John Feldt ERPA CPC QPA

If the SSN was stolen, not fake, and the true individual whose identity was stolen actually shows up to collect the benefits, producing the valid ID and valid Social Security card, they are not actually entitled to the benefits, are they?

The plan could adopt an amendment that says compensation (for allocation purposes) in excess of $245,000 is excluded. If it so happens that one of the employees affected by this exclusion is an NHCE (yes, that's possible), the plan would have to pass a 414(s) test, or the language could limit the exclusion so it only applies to HCEs. Generally, anything that does not favor HCEs is allowed like this (as long as it does not cut back benefits already accrued). They cannot adopt an amendment that tries to prevent the $245,000 limit from being reduced by future legislative changes. If the plan wants to adopt an amendment that integrates at a level that is lower in the future than the taxable wage base actually in effect for the year, they can do that, but the excess percent (probably now at 5.7% in your plan) would need to be reduced to a lower excess percent such as 5.4% or 4.3% etc. depending on how much below the current taxable wage base your integration level becomes. See 401(L) for details.

Submitted altogther, it should be $2,500 overall. Section 12.02 Rev. Proc. 2008-50. I don't see anything there that indicates that the fee schedule is "per failure", so one fee fixes all. Three documents to bring them all into compliance, one agent to review them, and one application fee to rule them all (and in the darkened warehouse bind them).

Yes, that is the question. Auditors generally like to reconcile the Form 1099-R's to the Form 5500 distributions.

You mean, show a distribution, and also show a rollover into the plan? I think that would be alright.

I think that's okay unless your making deferrals into a plan before the deferral option is adopted. Also, adding safe harbor to a profit sharing plan has some specific timing requirements (3 months minimum for its first year). I'm sure there's other examples like these where the last day of the year will not cut it.

How do you know that the cash balance plan satisfied 401(a)(4) without using the profit sharing balances? If that's true, okay, but it's also a rare event to have a DB/DC arrangement where the employer does not use the profit sharing to help the 401(a)(4) test for the DB plan. Just an obsevation/question. Also, how do you determine if your plan is top heavy without having the DB numbers? Are the documents coordinated so it is clear regarding which plan provides the top heavy minimum?

Well, if you click on the "more" link and read the section the IRS has for how to fix it, it's more than just suspending the contributions, unless (I'm guessing) no contributions had occurred for the overlapping year. Here's a section of the IRS text: How to Fix the Mistake: Corrective Action:If you maintain other retirement plans, cease making new contributions to the SIMPLE IRA plan. You may be able to file a VCP application requesting that contributions made for previous years in which you maintained more than one plan remain in the employees’ IRAs. Salary deferral contributions (and related earnings) should be returned to the employees. The returned amounts should be reported on Form 1099-R as a taxable distribution not eligible for rollover. Employer contributions (and related earnings) should be returned to you and reported on a Form 1099-R issued to the participant indicating the taxable amount as zero. In addition, any contributions made to the SIMPLE IRA are excess contributions subject to excise tax. For each year there are excess contributions in the SIMPLE IRA plan, you, the employer, are subject to excise tax under Code §4972, and are required to file a Form 5330 excise tax return. In addition, for each year that excess contributions are made to a participant’s SIMPLE IRA, the affected participant may be liable for excise tax under Code §4973 and may be required to file a Form 5329. The excise tax liabilities occur for each year until the excess contributions are removed from the SIMPLE IRA plan. Correction Program(s) Available: Self-Correction Program:This mistake cannot be corrected under SCP. Voluntary Correction Program:You make a VCP submission to the IRS pursuant to Rev. Proc. 2008-50 identifying the mistake. The fee for the VCP submission is $250. Audit Closing Agreement Program:If this mistake is discovered on audit, it may be corrected under Audit CAP. Correction of the plan under Audit CAP should be very similar to correction under VCP. The sanction under Audit CAP is a percentage of the maximum payment amount.

