jkdoll2

You are right - it is the greatest percentage from of any key or the 3% - which ever is less.

If the HCE's do not contribute at all for 2009 - then there will not be a top heavy contribuiton required. If they contribute (401k) - then the amount would be at least 3% or the average percentage of the HCE's contribution - the lesser of. Thanks

The coverage test for 410(b) on the 401(m) part does not have to be ran since there was no match for the year. The ACP test also does not have to be ran. The tests are deemed to pass since there was not a contribution made. But if you ran the test - they would still be considered benefitting. Thanks

I think you are getting confused on what "benefiting" means. It doesn't mean receiving a contribution - is is based on if he is eligible for that source - and they were eligible for the match source. The employee is benefiting is he an eligible employee under the 401(m) plan. See Treas.Reg 1.410(b)-3(a)(2)(i). Or in the ERISA outline book section 8.69 I hope that helps - see attachment from ERISA outline book section4.b. on page 8.69 (I have attached it) 410_b__coverage.pdf

They would be considered benefiting because they were eligible as of 7/1/08. Even though a match was not made - they are still considered an eligible participant that would be benefiting if a match was made. It is just like deferrals - if t hey didnt defer they would still be considered benefiting because they were eligible to defer. I hope that helps

Participant took a hardship withdrawal in 2008. The plan administrator forgot to stop the deferrals for 6 months. What is the correction method for this? I know the deferrals need to come out of the plan in 2009. How is he taxed? Is it taxed for 2009? Does the excess deferrals get forfeited and the plan sponsor makes him whole outside of the plan? Does he have to amend taxes for 2008 and the company amend taxes for 2008? Is there a self correction method? Are there penalties? What about the match- does that get forfeited? Does the money come out with interest? There probably was a loss on the amounts because of the economy.

How do you reduce the formula in a 412(e) plan? The premiums for the insurance are the same each year - it is just the annuity that changes. If you reduce the formula the death benefit also gets reduced, doesn't it. Do you have to reduce the insurance policies death benefit? Do you do a fresh start like a typical DB plan if you reduce the formula? The company has hit hard times - and instead of terminating the plan - they just want a smaller contribution. Thanks

It is all under the same plan - just different source. You shouldn't need another EIN number.

Dont forget about top-heavy. If the plan runs top heavy - you are still required to make the 3% top heavy contribution on full year compensation. Eliminating the 3% safe harbor doesnt stop that. Thanks

I have an owner that hired employees in October 2008. They are not eligible for the plan until 1/1/2010. Can I still do a 5500-EZ (owners only) until they become eligible in 2010? Thanks

The employer contribution is due when the tax return is due (either 3/15 if no extension or 9/15 if extension filed). The employer contribution for 2008 that was funded in 2009 can be deducted in 2009 year along with the contribution for 2009 as long as the total combined do not go over the 25% limit of the total compensation for the 2009 year.

In 2008 we went from a 12/31/08 EOY plan to a 1/1/08 BOY plan. How do you reflect this on the 5500 schedule I for assets and balances (small plan)? Do you still use the 12/31/08 ending asset value on the 5500 - even though the valuation was based on asset values as of 1/1/08? If you use 1/1/08 balances - you wouldnt have anything for earnings on the first year of BOY - since the 2007 5500 reflecting balances as of 12/31/07, correct? Thanks

The plan is new and it is an EOY plan for 12/31/08. The effective date is 1/1/08. For the 2008 premium filing – they would not have accrued a benefit as of 1/1/08 or be vested as of 1/1/08. Would there be a premium due for 1/1/08? Do I still have to pay the participant count as of 1/1/08 even though they don’t accrue a benefit until they worked 1000 hours in 2008 (around June 2008). What is the definition for a participant in the participant count for PBGC premium?

I would suggest a safe harbor match - that way it doesnt matter if the NHCE's defer or not - testing would still pass, otherwise the HCE's can not defer over 2% of NHCE's and that would be 0.

