Rob P

Thanks All. I wasn't thinking about the DFVCP penalty being cheaper than $2000; that is a great point. The few times that I've filed under the program have always defaulted to the higher amounts. Andy - in this case, the fault is 100% on the auditor. They've had the information for months and completely dropped the ball. I know the client is going to rely on us for solutions, so I was just trying to be proactive. I appreciate all the input!!

The required audit for a large 5500 filing will not be completed on time (due today). I just wanted to get some opinions. The way I see it, the client has two options; I’m just not sure which is the lesser of two evils: 1. File the 5500 today without the audit and then follow-up with an amended return with the audit in a few days. Keep fingers crossed that IRS and/or DOL will not hit them with penalties. 2. Don't file anything today, and then file the 5500 with the audit under the DFVCP in a few days. Besides the $2000 up front cost for the DFVCP filing fee, is there any addtional exposure under this option? Any thoughts are appreciated.

Thanks. Sal’s argument has to do with the timing of when the DOL actually defines receivables as plan assets. He usually has the final say in our office.

Thanks. When the question first came up in our office my thoughts were the same as Bird’s that deferrals should be included in the year deferred; truthfully I would have thought it a “no brainer”. So much for intuition. As a policy I have always included them and have only treated employer discretionary profit sharing contributions on a “cash basis”. However, I was a little surprised after reading the EOB and prior threads from 5+ years ago that say it was never addressed by the IRS. BG5150 – I saw Sal’s recommendation in the EOB. I agree that his idea is that you simply apply the DOL deposit guidelines to your assets determination regardless of when the deposit actually takes place. As such, if a payroll deposit “should” have taken place on or before the end of the plan year then you include that receivable in your assets. If the payroll deposit didn’t have to be made until after 12/31 you would exclude that deposit. In this case it is a small employer (so DOL SH rules can apply) and the partner’s deferral election would be as of 12/31/2011, so if I apply Sal’s recommendation the partner’s deferrals would be excluded and the plan is not TH for 2012.

When making a TH determination, are 401(k) employee deferrals deposited after the close of a plan year accounted for in the year that they were deferred or the year that they were actually deposited? I.e., A 2012 TH determination is based upon the 12/31/2011 account balances (calendar year plan). Does a 2011 401(k) deferral accrued on 12/31/2011 but deposited in 2012 get added back to the 12/31/2011 account balances? I’ve read several prior threads and Sal’s EOB. Has the IRS addressed this issue since 2002? I have a situation with a partnership where several partner’s made an election to defer prior to 12/31/2011, but didn’t actually make their deposits until March 2012. If I account for the deferrals on an accrual basis, the plan is TH for 2012 and if I account for the deferrals on a cash basis than the plan is not TH for 2012. The partners do not want to make any employer contribution for 2012 but of course want to defer. Any input is appreciated.

Thanks for the response. So if I understand your conclusion, the basic 415 COLA adjustment should automatically satisfy the MASD rules (or at least ASPPA's recommended rules), but the actuarial increased 415 for age (from 65 to 66) will require a more detailed thought process. My problem is that I've spent a good deal of time reading these articles but I don't have a good understanding of how ASPPA is recommending adjustments for COLAs. From what I understand, the benefits must satisfy 415 at each ASD. So if I do a AE from 66 to 65 and the result is less than my 65 415, should I be okay?

Hopefully someone can shed a little light on 415 increases for participants that are receiving benefits under a plan while still active employees. I read both David MacLennan’s articles and Tom Finnegan’s IRS comments on MASD and am still confused as to whether I have an issue or not. For simplicity let’s assume that I have an active participant who at age 65 elected under an in-service provision to start receiving monthly benefits in 2011. His AB under the terms of the plan was $18,000/mo or ($216,000/yr) but was limited to 415 and only started receiving the IRS limit of $16,250/mo (or $195,000/yr). He has a high-3 comp of $245K and more than 10 years of service and participation. Again for simplicity let’s assume the age 66 2012 415 dollar limit is $206,000 (i.e., the age 65 $200,000 limit AE to age 66). Also, the plan does not have a lump sum distribution option. Question 1 – Assume the participant is still age 65 in January 2012 can he automatically increase his monthly distribution for January to $16,667 (i.e., $200,000 / 12)? Question 2 – Assume the participant is age 66 in January 2012 can he automatically increase his monthly distribution for January to $17,167 (i.e., $206,000 / 12)?

Mike, thanks for the response. Much appreciated.

