Chester

Becky, I saw the draft forms a long time ago. The problem is that the forms will be changing, and nobody knows for sure what the changes will be. The DOL and IRS should be giving practitioners enough lead time to get the finalized forms into place so the forms can be generated as part of the annual valuation process. I really don't see any positives from an administrative viewpoint, as the process has not become simpler. Basically the ability to file the streamlined 5500-R 2 of every 3 years has been replaced by having to file the equivalent of the 5500-C every year for a small employer. The finalized forms were supposed to have been out by October, which would have given firms enough time to react--but as usual our government agencies never seem to be able to respond on a timely basis, even though they expect us to. I am hoping that their tardiness results in some sort of relief for us poor souls trying to comply with these new forms.

Not so fast! According to the 1999 Pension Answer Book, Question 9:19 says that some courts have ruled that forfeitures can result from amounts greater than that which would result from the minimum vesting standards. According to IRS, vested benefits in excess of benefits required to be nonforfeitable under the statutory alternatives (7 year graded or 5 year cliff) may be forfeited due to employee misconduct or dishonesty. The book gives an example where an employee was partially vested under the plan's vesting schedule but did not have 5 years of service. Since the plan could have had 5 year cliff vesting, the employee's benefits were forfeitable. However, the retirement plan must provide the specific criteria for application of the bad boy clause, and its use cannot be discriminatory in operation.

The latest news I have heard is that the new 5500 forms that are to be used for the 1999 plan year filings will not be available until the end of January or in February. That certainly does not give practitioners much time to react in order to get systems updated. Does anyone know if the IRS is considering delaying the effective date of the forms, or at least waiving extensions for the 1999 plan year filings? We are a high volume producer, and we certainly do not want to be faced with filing extensions for thousands of plans (nor do we want our clients to be upset with having to have extensions filed). I spoke with ASPA and they are considering lobbying for a waiving of the requirement to file extensions (i.e. moving the due date back 2 1/2 or 3 months). What do others intend to do?

The 2000 Taxable Wage Base has also been released and is $76,200.

JLF, you are the one who is winging it. You stated that a DB plan normally does not provide a death benefit, but that is clearly an incorrect statement. If you make an incorrect statement, then don't get annoyed if people try to correct you. If we agree to disagree, that is fine, but let's not be using generalizations or distortions of the facts.

JLF, you have been obviously misinformed somewhere along the line, as your ignorance is clearly visible in your responses. For your information, it is false that most DB plans use group insurance to provide death benefits. Many DB plans provide a special death benefit to employees who die prior to retirement, and the employer pays for this benefit through contributions to the plan based on actuarial assumptions regarding mortality. As Mojo and countless others have already stipulated in previous posts, the main difference between DB and DC plans is that the employer bears the investment risk in DB plans, whereas the employee bears the risk in DC plans. The benefit in DB plans is guaranteed, while the benefit in DC plans is subject to the vagaries of the stock market, as well as the contributions made to the plan. JLF, it is true that the stock market has provided astounding returns during the past 15-20 years, but a closer inspection at investment returns over the past 60+ years would indicate the average annual return is somewhere around 8-9% (not the 20%+ returns that you and so many others have been blinded by). The point here is that once the stock market (and it will happen) starts returning to normalcy (some would say that 1999 may be the beginning of some normalcy) many employees in DC plans will find out that they will not have enough money to retire comfortably, or will discover after they have been retired that they retired too soon.Then you will have some real social engineering going on!

My understanding is that you must grant allocations to active employees if they work at least 1000 hours in a plan year. The only exceptions to this that I know of relate to DB plans, where a plan can condition accruals on an elapsed time basis, or use a schedule based on hours worked, but an employee working 1000 hours must receive at a minimum 1/2 year of service. It would be OK to condition accruals on working the entire plan year for terminated employees (i.e. last day worked rule) but then this would have to be tested for discrimination purposes on an annual basis.

As long as this is an ERISA qualified plan and the lump sum is greater than $5,000, then the spouse must consent to a lump sum distribution, and what you are describing in the plan document is illegal.

