John Feldt ERPA CPC QPA

I also have not seen or heard of such a ruling yet. I prefer the cautious approach of explaining to the client that the plan will need to pass ratio percent each year. We kind of discussed this here: http://benefitslink.com/boards/index.php?a...st&p=144256

How often does the plan allow salary deferrals elections to be changed?

For qualified plans, moving expenses are part of a category usually called "fringe benefits" which includes taxable reimbursements or other expense allowances, fringe benefits (whether taxable or not), moving expenses, deferred compensation and welfare benefits. The 401(k) plan document will (must) dictate whether or not these items are included or excluded for plan compensation purposes for making contribution allocations. However, for certain tests, these items might be included anyway (like 415 limit testing). Your plan document might specify exactly which moving expenses are excluded. If so, it might only exclude the "qualfied"moving expenses (see next paragraph). It may also be written to exclude all amounts paid as described in the company's relocation policy. Again, for contribution allocation purposes, it depends on the language in the plan document, the laws/regulations/etc do not require plan sponsors to include or exclude certain items. Overall, the compensation used for allocation purposes needs to be considered nondiscriminatory (not designed in favor of the Highly Compensated Employees). With regards to moving expenses overall, depending on how your company's plan is structured, my memory recalls that moving expenses are included on the employee's W-2 as income (and they are subject to FICA). The employee then reduces their income on the front of their Form 1040 by completing Form 3903 and deducting the "qualified" moving expenses. By "qualified" moving expenses, I mean only those amounts that fit in box 1 and 2 of the Form 3903. All of the other moving-related costs, like temporary housing, meal allowances, etc. should appear as taxable wages (also subject to FICA) in box 1 of the W-2. I'm no CPA, so you should check out the info from that last paragraph with a qualified professional.

Can the level of automatic contributions be withheld for payrolls during the 30-day period? Yes, you may be required to if you have immediate entry and no election is made in the first 30 days of hire and a payroll occurs in that time. FYI, the rules that may be adopted to allow the distibution of any deferrals made during the initial 90-day period do not begin until the 2008 plan year. So, no distributing those yet.

See also §1.411(a)-5(b)(v)

Yuck. Thanks Tom.

The disclosure of the fees requirement, yes, our approach has been to list them in the SPD.

Yes.

Ah, that's the real problem, isn't it? You're trying to make sense of these rules! I have found it more worthwhile to just make attempts to understand the rules (if possible), but by no means assume that any "sense" was involved during their creation!

I think the sponsor's return had to be extended, I assume the LLC would be the sponsor. Here a somewhat related link: http://benefitslink.com/boards/index.php?s...c=35141&hl=

True, more than 25% can be transferred, but with $2.1 million of excess and only 3 low paid employees plus the 1 doc, transferring more than 25% to the QRP (more than $525,000) will simply delay the inevitable problem to a later date, and then (I think) you'll have fewer options - the 50% excise tax would (I think) apply on the unallocated amount. Look at 4980(d)(2)(C )(ii): "If, by reason of any limitation under section 415, any amount credited to a suspense account may not be allocated to a participant before the close of the 7-year period, such amount shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of any such limitation, shall be allocated to the participant as provided in section 415. Any income on any amount credited to a suspense account shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period. If any amount credited to a suspense account is not allocated as of the termination date of the replacement plan, such amount shall be allocated to the accounts of participants as of such date, except that any amount which may not be allocated by reason of any limitation under section 415 shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of such limitation, such portion shall be treated as an employer reversion to which this section applies."

http://cms.nationalunderwriter.com/cms/nul...7/05/15-acli-ap

You must follow the method determined by the excess asset allocation terms described in the plan document or subsequent amendments. If the plan term date has already gone by, then I don't think you can change that language without rescinding the prior termination date. If you are trying to figure how to word the amendment, then refer to the DB answer book, chapter 25, Plan Termination, Surplus Assets: "How is it determined whether the allocation of excess assets is made in a nondiscriminatory manner?" and "How do code provisions and the plan design affect plan terminations?" ...When there are surplus assets on plan termination, reallocation of the surplus can become a creative exercise. There are an infinite number of allocation methods; most of the considerations, for example, deciding who the plan sponsor wants to benefit, that are made in initial plan design must be followed on the reallocation of the surplus assets. The nondiscrimination regulations affect the design considerably...

I'd recommend that you also see that the plan has the language to do this as well. We've seen a few documents that did not have the posting of a bond language.

From first hand experience (gulp), I have seen the IRS reject a retroactive amendment when the deadline to allow such an amendment had already expired (although in several other cases, exactly identical, they accepted the amendment when reviewed). The amendment that was rejected was to correct a typographical error, and the IRS went to sanctions under audit cap when they saw this. We tried to do what we thought was best by making a correction in a cost-efficient manner using ordinary reasoning. If we had not done that amendment, the IRS would have never figured out that something was wrong. Ordinary reasoning does not seem to apply uniformly at the IRS. Lesson learned. You can certainly do what you think is right, but watch out: if a mere typo goes to sanctions, your non-typo amendment could too! Based on my experiences with the IRS, I would not take that risk with what you described. I would recommend EPCRS to the client and get a hold harmless agreement if they decide not to do that.

