J Simmons

Per the OP, the check has already been cashed "somehow" by the distributee. Arguably if the IRS is unable to get at least 20% collected from the distributee, the IRS would be considered the forgery victim (the IRS being the third party beneficiary of the mandatory tax withholding requirement). If the IRS could establish that, then the drawee bank (the one that allowed the check to be erroneously negotiated) would have to pay that 20% to the IRS under banking/UCC rules. Whether the plan has a duty under federal and/or state criminal laws to report the crime, if in fact forged, I would have no idea. Interestingly, the OP explains that the distributee is asking the plan to change the f1099-R that issued reporting it as a direct rollover. I would not change it. I would let the employee simply report the amount of the check as taxable income. I see it now as an issue between the distributee as a taxpayer and the IRS. The plan correctly reported what it did.

The wink-wink one.

I don't have a cite, but the IRS recently ruled that if the check is made payable to the rollover institution, delivered to the distributee, but not turned over by the distributee to the rollover institution until more than 60 days and then does so, it is nonetheless a proper DIRECT rollover. The IRS explained that the distributee did not have control over the funds because the check was made payable to the rollover institution. So I don't think it is the plan's duty to send the check directly to the rollover institution. Implicit in that ruling is that delivering such a check to the distributee is acceptable. I would simply r1099-R it as a direct rollover, and leave it as that. From the plan's perspective that is exactly what happened. Effectively for the distributee, it is not much different than if he delivered the check, it was deposited into an IRA for him, and then he withdrew it promptly after that. If the distributee had robbed the bank and took only the amount of the distribution right after it had been deposited in the bank, would you feel the need to tax report it differently if you learned of the robbery? Here the crime against the bank is forgery, not robbery. But either way, it does not involve the plan (the drawee bank might have stand the loss to the forgery victim (here, who knows who that would be) under the law of negotiable instruments).

I must not have explained it correctly. He put in more than he wants to allocate to himself. He is under 50 and already took care of the 16,500. The 20,800 was put in the plan and he can only use part of that for the 3% NEC. He only wants to use part of the remaining amount for profit sharing. Can we give him the balance plus earnings out of the plan or do we have to forfeit the overage? Off the top of my head, doesn't sound like the kind of error that permits it to be paid out, but check these threads mistake of fact ER deposit and mistake of fact

Was he age 50 by the end of 2009? Is his far-less-than-expected 2009 income going to be less than $20,800?

I understand that the plan has to have started no earlier than 5 years before the EGTRRA remedial amendment period began. Since it began 1/1/2002, any plan established 1/2/1997 or later meets that requirement.

Since available HRA $ have to be exhausted before the MFSA can be accessed for reimbursement (and maybe they were), when you have these dollars coming back (from the insurance) they probably need to be restored in reverse order, to the MFSA before you can then have any restored to the HRA. The most I would chance would be to let the EE turn in other expenses incurred by the end of 2009, even though the claims submission period has probably ended, and then reimburse first out of the replenished (as of 12/31/2009 accruals) HRA and then the MFSA. You can't really turn the clock back and have more expenses incurred in 2009 than already in fact were. I don't think the IRS would be in favor, on audit, of you allowing a new period for expenses now to qualify out of the 2009 MFSA. It's not a good argument that the EE was deprived of the opportunity to manipulate the incurrence of medical expenses and use up all of his MFSA, so now we'll give him that opportunity, particularly since to mimic insurance, there needs to be the chance the EE will pay more for the MFSA coverage than he is reimbursed by reason of it. I think it is pretty clear under the regs that just letting the EE have the dollars without any corresponding medical expenses would not fly.

I prefer the separate area on the ledger and then payment out of the ER's general bank account, but you can do the separate bank account just for cafteria plan benefits--but be careful not to designate it in any way as relating to the cafeteria plan and do not communicate to the employees that the ER has the separate fund and on balance sheets etc. list the balance in the separate account as a general asset of the ER. Otherwise, you might incidentally create a trust fund as to which the EEs would have priority claims over the general creditors of the ER. If so, then you have lost the exemption from the ERISA trust and Form 5500 requirements.

For one thing, there is the possibility that the payments in 2009 were for services performed in 2008, and depending on the plan's 415 compensation amendment, it might be counted for plan purposes in 2009. It depends on that amendment in great part.

I think you'd better have the situation and the entire plan documentation reviewed by a qualified pension professional. There are more follow up questions and potentials than can adequately be addressed on a message board.

Does your plan require a certain number of hours in the current year to be eligible to accrue a benefit (1,000 or less may be imposed)? Does your plan require year end employment to be eligible to accrue a benefit? Does your plan have a provision where either/both such requirements do not apply to an employee who dies during the current year?

There is in federal case law a concept known as successor employer liability. IIRC, it arose in the context of the FLSA. However, there is some federal appellate case law that applies the concept to ERISA plan liability. It is generally must more difficult to escape this liability, even in the context of an asset purchase, than successor corporate liability under state law. Rather than risk it, when I advice asset purchasers I suggest that they insist that it be recognized in the negotiations with the seller and that the cost of the buyer providing the COBRA coverage be factored in the negotiation of the overall price. That's because the circumstances of the purchase usually prevent me from giving the purchaser a strong opinion with much certitude that a court would not find the purchaser to be a sucessor employer.