Why wait? The adoption of a qualified plan only invalidates the SIMPLE for the year. Okay, I guess that could make you wait. The fix is here (#2 in this list at this link) if it happens. See the corrective action section too, under the "more" link. It might not be all that costly, depending on the circumstances. http://www.irs.gov/retirement/article/0,,id=241051,00.html Otherwise, as mentioned, give the 60 day notice and that ends it.

I heard (second hand) that in the IRS phone forum this week, the IRS would look unfavorably upon any participant loan interest rate that is less than Prime plus 2 percent, and that they also stated that a participant loan interest rate of "Prime" is totally out of the question. Well, I thought this was a DOL matter anyway. Also, if I went to a lending institution and put my money in an account there and then asked them what interest rate they would charge me to loan my own account back to myself, wouldn't these firms just say "it's your own account, what rate do you want charge to yourself?" (after first thinking that I must be crazy). Please, tell me if there is a commercially available interest rate to compare against for that type of lending. Did anyone hear this phone forum from earlier this week, and can you confirm/deny the statement above?

Look at section 14.04 in Revenue Procedure 2008-50, if that's the only issue they find, your fee might be as low as the chart shows, but other factors also matter. Cheapest: issues fixable under SCP. Affordable (usually): issues fixed under VCP: see chart in Rev Proc. 2008-50, section 12.02. Rather costly: the only issue is a nonamender problem and IRS finds it with your D letter app: see section 14.04 in Revenue Procedure 2008-50. Ouch: issue is fixed when IRS finds it upon audit (audit cap): costly - may be higher than #3 above (field agent's choice?). EPCRS states that "the sanction under Audit CAP is a negotiated percentage of the Maximum Payment Amount." and "Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures, based on the factors below." Rev Proc 2008-50 goes further to say: "Factors include: the steps taken by the Plan Sponsor to ensure that the plan had no failures; the steps taken to identify failures that may have occurred; the extent to which correction had progressed before the examination was initiated, including full correction; the number and type of employees affected by the failure; the number of nonhighly compensated employees who would be adversely affected if the plan were not treated as qualified or as satisfying the requirements of § 403(b), § 408(k) or § 408(p); whether the failure is a failure to satisfy the requirements of § 401(a)(4), § 401(a)(26), or § 410(b), either directly or through § 403(b)(12); whether the failure is solely an Employer Eligibility Failure; the period over which the failure(s) occurred (for example, the time that has elapsed since the end of the applicable remedial amendment period under § 401(b) for a Plan Document Failure); and the reason for the failure(s) (for example, data errors such as errors in transcription of data, the transposition of numbers, or minor arithmetic errors). Factors relating only to Qualified Plans also include: whether the plan is the subject of a Favorable Letter; and whether the failure(s) were discovered during the determination letter process. If one of the failures discovered during an Employee Plans examination includes the failure to amend the plan timely for relevant legislation, it is expected that the sanction will be greater than the applicable fee described in section 14.04."

I'm just glad I can talk directly to the IRS agents now, instead of trying to explain the issues to my boss, an attorney who usually has only a little involvement/knowledge of the specifics of each plan. Tests, CPE, experience, etc. - regardless of any of that, it all gets proven out where the rubber meets the road, or where the pencil meets the paper,... no - it's where the typewriter keys strike the paper? ... it's where the toner powder meets the fuser and the paper? (for those using paper), ... it's where the dots align on the screen? - (sigh) - you get the idea.

A DB plan has an optional form of payment that is a monthly installment not to exceed 20 years (or if less, the participant's life expectancy), increased by a fixed annual COLA of 4.99%. Is this in there so that the RMD from the plan can be calculated on that type of annuity or would additional plan language be needed to make the RMD be based on that optional form? Would the participant have to elect that form of payment for the RMD to be calculated under that form?

