DMcGovern

I have a possible takeover plan (401(k) safe harbor) that was initially effective in 2005. The client "doesn't know" where their original document is, and did not do any of the required amendments, restatement for EGTRRA. Apparently, the client's accountant has been doing 5500's and they have not done any testing. If we take this one on, I was thinking of doing the same VCP submission as 12AX7. My question is, what date(s) should be used on the documents for the submission - current, best-guess? Also, in light of the recent changes to the determination letter process, does that change the requirement to file for a DL under the VCP if using a pre-approved document?

I just had a similar situation in that the 100% owner of an S-Corp also received a substantial Director's Fee from that company. The S-Corp sponsors both a 401(K) profit sharing plan and a cash balance plan. It is my understanding that he is a sole proprietor for being on the director's board. This creates a controlled group between the S-Corp and the Sole-Prop. Apparently I need to look at how the retirement plans define compensation and how the director's fees are reported. In this case (because of the definition of compensation for the plans), if the director's fees are reported on a 1099, that income would not be used; if on a W-2, it could be used.

Two thumbs up on this, I totally agree - or, is that the old way of putting it? - "Like"

Precisely why those of us who earned our QPAs the "old fashioned way" are so annoyed that ASPPA is automatically awarding them to all the ERPAs! I have to agree with you on this! They should come up with a way of designating those that earned the QPA designation the "old fashioned way" and those with an automatic designation through ERPA.

i believe that is correct. and employee deferrals do no change the calculation at all, right? the comp is only reduced by employer contributiosns. If I remember correctly (don't always trust my memory these days! ), self employed income is reduced by deferrals of other employees, but not their own deferrals. Their deferrals are subtracted from the adjusted earned income to determine their taxable income.

It seems like a PT would relate to when the monies are considered to be a plan asset. FAB 2008-01 is focused on salary deferrals because a deferral is defined to be a plan asset as soon as it can be segregated from employer assets. In my opinion, a safe harbor contribution would not become a plan asset until it is actually made; prior to that it would most likely be considered an employer asset. In this case, the employer doesn't seem to even have the funds available. I'm not aware of any specific guidance on the failure to make the required safe harbor contribution on time. Rev. Proc. 2008-50 does provide a correction as depositing the contribution with earnings as soon as possible.

I agree - it seems that the Sponsor will either have to act as a loan officer and fully document how the interest rate was arrived at, or use the IRS' new deemed safe harbor rate of prime plus 2%. Odd that our plan document provider (and others I have seen) actually provide choices like prime, prime plus 1% or some arbitrary flat rate. Suppose that will change with the PPA restatements?

You are absolutely right! Seems like the last couple of years have been particularly troublesome in that area

While I certainly do not disagree with any of the concerns in this thread, I believe Bird did clarify in a different post that the IRS phone forum stated that prime plus 2% would be acceptable or reasonable (something like that). Not that prime, or prime plus 1% is unreasonable. Sometimes the statements from phone forums and IRS Q&A sessions need to be taken with the proverbial grain of salt.

You can email the PBGC standard termination area at standard@pbgc.gov for their answer to this situation. They have always been very helpful - and they have a form to complete for requesting a return of premiums

It is my understanding that the regulations in Code sections 401(k)(13) for QACAs and 414(w) for EACAs provide for these automatic contribution arrangements. Under both, they have the notice requirements and the qualified default investment requirement. They also provide for participants to have the 90-day window period to withdraw the contributions. (As opposed to a regular automatic enrollment feature that does not provide this 90-day window.) I have a brief summary of the three different types of automatic enrollments - attached. It doesn't cover everything about them, but it shows some of the differences. Maybe someone else can add their information to help you. Good luck! comparison_of_3_types_of_auto_enrollment_plans.xls

Are you sure the notary was purposely committing a fraud? Notaries are legally bound to take proper steps to identify the person signing the document. Failure to do so can have significant impacts on the Notary, along with the party(ies) involved in the fraud. It would render the documents null and void.

