AKconsult

This might work. We are going to tell client to run this by attorney. Thanks.

We have a small plan with 2 participants (dr and wife). Part of the assets are held in LLCs. These LLCs have not been recently appraised because doc didn't want to pay for appraisal. The Dr. has closed his practice and wants to terminate his plan. However, he can't find anyone to buy the LLC interests or any custodian who is willing to hold the property if he tries to transfer it to an IRA. Any suggestions on how to close out this plan? We have called the local IRS retirement plans specialist and even she didn't have any suggestions.

Plan document states that it allows rollovers from 408(a) and 408(b). No reference to 408(k) - which is the code section for SEPs. Can the plan accept a rollover from a SEP-IRA?

I have an Employer that contributed a QNEC to the plan during 09 for the 09 calendar plan year. Their reason for doing so was to slightly increase the acct balances of the nonkeys so that the plan would not be top heavy for 2010. They gave the contribution in the form of a QNEC so they could also use it in the ADP test. The problem is that the prototype document they are using has an option for QNECs but it wasn't chosen. Is it possible to amend the plan now for 09 to add the QNEC? They don't want to have to go thru EPCRS. I suppose the only other option is to call the contribution a profit sharing contribution but then there is an issue because it didn't go to the keys and it can't be used in ADP test.

I have a client that gives a SH 10% NEC at the end of the year. The 10% is written into the document. I have explained to client that he could do 3% SH and the rest discretionary but he does not want to. For 09, once we allocate the 10%, there are 5 people who will be over the 415 limit, because ER also gives a pay period match. Document states that if an ER contribution will cause the plan to fail 415, the plan should reduce the contribution. However, I wonder if that applies in the case of a safe harbor contribution. I am reluctant to not give the full 10% since it is a required SH contribution. On the other hand, since plans really only have to give 3% in order to be safe harbor, maybe I could reduce the contribution as long as I don't go below the 3%. Has anyone seen any guidance about whether a SH can be reduced because of 415 problems? The next remedy, according to the document, would be to return the employee deferrals till the plan passes.

In the situation where a participant takes a distribution and tax withholding is sent to the IRS, if he is rehired and wants to repay his distribution so he can have his forfeiture restored, does he also have to repay the amount that was sent to the IRS as withholding or does he just have to pay back the net amount? Thanks!

I have been looking at the final regs regarding the fact that QNECs used in the ADP test have to be limited to the greater of 5% of pay or 2 times the representative rate. (Reg 1.401(k)-2(a)(6)(iv)) The regulations read that “notwithstanding” the paragraph that provides for the 5%/2X representative rate limit, contributions made for Davis Bacon can be taken into account if they don’t exceed 10% of pay. I can’t tell if the 10% is meant to replace the 5% in the 5%/2X rule OR if the 10% is the absolute maximum and the 2X rule does not apply. Has anyone done any research on this? I did see an article from Sungard where they indicate that the 10% just replaces the 5%, so effectively the overall limit for DB is higher. I think this is probably the intent of the Regs but I just can't come to that conclusion when I look closely at them. Maybe it is just a matter of semantics...

I agree w/ Scott. The SH NEC lets you avoid ADP. Additionally, if there is a non-safe harbor match, it will satisfy the ACP as long as it meets certain requirements, which this match does since it is only 50% of 6%. I don't see why eliminating the match would require an ACP to be performed for the year. It seems to me that the Regs are focused on making sure that if there is a non-safe harbor match, it doesn't exceed a prescribed amount and there aren't any allocation conditions placed on it, not on requiring the match to be given for the entire plan year. I can't find any reason to think that stopping the non-safe harbor match mid-year would throw the plan into having to perform the ACP test. It seems to me that the plan is only required to revert to ACP testing if the safe harbor contribution was a match, not a nonelective.

Did anyone else understand that Marty Pippin indicated in the IRS teleconference on 10/28 that if a person is first eligible for an RMD in 2009 and he decides not to waive it but takes it in 2010 (prior to April 1) that he will NOT be able to roll it over, whereas if he takes it in 2009 he can roll it over? I can't seem to find any information on this now but my recollection is that Marty felt like WRERA only amended the code to allow rollovers for distributions taken DURING 2009, so an RMD for 2009 taken in 2010 couldn't be rolled.

Does anyone have an idea why Notice 2009-9 states that "most participants and beneficiaries...are not required to withdraw any amount in 2009"? Are some participants excepted from the waiver? I have heard some people saying that they think 5% owners can't take advantage of the waiver(?).

I don't know much about 403(b) plans. I understand the final regs don't allow employees to self certify hardships. However, my understanding has always been that if the employer certifies the hardship, they might inadvertently make the plan subject to ERISA. Am I missing something on this? How does a plan with hardships keep its non-ERISA status? Would having the vendor make the determination solve this issue? TIAA-CREF has offered to either have the employer make the determination or let the employer make the determination.

If a DC plan has transferred MP assets (thereby requiring annuity form of distribution), if a participant requests an annuity is there a requirement in this case for the annuity contract to be held by the plan? I guess I am unclear of the logistics of this type of distribution form. If the contract is held by the participant, then aren't we just really doing a "rollover" to the annuity provider who then provides an annuity contract to the participant? If so, what is the point of saying that the plan must provide for an annuity option? Thanks!

