chris

LLC with H and W as the only members owns and operates rental properties. LLC wants to set up a 401(k) Plan such that W, who will be the one running everything, can begin to save for retirement. H has significant retirement account in current employmer's PSP and will opt out of the LLC's 401(k) Plan. Any significant issues to be aware of going forward regarding the 401(k) to be maintained by the LLC??

What about Rev. Rul. 69-157, 1969-1 CB 115 ? We had a PSP get audited where the sponsor, a professional corporation, dissolved under state law 15 years ago. The plan was maintained in all other respects by the trustee, a bank, and the former officers of the p.c. (under state law the corp is still in existence for purposes of winding up). The plan contained real property which was tied up in bankruptcy proceedings for a number of years. Of course, no contributions had been made since 1987. The agent hung his hat on the absence of a sponsor and tried to disqualify it. We pointed him to the above Rev. Rul. Ended up terminating the plan, distributing remaining assets and filing a final 5500. The agent blessed it.

Is there any simple way to tell if ten year forward averaging would be beneficial without going through all of the numerical calculations? I have not dealt with ten year forward averaging previously and didn't know if there was any way other than running all of the numbers, e.g, comparison of '86 rates with rate applicable to beneficiaries?? Sole participant in Keogh plan passed away last year. Participant's two children are designated beneficiaries. Participant was born prior to 1936 and had keogh plan for many years. Plan trustee is considering an annuity for the two children. Looks as if ten year averaging may be applicable, but didn't know if there were some simplified way to see which is the better alternative. Thanks for any comments.

IRS personnel in Cincinatti were only able to locate a 1992 volume submitter document. Attorney for dissolving Continental says his client has no clue. Anyone out there seen a prototype 401(k) document sponsored by Continental Benefit Administrators, Inc. from arounf 1997? My adoption agreement refers to "Eligible Employees" definition as being Section 1.21 and "Hours of Service" definition as being Section 1.41. Thanks for your help.

To what extent do tpa's in general let their clients know of amendment deadlines with respect to plans they administer? I have got a tpa that was administering a plan for a client from 1987 up until 1996. No amendments have ever been made to the plan. Client says he had no idea since the tpa was handling everything and advising him on the plan. Any comments?

To what extent do tpa's in general let their clients know of amendment deadlines with respect to plans they administer? I have got a tpa that was administering a plan for a client from 1987 up until 1996. No amendments have ever been made to the plan. Client says he had no idea since the tpa was handling everything and advising him on the plan. Any comments?

Client thought plan was terminated in 1996. Client says TPA was to handle everything. No 5500's filed since then. We are considering DFVC with the DOL. Question is whether it's possible to file a request for waiver of penalties based on reasonable cause and reserve the right to utilize DFVC program if DOL finds the facts alleged do not amount to reasonable cause? The request for waiver will be filed with the IRS as well. It appears that the IRS is currently asking for the 1997 and 1998 5500's. May be that the sentiment is that it will be less costly and burdensome to go ahead and pay 6,000 for the non-filed 5500's than to try to deal with DOL as to reasonable cause and possibly lose the ability to use DFVC???? Welcome your comments.

Client thought plan was terminated in 1996. Client says TPA was to handle everything. No 5500's filed since then. We are considering DFVC with the DOL. Question is whether it's possible to file a request for waiver of penalties based on reasonable cause and reserve the right to utilize DFVC program if DOL finds the facts alleged do not amount to reasonable cause? The request for waiver will be filed with the IRS as well. It appears that the IRS is currently asking for the 1997 and 1998 5500's. May be that the sentiment is that it will be less costly and burdensome to go ahead and pay 6,000 for the non-filed 5500's than to try to deal with DOL as to reasonable cause and possibly lose the ability to use DFVC???? Welcome your comments.

Anyone know of any cases in which TPA was held liable for errors in administration of a qualified plan such that the TPA was held to foot the bill for IRS correction?

Despite the fact that the employer is saying the plan was terminated in 1997, it will be treated as an "on-going plan" by the IRS since the assets have not been distributed. My intitial guess would be that the termination did not also involve a freezing of the plan going forward. As such, and given that the HCE's received some type of contribution since 1997, it may be that employer corrects by including employees who were impermissibly excluded from 1997 going forward?? From the records I have seen that appears only to have been one or possibly two other employees (both of whom are NHCE's).

Thanks for the reply, AndyH. Nothing has been paid out of the plan on account of the "termination". Employer just stopped contributing, except for the premium payments for the ins. policies held by the plan on the lives of the HCE's. The coverage issue arose as to whether the NHCE's "benefit" under the plan according to the way that term is defined in the Regs. under 410. The current TPA was reluctant to complete Line 21 on the Form 5500 to be filed for the PYE 12/31/97 on its assertion that the plan failed 410(B). In light of your reply I did a little research. Regulations Sec. 1.410(B)-3(a) states that "an employee is treated as benefitting...if...in the case of a defined contribution plan, the employee receives an allocation taken into account under Reg. Sec. 1.401(a)(4)-2©(2)(ii),... Regulations Sec. 1.401(a)(4)-2©(2)(ii) states that"...In the case of a defined contribution plan subject to section 412, an employer contribution is taken into account...even if all or part of the contribution is not actually made." As to the document issue, the ins. co. says that employer not entitled to use its prototype as of last date it or its authorized representative handled the administration of the plan. That appears to have been 1996. Even so, no amendments were ever made for TRA '86, and following, by the authorized representative. Either way, the document issue will be addressed in the VCP filing. Thanks in advance for further comments or suggestions.

