Oh so SIMPLE

Our pension document provider supplied us with blank form notices and distribution elections behind one of the tabs in the binder they sent to us. We administer sign-up's and distributions in-house. A recent, informal compliance audit of our plan records showed that 32% of the packages we'd put together or the elections we'd based payouts on were incorrect or incomplete. (We had less than 0.1% error rates in providing SPDs, safe harbor notices, and 401k sign-up's.) Our risk management director wants us to outsource preparing distribution compliance. Neither our pension document provider and our Form 5500 provider will prepare distribution notice/election packages, or routinely review completed and signed elections that we receive back. Our pension document provider did explain that they based our plan documents on documents the provider obtained from Sungard Relius. Does Sungard or some other company offer a service of preparing distribution notice/election packages based on Sungard plan documents, review elections turned back in, and then advise us of when and how to make payout? What I would really like, if it is available, would be an online service where one of our benefits employees could log in, enter information about the terminated employee and her benefits, and then it would generate the notices and elections appropriate for her in light of our Sungard documents. Does anyone know of such an online service?

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Okay--to avoid the penalty when applicable, will the penalty-avoidance coverage have to be entirely provided through an insurance policy or will the employer be able to avoid the penalty by providing insurance with a higher deductible and a MERP buy-down so that the net effect for the employee will be the penalty-avoidance coverage?

Two or more high net worth clients (who are unrelated) with large IRAs form LLC capitalized 99% non-voting and 1% voting. The purpose of the LLC is to provide enhanced investment opportunity and long-term growth. IRAs contribute assets to LLC and take back pro rata ownership of LLC units. No owner has voting control (alternatively an unrelated independent third party owns voting interest – either economic or non-economic). LLC would have typical restrictions on transferability, distributions, liquidation, etc. (except each member would have the right/obligation to distribute NV units from his/her IRA to meet RMDs and comply with applicable law and IRS rules). Clients do Roth conversion in 2010 or 2011. Qualified appraiser values the LLC units, which should be eligible for marketability and minority interest discounts (which also depend on type of assets/investments in LLC, as determined by independent voting member/manager). Would there be a UBTI issue? If so, is there a work around?

Obamacare requires coverage be provided by employers with some exceptions. There are 4 configurations of coverage, specifying the amount of annual deductible that the employee will face. Has there been any indication from the government whether the employer can purchase a higher deductible policy and couple it with a buy-down (MERP) so that the net coverage to the employee is the same as if it were just the lower deductible policy?

Sieve, both plans would be profit sharing plans. I know the new one would have a 401k feature that the old one did not. Would this be 'manufacturing' a distributable event by terminating the old profit sharing plan and then the successor in interest, for all intents and purposes, starting a new profit sharing plan with a 401k feature? Could the IRS collapse the 'termination' of the old plan and starting of the new one in order to challenge the appropriateness of making a payout to employees that are continuing? Or now, after the same desk rule has been removed, can we merely hoist form over substance by terminating the old profit sharing plan?

Sieve, do you think there is any concern as rcline46 pointed out (successor organization/ successor plan rules) that would make it a problem to terminate the old profit sharing plan in order to make everyone with benefits in it entitled to a distribution, but then start the new 401k plan right after that? Bump for Sieve: do you agree with rcline46 about the successor organization/successor plan rules being problematic in making distributions by reason of 'terminating' the old profit sharing plan in light of the new entity beginning a new 401k plan so quickly?

Also, if you send certified (with a green card), you can go here (US Postal tracking) put in the certified number and get a shipment and delivery history.

Sieve, do you think there is any concern as rcline46 pointed out (successor organization/ successor plan rules) that would make it a problem to terminate the old profit sharing plan in order to make everyone with benefits in it entitled to a distribution, but then start the new 401k plan right after that?

It turns out to be an obsolete reference to part of the definition of eligible rollover distribution.

Are you saying the partners and employees would not have a severance from employment that under the plan documents entitles each to distribution if he wants it? If not a severance from employment, and they want to be able to choose individually at this time what to do with their benefits, can they terminate and create a distributable event? Would the new plan being set up prevent the old plan's termination from being a distributable event?

bump

A partnership of 6 dentists is going to end, as one of them is now retiring. A new LLC will be formed by the remaining 5 to continue the dental practice. The old partnership will continue to exist only to collect accounts receivable. All dentists and staff will go to work for the new LLC on July 1. The old partnership had a profit sharing plan (no 401k feature). The new LLC will set up a new 401k plan. Question 1: would all those with benefits in the old profit sharing plan have a severance from employment for purposes of Code section 402(e)(4)(A)(iii) since they no longer work for old partnership? Any citations would be useful. Question 2: if no 'severance from employment', could the old profit sharing plan be terminated in order that all of the benefits under that plan could, at the individuals' options, be rolled into IRAs? Again, any citations would be helpful.

