this one.

the 30yr rate that was 4.47 in September 2005, 4.68 in October 2005, is 4.73 in November 2005.

I agree with most of the ideas, but can nitpick with the wording of "My huge heating bill because it means I am warm". My heating bill is huge, but I wouldn't say I am warm, usually I am still a bit cold, but I am thankful that I am not freezing.

Lame Duck and I seem to have the same idea (posts #3 & #8), might be something worth looking into.

I guess there are a few clear cut legitimate cases of a w-2 employee getting 1099 income where a moonlighting photographer, musician, etc. does a special job for his daytime employer where he works as a clerical worker. And I guess there also a lot of cases where an employer tries to get out of paying fica taxes by giving his employees 1099s when they should have gotten w-2. And that leaves the percentage of cases that are not so cut & dry. How about an insurance agent who employs a secretary/assistant for $30,000 a year and tells her that for any lead she gives him he will give her 10% of any commisions (i.e she is at a neighbor's party and is talking to someone who mentions he is interested in getting life insurance, and she passes that man's name to her employer the next day at work). At the end of the year the insurance agent gives her a w-2 for $30,000 and a 1099 for $10,000. Is this $10,000 legitimate 1099 income or should it have been w-2?

Ignoring for the moment the issue of whether the three employees should have been paid 1099.... when someone gets 1099 income, than that is really income for their own sole-proprietor business. So the trick will be if you can make a case that all those sole-proprietor businesses are in the same control group/ ASG as the business that you want to set up the Profit Sharing Plan for. I think.

My experience with this message board is that it works much better with technical issues than about practical issues such as “do you think the IRS will catch this…or care about that…” Regarding the technical issue written above : “its a question of how could the IRS identify such a relationship since unmarried couples do not file a joint tax return.” Well, its been a slow day, so how about this scenario: Evelyn has been the only employee the last 10 years of Maureen in Maureen’s small business. Maureen’s son Steve just graduated from high school and Maureen is throwing him a graduation party. Evelyn is invited to the party and while there gets into into a conversation with Steve’s father Dan who was divorced from Maureen shortly after Steve was born. Dan tells Evelyn that he is the only employee of his own business, and goes on to say “I got this great Defined Benefit Plan, I’ve had it for the last 10 years, I’ve contributed $100,000 a year, and now the account is worth $1,500,000, and its all mine, mine, mine” Evelyn being acquainted with control group situations hires a good pension attorney and makes a claim for benefits from Dan’s pension plan. Perhaps someone else wants to write how this story ends. Does Evelyn get any money?

My understanding is that the mere existence of the minor child is the although-not-intentional-but-unfortunately-technically-makes-it controlled group trap. It doesnt matter if he doesn't work or doesn't receive compensation, the child is a deemed 100% owner of both his parents' companies, and thats what makes it a controlled group. by the way, earlier mjb wrote: Although I don't necesarily disagree with the thought, I am pretty sure that the controlled group situation does technically also apply to "an unmarried couple with a child". The child owns 100% of both parents companies and those companies are technically in a controlled group even if the parents are unmarried. Again I have no comment about whether or not the IRS would ever enforce it in this situation.

Does the noninvolvement rule apply to this situation? Isn't that rule about husband & wives? This situation is a control group through the minor child, as he/she is deemed to own 100% of both the parents' companies.

My reply was not meant to address the "point" of the question. Since I believe the point being "whether or not this situation is or is not a control group" had already been wonderfully explained by MR and JAY21, I just thought it would be helpful to the viewers out there to give an answer to the specific question of "do you allow this couple to establish separate plans?". I wouldnt want anyone to walk away from this thread and think that from a technical point of view that because it is a control group, the husband & wife CAN NOT have separate plans.

If we are talking about 401(k) plans and other DC plans than they can have separate plans- you would have Husband's plan exclude all emplyees of the wife's company and have the wife's plan exclude all employees of the Husband's company. You would need to pass coverage testing, and that would depend on the number of HCEs and NHCEs in both company's. If there are no employees other than the husband and wife owners, then both plans would pass coverage. Howver, you need to be more careful in a DB plan because of minimum participation rules, each plan would have to cover a minimum of 40% but no fewer than 2. So if there were no employees, each DB plan would have to benefit both husband & wife.

