mming

Thank you for your quick replies. So, unless they're taxed as corps. and receive W-2 wages, owners/partners of LLCs, as well as partnerships, (and LLPs, I imagine) get their net income apportioned between plan contributions, 1/2 SE tax and their compensation for plan purposes, similar to how you would handle a sole prop. OK, I think I got it.

What type of compensation does the owner of an LLC usually receive - is it W-2 wages or some other type? Also, are there any quirks to what LLC compensation can be used for qualified plan purposes (in the way, e.g., how sub-s corps. should only use W-2 wages and not the pass-through income for calcs.)?

That would seem to be the safest approach, a good faith effort to make the plan whole. The make up contribution should also include estimated earnings that would have accumulated since the withdrawal.

A professor stood before his philosophy class and had some items in front of him. When the class began , he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was. The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was. The professor next picked up a box of sand and poured it into the jar, where it filled up most of the remaining spaces. He asked once more if the jar was full. The students responded with an unanimous "yes." The professor then produced two cups of coffee from under the table and poured them into the jar, effectively filling the empty space between the sand. The students laughed. "Now," said the professor as the laughter subsided, "I want you to recognize that this jar represents your life. The golf balls are the important things - your family, your children, your health, your friends and your favorite passions - and if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter like your job, your house and your car. The sand is everything else - the small stuff. "If you put the sand into the jar first," he continued, "there is no room for the pebbles or the golf balls. The same goes for life. If you spend all your time and energy on the small stuff you will never have room for the things that are important to you. "Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your spouse out to dinner. Play another 18. There will always be time to clean the house and fix the disposal. Take care of the golf balls first - the things that really matter. Set your priorities. The rest is just sand." One of the students raised her hand and inquired what the coffee represented. The professor smiled. "I'm glad you asked. It just goes to show you that no matter how full your life may seem, there's always room for a couple of cups of coffee with a friend."

We have quite a few profit sharing plans that have 3/20 vesting and were wondering if the plans had to be amended currently to reflect the 2/20 minimum vesting requirement under PPA, or could that change just be made part of the PPA restatement that will happen a couple of years from now as long as the plan operationally uses the 2/20 schedule from now on? All help is appreciated.

Plan sponsor is changing from a C-corp to an S-Corp causing his fiscal year end to switch from 6/30 to 12/31. Their profit sharing plan also has a June year end and the pros and cons of also changing the plan year to a December year end are being considered. They would like to make a contribution and take a deduction for the resulting 6-month shortened fiscal year ending 12/31/06. If the plan year is not changed, I guess the limitation year definition in the plan document would have to be amended to the fiscal year ending within the plan year, and the total contribution for the PYE 6/30/07 would be whatever was contributed/deducted for the short FYE 12/31/06? In this scenario, it would seem that the limits on annual additions and compensation would be unreduced as there would still be a 12-month plan year. If the plan year definition was also changed to coincide with the calendar year fiscal, it seems that the limits would have to prorated to 50% of the maximum for the resulting short plan year. Are these choices accurate and are there any other aspects to be considered? All help is appreciated.

I would think that a dollar amount instead of a percentage shouldn't cause legal problems.

Thanks, everyone, for your responses. We found out that corporate trusteeship would cost significantly more than the $5,000/yr. bond premium. I wish the trustee would rethink the non-qualifying assets, but he's a real estate guy, so you can guess what his favorite type of investment is. He'll probably end up doing as Belgarath suggests - the only people currently participating or who will ever participate are family members and they all seem to get along well. The super-low quote came from one of the biggest, well-known names in the business, and, of course, the rep swears up and down that he's totally familiar with the bonding requirements and the distinctions between qualifying and non-qualifying assets. If the bond correctly specifies the coverage being sought, the insurance company would be on the hook. Realistically, though, a claim would be extremely unlikely.

We're trying to help a client obtain an ERISA fidelity bond for their qualified plan and have found a wide disparity in what insurance firms charge. He needs coverage for $2.5 million in non-qualifying assets and received quotes from two companies, one for $5,000 per year and the other for $300 per year. From your experiences, which one is closer to reality?

A few days ago I received a flyer from Sungard, who acquired Corbel, that they'll be having a three-day PPA seminar in Florida (Orlando?). You can probably access info about that from the website you posted.

Last time I calculated one of these (many years ago), the accepted method was dividing the individual's PVVAB by their life expectancy factor. The general consensus in my office is that you can't do that anymore, yet no one knows what the procedure is since the laws last changed. I may have missed something, but it seems that the 401(a)(9) regs don't specify how an RMD from a DB plan should be calculated. Can somebody please explain the procedure to do this? Thanks everybody and have a happy new year!