Kudos to ak2ary for working on that letter. Whoever helped to get ahold of Allen's comments to Grassley - again, great work! http://www.asppa.org/pdf_files/0514_2007-27NoticeFIN.pdf

If the plan just recently became this overfunded, that's great. If it happened many years ago, then discussions with your firm and with your client should have started back then, explaining how DB plans really work. I remember a DB client that became overfunded in the early 1980's and could not contribute ever again. We took over the work in the mid-late 1990's. One option we provided was to terminate the DB plan and establish a QRP (Qualified Replacement Plan), transfer 25% of the excess assets (the amount over the 415 limit) to the QRP and revert the rest to the employer. The reversion amount has a 20% excise tax instead of 50% because 25% of the excess assets were transferred to a QRP. The reversion amount was also subject to corporate income tax. The QRP suggested was a profit sharing plan. The amount transferred to the QRP then had to be allocated over a period not to exceed 7 years, so he needed to have compensation to support the allocations. This approach would get $1.575 million back to your client's corporation, but then they would be paying $315,000 in excise tax plus income taxes on the $1.575M. The other problem would be to allocate the transferred amount of $525,000 - it might not all be allocated within seven years. Look at 4980(d)(2)(C )(ii). If, by reason of any limitation under section 415, any amount credited to a suspense account may not be allocated to a participant before the close of the 7-year period, such amount shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of any such limitation, shall be allocated to the participant as provided in section 415. Any income on any amount credited to a suspense account shall be allocated to accounts of participants no less rapidly than ratably over the remainder of the period. If any amount credited to a suspense account is not allocated as of the termination date of the replacement plan, such amount shall be allocated to the accounts of participants as of such date, except that any amount which may not be allocated by reason of any limitation under section 415 shall be allocated to the accounts of other participants, and if any portion of such amount may not be allocated to other participants by reason of such limitation, such portion shall be treated as an employer reversion to which this section applies. I hope you'll hear some ideas from some other folks out there. Such as finding a buyer who would love to buy his company and merge his underfunded plan with your client's overfunded plan.

Yes, for DC plans we are also around the 40% to 50% scenario. Almost half pay it from the participant's DC account, the plan sponsor foots the bill on the other plans. Of course, for all of our DB plans, the plan sponsor pays the cost.

Sorry, I don't think so. Check out this post: http://benefitslink.com/boards/index.php?s...=35028&st=0

Or perhaps an individual is sued (and loses, goes to jail, etc.) and the courts later enter a judgement for the winner. Having the money in a qualified plan still protects thios individual, but if the funds are in an IRA, then State laws apply, even for rollover money from a qualfied plan, unless the individual declares bankruptcy (I think), then they get protection? (mjb, please correct me if that is incorrect).

Church plans are generally not subject to ERISA. They do not have to follow the ERISA participation rules, the vesting requirements, minimum funding requirements, fiduciary obligations. They also do not have the reporting and disclosure requirements of ERISA. See ERISA §4(b)(1). A church plan sponsor can voluntarily decide to make the plan become subject to ERISA by making an affirmative election (and, if it's a DB plan, by notifying the PBGC). There are certain code sections that apply to church plans and government plans, and some of these are under the pre-ERISA rules.

Check out this post: http://benefitslink.com/boards/index.php?a...st&p=147067

What are the terms of the plan for short plan years?

To get both a W-2 and a K-1, perhaps they were not partners for the entire year, then they could get a W-2 for some of the year as an employee and then a K-1 for their share of the company earnings for the rest. Or the company could have changed from an corp (or LLC-Corp) to an LLC-partnership during the year. Other than that, getting both a W-2 (with wages) and a partnership K-1 seems a bit odd.

Good question. Compensation is one of the most commonly messed up factors for retirement plans. That someone in your office may be confusing the K-1 for an S-Corp with the K-1 for a partnership. K-1 income from an S-Corp never counts as earned income for plan purposes. From your statement, the LLC partners receive mostly K-1 income. An LLC is either treated (taxed) like a corporation, a partnership, or sole prop. If yours is taxed as a partnership, then the K-1 might be ok to use. Might be ok? If the person receiving the K-1 is not materially participating in the creation of the income, they are only receiving passive income (like investment income), then they are not working there. Only wages from work (earned income) will be allowable for plan compensation purposes. Even a Sole Prop's schedule SE income could be considered passive income if they are no longer involved in making that business run. W-2 is by default employee wages and thus earned income. 415 comp would include the earned income (non-passive income) of a partner. So, you will have to determine whether or not any of the K-1 amounts are non-passive earned income.