lexi

Sorry for my poorly worded post. This is what happened: 2006= plan year is top heavy. nothing is done to correct it. End of 2006, someone buys the company and assumes the top heavy plan. 2007= new owner wants to make safe harbor contributions for PY 2007. however, 2006's top heavy status hasn't been fixed yet. is there something that would prevent the ER from making SH contributions in 2007 to avoid top heavy rules for that plan year while trying to fix 2006? i know that the top heavy rules are applied on a year-to-year basis, so it seems like just because you haven't fixed a plan for a prior top heavy year wouldn't necessarily mean that you couldn't take advantage of the safe harbor matching rules for the subsequent plan year. how do two successive years of top heavy status interact with rev. rul. 2004-13. any thoughts?

Someone already posted a similar question but I can't find the thread, so forgive my duplication. I read Rev. Proc. 2004-13 re how a plan that is courting top heavy status can make safe harbor contributions and avoid application of 416's rules. However, is it possible for a plan that was top heavy in, for example, 2005 and in 2006 to use the safe harbor contributions for PYE 2006 and avoid 416 for that plan year? I know that top heavy status is determined on a year-to-year basis but can you use 2004-13 in a subsequent year without having first corrected a prior top heavy year? thanks for any insight.

I ERISA 407 includes "marketable obligations" as a qualifying employer security. IRC 409(l), which applies to ESOPs, defines "employer securities" to include common stock. Does that mean an ESOP cannot hold a marketable obligation as a "qualifying employer security?"

We have a US parent that just incorporated a US subsidiary that will be conducting business in Canada. The sub is going to be physically located in Canada and will be employing Canadian residents, whose work will be confined to Canada. The sub would like to include the Canadian residents in the 401(k) plan. I have looked at the US-Canada tax treaty, and everything checks out with that. However, here are my concerns: 1) How does an EE from Canada, on Canadian payroll, make an elective deferral of his/her Canadian salary to a US 401(k) plan? Can a Canadian company withhold Canadian compensation nd contribute it to a US 401(k) plan; and 2) If a Canadian EE does elect to contribute to the 401(k) plan, how could they do so on a pre-tax basis (presumably the Canadian treasury is going to tax it at Canadian rates since it would not be a "pre-tax contribution" for Canadian tax law purposes)? Does anyone have any thoughts or experience with this kind of thing?

I am working on something similar in teh case of Canadian employees. Look to any applicable treaty between the US and the particular country involved. In our case, our employees were working in Canada and they will qualify for reduced withholding under the US-Canada tax treaty by completing the appropriate IRS forms.

It is like this: Man owns IRA. IRA own corporation outright. Does the man own the corporation through his ownership of the IRA?

If an EE who is 55 yrs old and has had 10 yrs of service decides to diversify his/her ESOP account and takes a diversification distribution of 1) stock; and/or 2) shares and does NOT roll it over into an IRA, i am assuming that the distribution would be treated as a non-qualified distribution and would be taxed accordingly. Any thoughts?

I have been scouring secondary materials looking for a list (exhaustive or not) of permissible uses by an S-corp ESOP of corporate distributions. I have found some (e.g., funding repurchase obligation, repurchasing stock distributed to an IRA, buying additional stock, paying down ESOP loan and plan expenses) but i can't find the statutory authority for these things. is there a code section or IRS materials explicitly permitting these uses of corporate distributions?

A client wants to start a business but has no liquid assets. He does, however, have an IRA. He would like to direct his IRA to purchase stock of the company he wants to start. I am looking at IRC 4975 and am thinking that this would be a prohibited transaction but IRC Section 4975©(3) has a special rule for IRAs that might (??) allow it? How do you read 4975's application to this idea? thanks in advance.

I have a parent C corp that incorporated a subsidiary in Delaware. The sub is physically located in Canada, employs Canadians and all work is performed in Canada. The parent wants the Canadian EE to participate in the US ESOP. 1) Is it possible to integrate foreign EE into a US ESOP (especially Canadian EE who have Canadian-mandated pension plans); and 2) If yes, is there a resource out there that walks you through how one integrates the foreign EE (e.g., 415 limits, conversion from Candian dollars to USD)? Does anyone have any suggestions?

We have an EE who no longer faces the threat of forfeiture with respect to his SERP benefits. I read the Regs for 3121 re FICA taxes and understand that section but i am wondering if we don't also need employer federal income tax withholding on the SERP benefits. can anyone help?