Cash Balance Plans Target Normal Costs generally will not tie out to the hypothetical allocations anymore. For instance NHCE’s getting 2.5% of compensation. The target normal cost does not equal that amount for each participant. The hypothetical allocations are converted to target normal costs by 1. Being projected to retirement age using a single interest crediting rate, converted to an annuity amount at retirement using the actuarial equivalence assumptions 2. Then the conversion and discounting goes from the retirement age back to current age using the three segment rates and funding mortality assumptions. So – going forward is using plan actuarial equivalence, discounting back is using the segment rates. In past years cash balance plans used the 30 year treasury rate for all portions of the calculation, so the normal cost came out the same as the hypothetical allocation. PPA doesn’t allow that any more. Client put in $139,356.93 into the cash balance plan – which is the 2.5% for NHCE’s and 36% for owners. When the 2.5% and the 36% were converted to a target normal cost – the amount is lower ($115,061.31). Even though the vested accrued benefit is each participants account equals the right percentage On the first year of a cash balance plan there is no room for extra contributions. The minimum due and the maximum due is $115,061.31. The amount to meet termination liability is $139,366.00. The actuary is saying that the rules that are in place right now does not allow for the company to fund the termination liability amount of $139,366.00 – only up to the maximum contribution amount of $115,061.31. The actuary suggests that the tax return be amended and the extra $24,304.69 be used for the 2009 plan year. What do you suggest? If the plan were to close today and they only funded $115.061.31 – they would not have enough to pay everyone out. If they funded the $139,366.00 – then they would. But new PPA rules do not allow for funding that amount. My question - can you use the termination liability amount for funding the first year? Has there been final regulations?

I would say yes you are HCE in 2009 since your comp is over $105,000.00 in 2008.

If you use the VFCP program - they have an interst calculator that will do the calculation for you. It can be found on http://www.dol.gov/ebsa/calculator/main.html

Owner (partnership) was contributing each payroll to her 401(k) deferrals. At the end of the year her contribuiton was $20,500.00 She just got her taxes done and the accountant says she over contributed and needs to get the money out of the plan. Her compensation ended up being only $1,000. I dont know why the accountant didnt use the deferrals as part of a deduction on her taxes. Would you count this as an excess contribution and she has until 4/15/09 to get the money out?

Do you have anything in writing stating that. TAG (Technical Answer Group) says you have to have a balance (vested or non vested) to be a participating participant, and that you only add them up (ones with balances). Thanks

In determining a partial plan termination - do you count all eligible participants or just the participnats that are deferring and have a balance (terminated employees). I get confused in the rev ruling 2007-43 exactly what they mean by participating participants and the affected participants. Everyones determination of the wording is different. Would I count up all the participants with a balance in the plan and then divide it by the participants that terminated within that year that had a balance (due to layoffs). Or do you count all eligible participants (deferring or not) and then divide it by the participants that terminated due to layoffs? This could make a big difference when there is dual entry dates versus 401(k) - immediate eligibility, and profit sharing (1 year wait). Thanks

