david rigby

In general, a 401(k) is a feature of a 401(a) plan. The "k" feature is merely the particular provision that permits employee contributions on a pre-tax basis, but it is already included in an "a" plan.

By phrasing of the orginal post, there appears to be exactly two participants in the plan. Correct? My hunch is that at least one more party is involved in this situation, such as payroll service and/or tpa. Not ready to use the f word yet (you know, the one with five letters that will get you put in jail), but start asking questions.

How would a person with $0 comp be eligible to defer?

Link to that Publication http://www.irs.gov/pub/irs-pdf/p571.pdf

No expert I, but the original post seems to be saying that the IRS is concerned about form over substance. Usually, it is the other way around. Or maybe it's both.

1.125-2T, Q&A 1 (first paragraph): Q-1. What benefits may be offered to participants under a cafeteria plan? A-1. (a) Generally, for cafeteria plan years beginning on or after January 1, 1985, a cafeteria plan is a written plan under which participants may choose among two or more benefits consisting of cash and certain other permissible benefits. In general, benefits that are excludable from the gross income of an employee under a specific section of the Internal Revenue Code may be offered under a cafeteria plan. However, scholarships and fellowships under section 117, vanpooling under section 124, educational assistance under section 127 and certain fringe benefits under section 132 may not be offered under a cafeteria plan. In addition, meals and lodging under section 119, because they are furnished for the convenience of the employer and thus are not elective in lieu of other benefits or compensation provided by the employer, may not be offered under a cafeteria plan. Thus, a cafeteria plan may offer coverage under a group-term life insurance plan of up to $50,000 (section 79), coverage under an accident or health plan (sections 105 and 106), coverage under a qualified group legal services plan (section 120), coverage under a dependent care assistance program (section 129), and participation in a qualified cash or deferred arrangement that is part of a profit-sharing or stock bonus plan (section 401(k)). In addition, a cafeteria plan may offer group-term life insurance coverage which is includable in gross income only because it is in excess of $50,000 or is on the lives of the participant's spouse and/or children. In addition, a cafeteria plan may offer participants the opportunity to purchase, with after-tax employee contributions, coverage under a group-term life insurance plan (section 79), coverage under an accident or health plan (section 105(e)), coverage under a qualified group legal services plan (section 120), or coverage under a dependent care assistance program (section 129). Finally, a cafeteria plan may offer paid vacation days if the plan precludes any participant from using, or receiving cash for, in a subsequent plan year, any of such paid vacation days remaining unused as of the end of the plan year. For purposes of the preceding sentence, elective vacation days provided under a cafeteria plan are not considered to be used until all nonelective paid vacation days have been used.

Does the plan sponsor have any other reasonable knowledge of whether the participant was married, such as beneficiary designation for group life insurance? If so, it would seem that the sponsor's ability to rely on the "lie" may be diminished. But the advice to get legal counsel is best, preferably an attorney familiar with ERISA matters.

In case readers would like a link to the Revenue Ruling: http://www.taxlinks.com/rulings/1980/revrul80-229.htm

Another term used to describe this is "bottom-up QNEC".

Not sure I understand what you mean by "testing the accruals". What kind of DB plan? safe harbor design? cross-tested? etc.

Hmmm. I had a recent variation on that. Sponsor created a temporary early retirement window, vanilla in most respects, add 3 years of service, waive early retirement reduction (except as needed under permitted disparity safe harbor). The variation is that the sponsor decided to give the accepting employees an additional plan benefit for 3 months equal to the monthly salary prior to retirement. Would this require the use of 417 rates for determining the optional forms?

We have received a letter from auditor with the same questions described in MGB's post. I wonder how actuaries are planning to respond to these items.

I agree. That is exactly what I did in a similar situation. But be careful that you purchase the correct annuity, in form and amount. A variation on this is to inform the participant that you will take this action if you do not receive their completed distribution form within X days.

Others opinions are likely, but I suggest a 4% deduction in the next pay period. The 5% in subsequent pay periods.

A 412(i) plan will "shelter" more than a traditional funding arrangement, but what really counts is what the employee gets out of it. Just because the upfront annual deposits are higher does not mean the payout is higher.

Nothing specific, but this should not be a surprise to anyone. It is correct that the rate should be reasonable. Any plan sponsor should be able to defend the choice of any assumption, although a range of reasonbleness almost always applies. Suppose average equity return is 10% and bonds 6%, then a 60/40 asset mix gives about 8.4%. Thus, if the SEC is going to let 9% slide by, then they may have been generous.

MGB is right. A wrap arrangement is supposed to work the opposite from what is described in the original post. Summary by Alf looks pretty good. It matters not that some HCE's are not in the non-qualified plan. Perhaps the original post was mis-worded?

...and spouses.

Such a temptation to simply say NO! However, the proper response is "what is he/she trying to accomplish?"

I agree. The recommendation from here is don't number them at all.

The "legal" part is beyond my expertise. But this sounds like another inefficient investment, providing a transfer of wealth from the plan/sponsor to the broker.

"...the tax proposal is revenue driven as well as agenda driven..." Nope. Perhaps someone else has already stated this: this is the way to create a zero percent capital gains tax rate without the politically unpopular use of that terminology.

I've seen GUST restatements with effective dates from 1997 to 2001. It probably does not matter, as long as you get the right provisions with the right effective dates. Form can be important, but substance is usually more important.

Employee terminated employment in 1988 (25% vested). EE received a lump sum distribution in 1995. Now rehired, and re-terminated. Refer to IRS Reg. 1.411(a)-7(d)(4). http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html Last paragraph of subsection (ii) indicates that a distribution due to participation is defined as not later than the close of the second plan year following the plan year or termination of employment. Does that mean that a lump sum paid at a later date voids the conditions given to disregard prior service?

I believe that the 10% limitation applies to employer stock and property. Review these earlier discussions to see if they help: http://benefitslink.com/boards/index.php?showtopic=16557 http://benefitslink.com/boards/index.php?showtopic=14565