Although the IRS mentioned that someday they might devise some limited cash balance plan language that will allow such a plan to fit in a pre-approved document, that day has not arrived (as far as I know). I think they mentioned it several years ago, but I do not recall where, maybe at an conference, webcast, or an IRS phone forum. Right now, adding cash balance plan provisions to any of those type of documents will destroy the document's reliance on its opinion letter or its advisory letter. Cash balance plans still must use individually drafted plan language (IDP language). Of course, they can start with a document that looks like a pre-approved document, but the cash balance language means it has no reliance. In any case, be sure to submit to the plan document to the IRS for a determination letter during it's cycle (or some exception to the cycle under 2007-44). There are providers out there that offer cash balance documents: Datair, SunGard Corbel, FT. William?, Accudraft?, McKay Hochman (Newkirk)? - etc. but no matter what they look like, those are all IDPs. Even with those you need someone who really knows how the language should work in order to avoid a problem and you'll probably need to run the language by the plan's actuary. Of course, you could always find and contact a law firm for a document, just make sure they are familiar with drafting such documents.

A father and his adult son (over age 21) each own 50% (profits and voting) of a small company with a score of employees. The son owns 100% of another company with a handful of employees. The son has no children or grandchildren. The companies don't do business together, but the son works and is paid wages from both companies (mostly from the company he owns 100% of). The attribution rules generally say: If the parent or the adult child owns more than 50% then the smaller stock ownership is attrributed to the other. So, if one of them owned more than 50%, then it would be a controlled group. But an exact 50/50 split is not - is that correct?

If you want an in-service distribution option for disability in a government-sponsored 457(b) plan, perhaps the plan can allow for an unforseeable emergency withdrawal: "Sudden and unexpected illness of participant, spouse, dependent, or beneficiary" Otherwise, in-service distribution options are very limited. Distributions from a 457(b) plan are only allowed for: severance from employment attainment of age 70.5 a one-time de-minimis exception unforseeable emergency plan termination A government 457(b) plan can allow for loans, but that's probably not what you're looking for either.

Suppose it's a DB plan and the individual takes an in-service of the entire vested benefit in 2015. Is the RMD equal to the 2013 + 2014 RMD amounts based on the annuity method calculation plus the 2015 RMD based on the individual account balance RMD calculation (since it's all paid as a lump sum)?

Suppose you have a brand new qualfiied plan effective 1-1-2011 (DB or DC, doesn't matter). The plan requires only 500 hours of service in the plan year to accrue a benefit (or to get an allocation). But the plan requires 1000 hours to get a year for vesting. Years before 1-1-2011 are excluded for vesting. Assume no other employer plan terminates within 5 years of 1-1-2011. Suppose the 25% owner/HCE is now part-time, and has just turned 70 years old. The plan has a 3-year cliff vesting schedule. Normal retirement is the later of 65 or the 5th anniversary of plan entry. Everyone employed as of 1-1-2011 is eligible 1-1-2011. The NHCEs are all full time, but the HCE/owner wants to work these hours: 2011: 1500 hours 2012: 1100 hours 2013: 900 hours 2014: 950 hours 2015: 1100 hours This allows the owner to accrue benefits (or get allocations) for all 5 years, but is not 100% vested at 3 years, but is 100% vested in their 5th year instead (that's NRD anyway). Would the IRS think such a plan was intentionally designed to avoid the RMD rules for 2013 and 2014? To make it more worthwhile to consider, suppose it is a DB and the PVAB is $600,000 at the end of 2013 and goes up by about $200,000 in 2014. Could the IRS cause trouble for the plan sponsor and the HCE/owner? If so, what would they use for their basis? Would you submit such a design for a D letter, and would that even protect them? Just theorizing/musing . . .

Assume the participant is 100% vested, a 5+% owner, age 70.5, and is still employed by the employer/plan sponsor Assume the plan allows for a lump sum payment Assume plan allows for an in-service distribution of your entire benefit if you are at least 65 and are 100% vested A couple of questions: 1) If the participant takes a full lump sum (in-service distribution) by the end of their first RMD year, even though they are going to accrue more next year, can that RMD be calculated using the individual account plan method? 2) If the Plan has an optional form of payment such as a monthly installment not to exceed 20 years (or if less, the participant's life expectancy), increased by a fixed annual COLA of 4.99%, could the RMD from the plan be calculated on that type of annuity, or would additional plan language be needed to make the RMD be based on that optional form, or would the participant have to elect that form of payment for the RMD to be calculated under that form? Please comment! edit: typos

