MSN

We have a DB plan benefiting only an owner-employee. This person died with a large contribution obligation. Must an executor make the contribution or would they have some alternatives after the death?

We're one of the TPAs that takes the position that the money is disbursed when the check is issued. The position is supported by the constructive reciept doctrine. If you issue a check for a cash distribution on 12/31/09, the participant has to include the amount as taxable income in 2009, even though they won't be able to cash the check until 2010 due to mail delay...I don't see a reason to apply different rationale to distributions resulting from plan terminations than you do to regular distributions, but am interested in what others are doing.

You can still use the 2008 forms for this situation.

I think the prorated comp limit alpplies to more than just the SH allocation...it would also apply for ADP/ACP testing 415 testing, etc... That's how I'm reading it but would love it if I were wrong.

We're getting calls from plan sponsors about a report that Shephard Smith made today. They are concerned that they can't take money out of 401(k) plans anymore and I'm looking for information about what he actually said. I assume this was targeted at stable value funds that are being locked down, but am having trouble confirming. If anyone saw this, I'd love to hear what the story was about!

According to EPCRS, yes. From Rev Proc 2008-50: .06 Failure to timely pay the minimum distribution required under § 401(a)(9). In a defined contribution plan, the permitted correction method is to distribute the required minimum distributions (with earnings from the date of the failure to the date of the distribution). The amount required to be distributed for each year in which the initial failure occurred should be determined by dividing the adjusted account balance on the applicable valuation date by the applicable distribution period. For this purpose, adjusted account balance means the actual account balance, determined in accordance with § 1.401(a)(9)-5 Q&A-3, reduced by the amount of the total missed minimum distributions for prior years. In a defined benefit plan, the permitted correction method is to distribute the required minimum distributions, plus an interest payment representing the loss of use of such amounts.

In IRS Notice 2005-5, a footnote indicates that the CIP compliance pursuant to the Patriot Act is not required at the time an IRA is established when a trustee forces a participant out of a plan. I do not see a similar note regarding OFAC compliance. Does anyone know if the OFAC screening is necessary or if this can also be deferred until the individual decides to claim the funds? It would make sense that this is deferred too, but I can't find information to that effect and know better to assume things work the way I think they should.

Are the gap earnings really optional? A few weeks ago I posed this very question to our ERISA counsel and was told that the gap earnings were not optional. I'd be interested in hearing how you came to the conclusion.

That is an accurate description Lori.

Company decides to run Biggest Loser contest as part of wellness initiatives. Program has "entry fee" of $X, which is used to pay for medical/nutritional consultation during the contest. At end of contest, if individual goals are met, participants are returned $X (paid by Employer). Additional reward offered to winner. Would the payment of this "entry fee" be a qualified distribution from an HSA account? Thanks!

Laura- Comp is 415 Safe Harbor

Are participants able to defer from maternity pay? Does it matter if the payment is made through the sponsor or from a STD provider?

If a plan allows deferrals on post sererance compensation, does the sponsor have to match those deferrals in cases where there are no allocation conditions on the match? From my interpretation of our 415 amendment, this would appear to be the case but it doesn't feel right.

The below reg does not differentiate between amendments that increase or decrease the benefits. While I think it should be permitted, it seems that any change in the SH formula after the start of the plan year will have the potential for adverse consequences. §1.401(k)-3 Safe harbor requirements. (e) Plan year requirement (1) General rule. Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of section 401(k)(12) and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year.

The plan should have established procedures for administering distributions under a QDRO. If it's not in the procedures, I don't see how an administrator could justify not acting on the distribution request on these grounds.

Only C & D are a controlled group. Based on the information provided, no other c.g. exists.

Does anyone know of a good source of information on NQDC plans other than the NQDC Answer Book?

I would calculate the earnings based on the earnings for the source that is being distributed.

We have a prospective client that looks like an ASG. A podiatrist has his own practice and also owns 10% of a surgical center, where he performs a large portion of his surgerys. Based on all facts we have received, the independent practice is an A-Org and the surgical center is the FSO, creating an A-Org ASG. This prospects accountant has indicated to them that the ASG rules don't apply to surgical centers because the minimal ownership. Has anyone heard of this view? Ultimately, it is the clients responsibility to make the correct determination, but this accountants opinion has made me curious... Thoughts?

Are there many small/mid sized plan fiduciaries out there that draft language that is incorporated on a statement? Are you saying that a fiduciary who "chooses" (by way of selecting a recordkeeper, in most instances) to not include the explanation of the ROR calc has not adequately performed his/her fiduciary duties?

I don't see why they could not terminate a PS plan and subsequently start a 401(k) PS if they really wanted to, but I also don't see where this is more advantageous to the client than simply restating the current plan.

Good to see this wasn't as obvious an answer as I thought it might be. In this case, the loan policy states the loan is offset on the participants death. This would seem to indicate that the estate should be responsible for the taxes, but I also see jpod's point that this has the effect of shortchanging the beneficiary. Could the beneficiary file a claim for benefits from the estate for the balance of the unpaid loan? I wouldn't think the bene would have recourse against the plan, but could be wrong...

If I recall correctly, all of the 415©(3) safe harbor definitions exclude contributions to a NQDC plan, so the 401(k) deferrals would be based on the net, as you suggested.

Participant dies with an outstanding loan of about $3,000. The total account balance, including loan balance) is only $3,500. The sole beneficiary (non-spouse) elects a cash distribution. Is the entire $3,500 taxable to the beneficiary? Or, is the outstanding loan balance taxable to the decedent and the remaining balance taxable to the beneficiary. Any help with this situation would be appreciated!

How would the provider support their position as an independent auditor if they were also receiving compensation from the plan for other services (TPA, Recordkeeping, etc...)?