Correct. 50% of contributions. This number does not include rollover amounts, which are not considered contributions for the incidental limit. Also, many agents will use the "aged money" rules to say that the regs allow you to use up to 100% of money that has been in the plan for more than 2 years. What they fail to tell people is that, the regs allow that because it is then just like any distribution from a qualified plan that meets the same criteria. So then the entire premium would be taxable just like a deemed distribution. Isn't it 50% for whole life, but 25% for term, variable, and universal life? I agree about the aged, or seasoned money issue - they also do the same thing with rollover money. And, they don't tell them that in addition to the entire premium being taxable, the insured still has to include the "PS-58" costs as income annually.

I don't have any regular 5500s with insurance but no, I don't treat it as an expense in general. As Bill puts it, it's really just a transfer from one investment to another. (With the exception being term insurance; that's a pure expense.) I know I'm going to get a lot of feedback on this, but I'll throw out this thought - what about the "PS-58" cost? Part of the premium represents a transfer from the investment account under the plan to the cash value of the insurance policy, which is also under the plan. (That would agree with the above posts.) Part of the premium is used to pay for the current death protection. That amount of the premium does leave the plan, and is taxable to the participant. Assume no other change in the participant's account (no contributions, earnings, expenses, etc). The total amount of the participant's account (investment and CSV) is reduced by the amount used to pay for the death benefit protection - because that is distributed from the plan. Treating that portion as a distribution also affects top heavy testing.

Not the loan, but the proceeds from the loan. At that point it's just cash and an asset just like any other asset. Thanks for taking time to respond to my questions! So in the article's example would the funds rolled into the IRA be considered an in-service withdrawal by the participant?

Bill, forgive my ignorance in this area - I am not real familiar with life insurance, so would appreciate your insight. Do you have cites that would back up this option? How would this transaction be taxed - what value is used? It seems like the DOL uses one amount for fair market value, and the IRS uses something very different (like that has never happened before!). Hard to summarize the bizarre insurance part, but here is a very good article. http://documents.jdsupra.com/29f2aeae-4b95...36082865956.pdf The article seems to explain this option differently, if I am understanding it correctly (see #4 on the fourth page of the article). It says the Trustee of the plan takes the loan from the policy and can roll the proceeds of the loan into an IRA. Is that right? It feels a little like a PT? I like your version much better!

Bill, forgive my ignorance in this area - I am not real familiar with life insurance, so would appreciate your insight. Do you have cites that would back up this option? How would this transaction be taxed - what value is used? It seems like the DOL uses one amount for fair market value, and the IRS uses something very different (like that has never happened before!). Hard to summarize the bizarre insurance part, but here is a very good article. http://documents.jdsupra.com/29f2aeae-4b95...36082865956.pdf Excellent article - thanks so much!

Bill, forgive my ignorance in this area - I am not real familiar with life insurance, so would appreciate your insight. Do you have cites that would back up this option? How would this transaction be taxed - what value is used? It seems like the DOL uses one amount for fair market value, and the IRS uses something very different (like that has never happened before!).

So if we are sending in a number of filings at the same time (with a list included), the notice of delivery from the private delivery service would serve as proof for all of the filings under this rule, right?

Basically, if the amounts deposited are to make up contributions required under the plan, they are treated as contributions. If they are to make up lost earnings or are the result of breach of fiduciary duty (See Rev rul 2002-45), they are not treated as contributions under the tax code. EOB also has helpful information on this in Chapter 13B, Section III, Part F.1; also see the comment box in Chapter 15, Section VI, Part B.6

Since the DB contribution is neither a salary deferral or safe harbor contribution, I would think it would invalidate the TH exemption

Peter, Thank you for your informative post. We are going to discuss the amendment with our ERISA attorney. Have to ask the question, though - if you were a plan sponsor would you willingly assign yourself as the person responsible for collecting the contributions? I would imagine that for the most part, the only people that would willingly take on this responsibility are the ones that are not making delinquent contributions in the first place.

I would think that it would also not pass the reasonable classification test using each Doc by name? Would be interesting to see if the IRS would issue a favorable DL on that.

I'm with Bill on this one. It's only a FAB from the DOL that is creating this "need", which seems to be directed more toward larger plans (correct me if I'm wrong on this) that have custodial arrangements, a directed fiduciary, or other assigned person(s) handling the receipt and allocation of contributions. That doesn't apply to our smaller plans, so we are not using the amendment at this point.

What happens to the life insurance once it is converted to a traditional DB? (isn't it most likely over the limit per Rev Rul 74-307?)