t.haley

I am preparing a Form 5500 filing for a wrap plan containing a self-insured health plan as well as several insured benefits (STD, LTD, life, AD&D). The client also has a stop-loss policy and a transplant policy. Do I need to complete a Schedule A for each of these? I understand if the stop-loss policy is owned by the employer and the premium is paid out of general assets, it is not reported on a Schedule A. Does the same principle apply to the transplant coverage as well? If I do need to report these on a Schedule A, how is the participant count determined - use the same number of participants in the group health plan or only those participants whose expenses triggered the stop-loss or transplant coverage for the plan year? Any advice would be greatly appreciated!

Looking for guidance on the deadline for amending a 401k/PS plan to add contribution of unused sick leave feature. The facts of Rev. Ruling 2009-31 state that the plan was amended to add this feature in December, 2008 before the feature took effect in January 2009 (when PTO was granted to employees). There is no discussion elsewhere in the Rev Rul regarding timing of the amendment. I have read several articles that make the blanket statement that the plan must be amended before the beginning of the plan year. Since this is an optional provision I would think it would fall under the heading of a discretionary amendment that must be adopted before the end of the year in which it is first effective. Client has already notified participants of new policy (contributing unused sick leave to 401k as a nonelective contribution) but 401k/PS plan document does not support it. Looking for something more than passing factual item in the Rev Rul to support conclusion that they cannot make contributions this year because they did not amend the plan before the beginning of the plan year (Jan-Dec plan year). Any guidance would be greatly appreciated!

My 2 cents - all good points. Not sure of the motivation of the employer. But I have been asked to whether they can amend their plan. I have seen some plans that provide for forfeiture if the employee engages in any activity that, in the opinion of the board of directors, is injurious to the corporation or not in the best interests of the corporation. Unless I can find something concrete that tells me they can't do it, I will prepare the amendment and let them deal with any employee morale issues!

Client has nonqualified ERISA plan. Wants to amend the plan to provide that if a participant "cost the employer money" (i.e. losing a large account or other signiciant detrimental financial result), management could, at their discretion, remove the participant from the plan and reallocate the contributions for that participant to other participants. Can they do this? The plan already provides for forfeiture of non-vested account if participant is terminated for cause, and forfeiture of vested and non-vested account if participant is terminated due to conviction of embezzlement, etc. However, now they want forfeiture of vested and non-vested accounts if participant costs them money but is not terminated.

Employer sponsored a 401k plan. In the early 2000s one of the investment funds was "re-priced" causing a loss in the fund. Thereafter, the plan switched investment providers. In 2005 the plan sponsor filed bankruptcy. All participants have received distributions and there are no assets remaining in the plan. In 2008 the plan sponsor receives a check from the former investment provider representing the recovery of a portion of the fund's losses (in excess of $20,000). There are no current participants in the plan, the plan sponsor is not operating and has no employees. The bankruptcy is still open and the plan has not been terminated (that we know of). We have also been told that the records need to allocate the recovery funds (if that is what is required) no longer exist. The bankruptcy trustee is seeking guidance on what to do with the recovery funds. Any suggestions?

ESOP Guy - thanks for the response. We were just hired by the bankruptcy trustee to figure out what to do with this money and we are still trying to find out exactly what the status of the plan is and what records they do have. I have not determined why the trustee is just now addressing this if the funds were received in 2008. I would probably attribute it to other more pressing bankruptcy matters. This company has been basically out of business since 2005 and nailing down details about the administration of the plan since then has been hard. If we can't find information regarding participant balances, I was going to suggest distributing the funds equally among the participants. The problem is determining what date to use as the participant pool - 2005 (when the plan sponsor received the funds) or 2003 (when the losses were incurred in the investment). Arguably if a participant entered the plan after 2003 (when the investment was no longer available), they were not harmed by the loss and have no right to share in the recovery. I did locate a PLR from 2002 (discussing distribution of demutualization proceeds regarding a terminated plan where the plan sponsor did not want the funds to revert to it, but instead wanted to distribute the funds to the participants) that is instructive, though not completely on point. AT the end of the day we know this is a fiduciary decision and just want to make sure we are doing right by the participants (with the limited information we have!).

Employer sponsored a 401k plan. In the early 2000s one of the investment funds was "re-priced" causing a loss in the fund. Thereafter, the plan switched investment providers. In 2005 the plan sponsor filed bankruptcy. All participants have received distributions and there are no assets remaining in the plan. In 2008 the plan sponsor receives a check from the former investment provider representing the recovery of a portion of the fund's losses (in excess of $20,000). There are no current participants in the plan, the plan sponsor is not operating and has no employees. The bankruptcy is still open and the plan has not been terminated (that we know of). We have also been told that the records need to allocate the recovery funds (if that is what is required) no longer exist. The bankruptcy trustee is seeking guidance on what to do with the recovery funds. Any suggestions?