I agree with mwyatt's accurate depiction of the situation. It doesn't matter what the client wants, you should abide by the regulations. Changing plan years often does provide the participants with an additional year of service, and the client should have been made aware of this eventuality in the discussions leading up to the decision to change plan years.

The March-April 1999 issue of the ASPA newsletter "The Pension Actuary" has an article beginning on page 4 which explains the various types of hybrid plans, including both the cash balance and the pension equity plan. Maybe that will help you.

I don't know if I entirely follow or agree with Dan's message, but here is how I administer short plan years: if the document provides that a year of service is earned when an employee works 1000 hours in a plan year, a short plan year of 6 months would provide an employee with a year of service if the employee worked at least 500 hours during this period.

The 5500 form should always be prepared under the accrual method for accounting and not the cash method. If this is a first year filing, you are required to file a 5500-C for if you have a plan with less than 100 participants. You will see on the form that there is a field for receivable contributions for the financial asset reporting. You would report these contributions in those fields.

Does anyone know where I can find on the Internet the location of IRS Notices as soon as they are released? I have looked at the IRS Web Site and can't seem to find them there. I would like to have access to the notices announcing the Current Liability Interest Rate Ranges as soon as they are available. Thanks for your help.

Don't forget that the minimum contribution is just one facet of the Top Heavy requirements--vesting is the other shoe to drop and you must provide vesting at least as rapid as the 6 year graded schedule or 3 year cliff vesting--your plan document should indicate what vesting schedule applies in the event the plan becomes top heavy.

I think that you should be including the .71, and the plan would be considered Top Heavy. I would not want to argue that you could drop the .71 to an IRS auditor if the plan were ever audited. The regs clearly state that the plan is top heavy if the ratio exceeds 60%, and 60.71% exceeds 60%, even under new math. I don't think the CPA is giving you good advice, and I for one, would not follow it.

I agree with Larry. Grechale, you are getting some bad advice. The 15% limitation is applied to the total compensation, but the individual who is the owner can receive a contribution in excess of 15% of his compensation.

The Simple 401(k) is a new plan, and the participants' account balances can not be directly transferred over to the new plan without the participants' consent. Since the previous plans were terminated, the participants must be given the option of taking the money in cash or rolling it over to the new plan.

Thanks for the information Pax. One more question for you though: Does that mean that existing bases also should be reamortized over 20 years less the years the base has been already amortized (i.e. add 10 years to the remaining period)? It wasn't clear from your posting what the answer to that question is.

In order to use the matching contributions in the ADP test, the matching contributions must satisfy the requirements of a Qualified Matching Contribution (QMAC).

Any employee contributions to a DB plan must be on a post-tax basis. The only qualified plan that allows for pre-tax employee contributions is a 401(k) plan.

You should ask your retirement plan administrator for a copy of the Summary Plan Description. This summarizes the plan provisions in easy to understand language (not legalese), and will explain what your plan's early retirement provisions are (i.e. eligibility regarding age and service, early retirement reductions, benefit formula, etc.). You should also request a benefit estimate from your plan administrator based on your anticipated retirement date, and use this information to meet with a financial advisor to determine the feasibility of retiring at this time. I hope this helps. Good Luck!

It depends on whether or not a partial plan termination has occurred. If a partial plan termination has been deemed to occur, the laid-off employee would become 100% vested. However, if the percentage of employees laid off is less than 20% of the total, this likely would not qualify as a partial plan termination. In that case, the employee would only be vested to what the plan document provides, and would forfeit the non-vested portion of the account balance.

Even though this employee is receiving distributions after reaching age 70 1/2, the employee is still considered an active participant in the plan. You need to check the plan document to see if this participant satisfies the requirements for receiving an allocation; if so, then the employee should share in the allocation of the contribution.

Since you said this plan is terminating, if the plan is a DB plan, I believe the PBGC provides a locater service for missing participants. PBGC may even provide this service for DC plans ( I know this providing this service by PBGC has been discussed in the past for DC plans) but I do not know if they are doing this yet.

I would agree with Alonzo's recommendation that this correction should be made using APRSC. Failure to follow the plan's provisions applies to both NHCEs and HCEs. I think it would be foolish to just leave the money in the NHCE's account and hope an audit never uncovers it. The APRSC was designed to address issues such as this one.