Given that this is a trustee (fiduciary), you cannot IIRC do any type of self-correction. This is going to involve an application to the IRS under the VCP to fix, but you do not report the operational failure as such on the Form 5500. The question then is whether the fiduciary's use of plan funds during a time the fiduciary should not have had it constitutes a prohibited transaction? I think so, and should also be so reported. Another concern is the fiduciary violations. You should also consider the DoL's VFCP in this regard.

Why certainly. IRC section 415©(1)(B) limits the DC benefit accruals to the lesser of $49,000 or 100% of considered compensation. If someone has no considered compensation, then zero is his or her considered compensation, and since that is less than $49,000, zero is the effective limit on benefit accruals for this employee. Now, as for testing, if you included former employees who in the current year have no compensation, how far back would you go? In other threads here this year, there has been discussion that if you could manipulate who did not have any earnings but get to be included in your testing, you could dilute the HCE percentages considerably by putting the owner's family members on payroll for a time (until plan eligible) and then they'd stop working and not receive a salary after that. You could keep them on indefinitely, skewing the nondiscrimination and minimum coverage tests. Obviously, the IRS would not allow that, but by the same token then, NHCE's that are former employees with no current year income would be excluded as well.

No contribution. Not included in testing.

Two ERs that are not part of a controlled group may share a cafeteria plan. If it is subject to ERISA, it will also nevertheless be subject to state law because it is a MEWA (multiple employer welfare arrangement). That is, the MEWA cafeteria plan must comply with both ERISA and state law, likely including state health insurance laws. Single employer welfare arrangements subject to ERISA are exempt from having to deal with most state laws. The exemption alone might make it well worth the while to set up two different cafeteria plans. Note, for ERISA Title I purposes, there is no affiliated service group concept. That is only a concept that has tax code implications.

You also must not have a separate fund that use for contributions and dispersements from the cafeteria plan.

It is okay, but make sure you don't do this twice in 12 months time.

Hi, Gary, Even though the lending of money by the plan to a disqualified person or party-in-interest is a PT (e.g., IRC section 4975©(1)(B)), it might fit withing the exemption set forth in IRC section 4975(d)(1). The dollar limits of IRC section 72(p) are not in that exemption language of IRC section 4975(d)(1). However, one of the requirements for the exemption from the excess loan being a PT is that the loan is made in accordance with specific provisions regarding such loans set forth in the plan. Often written plan provisions reflect the dollar limits; if so, the exemption would not apply and the excess loan would be a PT. Also, a requirement for the exemption is that the loan be adequately secured. I doubt that when the $20,000 was withdrawn, there was security given for it, so that too might blow the PT exemption for the excess loan.

Only 403b plans subject to ERISA Title I. In general, these would be 403b plans sponsored by 501©(3) orgs. At that, 403b plans funded solely through employee elective deferrals are not 'sponsored' or 'maintained' by the 501©(3) employer, and are therefore not subject to ERISA Title I. 29 CFR § 2510.3-2(f) If you have a 403 plan sponsored by a 501©(3) org that makes any contributions to the 403b plan, then it is subject to ERISA Title I and the f5500 requirement.

The salary is debunked. I checked the handbooks and they do limit salary to $245,000. Government plans are also exempt from 412. However, I don't see any exception for 415 and in NJ a cop retiring with a final one-year salary of $150,000 at age 47 (not unusual) would have a benefit of $97,500 which would exceed 415. Not being an actuary, and not having the actuarial reports to review, I could not really say.

I would suggest that you look at Rev Rul 61-146 (1961-2 CB 25), Treas Reg § 601.601(d)(2)(ii)(b), Treas Reg § 1.106-1, and Prop Treas Reg § 1.125-1(m). Generally speaking, you are threading a needle with doing so. Consider also the implications of ERISA (Employee Retirement Income Security Act) COBRA (Consolidated Omnibus Budget Reconciliation Act) HIPAA (Health Insurance Portability and Accountability Act) USERRA (Uniformed Services Employment and Re-employment Rights Act) FMLA (Family Medical Leave Act) PDA (Pregnancy Discrimination Act of 1979) ADEA (Age Discrimination in Employment Act) ADA (Americans with Disabilities Act) State health insurance mandates. All of these present special challenges to running individual policies through a cafeteria plan, despite Prop Treas Reg § 1.125-1(m) specifying that it can be done. I.e., that doing so is not a problem for purposes of IRC § 125 does not mean that the strictures of these other legal provisions are inapplicable.

How do you know they are non-compliant? For example, a superintendent may make over $245,000 a year, but that is not proof that the plans in question take into consideration earnings over the $245,000 cap. So what is your proof of these three propositions?

The amendment needed to be in place before the implementation for this change. You need an EPCRS correction.

Gary, Was there a promissory note or anything else evidencing that the owner was obligated to repay the $20,000 at the time he withdrew it? If so, then I think that the use of the $20,000 is the measure of the amount involved. I don't think that you could simply use zero interest to then nullify any penalty. I think that you'd need to use a commercially reasonable interest rate at the time of the withdrawal. If there was nothing contemporaneously documenting that the withdrawal was a loan and the owner obligated to repay it, then the measure of the amount involved was the $20,000 for PT purposes. Since it was in essence the benefits of the owner that were withdrawn, you might also have a plan disqualification issue to deal with--an improper, in-service distribution==and want EPCRS correction.