I posted this question in the "plan termination" forum also. DB plan terminated in 2010 and distributions made to participants. Following PBGC audit, additional distributions required to be made to participants. Can we rely on election forms from 2010 or do we need to get new election forms for the additional distribution? Also, what if participant was married at time he received first distribution when plan terminated but now is divorced - does ex-spouse have to sign off on lump sum distribution of additional distribution? Any thoughts would be appreciated!

DB plan terminated in 2010 and distributions made to participants. Following PBGC audit, additional distributions required to be made to participants. Can we rely on election forms from 2010 or do we need to get new election forms for the additional distribution? Also, what if participant was married at time he received first distribution when plan terminated but now is divorced - does ex-spouse have to sign off on lump sum distribution of additional distribution? Any thoughts would be appreciated!

Employer with volume submitter DB plan (Corbel individually designed volume submitter plan) did not sign 436 amendment by 12/31/13. Want to correct using VCP with new Form 8950 and Appendix C. Having trouble determining whether we file a Schedule 1 or Schedule 2. How do I determine whether the "corrective amendment was adopted before the expiration of the plan's extended remedial amendment period (as determined under Rev. Proc. 2007-44) for that amendment"? Since the IRS extended the deadline for the adoption of the 436 amendment twice, what is the "extended remedial amendment period" for the 436 amendment?

Thanks for your reply. That makes sense. I knew there had to be a way to correct the error under EPCRS. It seems that our problem would be common enough to be listed on one of the VCP schedules. Thanks again!

401k plan discovers during internal audit that one category of overtime was not included in total wages for purposes of calculating employee deferrals and employer match. Error began in 2009. I don't believe we qualify for self-correction of significant operational failure because we can't correct within the "correction period" (last day of second plan year following plan year for which failure occurred). Also don't think this is an insignificant operational failure because it affected all participants over 5 plan years. We don't have any figures on percentage of plan assets, etc. yet. We don't fall within any of the failures for VCP on the schedules. Should we just make the corrective contributions as a sort of self-correction and document correction and move on? Any guidance would be appreciated. Thanks!

Thanks for the replies - I am legal counsel for the employer. To complicate matters, the employer has been wanting to fire this employee for some time. According to him, he can substantiate the termination for a variety of reasons. Just bad luck that before he could terminate the employee, the HIPAA allegations were made. I know we can't prevent the employee from filing a retaliation claim, but I think we can present a valid reason for termination other than the HIPAA allegation. At this point we don't believe there was any reasonable, good faith belief that a HIPAA violation occurred - just an angry spouse venting on facebook. But it does cause the employer problems given that he wants to terminate the employee for other reasons. Does it matter that the allegations were made on social media and not to the employee's supervisor, the employer's privacy officer or a government agency, etc. (i.e. - not an "official" allegation)?

Can an employee be terminated for making false allegations of HIPAA violations? Employee's spouse posted on social media that spouse's HIPAA rights had been violated by employer. Employer contacted employee to conduct investigation. Employee not cooperating. Employer wants to terminate employee. We are in a right-to-work state so we know we can terminate for any reason, but would like to ensure we are not violating any applicable law. The only thing I can think of is employee could claim discharge was retaliatory. Have no evidence that employer violated HIPAA. Any thoughts?

Thank you for your replies. It appears there is not much we can do at this point as to the 12/31/11 account balance based on the K-1. The custodian is not budging on that. Client is hoping that Form 5498 for 2012 may give him basis for arguing that balance on date of RMD distribution in April is less than calculated RMD. The way I read the regs, an individual with multiple IRAs MUST calculate the RMD for each one separately but MAY aggregate the RMD totals together and pay out of one or more of the IRAs. That, together with the general rule from the 401 regs that an RMD can never exceed the account balance on the date of distribution seems to me to mean the individual RMD calculated for each IRA is limited to the account balance of that IRA, not the aggregate total of all IRAs. Stated another way, if the 408 regs say the RMD for each IRA must be calculated separately and the 401 regs say that the RMD as calculated can never exceed the account balance of that IRA on the date of distribution, then in our case, if the RMD calculated based on the 12/31/11 K-1 value is more than the account balance of that individual IRA on the date of distribution in 2013, we are only required to distribute the account balance of the IRA as the RMD for that IRA (and if the balance of that IRA is zero, there is no RMD due for that IRA). Thoughts?

The client has not received any distributions from the IRA. The information we have from the client is that the investment is worthless at this point. The partnership (a restricted hedge fund) has gone out of business. Calls and emails to the offices of the partnership are not answered. Evidently there are some issues with the owners/insiders (alleged criminal activity, license revoked, etc.). The client is trying to avoid including the reported K-1 value from 2011 in the calculation of his RMD (he has a couple other IRAs). Will reporting a zero value on the Form 5498 be enough to avoid including the 2011 value in the RMD calculation?