We just took over two plans that are sponsored by a law firm, and I am trying to convince myself that I am testing the plans properly. The original plan design was to keep them disaggregated for testing since the client doesn’t want to give TH minimums to associates. The first plan (Partner/Staff Plan) covers partners and staff and has a 1-year of service eligibility requirement. The Partner/Staff Plan has both 401(k) deferrals and employer nondiscretionary. The second plan (the Associate Plan) covers associates and staff with less than 1-year of service and has no eligibility requirements. The Associate Plan is only 401(k) deferrals. Note that all Associates are HCEs (in there second year) and there are no keys that participate in the Associate Plan. For simplicity assume: 20 Partners (all HCE / key) 40 Staff (all NHCE) with more than 1-year of service 10 Associates (all HCE) with more than 1-year of service 15 Staff (all NHCE) with less than 1-year of service Question 1 - Coverage: Does the Associate Plan pass coverage under 410(b)? Am I correct that the calculations would be: [ ( 0 / 40) / ( 10 / 30) ] = 0% if statutory exclusions are applied, and [ ( 15 / 55) / ( 10 / 30) ] = 82% if statutory exclusions are not applied. Does coverage pass with statutory exclusions since no NHCEs are eligible to benefit? Question 2 – ADP Test: If I cannot apply statutory exclusions to pass coverage, can I apply them with the ADP Test? Question 3 – Average Benefits Test: The Partner/Staff Plan employer nondiscretionary uses a new-comp allocation. Assuming the Associate Plan passes coverage separately; can I ignore the Associate Plan in my ABT for the Partner/Staff Plan? Any input is appreciated.

Please assume that there was a cliff vesting schedule, only "employer" contributions and this is a nonfunded plan. I'm assuming that FICA/FUTA are only reportable when the benefits become available and nonforfeitable. The benefit becomes fully vested upon death. It is my understanding that the "accrued" contributions only become subject to taxation when they become available to the participant (or in this case the beneficiary). I'm new to 457 plans, sorry if I was unclear.

A participant in a nongovernmental 457(b) plan passed away. In accordance with the plan document the beneficiary (the spouse) elected to receive the benefit in the form of a single lump sum distribution. I'm hoping that I can get input on the following questions: 1. It is my understanding that the distribution must be reported on a 1099-MISC form. Does this get reported in Box 3 as "Other Income" or Box 7 as "Nonemployee Compensation"? 2. Is the distribution subject to SS and Medicare taxation? If so, does the employer pay their portion, or does the beneficiary need to pick up both the EE and ER portion under "self employment income" (1040-SE)? Any help would be appreciated.

We have a client with a large plan that needed to file their 5500 by 10/15. The audit wasn’t done so we advised the client to file anyway (in accordance with the DOL EFAST2 Q&A Q25). Currently the filing is listed as “Filing Error” with the DOL. The audit is finally ready. Any suggests on the best way (cheapest?) to handle the new filing? I’m assuming that the “correct” way is to simply amend the filing, attach the audit, and re-submit. However, I’m thinking if we can simply submit under the DFVC, it may be the cheaper alternative. Does anyone have any input on this? Can I even submit under DFVC if the client already submitted?

Thanks for the response. Correct, no hours or EOY requirement for the allocation. Your answer was not unexpected, I was just hoping that there may be an exception out there that I may not of heard about. Any thoughts on making a "refund" or "forfeit" of the employer contribution to lower the HCE percentage?

A client sponsors a new-comp discretionary profit sharing plan. Each employee is his/her own allocation group. On a payroll by payroll period, the client would make a contribution to the plan of 5% to each eligible participant (both HCE and NHCE), except the owner who would receive slightly more. In early spring 2009, the client fell on hard times and elected to stop making all contributions to the plan for 2009. I just received their 2009 census and was reviewing some of the nondiscrimination issues. Comparing the annual compensation to the actual employer contribution, one of the HCE’s received exactly 5% of their compensation because they terminated before the client stopped contributing. None of the active NHCEs received an annual allocation greater than 1.29%. Does this mean they’ve failed the gateway test? It is my understanding that the 1/3 test is based on compensation as an eligible participant. Is there anyway to justify that compensation is only through the date the client stopped making deposits? At that point they easily would not have violated any nondiscrimination rules. Note the plan was never frozen. The client elected to simply stop making the discretionary contributions. Any thoughts are appreciated.

Thanks for the confirmation. Appreciate the time.

Can someone please help and confirm the required 1099-R code for Excess Contributions? I have a plan that failed the 2009 ADP test and is making refunds today (i.e., prior to March 15th ), should we be reporting it as a Code P or Code 8. I am assuming Code 8, since it is now taxable in 2010 (our software is still insisting its Code P). Also, is there any reporting difference if the refund takes place after March 15th? Any comments are appreciated.