I actually found several hundred hits when I googled "TD 9294". The first one, oddly enough, had a link to this very site. Here's the address: benefitslink.com/taxregs/td9294.pdf And, qdrophile, there is more to my previous post than "yup", also - but you would've known that if you'd gotten past the first word. Would you care to expand a little on the topic?

We have quite a few 401(k) plans with profit sharing accounts that have 3/20 vesting and are under the impression that the 2007 safe harbor notices can be given to the participants without the plans being amended to 2/20 vesting as prescribed by PPA. Just wanted to be sure - is this correct, and when would the plans actually need this amendment? Or would it just be part of the inevitable PPA restatement that will happen years from now as long as the plan operationally uses the new schedule? All help is appreciated.

Yup. The IRS just published final regs on this a few days ago (TD 9294, 10/20/06; Reg sec. 1.401(a)-21). It applies to any notice, election or similar communication provided to, or made by, a participant or beneficiary under arrangements pursuant to Code Secs. 401(a), 403(a) and (b), 457(b), 104(a)(3), 105, 125, 127, 132, 220, 223, and 408.

Thanks for the response. Two months later I'm now forced to revisit this issue. I need to produce citations stating how RMDs from a DB plan are calculated. I've pored over 401(a)(9) and couldn't find a passage talking about paying out the annual benefit as the RMD. Does anybody know where something definitive on this topic can be found that has been issued by the government?

100% owner/participant has a DB plan where the only other participants are her husband and her father. Would the plan be required to have PBGC coverage, a fidelity bond and file a 5500, or is the father also deemed to own 100%? Likewise, would the father, who's over age 70-1/2, have to take required minimum distributions while he's still employed? All help is greatly appreciated.

I believe that as long as the document allows for it and the SPD explicitly states so, charges incurred as a result of a participant's actions can be assessed directly to the individual, e.g., the way participants can be made to pay for loan fees. I would imagine that to be nondiscriminatory, a participant who even makes one trade may have to be dinged unless the doc/SPD establishes a threshold for a minimum number of transactions before charges are applied.

Trustee/100% owner/participant wants to take $100K from his plan and either invest it in or lend it to a partnership/joint venture in which he will have a 30% interest. At first I thought he would be a disqualified person but after reading IRC sec. 4975, it seems OK as long as he owns less than 50% of the joint venture and the money is given to the business entity (and less than 50% of the joint venture is owned by the trustee's relatives or anyone providing services to the plan). Am I reading this correctly or would this be a prohibited transaction? Thanks for all help.

Company owner has a DB plan, is a deferred retiree and is taking annual required minimum distributions. RMDs were calculated by the previous TPA using Treas. Reg. 1.72 tables. The amounts paid were usually significantly less than what his annual benefit was. My first question is, aren't those tables only for calculating RMDs for DC plans? I thought that just paying out the annual plan benefit in a situation like this would suffice as the RMD and no actuarial adjustments are needed. If this is correct, would his current benefit have to be actuarially increased to reflect the under-payment of his previous RMDs? All help is appreciated.

I think it would be considered discriminatory for the simple reason that after the cutoff date you would have HCEs investing in something that's not available to NHCEs. Even if NHCEs invested in the ML accounts before the cutoff date the same problem would exist. Generally, you should give everyone access to everything all the time.

Thanks for the responses. Charlie, we're doing some projections for calendar 2006. The plan defines "Employer" as all entities required to be aggregated under IRC sec. 414, so wouldn't this automatically include all members of a controlled group and not require company B to formally adopt the plan? I'm a little rusty at this, but what you're describing sounds more like a participating employer in a multiple-employer plan.

The owner of Company A has his wife on the payroll and sponsors a 401k plan. The wife owns Company B which has nothing to do with her husband's company and does not have any plan. She is paid $100K by Company A and receives $50K from company B. I believe this is a controlled group situation and the combined compensation of $150K from both companies can be used for purposes of Company A's plan. I always thought Company A can make and deduct the resulting contribution based on the $150K, but have recently spoken to someone who insists that the deduction has to be split between the two companies based what each company paid her. Which method is correct? All help is greatly appreciated.

I would also think that matches must be made on bonus deferrals due to the definition of comp.

Since this will not qualify for the DFVC program, is there any voluntary IRS program that will provide penalty relief for filing 2 or 3 years late, or is the $25/day $15K penalty the only option for an EZ non-filer who wants to become current?

I think the determining factor in whether or not to take into consideration unrealized gains or losses on an investment is whether it has an ample secondary market, so I do handle individual bonds differently than CDs and show an adjustment at year end. However, I must say that the individual bonds I see in plans are usually held to maturity. We do have some plans, though, that hold bonds with maturity dates that are decades away that I cannot imagine will be held until maturity. Regarding the GICs, I can maybe see why an auditor would make adjustments given the insolvency of some insurance companies in the '90s - although perhaps that's a stretch. But since CDs are backed by the FDIC, they would appear to be bulletproof.