SMB

Can anyone tell me - in a nutshell, if at all possible - the benefit of purchasing life insurance in a DC plan (other than being able to pay the premiums with "pre-tax" dollars)? Follow up: What are the ramifications and remedy/ies when a participant's life insurance (DC plan) premiums exceed the IRS "incidental benefit" limits (Doc, of course, who I think got sold a "bill of goods"!)? Thanks!

Does a required minimum distribution from a SARSEP (for the 100% owner of a business who also has "regular" deductible IRAs) follow the IRA rules (i.e., can calcuate RMD required for each IRA and take distribuion from only one IRA) or the QRP rules (ie., RMD must be made from each such plan)? Thanks!

Company changed its name. What must/should be done regarding the company's PS Plan? I assume that the plan does not be need to be amended to simply reflect a name change. Would a board of directors' resolution indicating something like: "in conjunction with the company's name change the name of the ABC PS Plan shall as of xx/xx/2006 hereafter be referred to as the XYZ PS Plan" - with possibly a SMM to the same effect - be sufficient? Thanks for any and all replies!

Cheri, Most checks, I think, become "stale dated" after one year and (if the teller is "observant" enough) cannot be cashed. What about writing the recipient and indicate that if the distribution is not cashed by "x" date (e.g., 90-180 days after issued) that a "stop payment" will be placed on the check and, typically, he/she will need to go through the entire distribution request process again. Unfortunately, that doesn't address the issue of the mandatory withholding that should have already been been deposited... (If the recipient didn't need the "cash", why didn't he/she do a direct rollover? )

In my employee presentations, I like to use quotes, analogies, etc. to try to "translate" some of the more arcane (and there are SO many!) and complicated aspects of our business into a simpler message that might actually be understood - and retained. In an attempt to dilute some of the vitriol coursing through these Message Boards of late, I would like to invite readers to submit quotes, song titles, song lyrics, etc. that have any sort of a tie in - however loose - with retirement plans. Examples: "You can lead a horse to water, but you can't make it drink." "Time Is On My Side" (Rolling Stones) "You Can't Always Get What You Want" (Rolling Stones) "You Got Another Think Comin'" (Judas Priest) And my corporate theme song: "Roll With The Changes" (REO Speedwagon) Thanks - and have fun!

Plus, as anyone who has been in this business knows (often, all too painfully!), "logic" and "the law" are not necessarily compatible concepts!

Vicki, Thanks for the info. SmB

Just took over a DC plan from Kansas. Can any of you Jayhawker TPA's tell me if Kansas requires withholding on plan distributions? Thanks!

Just to follow up on ERISnut's comments - and to, hopefully, remind folks what constiututes "reality" for a significant number of us. I work exclusively with what are now generaly termed "micro plans" and there are - as ERISAnut notes - thousands of them "out there". In such plans, (1) the employer, (2) plan sponsor, (3) employer, (4) trustee and (5) usualy the participant with the highest account balance is the same individual (i.e., the business' owner). Doesn't address the original poster's question - just felt compelled to respond for the "little people"!

Employer sponsors a Profit Sharing Plan which allows for the purchase of life insurance. Plan holds a whole life policy FBO the owner, for which premiums are paid from the owner's annual plan contribution. Client received a letter from the insurance carrier regarding Rev. Ruling 2004-20 indicating that, for policies containing a disability waiver of premium feature, the portion of the premium (i.e., employer contribution) attributable to same MAY not be currently deductible, possibly resulting in a non-deductible employer contribution - and all of the the ramifications thereof. First I had ever heard of this and was curious if anyone else had ever encountered same, especially in conjunction with a DC vs. DB plan? Thanks!