Yes. Combine the two together. So, ignoring the catchup: If the 401(k) is $6,000, the SIMPLE can't exceed $10,500 (overall 402(g) max $16,500) If the 401(k) is $1,000, the SIMPLE can't exceed $11,500 (SIMPLE max $11,500) If the 401(k) is $16,500, the SIMPLE max is zero If the SIMPLE is $6,000, the 401(k) can't exceed $10,500 (overall 402(g) max $16,500) If the SIMPLE is $1,000, the 401(k) can't exceed $15,500 (overall 402(g) max $16,500) If the SIMPLE is $11,500, the 401(k) can't exceed $5,000 (overall 402(g) max $16,500)

Let's assume that when the plan added an early retirement date, it also defined the early retirement benefit as an benefit payable without reduction at early retirement. Let's also assume that this amendment was done timely to comply with the Final Normal Retirement Age regulations (now my soap box: you remember - the phased retirement regulations that were proposed by the IRS, then almost 100% deleted and replaced with something completely different after the comment period ended, and then released as Final Normal Retirement Regulations with no option for folks to comment, thanks). All better now. Your current prototype probably allows for an unreduced early retirement benefit, right? If so, and the plan provides the unreduced benefit payable at early retirement, the actuary can choose an assumption regarding the age that employees will retire equal to the early retirement age (if they think that's reasonable) - thus funding would not be affected. If your EGTRRA prototype does not allow an unreduced early retirement benefit, perhaps look for another prototype document to use?

A 403(b) plan showed under 100 participants on its 2009 Form 5500-SF, but should have showed 145 eligible participants (the employer did not report everyone to their recordkeeper). For the 2009 Form 5500: a) Should they wait to file an amended 2009 Form 5500 when the 2009 accountant's opinion is ready? or b) Should they file an amended full 5500 now with an attachment stating that the audit is being prepared and will be provided when it is complete (and explaining what happened)? or c) Wait for the audit to get done and file under DFVC and pay the $1,500 fee to possibly avoid penalties that a complete return was not filed timely for 2009? For the 2010 Form 5500: a) Should they file on October 17, 2011 using the full participant count but with a short attachment explaining what happened and explaining the audit will be sent as soon as it's available? or b) not file the 5500 until the audit is ready and perhaps file using DFVC (if cheaper than the regular late filing penalty)? Any recommendations?

The 401(k) plan document allows the timing for making deferral elections changes to be set by the employer under an administrative policy (outside the plan document). The employer (a few hundred employees) would like to design a salary deferral procedure that has employees elect their deferral percent or amount from each paycheck (but such deferral election does not apply to any wages paid as a bonus). For bonuses, the employer wants to apply something like a negative election, stating that the employee can only elect to defer from each bonus by making a special deferral election before each bonus is paid. Thus, an employee cannot make a standing election to say "please defer 3% from all future bonuses", instead they need to fill out an election each time. They intend to announce the bonus amounts well ahead of their paydate to allow such special deferral elections to be made. Although it seems like a lot of extra work for HR/payroll to plug these special elections in for each bonus, could this procedure be acceptable for a deferral policy?

If the employer just doesn't want the hassle of handling employee deferral withholding elections and doesn't mind not having the catchup, a profit sharing only design may be satisfactory (it just depends on their goals and objectives). Sometimes simpler still wins the day, even if it is less efficient with the contribution dollars.

If the two plans combined pass coverage at the 70% ratio, then the reasonable classification test does not apply. As Andy suggests, submit the plan for a full scope D letter which includes 401(a)(26) - maybe even amend the plan first and include the amendment in the request. Explain to the client what's going on. Perhaps the plan could be amended to truly cover enough NHCEs to get over 401(a)(26), or amended to put in a small flat dollar benefit for all NHCEs but large enough to get a few NHCEs over 401(a)(26). Then offset that if you think it's worth the time and the risk. You probably already know that some IRS agents will not easily provide a D letter for DB plans with offsets.