J Simmons

As to your first question, Treas Reg sec 1.416-1: T-24 Q. How is the present value of an accrued benefit determined in a defined contribution plan? A. The present value of accrued benefits as of the determination date for any individual is the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions due as of the determination date. In the case of a plan not subject to the minimum funding requirements of section 412, the adjustment in (b) is generally the amount of any contributions actually made after the valuation date but on or before the determination date. However, in the first plan year of the plan, the adjustment in (b) should also reflect the amount of any contributions made after the determination date that are allocated as of a date in that first plan year. In the case of a plan that is subject to the minimum funding requirements, the account balance in (a) should include contributions that would be allocated as of a date not later than the determination date, even though those amounts are not yet required to be contributed. Thus, the account balance will include contributions waived in prior years as reflected in the adjusted account balance and contributions not paid that resulted in a funding deficiency. The adjusted account balance is described in Rev. Rul. 78-223, 1978-1 C.B. 125. Also, the adjustment in (b) should reflect the amount of any contribution actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in section 412©(10).

IRS Private Letter Ruling 9010007 (December 14, 1989) specifies that re-contribution within 60 days of withdrawal from an IRA is considered a "rollover" and preserves its tax-advantaged status, and the re-contribution is not considered 'excess contributions' to the IRA for the year restored. The facts of that PLR posit the individual returning to the IRA the entire amount withdrawn, within 60 days. The issue of whether a partial re-contribution would be then a partial "rollover" and preserve its tax-advantaged status was not present on those facts nor discussed. I've not seen any ruling or guidance that specifically allows or prohibits less than the withdrawn amount to be re-contributed and preserve the tax-advantaged status. It seems logical and reasonable that you could do so, but not all rules (including tax rules) are logical and reasonable. FYI, the 5th Circuit Court of Appeals has ruled (in an unpublished 1993 decision) that an IRA owner can only do this type of withdrawal/re-contribution "rollover" once per year. Martin v. Commissioner.

Given your second post, I dug into the statute and I believe you are correct. IRC sec 408A(d)(4)(B)(i) provides a special ordering rule for applying IRC sec 72, that allows tax-free distributions from a Roth IRA to the extent of contributions previously made.

Your withdrawal will be proportional amounts of your after-tax Roth contributions and the yet-to-be-taxed investment earnings. You cannot simply withdraw the after-tax contributed amounts, leaving all the investment earnings in the IRA. If your Roth IRA has existed for 5 years and you are at least age 59 1/2 years (or it is for "qualified first-time homebuyer expenses" or you have become disabled), you might not be taxable on the investment earnings portion of your withdrawal. For the 5 year requirement, the withdrawal had to be after the end of the 5th year beginning with the first year FOR WHICH a contribution was made to the Roth IRA. You can re-contribute that $15,000 if done within 60 days of your withdrawal. After that, you cannot make up that $15,000; only having the ongoing opportunity for new Roth contributions: $4,000 per year.

Do the plan doc's automatically include employees of employers that are in a control group with the specified plan sponsor (i.e., the sole proprietorship)? If not, then the wages paid from the corporation do not count for last year. Just the wages paid to employees from the sole proprietor and the self-employment earnings of the sole proprietor. I think that service with the sole proprietor will count without the need for an amendment as that would be service with the sole proprietorship while it was the sponsoring employer, both for eligibility and vesting purposes. I'd be more concerned with amendments naming the corporation as the successor employer and successor trustor. Also, you may need to specify a new plan administrator if the sole proprietor was named as such if you want it to be the corporate employer rather than the owner.

If I understand correctly the situation you are asking about, returning elective deferrals (and match) first lets the employee get the full measure of the employer's non-matching contribution. If the non-matching contribution were forced out, to whom would be forced out? To the employer that contributed it. The employee wouldn't have any part of it, not even the amount remaining after the taxation. At least by returning the elective deferrals first, after the employee pays the tax he or she has what's left over.

I think your concern is well placed for why using a freeze as an end-run around the obvious purpose of the regulation--only allow distributions incident to a plan termination where the employees won't have the option to make elective deferrals for 12 months after the final termination payout is made. Faced with an employer that attempts the freeze end run, perhaps it could claim that plan termination for that purpose of the 2% exception is when the freeze occurred and employees lost the ability to make elective deferrals.

I think $1,100. In the absence of IRS guidance--and I know of none--it would seem that someone that goes from family to individual status mid-deductible year ought to go to the individual rules ($1,100) with any deductible use by that individual to the date of change, albeit in the family configuration, ought to be allowed.

Do you contemplate not offering any coverage to EEs for April and May 2008? or is it that the ER does not want to allow any NEW enrollees? Your OP could be read either way, but I think it more likely that the ER is continuing the self-funded coverage to 6/1/2008 and doesn't want any new enrollees between now and then. So I'll answer your question that way. I think you'd at least need to let enrolled EEs the option to drop coverage effective 4/1/2008, as the last election was an ANNUAL enrollment, not one from 4/1/2007-6/1/2008. I don't think that you'd need to allow EEs generally to enroll. However, you may want to take a look at HIPAA special enrollment rights. Off the top, I don't think it would pose a problem, but merely suggest that you check. Make sure the amendment meets the procedure requirements set forth in the plan document. As far as a notice, I think you merely need to explain that there will be no annual enrollment, but that each current enrollee that does not want coverage beyond March 31, 2008 will need to make an election to that effect no later than March 31, 2008.