If an employer wants to make prevailing wage dollars available for hardship, does that mean those dollars do not go in the ADP test at all? Are they only included in the ADP if they are treated as QNEC? If I don't put them in the ADP, are there really any other testing consequences in a plan where only NHCEs are receiving prevailing wage contributions? Thanks!

Actually, just as an FYI, we use the ASCi prototype plan and it seems to have very comprehensive provisions for PW contributions.

I had an employer who did this several years ago. At the time, the attorney who worked with me for the plan said they could stop the pay period match mid year because the participants had only accrued the right to the match as of each pay period, so it could be stopped any time. They can then prospectively amend the plan for a year end match with allocation requirements and that match would be determined for the period between the time the pay period match was stopped and the end of the plan year.

My least favorite topic - compensation. I would appreciate any help. 1. If a plan is using W-2 wages per the adoption agreement, and the employer is taxed as a partnership where the partners only receive K-1s, do I have an issue with the partners receiving an allocation? 2. Doctor leaves the practice and is receiving trailing income which they are calling "continuing compensation". It will be reported on a K-1. This is a standardized DC plan, he is eligible for an accrual at year end. Would I include the continuing compensation when calculating his contribution? One attorney told me this would be "deferred compensation" and excluded under the 415 amendment but I can't come to that conclusion. 3. Generally speaking, the final 415 amendment clarifies/modifies the definition of 415 pay. 415 pay is used for various nondiscrimination tests and top heavy. However, if plan is using W-2 pay for allocation purposes, how do I justify looking to the 415 amendment for issues on severance pay, last few weeks rule, etc. for purposes of pay used for contribution calculation? Thanks!!

Would it be permissible for an employer to add a Prevailing Wage (davis bacon) source to a plan but only use that source for some of the davis bacon employees? For example, if the employer has several offices in different states, could they only put the davis bacon fringe for the workers of 1 state in the plan and simply pay the fringe in cash to the davis bacon workers in the other states. I don't see a reason why they could not do this but not sure.

This is a one-person DC plan (doctor). He is paying life insurance premium from plan for term life policy. Is this acceptable? Don't I need to report the premium paid on a 1099-R as taxable?

Scenario - qualifed plan, male participant age 60 died, spouse is sole beneficiary. She wants to keep the account in the plan. Plan does not have J&S. Document allows spouse beneficiary to postpone payments until spouse would have been 70 1/2. Questions: 1. Document requires that if spouse beneficiary wants to be exempted from 5-year distribution rule, they must make election in writing. Does anyone know if there is a form for this or what it should say? 2. I believe that we should still keep account in the participant's name, not put in spouse's name. Does that sound right? Thanks!

I know employers can decide whether or not to include rollovers when determining whether the distribution is $5000 or less and therefore eligible to be forced out. However, I was thinking that when looking at whether the distribution is more than $1000 (and therefore has to be rolled rather than paid in cash) you must always include the rollover balance. But now that I am looking into it, I can't substantiate that. Does the ability to include/exclude rollovers extend to both the $1000 and $5000 determination?

PPA amended Code Sec 4979(f) to say that the 10% excise tax for excess contributions and excess aggregate contributions does not apply until 6 months after the end of the plan year (instead of 2 1/2 months after the end of the plan year) for plans that use an Automatic Contribution Arrangement (see Sec 902(e) of PPA). For all other plans, the 10% excise tax does still apply if the corrections are not made by 2 1/2 months after the end of the plan year. That has not changed. However, PPA also amended Code Sec 4979(f) to say that amounts returned on account of excess contributions and excess aggregate contributions shall be treated as earned and received in the taxable year in which the distributions are made. Previously, the Code allowed that distributions paid before 2 1/2 months were taxable for the year contributed. So the tax consequence to the HCE is different but the excise tax to the employer is the same rule.

Yikes - I have almost the exact same issue. In my case, the employer started a plan in 1998, made profit sharing contributions to his employees into their various investments (they were all investing in their own brokerage accounts) and has never prepared a 5500 filing.

Seems like I should know this but I'm not sure. If a participant terminates with less than $200, since there is no mandatory withholding necessary, would it be permissible for the plan to cash him out by just mailing him a check without giving him any options or must he receive a distribution form and special tax notice first?

Thanks for all the input. This was very helpful.

I have a client who is able to file an EZ. However, he has not prepared any filings since the plan's inception, 2002. He rolled a very large amount into the plan in 2002 so he is not eligible for the waiver of the filing. Since the IRS deals with the EZ, I am thinking that if I prepare all the delinquent filings and send them in to the IRS then the client is at their mercy and could potentially get hit with a very large penalty. On the other hand, if I file a 5500 instead I can go in under the DFVCP and pay $1,500 up front and be done. Does this make sense? Can I file a 5500 even though technically the client meets the criteria for the 5500ez? If I file a 5500, am I then obligated to keep filing 5500s, rather than switching to 5500EZ in later years?