ERISAnut

Situation1: Participant Died prior to Required Beginning Date Payment: In order for payout over the life expectancy of the beneficiary, first payment must begin by December 31 of the year following the year of death. The payment will be calculated on the beneficiary's single life expectancy for the year of first distribution (minus 1 for each subsequent year) This assumes a non-spouse beneficiary. Situation2: Participant Died after reaching Required Beginning Date Will not touch whether the RMD's were satisfied during the participant's life time. The RMD for the year of death must be calculated as if the participant did not die. This RMD is distributed to the beneficiary. In subsequent years, the distributions are calculated on the beneficary's life expectancy. However, the calculation of the beneficary's life expectancy is the longer of two periods 1) the life expectancy of the participant in the year of death reduced by one for each subsequent year or 2) the life expectancy of the beneficiary in the year of 1st payment reduced by one for each subsequent year. This also assumes the beneficiary is not the spouse. The spouse's life expectancy is always recalculated and the spouse also has additional options to delay distribution in the event the participant was not age 70 1/2. With that said, there is a huge lack of detail in your question.

Good catch! I didn't see the "non-" in front of "Safe Harbor" 401(k). Should have written as 401(k) or ordinary or traditional 401(k). There IS a problem with mergining the two plans during the year. Man, that was like asking "can I take a deduction on a non-Traditional IRA if I am single and not covered by an employer plan?"

Yes, and it would be a merger of two safe harbor plans at that time.

Assuming it is 2005 and the 417(e) rate is 5.5%, how would you calculate the maximum contribution to a Cash Balance Plan for a 50 year old employee? I am thinking GAR '94 @ 5.5% would come into play for a reduction between age 62 and 50, but nothing jives. Does the years of participation come into play as well since the 415(b) dollar limit is reduced for years of participation less than 10? Or, do we assume there will be at least 10 years of participation and leave it alone. For salary, let's assume the individual makes over $200,000 even though salary doesn't come into play for the actuarial reduction below 62 and years of service is more than 10. Any help would be greatly appreciated.

No, I am merely distinguishing what it means to be an eligible participant in a plan. I am familiar with the Controlled Group Rules of 414(b) and © in addition to the Affiliated Employer rules of 414(m). I am also aware of how the attribution rules of 1563 applies to controlled group determinations while the attribution rules of 318 applies to Afiliated Service Group determinations. None of those apply to this situation as it is established that the two employers are related. What has also been established is that the participants under the Safe Harbor 401(k) arrangement are not participants under the PS only plan. Hence, the PS only plan does not have a deferral arrangement in plan and the participants under that plan are not eligible for any other CODA with the employer (or related employer). So, the PS only plan can set up a 401(k) feature and apply the safe harbor rules in year 1, irrespective of what the plan of the other "related employer" is doing. Just breaking it down; that's all.

A little overkill on this one as there are no employees in the 401(k)/PS arrangement of one employer that are eligible for the PS only plan of the second employer. Hence, the PS only plan could establish a Safe Harbor 401(k) arrangement during the current year. From there, you have two similar Safe Harbor 401(k) plans. That is one transaction. The question now becomes at what point would you attempt to perform the second transaction; of merging the two plans. While this can be done during the year; It may be much easier and cleaner to do at year end as the balance transfer reported on the final 5500 will be the ending balance of the merged plan.

Yes, the only difference within the initial two years of a SIMPLE IRA is that there is a 25% penalty on early distributions instead of 10%. So, the 2 year rollover exclusion prevents the taxpayer from rolling to a SEP or other plan in order to incur a 10% early distribution penalty instead of a 25% penalty. Therefore, 1) after two years, the SIMPLE IRA may roll over to any vehicle. 2) Within the initial two years, a SIMPLE IRA may only roll over to another SIMPLE IRA. 3) A SIMPLE IRA may only accept rollovers from other SIMPLE IRA's.

Let's break this one down. It would be permissible for the profit sharing only plan to initiate a 401(k) arrangement and applie the safe harbor rules during the plan year since no 401(k) arrangement exists for this employer. Also, it is permissible to two to merge during the year; but why would they do this during the year instead of year end. So what you are suggesting can be done, but the question is more of a matter of preference. I would initiate a safe harbor arrangement in the PS only plan and then merge the plans at year end. This will provide for a clean transition.

The recordkeeping software should actually be programmed to house the 'start date' for Roth 401(k) deferrals. (I forget the technical name for the date). This date will be used by the employee for any future Roth Deferrals, including plans of successor employers where this Roth account is rolled over. It does require programming. But that is always the case when rule changes are made.

It appears that while this was a 402(g) violation with respect to the taxpayer, this did not amount to a 401(a)(30) excess with respect to either employer. Therefore, in the absence of allocating the excesses to either plan and receiving the corrective amount by April 15th, the taxpayer missed the "window of opportunity" with withdraw the funds and prevent them being considered "tax deferred" in the future when they are ultimately distributed. When the taxpayer completes their 1040, they will find that the totals of the two W-2 forms will exceed the 402(g) limit and will be disallowed a deduction for the excess. However, by not being distributed by the tax filing deadline, these same amounts will be treated as if they are pre-tax at the time contributed; even thought the deduction was disallowed.