I would think the most recent valuation (12/31/2006) would do. However, since the plan officials now expect a dip in the value of the participant's account, it might be a fiducary breach to do so based on the 12/31/2006 values. Also, if the security for the loan is a pledge of 1/2 of the total vested accrued benefit, the dip in value might render the loan to be less than fully secured when the 12/31/2007 valuation comes out. So even if you can get past the 50% limitation issue for amount of loan, fiduciary prudence might require some additional security for this loan.

It sounds to me that Derrin's point (as you further fleshed it out) was that if there is any possible combination of percentages between husband and wife that results in a controlled group, you've got a controlled group to contend with. That would be what I'd expect the IRS' position to be.

Yes, run a test for short, final year, 1/1-1/31/07. Yes, prorate the compensation and benefit accrual limits.

I think so. See Rev. Rul. 74-385 See also H. Rept. 93-1280 (Conf.)(1974), 1974-3 C.B. 415, 452-453; H. Rept. 93-779 (1974), 1974-3 C.B. 244, 332-333; H. Rept. 93-807 (1974), 1974-3 C.B. (Supp.) 236, 325-326.

I don't know of any authority to cite. Logically, the IRA is a trust arrangement, the custodian holding the assets of the IRA for the benefit of the IRA owner. That would suggest that the ownership of B Inc ought to attribute to A, and there would be a control group. However, IRC sec 1563(e)(3)© exempts from trust attribution QRP trusts--so while the statute doesn't exclude an IRA perhaps the same policy reasons for excluding QRP trusts ought to apply to IRAs. Also, the absence of an exception for IRAs where an exception for QRP trusts is provided might suggest that IRAs were not intended to be within the scope of "trusts" in the first place.

Do you recall if that interpretation also suggested that the IRS could manipulate the percentages differently than the taxpayer might?

Check out Rev Rul 68-129, 1968-1 CB 389, and Kramer v. Commissioner, 80 TC 768 (1983). Gains and net earnings from the sale or licensing of property created by the personal efforts of the self-employed author or inventor is earned income. But payment from the transfer of a patent (a capital asset) are not.

ER has a nonqualified, top-hat DB plan for a former member of management who has retired. The payments are made out of the employer's general assets. It is merely a promise by the employer to pay X amount per month for the remainder of the retiree's life. The individual retired 12/31/2006, and payments began in 2007. It would appear such should be reported on Form 1099-MISC, Box 7. Is this correct? It also appears that such will not be considered earnings for purposes of reducing his Social Security Benefits (he's 63 years old). Is this correct?

In discussing the then $7,000 limit on elective deferrals, the House Committee Report for Sec 403©, Tax-Sheltered Annuities (TRA '86, P.L. 99-514) explained that "Unlike the overall limits on annual additions, which apply separately to amounts accumulated under plans of different employers, this $7,000 cap limits all elective deferrals by an employee."

The extra income would be the individual's for the years that a Schedule C sole proprietorship was involved. For the years an S Corp was in existence, the extra income would flow through to the shareholders as dividends, per amended K-1's, and thus the need for the dentist's 1040s to be amended as well. The individual dentists would be taxed, but no entity would owe tax.

What harm or disadvantage to the employer (responsible for funding the plan) is there from the surviving husband not having turned in the info by a certain deadline? One month less of paying the 100% survivor annuity benefit? It seems that the deadline is arbitrary and serves no purpose.

Disqualification as a voluntary option rather than IRS detection and enforcement, I'm assuming that would entail amending each of the two dentist's Schedule C's and/or Forms 1120S to remove the deduction for each year of contribution to the individual DB & 401k. Then on the upped taxable income, there would be additional income tax and interest and penalties. The investment income would be taxable to the nonqualified trusts, so there would need to be Forms 1041 and taxes paid. Then the dentists do not have the remaining dollars in tax-advantaged vehicles regarding future earnings. The dentists might want to consider whatever claims they might have against the Attorney/CPA/TPA regarding the tax penalties and the fees they've paid before the statute of limitations runs out.

Does anyone have a copy of DoL Technical Release No. 88-01, released August 12, 1988? It is the exemption from ERISA trust requirement for cafeteria plans. I can't seem to find my old copy. Thank you.

Who owns the entity that employees the staff, and in what proportions if more than one?

The IRS has issued d-ltrs to plans that use age criteria as the OP set forth. So from a tax qualification perspective, probably no problem as long as cross-testing passes. Other anti-discrimination laws should be considered too. Race, religion, gender, etc.

I agree with GMK, and would add that you should not vis-a-vis those that are younger than 40.If both doctors are age 40 or older, then ADEA should not be a concern. If one is over 40 and the other under 40, you should have no problem if the older one always receives a company contribution that is as great as the younger one, both when measured as percentages of current compensation and EBARs.