After a little closer reading, it seems that the plan would be able to correct under the general procedures of VCP. As a result, a higher fee will apply.

Employer does not make full contribution as required under MPPP document. Employer does, however, make a partial contribution. MPPP does not pass 410(B). If employer contributes the remainder, files Form 5330, and pays the 10% tax associated with the underfunding, will the 410(B) coverage issue be solved? The plan in question is a target benefit plan. Employer paid premiums on insurance for 3 HCE's but not on 2 NHCE's who were also participants in the plan. Employer says MPPP was terminated in 1997 and that payroll employee just kept paying the premiums as the bills came in. No 5500's filed since 1996. Now the IRS has sent notices regarding some of the 5500's. Employer adopted a standardized prototype maintained by an ins. co. in 1987. The opinion letter does not consider TRA '86. Doesn't appear that the plan is eligible for voluntary correction programs under Rev. Proc. 2001-17. Thus, thought was to at least get contributions made up through year of termination, file requisite 5330's (and pay the 10% or whatever applies), file all outstanding 5500's and then go from there...?? Any comments or suggestions?

Rev. Proc. 2001-17 seems to require that a plan have, at the least, an opinion/notification/determination letter that considered TRA '86 in order to correct. What about situation where last letter did not consider TRA '86??? The opinion letter employer has with respect to prototype clearly says it is not considering TRA '86.

Profit sharing plan not amended for TRA 86, etc.... No 5500's filed since 1986. Sole shareholder of professional corporation which sponsored the PSP passed away 18 months ago. Decedent had a beneficiary designation naming A and B. Insurance company has advised that A and B can advise trustee, which is a bank, to purchase a non-transferable annuity with A and B as the beneficiaries. Ins. co. says that the annuity purchase/distribution is not required to be reported in any manner since the trustee is purchasing the annuity??? Ins. co. has also advised that, once done, the insurance company maintaining the annuity can report payments under the annuity as A and B receive them. Seems to me as if there is a potential that the annuity is fuly taxable to A and B on date of purchase under Reg Sec. 1.402(B)-1©(1). Anyone run into this type of situation before???

One more thing as to the above plan is that the document hasn't been amended since some time in 1984. Also, seems that Reg Sec 1.402(B)-1©(1) would say that the face of the annuity is taxable upon distribution.

As to the above post, it appears that client didn't fund the plan (other than to provide benefits for some of the HCE's) in 1996 and 1997. The plan is a target benefit plan such that the client is on the hook for a required level of funding. I know the correction programs are not available to waive/abate exise, penalty taxes, which client understands. I have advised client as to filing 5330's for the 1996 and 1997 underfunding and paying the 10% penalty with each. Also, a submission to waive/abate the 2nd tier 100% penalty tax may be in order given the relatively small size of client's business. The payment of insurance premiums associated with some of the HCE's and none of the NHCE's brings up nondiscrimination/coverage issues as well as raises the issue of whether client actually terminated the plan at all. Anyone see anything else???

It's actually a profit sharing plan with the decedent's P.A. as the sponsor. Non-transferable annuity is permitted distribution under the plan doc. No surviving spouse. A bigger problem which I just found out is that accountant supposedly terminated plan in 1987, but,.. you guessed it..., assets never made it out of plan. Also, no 5500's filed since 1987. ???

Participant of Keogh plan who is sole participant of plan and who is 100% shareholder of corporation sponsoring Keogh plan passed away two years ago. Decedent was a licensed professional such that the P.A. basically dissolved when he passed away. Nothing has been done with the plan. Insurance company has suggested that a non-transferable annuity be purchased and distributed out to the beneficiaries named by decedent. Insurance company is the trustee of the plan and without citation of authority feels that this would not be a taxable event as to the beneficiaries of the annuity; rather, the beneficiaries would report income as they received annuity payments. I don't know if it is really that easy. Can anyone give me some authority on this or give me their experiences in such a situation??? Thanks for your help.

Client purported to terminate pension plan in 1997. Apparently, TPA was directed to do whatever was necessary to get it done. Client switched to new TPA sometime thereafter thinking all was well. As of a month ago, IRS has asked for 5500 for 1997. Appears that all assets are still in pension plan. Are the IRS correction programs available for purportedly terminated plans?? I know the plan may be treated as an ongoing plan under 89-87 as the assets were not distributed out w/i 1 year. Any comments?

Anyone know if Lafayette Life Insurance Co. still sponsors a target benefit pension plan document?

Profit sharing plan recently amended to add 401(k) provisions. Does employer have to get a tax id no. for the 401(k) portion or can it still be reported under the psp's tax id no.?

Are there any significant disadvantages to taking a pre-retirement distribution from your PSP and rolling it over to an IRA? Participant is older than 59 1/2, so no 72(t) penalty issue. Participant will roll out the contribution he receives each year in the PSP going forward to the IRA.

Examples of when it's advantageous to make 3% nonelective safe harbor contribution to a plan other than the 401(k) plan?

Employer was in the midst of doing an interim valuation of plan assets of a PSP and a MPPP. Participant requested distribution of his account balance 2/28/01. Broker moved the funds based on the anniversary date (9/30/00) balance of participant's account. Interim valuation recently completed and participant presumably would have received less. Does plan have a responsibility to look to participant for the difference?