The client has a legal opinion that it will work. Basically, it amounts to 401(m)(5) not applying because neither the practice nor the 57 year old MD's new PC will derive more than 50% of its revenues from providing management services to the other. An (A) Org affiliated service group would not apply because neither the practice (an LLC) nor the 57 year old MD's new PC will own any interest in the other (and because that MD will no longer own any interest in the LLC, there is no ownership of either entity to attribute to the other). 414(m)(2)(A)(i). A (B) Org affiliated service group would not apply because no owner of either entity, the LLC or the new PC, will be a highly compensated employee with respect to the other. 414(m)(2)(B)(ii). But it just doesn't smell right.

The concerns, then as I see it based on the posts so far, are in addition to required aggregation between the plans for purposes of top heavy status determination, the IRS possibly succeeding in disregarding the corporate entities, treating the entire lawyer group as one employer, and since the amalgamated employer has the 412(i) plan, there are required contributions to that plan for all the employees despite the terms of the 412(i) plan stating that it is only for the benefit of employees of X's PC, one of the entities blurred over in the amalgamation? Each of the 4 partners has his or her own professional corporation (some are C and others are S corporations). The 4 lawyers (not their PCs) each own 25% of the firm, a limited liability partnership. The 412(i) document is signed only by X, as president and sole shareholder of X's PC. The 412(i) documents specify that the plan is for the benefit of employees of X's PC, and no other employer is mentioned. The 412(i) documents specify that the plan does not cover employees of other employer members of any affiliated service group or controlled group of which X's PC is a member. X's PC is part of a controlled group of the LLP and the 4 PCs (because each of the lawyer's owns 5% or more of the LLP, his or her 100% ownership of his or her PC is deemed owned by the LLP, and so each of the 4 PCs is a 100% subsidiary of the LLP). The 412(i) plan fails minimum coverage as tested in this controlled group. That 412(i) document does not call for correction through extending the plan to employees of other controlled group members. So the 412(i) plan is toast, speaking of its attempted tax qualification. But what liability does the LLP or other 3 PCs bear for possibly making contributions to X PC's 412(i) plan for the LLP's employees? (Piercing the corporate veil has already been mentioned, thank you david rigby and masteff.) Apart from required aggregation for top heavy status purposes (the LLP's 401(k) plan is on its own top heavy and being treated as such for minimum contribution purposes), what problems can X PC's 412(i) plan pose to the LLP's 401(k) plan, if any?

Does required aggregation of plans apply beyond the top heavy rules?

A 5 doctor practice that has a 401k plan wants to restructure so that the oldest MD, age 57, can retire in 5 years. They would like to restructure so that the 57 year old MD sells his interest in the practice, and the other 4 MDs pay him out over that 5 year period. The 57 year old would now form a professional corporation and contract with the practice of the remaining 4 MDs to provide medical services to the practice's patients, and the practice would pay the PC (which would in turn payroll the money to the 57 year old MD). The practice would bill and collect for the 57 year old's medical services. The 57 year old MD's name would continue to be part of the practice's name. For neither the practice or the PC would derive more than 50% of its gross revenues for providing management services to the other. The PC would then adopt a DB plan for just the 57 year old MD, not covering any employees of the practice. Would there be an affiliated service or controlled group problem?