Here is what I got from TAG (techincal answer group) They said no they are exempt from a fideility bond. So now Im not sure again. ANSWER 412(i) plans that have no investment fund are exempt from the bonding requirements under ERISA. See below. Please let us know if you have additional questions. Bill Joyner Technical Answer Group, Inc. Wolters Kluwer Law & Business http://subscribers.tagdata.com §2580.412-6. Determining when “funds or other property” are “handled” so as to require bonding. (a) General scope of term. (1) A plan administrator, officer, or employee shall be deemed to be “handling” funds or other property of a plan, so as to require bonding under section 13, whenever his duties or activities with respect to given funds or other property are such that there is a risk that such funds or other property could be lost in the event of fraud or dishonesty on the part of such person, acting either alone or in collusion with others. While ordinarily, those plan administrators, officers and employees who “handle” within the meaning of section 13 will be those persons with duties related to the receipt, safekeeping and disbursement of funds, the scope of the term “handles” and the prohibitions of paragraph (b) of section 13 shall be deemed to encompass any relationship of an administrator, officer or employee with respect to funds or other property which can give rise to a risk of loss through fraud or dishonesty. This shall include relationships such as those which involve access to funds or other property or decision making powers with respect to funds or property which can give rise to such risk of loss. (2) Section 13 contains no exemptions based on the amount or value of funds or other property “handled,” nor is the determination of the existence of risk of loss based on the amount involved. However, regardless of the amount involved, a given duty or relationship to funds or other property shall not be considered “handling,” and bonding is not required, where it occurs under conditions and circumstances in which the risk that a loss will occur through fraud or dishonesty is negligible. This may be the case where the risk of mishandling is precluded by the nature of the funds or other property (e.g., checks, securities or title papers which can not be negotiated by the persons performing duties with respect to them). It may also be the case where significant risk of mishandling in the performance of duties of an essentially clerical character is precluded by fiscal controls. (b) General criteria for determining “handling.”. Subject to the application of the basic standard of risk of loss to each situation, general criteria for determining whether there is “handling” so as to require bonding are: (7) Insured plan arrangements. In many cases, plan contributions made by employers or employee organizations or by withholding from employees' salaries are not segregated from the general assets of the employer or employee organization until payment for purchase of benefits from an insurance carrier or service or other organization. No bonding is required with respect to the payment of premiums or other payments made to purchase such benefits directly from general assets, nor with respect to the bare existence of the contract obligation to pay benefits. Such arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belonged to the plan (rather than to the employer, employee organization, insurance carrier or service or other organization) were subject to “handling” by plan administrators, officers or employees. DOL Opinion 76-69 ERISA Sec. 412 Dear *** : Thank you for your recent letter in which you request an exemption from the bonding requirements of the Employee Retirement Income Security Act of 1974 (ERISA) as they may be applicable to the above plan. You state that you have a pension plan which is fully insured. It is your view that it is an unnecessary expense to purchase a fiduciary bond and that Congress did not intend to burden very small businesses with such an item. The Secretary has issued a temporary regulation (29 CFR 2550.412-1) which, pending issuance of a permanent bonding regulation implementing section 412 of ERISA, incorporates by reference most of the bonding regulations issued under the Welfare and Pension Plans Disclosure Act and makes them applicable to plan officials under ERISA. Pending the issuance of permanent regulations with respect to section 412, a fiduciary is not required to be bonded unless he handles funds or other property of an employee benefit plan. “Handling” occurs whenever the duties or activities of a plan official are such that there is a risk that such funds or other property could be lost in the event of fraud or dishonesty on the part of such person, acting either alone or in collusion with others. Your letter does not disclose any details with respect to the manner in which employer or employee plan contributions are made. However, assuming that such contributions are made out of the general assets of the employer for purchase of benefits from an insurance carrier, no bonding would be required with respect to such payment nor with respect to the bare existence of the contract obligation to pay benefits. Such arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belonged to the plan were subject to “handling” by plan officials. Assuming further that annuity payments are made payable to the participant, then bonding would not be required with respect to such payments. If the foregoing assumptions are correct and bonding is not required, there is no basis for consideration of your request for an exemption. Accordingly, in the absence of further word from you, no action will be taken in connection with your request. Sincerely, Copyright 2009, CCH INCORPORATED All rights reserved. This email may contain information that is privileged, confidential or otherwise exempt from disclosure under applicable law. If you have received this email in error, please notify us immediately by telephone (800) 570-2877 or return email, and promptly destroy the original. This communication is designed to provide accurate information regarding the question asked. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Adapted from a declaration of principles jointly adopted by a Committee of Publishers and Associations and a Committee of the American Bar Association. QUESTION ---------------------------- Background Info: ---------------------------- 412(e) plan with 1 owner and 2 participants. Fully insured with ins contracts and annuities ---------------------------- Specific Questions: ---------------------------- Does a 412(e) plan need a fidelity bond?

I have a plan where the plan year end is 11/30. Their corporate plan year end is 12/31. The plan year end use to be 12/31 - but 3 years ago they changed it to 11/30. I dont know why - we just took over as TPA. If they want to change it back to 12/31 - do I need to do a short plan year from 12/1 thru 12/31? It seems silly to do it for one month. What about vesting - do the participants get another year of vesting for the 1 month short plan year? Thanks

Is a fidelity bond required for a 412(e) plan if the have employees, Even though they are only invested in guaranteed insurance contracts and annuities? Thanks

She was terminated yesterday - and we will pay her out like an eligible employee since she was getting W-2 wages. The IRS will have to deal with the bad SS#. Thanks for all your input - and sorry if I seemed upset - didnt mean to.

So your document excludes everyone who is not a US citizen? Aren't there federal law provisions preventing discrimination against legal resident aliens? The person is not legal - she is illegal. She has a fake SS #. Probably needs to be deported. If she was a legal resident - then no problem - but she isnt.