Its actually the 2004 1099 income that would be beneficial to have reclassified (in order to make the employee HCE for 2005). But if counting it means that employeer will have to redo the 2004 w-2's and 1099, then its obvious to me that this prospective client will not want to mess with anything like that. So I will have to ignore the 1099 income. I will tell the client I am ignoring the 1099 income on the understanding that he had tax/legal counsel advise him that the 1099 was legitimate.

well, in the old days I would tell the client to request from the insurance the amount of the Death Benefit, the Annual Premium and the Cash Surrender value, and then give that information to the terminated participant so that terminated participant can make a decision. So now I will tell the client to request from the insurance the amount of the Death Benefit, the Annual Premium, the Cash Surrender value, and the Fair Market Value under revenue procedure 2005-25, and then give that information to the terminated participant so that terminated participant can make a decision.

Belgarath, what if I question it and they come back that it was INCORRECT and the client gives me a letter telling me that it was incorrect, could I count it? the document hasn't been written yet, so maybe I could add "1099 income that should have been w-2 income" into the definition of Compenstion.

Let's say the Employer should not have paid the $30,000 to the employee as 1099 money in 2004 and that instead it should have been additional w-2 earnings that would have made total w-2 $110,000. Can I make the decision that this means the employee is an HCE (based on the ShOULD and not the reality). Would this be like making two wrongs into a right (wrong #1, employer inappropriately paid employee money as 1099. wrong #2: I count 1099 income as plan compensation). I want to count the 1099 money. I just want to know who should make the decision to count it? If I count it, and the plan is audited, could the auditor penalize the plan for counting 1099 money? If I don't count it, and the plan is audited, could the auditor penalize the plan for not counting the 1099 money?

Thanks for the information. Things seem to be a lot more complicated now. For the viewers out there I provide an excerpt from Rev. Proc. 2005-25. Instead of the Fair Market Value being the Cash Surrender value, its now something like this as described in Rev. Proc. 2005-25 greater of: A) the sum of the interpolated terminal reserve and any unearned premiums plus a pro rata portion of a reasonable estimate of dividends expected to be paid for that policy year based on company experience, and B) the product of the PERC amount (the amount described in the following sentence based on premiums, earnings, and reasonable charges) and the applicable Average Surrender Factor described in section 3.04 of this revenue procedure.

A prospective new client has one employee (about the same age as the client). Client wants a new class allocation profit sharing plan for 2005 and wants max 42000 for himself and wants to give the employee something but nothing overly generous. Client says employee was paid $80,000 in w-2 and $30,000 in 1099 earnings for 2004 and will get about the same in 2005. So how much do I need to obsess about this 1099 income. On one hand, I say that 1099 income doesnt count and I should ignore it. But on the other hand, I say that this $30,000 probably isn't legitimate 1099 income and should've been w-2 income. On the other hand, If the client's accoutant said that this 1099 was ok, who am I to sugget otherwise. Obviously for the client, if there was some way to include the 1099 for 2004, the employee would be an HCE and would only need to get 3% top heavy for 2005, otherwise employee as an NHCE will need to get like 17% for the client to get his 42000. Is there any way I can include the 1099? If I don't include it, do I need to do anything to cover my ***. I would also like to know, in your expeience, what would be a real life example of an employer paying his employee both w-2 income and 1099 income legitimately.

I am aware that one of the prohibited transaction exemptions is that if a DB Plan has insurance policies, that when the plan would otherwise surrender the policy, that it could instead sell the policy to the Participant. PTE 92-06 says that the price of such a sale would be at least the "amount necessary to put the plan in the same cash position as it would have been in if it had...surrendered it" So, when a participant terminates employment in a DB plan with insurance, I will inform the client that any policies held for that participant are to be surrendered and the proceeds should be deposited with Plan Assets. However I tell the client that before they surrender the polices they should first see if the participant wants to buy the policy from the Plan, and the price would be the Cash Surrender Value. I was recently told by someone that new guidance says that the Cash Surrender Value is no longer what the participant would have to pay to buy the policy. That the price is now some formula or whatnot. Can anyone explain or cite me this new guidance.

Let's say classes are based on comp - class1: earned "$1-$20,000", class2 "earned $20,000-$40,000", etc if its a non top heavy plan, you can decide to give class2 $0. so, if by class2 not benfitting the ratio percentage is over 70%, then you would just need to pass the rate groups, and all is ok. but if by giving class2 $0, what if the ratio percentage is less than 70% but more than the safe harbor percentage. Don't you then try to pass the average benefits test, and then wouldn't you have a potential problem with the reasonable classification test?