Thanks Tom. Usually I would just take a conservative approach and give the extra gateway, but after I saw the provision in the document I'm thinking we maybe able to save the client some money (not too many clients like to give away money to terminated employees). From past experience I know you cannot always rely on a document's "approved" language. I was hoping someone had run across more definitive guidance out there. I appreciate your time.

My issue is that I have two terminated participants that received a 5% QNEC in order for the plan to pass the ADP Test. The plan is also cross-tested, has individual allocation groups, and requires a participant to be actively employed on the last day of the plan year (no hours requirement). Assume the Gateway minimum is 5%. Must these participants receive an additional 5% under the plan's non-elective provision, or does the 5% QNEC cover the Gateway? Does it matter if one of the terminated participants has less than 500 hours of service (if I exclude from the General Test do they receive the Gateway). I've read several threads on this topic (the more recent ones differ from the earlier answers), but besides the IRS Q&A comment at the 2006 ASPPA Conference I could not find anything definitive. The issue has arisen because I just read a newly restated EGTRRA VS document and there is a paragraph under the Gateway definition which clearly states that QNECs can be used to offset the Gateway minimum requirements. Any thoughts would be appreciated.

Thanks for the input. I guess my follow up is for the distribuitons that took place in 2008, should the plan be issuing the 2009 1099 and then directly tell the IRA provider to distribute? Or should the IRA provider be notified, have the IRA provider calculate the 2009 earnings and then the IRA provider can tell the sponsor how much to issue the 1099 for.

We have a 401(k) plan that failed their ADP test for 2008 and has only now elected to make the refunds to select HCEs to correct. The problem is that some of the HCEs were paid out during the 2008 calendar year. How are 1099R's handled for participants that fully cashed out in 2008? Assuming they rolled over their accounts, I understand that distributions from their IRAs will be required, but do the IRAs issue the 2009 1099 or should the plan issue a 2009 1099? Any input would be appreciated.

The current owners of a firm purchased the firm about 5 years ago. At the time of purchase they took over and continued to maintain the firm’s existing PS/401 plan. The plan was originally established in the mid-70’s and maintains a single “pooled” investment account. The current owners just received a call from the prior owner’s son who just “discovered” an investment account in the name of the plan which apparently has not been known about since the late 70’s. The “discovered” investment account only has about $14,000. We’ve been administering the plan for roughly 10 years and have never accounted for the account. The forensic accounting costs alone would significantly exceed the balance in this discovered account, and I don’t believe any records exist going back earlier than the mid-90’s. Can we just allocate it as a gain today? The only problem is that the prior owner’s son is asking how much of this balance belongs to his father (the prior owner was fully paid out several years ago). Any thoughts or ideas on how the client should proceed would be appreciated?

Thanks guys, I appreciate the input. The person assigned to this case (our only 457 person) is out this week and I unfortunately took the client’s phone call. 457’s are not my specialty and I may have mis-spoken when I said the plan was “funded”. I can only confirm that an account was established at a financial institution in the name of a participant (at this point I will assume that owner of the account is actually the employer). I was concerned when the employer insisted that they didn’t owe any money to a particular participant that they’re about to terminate (the employer wants me to liquidate the account and send them the proceeds). I checked the plan’s document and there is no mention of vesting, forfeiture, or “substantial risk of forfeiture”. The document simple states under the distribution provisions that a participant is entitled to the account balance being maintained on their behalf. I interpreted that as 100% vested. I will make sure their ERISA attorney reviews the document before I process any transactions. Again, thanks for your help.

I hopefully have some basic questions that maybe someone could shed some light on. A client sponsors a nongovernmental 457(b) plan which they have funded and established individual accounts for each of the plan's participants. The plan only allows employer contributions. In general, how does vesting under a nongovernmental 457(b) plan work? Must it be specified in the plan's document? In this particular plan's document, there is no mention of vesting or forfeiture. This is a new takeover for us. A participant is going to be terminated for "cause" and the sponsor is insisting that they can take back the money that has been funded and not pay anything to the participant. Any input would be appreciated.

Bird - Thanks for the response. Most of our clients (self-employed) defer throughout the year, so "late deposits" are not an issue. It's just those few stragglers that always wait until the last minute to do their taxes and make deposits. I was grateful to get them to agree to make defer deposits by 9/15.

This year the IRS accelerated the deadline for filing partnership tax returns from 10/15 to 9/15. As such, we’ve been telling our clients that they need to fund their discretionary profit sharing contributions for their 2008 calendar year plans by 9/15/09 (opposed to 10/15 in the past). Assuming a partner has the proper deferral election form in place by the end of the plan year (12/31/08 in this case), is it allowable that a partner can still make their 401(k) deposit by 10/15/09 or should they be made by 9/15/09 too? Conservatively, I’ve been telling clients 9/15, but I was wondering if anyone has an opinion? Thanks for any input.