Sorry - included wrong dates in previous post. Owner turned 70 1/2 in 2012. RMD due 4/15/2013.

Client has IRA. Only asset is investment in limited partnership. Owner turned 70 1/2 in 2011. Account balance reported on 12/31 (by K-1) $273,000. However, we have now learned that limited partnership is out of business; asset basically worthless. Custodian calculated RMD (to be distributed by 4/15/2012) based on 12/31 value from K-1. Obviously, there are no funds in the IRA to fund the RMD. Does 1.410(a)(9)-5, Q&A-1 solve this situation ("However, the required minimum distribution amount will never exceed the entire account balance on the date of the distribution")? Are there any reporting requirements we have to meet to verify the account balance on the date of distribution? Any guidance is greatly appreciated!

On plan review we discovered client filed 2009 and 2010 Form 5500s late for PS plan (less than 100 participants). As far as we know they have not received letters from the IRS or DOL regarding the late filings. Client's accountant (who filed the returns late) told us he wrote a letter to the IRS asking to abate the penalty and they agreed. (At this point we don't know if the letter to the IRS was in response to a penalty letter from the IRS.) But what about the DOL penalty? I know the IRS has agreed to waive their penalty if the returns are filed late under DFVCP, but what about where the returns were not filed under DFVCP? EFAST shows that the box for DFVCP filing was not checked on the returns. What options do we have at this point? The returns were already filed (late), not under DFVCP. Should we file amended returns and check the DFVCP box and pay the reduced penalty? I don't think the IRS agreeing to abate the penalty binds the DOL in any way. Any thoughts?

ER sponsors PS plan with discretionary PS contribution based on uniform allocation formula. ER is switching to a high deductible health plan and wants to ease the burden on ees by offering them an election to have any PS contribution contributed to the ee's HSA account (up to applicable limits). Can the ER do this? Would an ee that makes this election be "treated as" receiving an allocation under the PS plan (see 1.401(a)(4)-2©(ii))? I think it is a bad idea but need something more to convince the ER. Thanks!

Client switched from separate welfare plans (health, dental, EAP, group term life) to "wrap document" effective 3/1/09. We filed returns for the individual plans, each with a short plan year, and picked up with the single 5500 for the wrap document 3/1/09. At the time we filed the short plan year returns for the individual welfare plans, there were still claims outstanding so we did not file "final" returns. Now there are no outstanding claims. I tried to amend the previous filings on EFAST2 by simply checking the "final return" box but I continue to get an error message when I try to validate them prior to submission. The error message states that the requirements for a final return have not been met and refers me to the 5500 instructions. The only problem I can see is the participant count. Line 6 still shows active participants at the end of the year (because there still was a health plan, for example, it was just changed from a separate plan to part of the wrap document). Should I change the active participant count to zero for the final returns? Thanks!

Can a health plan require a participant to submit a QMCSO to the plan within 31 days of the court order? I have reviewed the statute, regs and DOL information but cannot find anything on this one way or the other.

I wish that were the case. No, the employer has never been a governmental employer. They are a 501©(3) non-profit entity.

I have a situation with a client that has me stumped. Existing 401a profit sharing plan effective in 2000. Employer discretionary contributions only, 100% immediate vesting. The TPA who set up plan was misinformed and thought the employer was a governmental employer (not subject to discrimination rules). So they set plan up to cover only a select group of HCEs. In addition, the employer has a 403b that covers staff employees (all those excluded under 401a plan). Now, 10 years later, a new TPA discovers mistake (employer is NOT a governmental employer) and thinks the original TPA tried to set up essentially a 457f plan using a 401a prototype plan document for governmental employer. Of course, because they thought the employer was a governmental entity, no Form 5500s were filed and the 401a plan has not been restated for EGTRRA (they in are Cycle A, 1/31/07 deadline). My mission now is to figure out how to correct this mess. Here's my proposal - establish 457f plan, transfer assets/liabilities from 401a plan to the new 457f plan and then terminate the 401a plan. What I don't know is what to do about the qualification issues with the 401a plan (discriminatory, no 5500s, no EGTRRA restatement). Do these even matter since the assets are being transferred to a nonqualified plan? Any suggestions or guidance would be greatly appreciated!

Has anyone seen anything from the IRS regarding when they will issue EGTRAA letters to volume submitter plans? I know they initially said they were going to issue them beginning March 31st, but I haven't seen anything since then. The list of M&P and VS plans on the IRS website has not been changed to show any letters being issued. Any help will is appreciated!