I am unable to find the answer to the following question and would like to hear your thoughts/suggestions: Two plans (Plan A and Plan B) have become first-tier subsidiaries of a parent corporation, as follows: Plan A has a plan year ending January 31 and was acquired by the parent on January 3, 2005. Plan B has a plan year ending June 30 and was acquired by the parent on August 9, 2005. We know that Plans A and B have to be tested as a controlled employer at some point, but the question is WHO IS IN PLAN A'S TESTING GROUP as of February 1, 2006 (which is "the last day of the first plan year following the date of the acquisition...")??? When we do the testing for PLAN A, do we also include Plan B in the tests, even though Plan B's transition period is not yet expired?? I have looked at 410(b)(6), I have looked at the regs, I have looked at secondary materials all to no avail. Where is the answer???? Help!

403(b) plan had language prohibiting any distributions before 59 1/2. administrator has allowed distributions before 59 1/2. i have read rev proc 2006-27 and am thinking that VCP (versus SCP) is the way to go. can you confirm? thanks in advance for your help.

QDRO: as a follow up, can you point me to any literature that outlines the proper tax treatment of these "floating ESOPs." these seem a little too cute for me, but i would be interested in what other (more learned people than i) think.

QDROphile, you are right about the plan not being well thought-out and lord only knows what has been going on. my only solace is that the plan can be tested as a solitary unit.

Yes, Harry O, you are definitely correct that mandatory disaggregation no longer applies after 2006. So does that mean that we test everything together (ESOP portion and 401(k) portion) and pick the method that ensures that we don't fail discriminating in favor of HCEs?

the participants can move investments around at will. so which day do you pick to do testing (we are worried about HCEs/NHCEs).

we have a KSOP plan with 3 components: elective deferrals, matching and profit sharing. with respect to the ESOP portion, what date does one use in conducting ADP/ACP testing (i.e., can you pick any day of the plan year to conduct testing)? my thought is that, b/c all of the investments are self-directed, youcould have very different investment levels b/w HCEs and NHCEs on any given day of the year. any thoughts?

The plan doc says it can be used for plan fees or to reduce ER's c ontributions.

An ER has $x in plan forfeitures (being held in a suspense account) that cannot be reallocated to participants' accounts. It wants to use some of the $x to pay off plan expenses. However, not all of the $x is required to meet plan expenses. The ER would like to keep the excess in the suspense account and use it for future plan expenses. When I read IRC Section 415 and the regs, it seems to say that you have to apply the balance in a supense account to participants' accounts in the next plan year (or years), which says (to me) that the plan sponsor can't keep any surplus forfeitures in its own personal bank account to be used against the plan's future expenses. Am I right or could a plan sponsor make its own little expense account out of unallocated forfeitures being held in a suspense account? thanks in advance for any help.

can anyone lend me insight re the following: Corp A= john 25 %; pam 37%; and mary 38% Corp B= john 15; pam 15; mary 15; joe 55 Corp C= john 33.3; pam 33.3; and mary 33.3 when applying section 1563's brother-sister controlled group analysis, do you apply the test on a one-on-one basis or as a group? for example: would you look at corp A and corp B. corp A and corp C and then corp B and corp A. corp B and corp C. and then corp c and A. corp C and B? OR do you look at all three together and see if the 50-80% tests apply to them as a group of three companies? thanks in advance for your help.

can a DB plan, w/ treasury approval, implement a retroactive benefit accrual reduction?? has anyone heard of such a thing and if yes, by what authority?

the question is this: could this ESOP get the 404(k) ESOP dividends invested deduction? the details are this: we have an ER that has a SINGLE pension plan w/ "moving parts." there is a 401(k) component, an EE match component and a profit sharing component, all under the same pension umbrella. the profit sharing part invests (100% as of right now) in its own (publicly traded) ER securities. the EE choose if they want to participate in the plan. the ER says that the part of the plan invested in ER securities is the "ESOP." assume that the ER invests only 5% or 1/2% of the ESOP part in the whole pensioit plan, as determined by EE demand. can the ER still get the 404(k) dividends deduction?? what is the authority i should be looking to; thus far, i have struck out on every avenue. desperate for an answer!!!!!!!

WDIK: the limit would be based on failing ADP testing. i am nervous about automatically overriding the EE's election since, by def'n, it is an EE election. but on the other hand, what could we do prospectively to avoid the problem, instead of learning at the end of the year that there has been an excess derferral and corrections will have to be made?

if an ER has a new program whereby HCEs in a 401(k) plan make their 401(k) election online w/o a paper copy going to HR, and the ER finds out that the HCE has inadvertently set level too high, could the ER itself or the TPA go into that HCE's account, w/o the HCE's consent, and automatically reduce the elective deferral so the plan doesn't run afoul of ADP testing? If not, what other remedies are available to the ER?? thanks in advance for your help.