I have been laboring 'lo these many months with the understanding that the 3% SHNEC in a safe harbor 401(k) Plan served a "multi-purpose" function in a Plan's: (1) being able to dispense with ADP (and possibly ACP) testing, (2) satisfying top-heavy minimum contribution requirements, (3) being able to be used as part of the minimum gateway allocation for a cross-tested contribution, and (4) being able to be used in 401(a)(4) general testing with a cross-tested allocation. A closer reading of some material that I recently came across would seem to indicate that the 3% SHNEC may not necessarily be used for items "3" and/or "4". Just really confused (not that that's a new phenomenon!) and would appreciate any and all comments or "insights" regarding same - regarding the 3% SHNEC, that is, - not my confusion. Thanks.

Client is in Arizona, if anyone is familiar with that state's laws in this regard. Client owns a number of rental properties, the income from which is what he intends to live on after he winds down his dental practice. I assume that such income would constitute "investment income" versus "compensation" and could not be used for qualified plan contribution purposes? Could he possibly operate his rental units as a business and pay himself a "management fee" or something to that effect that would/might constitute compensation for QP purposes? Way out of my league here, so appreciate all of your comments.

Client (incorporated dentist) is winding down his practice and will likely shut down entirely and "unincorporate" in the next year or so. Currently sponsors a PS Plan and would like to maintain the ERISA protection of the plan assets for as long as possible. Once the "sponsoring employer" ceases to exist, wouldn't the plan have to be terminated and assets distributed? If so, he'd do a rollover to an IRA, which has protection in the event of "bankruptcy" - but not the extent of protection against "creditor's claims" as his qualified plan - IF I understand the current state of such things(?). Any other possibilities for continuing to maintain the plan - and/or continue ERISA asset protection? Thanks to all who take the time to respond!

In this same vein (i.e., safe-harbor 401(k) with a 09/30/05 PYE): What exactly is the "catch-up contribution" amount for such a non-calendar-year plan if the only effective "limit" is 402(g)?

Company currently sponsors a Profit Sharing Plan. As a result of an asset sale as of 05/31/05, all employees - other than the two owners - were terminated (some went to work for the entity that bought this company's assets). The original company remains in business, with two employees - the original owners. The majority of the terminated participants were terminated late enough in the plan year so that they were credited with more than 500 Hours of Service. Consequently, it would seem that, if the company's two remaining owner participants want to make a PS contribution for 2005, there will obviously be significant "minimum coverage" issues, possibly requiring employer contributions for at least some of the terminated participants sufficient to pass the ratio percentage test (assumes the Plan doesn't pass the ABT). Query - Any problem with adding a safe-harbor 401(k) provision, using an enhanced 6% match, effective 09/01/05 that would cover only the two remaining owner participants, allowing them to at least make a $14,000 employee salary deferral contribution and receive a 6% safe-harbor match - and forget about making a PS contribution for 2005 due to the coverage issue? Thanks for any and all responses.

pax, While obviously not helpful, your reply was certainly succinct!

Can anyone direct me to a brief synopsis of the changes affecting pension plans - on a law by law basis - for all new legislation passed since ERISA? Thanks!

doombuggy, I am shocked that you would suggest that all employers possibly don't provide copies of a Plan's SPD to eligible employees. Next you'll suggest that they don't provide SARs either!! (I'm a TPA also - and have found that "you can lead a horse to water..."!)

Bird, Yes, I did mean an additional $10,000 to the "policy" vs. the "Plan". Thanks for noting that - and for your response.

Small Profit Sharing Plan currently holds a life insurance policy (whole life, I think) for the benefit of owner (sound familiar?). Owner is replacing the current policy with a "flexible variable" policy. First, am I correct in assuming that the "cumulative premium" is now subject to the "25% of cumulative contributions" incidental benefit rule? Second - and here's where it gets interesting - the agent would like the participant to make a one-time "non-1035 non-repeating premium" of $10,000 to the Plan (I am a TPA - so have NO idea of what that means or entails.). Could the participant direct $10,000 of his existing account to the new policy - in addition to the initial annual premium - subject, of course, to the "incidental benefit" rules? [Also wonder if this approach (i.e., flexible variable policy vs. whole life) isn't a somewhat roundabout way of allowing the owner to self-direct a portion of his account (via the policy "sub-accounts")...] Am almost completely "in the dark" here, so would appreciate any and all comments. Thanks!