The situation is this: a 4-partner law firm is owned 25% each by the professional corporations of the 4 partners. The partnership has 5 staff employees, all employed and on the payroll of the partnership. Each of the partners is on the payroll of his or her own PC, which contracts with the partnership to provide attorney services to the partnership's clients. There is no question but that the partnership and 4 owning PCs are an affiliated service group. There is one 401k plan that covers the 5 staff employees and the 4 partner lawyers, passing minimum coverage. This 401k plan also passes nondiscrimination tests (X-testing). One of the lawyers (X) caused his PC to adopt a 412(i) plan, and mistakenly told the TPA that neither he nor his PC owned an interest in any other employer. Later the true ownership is discovered by the TPA, who immediately raises multiple concerns. The obvious one is that the 412(i) plan is failing minimum coverage and is discriminatory. That is not the issue of this post. The TPA has also notified the partnership that it has liability exposure (albeit slim, but exposure nonetheless) to the staff employees (or IRS or EBSA) for making contributions for them to the 412(i) plan, so that it will then pass minimum coverage and nondiscrimination. However, the 412(i) plan documents only indicate that the 412(i) plan covers the employee's of X's PC. The partnership did not consent to or otherwise sign the 412(i) documents (actually learning of the 412(i) plan's existence only after it had existed for 2 years.) The TPA can point to no authority for the proposition that the partnership could be held responsible for making such contributions. However, the TPA says it is not unheard of for the IRS to take that approach with partnerships in situations such as this, where the partnership did not sign on and the plan specifies that it is limited to just X's PC. The TPA has further frightened the partners, telling them that the 412(i) plan of just X's PC places the partnership's 401k plan at risk of tax disqualification, even though it has passed minimum coverage and nondiscrimination. Again, the TPA can point to no authority for this proposition, but insists that it is not unheard of for the IRS to take that approach with partnerships in situations such as this, and attempt to disqualify the partnership's 401k plan. I don't see how the IRS could either hold the partnership responsible for contributing to X PC's 412(i) plan for the staff employees or disqualify the partnership's 401k plan. Do you?

If you are not renewing their contract it sounds like an "involuntary job-loss" to me and therefore subject to Cobra and the subsidy. The 'loss' part is what I am having trouble with. If the employee only had the job for a year, that's all that was contracted for from the beginning, when the year runs out has he 'lost' a job or simply his job ended? All he had from the get-go was a job for a year. The year passed. The job ended. It was not like he had an indefinite period of employment that was terminated for reasons beyond his control.

I've heard that employer health plans that are not changed might be grandfathered around Obamacare until something like 2018, but if the employer modifies the health plan before then, that the grandfathering is lost and that the plan must comply with Obamacare around 2014. We'd like to change our deductibles, but not if that would cause an earlier application of having to comply with Obamacare than if we don't make the change. Does anyone know details about this?

Company contracts for employee's services for a one year period of time. At the end of one year, the employee is not offered any other position. The employment comes to an end. Is the employee entitled to the subsidized COBRA premium?

If the ex-spouse awarded benefits per a QDRO begins payment before the employee quits and becomes entitled to an early retirement subsidy, the ex-spouse gets no part of the subsidy later earned by the employee. The question is how much does the employee get by way of the early retirement subsidy? Suppose A is the employee, A is age 50 as of the date of divorce when he had accrued benefits of $2,000/month at age 65. The QDRO awarded 1/2 of that to B, the ex-spouse. When A reaches age 55 and could then quit and qualify for early retirement, A continues working. When A turns age 55, B chooses to being taking her awarded $1,000/month at EE's age 65. The actuarial equivalent for taking 10 years early nets B a $620/month payout. A year later, A takes early retirement and earns a 25% subsidy. From the time of divorce to retirement, A had accrued another $600/month at age 65. With the $1,000/month at age 65 that accrued to time of divorce and A was allowed to keep, A's total benefit when he quits (age 56) is $1,600/month at age 65. Obviously, the 25% subsidy applies to the $1,600/month at age 65, and A is entitled to that $400 early subsidy. The question is whether A should also get additional early subsidy of $250/month (25% of the $1,000/per month at age 65 awarded to B)? This $250 is part of A's total benefits, and it was not awarded to B by the QDRO because B began withdrawal of her awarded benefits before A became entitled to the early retirement subsidy. Should A's benefits be the total, less just what was awarded to B by the QDRO? Or does the plan save that $250/month subsidy, as a windfall to the plan, not having to pay it to A since that $250/month relates to benefits that have been awarded to someone other than A?

Does anyone have any updated info or thoughts on the topic of this 2004 thread? I am processing a QJSA waiver situation and the former employee has provided a Texas statutory durable power of attorney from his spouse that specifies the following relevant powers: -Retirement plan transactions, -Tax matters, -Estate, trust and other beneficiary transactions. Can a plan subject to QJSA accept a spousal waiver signed by the former employee pursuant to the power of attorney?

A plan had a vesting schedule. Then it was amended to provide 100%, immediate vesting. Does that vest 100% those former employees whose employment ended before the amendment's effective date, and were only partially vested under the former schedule? The plan amendment does not specify in this regard.

Thank you, vebaguru. Are your answers the logical deductions of other rules, or per chance is there a citation for those specific conclusions?