John Feldt ERPA CPC QPA

Well, if the plan was subject to ERISA, a quote from Reg. 1.401(a)-20, Q&A 17 and from 1.417(e)-1(b)(1) would do the trick! However, a nonelecting church plan is not subject to 417 nor are they subject to 401(a)(20). A nonelecting church plan has not made an election under 410(d) to be covered by the rules of ERISA. I may be going out on a limb, but I think a nonelecting church plan could offer an immediate lump sum benefit without being required to offer an immediate annuity. However, my lack of experience on this specific issue raises a caution flag. I am curious to hear additional words of wisdom from others.

correction of limitation amounts on J Simmons message: "the individual limit amount: $15,500 for 2006 (or $20,500, if age 50 or older by year's end)" should be the individual limit amount: $15,500 for 2007 (or $20,500, if age 50 or older by year's end).

If these were contributions made to the plan before the plan was even executed (adopted, signed), then I think the deferrals are considered excess deferrals (the IRS doesn't want deferrals to occur before a plan is adopted).

Sounds like the DOL has a different approach than the IRS. I assume you've only seen that with regards to the DOL's VFC program.

Ha - this is topic is not worth that price! Thanks anyway!

If the IRS does not like the proposed correction method in the VCP application, they will negotiate with you on the method of correction. If, ultimately, an acceptable agreement cannot be reached, the case is closed without settling, and the plan year (or years) in question remain unprotected. Last fall at the IRS annual ASPPA conference, an IRS official stated that they've only had a handful where no agreement could be made. In those cases, they had the option to turn the case over to the IRS examiners for audit, but they intentionally chose not to do so, "to preserve the integrity of the EPCRS program" and stating "who would want to use a program that opens you up to an audit?" Since the program is voluntary, she stated that they felt only egregious cases should be turned over for a true audit when no agreement can be reached, but so far none of these "unsettled" closed cases were egregious enough for that.

What if the dental insurance premium being deducted is 100% employee cost (the company pays no portion) - should that still be deducted on an after-tax basis for the 2.5% owner?

An employee has now become a 2.5% owner of their company (S-Corp). They are no longer eligible for pre-tax health insurance deductions and they are no longer eligible for the pre-tax reimbursed medical expense portion of the plan. What about pre-tax dental insurance premium deductions - are they no longer eligible? Should these be deducted now on an after-tax basis?

Would anyone else care to divulge their methods?

Ok. If your client really wants you to come up with something, you could file a form 6406 to see if the IRS might allow the amendment (be sure to explain it fully to the IRS). Tell your client it's a long shot, but you never know what kind of language the IRS might allow to go through. It seems unlikely they would allow that (see Mr. Preston's comment). I assume the IRS still accepts Form 6406 filings?

Original question: Are multiple employer 401(k) plan documents usually drawn up by an attorney? Are there prototypes avialable (probably not, but I don't have much experience with these types of plans and I want to be sure)? Any ideas about a price range for this document? Multiple Employers, if they are part of a controlled group or an affiliated service group, can be placed into a prototype. However, if they are not part of a controlled group or an affiliated service group, then either an individually designed plan or a volume submitter document will work. Be careful though, not all volume submitter documents have the necessary language for multiple employers. The cost will vary by provider.

According to the online SS-4 instructions, it says third parties (like us) may request EINs via the internet on behalf of their clients. And it says that a copy of the Form SS-4, signed by the customer, must be maintained in our business files along with a signed statement authorizing us to file the online application. The online SS-4 prints "not required" under the signature line, making it (sometimes) difficult to convince a client to sign the form. 1) If you are a TPA and filing for online trust ID#s for your new clients' plans, are you having success in obtaining the signed SS-4 for your own files? 2) What kind of a signed statement are you getting to authorize your firm to complete the online SS-4 for your clients' plans? Do you just add wording to your engagement agreement? Or are using a Form 2848? Any comments?

Is this a government plan or is this a nonelecting church plan?

Would the answer change if the funds stayed entirely in the 401(k) plan through the end of 2006, and was just now rolled over with no RMD being made?