If there's a prior post addressing this fact pattern/issue, please refer me to same. Otherwise... Have seven (7) financial consultants ("FCs") who currently operate as sole proprietors. These seven FCs are going to form an LLC ("FC-LLC"), of which each FC will be an equal member. FC-LLC will be taxed as a partnership, but will generate no income, per se. The FC-LLC will lease office space, furniture, etc. to the FCs and hire clerical staff, who will be employees of FC-LLC. None of the FCs will receive any compensation from FC-LLC. Each will continue to have his own Schedule C earned income from fees and commissions received on the sale of securities and insurance, as well as providing investment advisory services. Each FC has his own clients, although some client may be "shared". Each FC currently sponsors his own retirement program - in the form of either a qualified plan or an SEP. The FC-LLC is going to establish a 401(k) Profit Sharing Plan for the employees of FC-LLC, which will have benefits, rights and features as good as, or better than, any of the individual FC's plans/SEPs. Query 1: Is this an Affiliated Service Group - or something else? Query 2: Depending on the answer to Query 1, do all eight (8) entities need to be aggregated as a single "Employer" for coverage and testing purposes? (Most of the FCs are "older", so cross-testing will work well for 401(a)(4) purposes.) Query 3: Am I anywhere near the mark regarding this situation? Any - and all - comments most welcome. Thanks!

Doc (of course) currently sponsors a PS Plan through his medical practice. He would like to direct his own investments, but does not want the "hassle" of offering this option to other Plan participants. Doc is also an owner in a separate business venture, totally separate from his medical practice, consisting of Doc and his business partner (no common law employees). Doc wants to know if his "other business" can establish a PS Plan, to which he would rollover his balance under the medicla practicie's Plan (via an in-service distribution) and then be able to self-direct the investment of his account? He would roll his balance over to an IRA but wants the added ERISA protection of having his money in a qualified plan. Other than possible controlled-group issues and not intending to make "recurring and substantial" contributions to the "other business" PS Plan, are there any other issues (pro or con) to consider? Please weigh in! Thanks!

Gary, Belated thanks! SMB

Employer terminated its 401(k) Plan in July, 2003 in anticipation of its acquisition by another company, which utimately did not pan out. Final assets were not distributed from the terminated 401(k) Plan until July, 2004. Employer now wants to re-establish a 401(k) Plan, since the proposed acquisition was a bust. It is my understanding that, under the successor plan rules, this could not be done any earlier than August, 2005 - i.e., 12 months after the final distribution was made from the prior terminated 401(k) plan. Would there be any problem with the employer establishing a SIMPLE IRA program just for 2005 - using a reduced 1% match - and then establishing a new 401(k) Plan effective January, 2006? The SIMPLE IRA would only have a one year run. The employer's intent is to have a "salary deferral only" 401(k) Plan and was specificaly not contemplating making any employer contributions (matching or profit sharing). Though there is a required employer contribution under the SIMPLE IRA, I'm thinking that such contribution may be significantly (if not entirely) offset by the lack of administrative costs to establish and operate the SIMPLE IRA program. Before broaching this approach with the employer, wanted to see if anyone else had any comments and/or suggestions. Thanks!

My VS document (DATAIR) uses language defining facts and circumstances "hardship" for purposes of in-service distribution of employer regular matching and profit sharing in terms of "immeduate and heavy financial need of such severity that the Participant is confronted by present or impending financial ruin...". The same document's facts and circimstances determination of hardship for salary deferrals is much more "generic", i.e., "as determined by the Plan Administator on the basis of all relevant facts and circumstances." Anybody know of any reason (regulatory or otherwise) as to why there is such a "disparity" in the definition of hardship for employer versus employee money? Do any of the other major document providers contain similar language?