I would say no because the issue is whether the amount is required or discretionary. In the event of a loan payment, that amount is required under the terms of the loan contract. Therefore, contributing stock in order to satisfy that obligation would create a prohibited transaction. An obvious case where stock could be contributed to a qualified plan is where the employer makes a discretionary contribution in employer stock. Notice, that by discretionary contribution, I am implying a contribution where the funding requirements of 412(i) does not apply. We all know of cases where the employer contributes a "matching contribution" to the plan. In those instances, that contribution of stock is actually governed by the document where the stock is not being contributed as a "bartering" tool with the plan.

In many instances, yes. There are always trade-offs. The major issue is knowing what those tradeoffs are and how to evaluate them in order to determine the most effective way to deal with a particular situation.

Sure, if you rollover the portion that you are trying to exempt to an IRA, and then 72(t) the IRA. Not sure about the overall strategy as any periodic payments from a Qualified Plan that are exempt from the 10% penalty (prior to 59 1/2) would require the participant actually terminates. Furthermore, if the participant actually terminates employment in the year he turns age 55 (or later) then there is no 10% penalty anyway (with respect to the distribution from the qualified plan).

This is true. You always want to determine how the plan is written with respect to related employers. Many plans currently require each related employer to actually adopt onto the plan as a co-sponsor. In the event you mistakenly adopt a plan that provides for coverage of all employees of the entire related group, this could 'blow up' in the invent there is a controlled group that the companies are not aware of.

That is actually a stategy many people are endorsing. Actually defer $1 to a Roth 401(k) just to buy the option of already satisfying the 5 year requirement in the event you choose to contribute more in the future.

Of coarse they can. They are a Controlled Group for qualified plan purposes since they have the same owner. This is irrespective of the fact that the operations are different.

That is a good rule of thumb. Corrective distributions of Elective deferrals are taxable to the employee on a First In - First Out basis. Therefore, the deferrals that are distributed first are the deferrals that were first contributed during the plan year. If a plan year ends June 30, 2006 and corrective distributions (excess employee contributions) will be taxable in 2005 if the corrections are made within 2 1/2 months after the plan year end (September 15, 2006). Now suppose the plan year end is October 31, 2006, and the corrective distributions are made on December 15th, 2007. They are taxable to the participant in 2005. This goes back two taxable years and will be coded as a "D" on the 1099-R. Congress is actually looking into changing the laws to make all corrective distributions taxable in the year distributed which will make all of this a non-issue. But, for now, this is the way it is.

Sure, but only with respect to the compensation that hasn't been received yet. As a general rule, you can always amend prospectively without violating the cutback rules. Just be sure that the impact of the amendment is also nondiscriminatory. Cannot get into the long list of items that can run afoul by poor amendment timing during the year, but the client (and counsel) should think along those lines as well.

I would default them asap. Technically, they should've became taxable in 2005; but there is not an auditor at the IRS that would knock the plan in the event of a late default; since it did become taxable. While IRS auditor do look for taxable events upon audit, there is nothing flagrant about a late default. They would likely spend more resources to no avail since the loan is already defaulted. I would simply default asap.

Sorry for the late reply. There is no hard rule stating that a loan cannot be issued to a participant who is either terminated or laid off. The is purely plan driven and is up to the plan's load policy. The plan sponsor can alway deny a participant a loan when the plan sponsor has reason to believe that the participant is unable to repay the loan. In fact, the plan sponsor is required to deny the loan. The key to this statement is that any loan denial must be a bona-fide denial based on sound lending criteria. (It cannot be arbitrary).

You are correct. The issue is that once the payments are started, there cannot be any substantial modification to the payments within 5 years of the date of the initial payment (even if the 5 year period extends beyond age 59 1/2. The calculation itself, however, must be done over the life expectancy. The substantial modification rule actually states the later of age 59 1/2 and five years; but you get my point.

Wow. If you think the compensation limit for an HCE where 2005 is the lookback year is $100,000, then you will obviously never be an HCE in our industry.

Surely you jest....and exactly why is the name of the auditor germane to this? What does your prior job history have to do with anything? And more importantly, you can't possibly think that such information would be disclosed on a message board; or to anyone for that matter. Don't like it what I personally took from the audit...that's fine. Remember, I offered the example as my own opinion. You don't have to agree with it and that's fine. Say "I don't agree with you", but don't question my integrity. It implies that if I want to know about a subject, I would be better served talking to a source with direct experience relating to that subject. I felt that it shouldn't take the work of a DOL employee who enforced the same provisions that are being questioned here to explain the difference between segregating amounts withheld from employees pay and the mere investing of those funds. But, I see that some people find comfort in confusion.

As a former Pension Investigator for the DOL, I would like to know who the auditor was.

I would strongly disagree. Again, these are two distinct standards. The 1st standard is more along the lines of the prohibited transaction issue as the DOL views amounts that are withheld from employee pay as a plan asset at the time they are withheld. Accordingly, the DOL does not condone the employer holding on to plan assets any longer than necessary. This is why the correction is along the lines of a prohibited transaction. The investment of plan assets is another fiduciary standard.