The data supports the statement, whereas the need for the adjustment is based on the significant difference in results after the adjustment. Thus, the data, even if adjusted, will still be strong enough to support the same argument, thus it's supportive without adjustment. I guess I would not bother making minor adjustments to these estimated numbers for time sake unless I can see that adjustment will result in a significant change. Enough to say - oh, that will be a lot different. From my first glance, I did not see that an adjustment would be a very significant change. Perhaps my first glance was not very good, and you believe the adjustment would be significant enough to raise the eyebrows? If you think it would, what adjustment formula do you propose, or how much different would you think the results will be based on the adjustment? I see $27,418,000 / $831,890,000 = 3.30%. This must not mean what I think it means - who can help me on this?

goldtpa: Nope. I think it was at the Annual ASPPA conference where the IRS said no.

Well, the data is sampling data only, any adjustment would still be an estimate. They state "All figures are estimates based on samples". The addition of this link is only to strengthen the statement from earlier that "at some time, if ever, if more than 50% of the voters are no longer required to pay taxes (or very little tax at all), then we may be surprised how eager many in Congress will be to raise taxes on those who are still paying taxes (to get the votes from the nontaxpaying voter block)." Hypothetically, that is.

Income taxes: If I read this right, 96.70% of all income taxes (2004) were paid by 50% of income tax payers. http://www.irs.gov/pub/irs-soi/04in06tr.xls

Yes, but at some time, if ever, if more than 50% of the voters are no longer required to pay taxes (or very little tax at all), then we may be surprised how eager many in Congress will be to raise taxes on those who are still paying taxes (to get the votes from the nontaxpaying voter block).

Thanks, we agree. Yes, we could tell right away that the agent was attempting to use the Avg Bft test rules when they were clearly not appropriate. The agent only quoted the code and we will be replying with references to the regulations.

Plan Man, I understand your point, but I must disagree with "the plan cannot be written to only include certain employees". If that is true, then you would be making a ruling based on how the plan's document words are ordered and phrased, not based on what the words mean in total and their end result (the action needed to operate the plan). Here's an example, 2 highly, 2 nonhighly. Suppose we want to benefit only Jill and Bob: Jill (Sales) HCE Joe (Admin) HCE Bob (Sales) NHCE Fred (Admin) NHCE Wording #1 (you say is ok): "Employees who are Administrators are excluded" - thus Jill and Bob are in the plan. Wording #2 (you say is NOT ok): "All Employees other than Salespeople are excluded" - thus Jill and Bob are in the plan - same result. The end result of the wording is to exclude certain employee groups - as you stated "a qualified plan is set up to benefit the employees and can only exclude certain employees". Please look at the regulations in addition to the Code and see what you think. I do not yet see a problem with either number 1 or number 2 above. Anybody else?

jved, that's correct, thanks.

I like what JanetM pointed out. Social Security Benefits are very much like having your social security taxes (that you paid) returned to you. Were those FICA taxes deductible from your gross pay to lower your taxable income? No. The payment of your Social Security Benefit is much like having your own FICA payments returned to your hands - and that is taxable income. That's already double taxation. If Congress adopts a consumption tax or national sales tax (or something like that) then the Roth contributions, having been taxed once, would get taxed again when the funds are used to buy something. Until then, or until Roth acounts or distributions are taxed as Janet mentions, Roth away!

Thanks, that's very helpful. As we looked further at the documentation, it appears that the language to continue the PS vesting schedule for the prior balances was only placed into the Merger Resolution, but it never got into the plan document of the 401(k) plan. This could be a problem then, and cause perhaps one employee to receive an additional distribution.

A prospect is under an IRS Audit. They have asked us to look at the situation. 1. The IRS Agent's review states the merger of a Profit Sharing plan into a 401(k) plan constitutes a plan termination. They use Rev Ruling 2002-42 and they say that because the Profit Sharing plan had a 5-year vesting schedule 20, 40, 60, 80, 100 but the plan it was merged into (the 401(k) plan) had a 6-year graded schedule, 0, 20, 40, 60, 80, 100, that this a complete termination of the PS plan. At the time of the merger, language was added to the 401(k) to maintain the vested percent from the PS plan but only for purposes of the merged PS balances only, so the reports show everyone's prior PS balance continued upward on that old schedule. 2. Also, the PS plan excluded some employees, but still passed the 70% coverage (ratio percent) test. But, the IRS agent writes "there are no provisions under the Code that allow you to include only employees who have certain job titles", stating that we cannot use language that says "The following Employees are not eligible: All employees other than Employees with job title a)___, Employees with job title b)___, and Employees with job title c)___" even though this passed the 70% coverage test. This document is a Age Weighted formula document (volume submitter). Any comments/thoughts would be great.