mming

I've never seen any mention of a lifetime maximum for 401(k) catch-up contributions in any research material or official releases.

A participant who has been receiving RMDs has terminated employment and would like to be paid out the remaining amount of her benefit. As the benefit is very large, she is considering taking parts of it on an "as needed" basis. If erratic amounts are taken on an irregular basis, would the participant have to complete election forms prior to each distribution, or is there a way to have her just complete one set of forms in the beginning? Also, if she rolls over half of the benefit into an IRA now and then begins taking erratic taxable payouts from the remaining half "as needed", would the IRA rollover not be considered an eligible rollover distribution if the remaining half is not completely distributed before the end of the calendar year in which the IRA rollover occurred (resulting in an additional tax liability)? Thanks for all help.

It would be possible as long as both A and B's plan documents have the provision, or add the provision, that a successor employer can take over the sponsorship of the existing plans.

An employee works for both company A and B, members of the same affiliated service group. The only plan in the ASG is a DB plan that has a 1,000 hr. requirement for accruals. The employee had over 1,000 hrs. with co. A and less than 500 hrs. for co. B. The plan defines compensation as using the 415 safe harbor definition. Is it correct to only use co. A's compensation for plan purposes?

For employees who were already in the plan it would seem that the restatement can be treated as a summary of material modifications and can be distributed up to 210 days after the close of the plan year in which it was adopted per DOL Reg. 2520.104b-3. For participants who come in afterwards, the old SPD requirement of no later than 90 days after becoming a particant would apply.

Is the monthly rate for the Treasury bonds maturing in Feb 2031 otherwise known as the 30 yr. Treasury Constant Maturities rates? I've looked at enough sources to get confused and would like to know if there is a reliable list that shows the "GATT" rates to be used for lump sum calculations. All help greatly appreciated.

Not required for SPDs as per the following DOL news release: http://www.dol.gov/opa/media/press/opa/opa200350.htm I would guess the same would be true for SARs.

Chris - no doubt it's OK to file a 5310 after the date of termination, but you didn't specify whether the assets were actually distributed prior to the filing. When a 5310 is filed the assets can't be distributed until after the IRS has completed its review process.

IMHO, it would be a bad idea to file a 5310. Just the date of termination and the date of the notice to interested parties on the 5310 (among other items) will probably cause an IRS agent to latch on and cause problems. Unless they still owe you money or are still a client in some other capacity, why couldn't you just refuse to do it?

Pax - they are in their early 30s and know the plan should be a long-term commitment. They would like to contribute and defer the max every year and since they can now tack on the deferals to a 25% contribution and they have a modest income, a 401(k) appeals to them. The contributions being discretionary was important also. For the record, I cringe whenever I hear of a plan possibly becoming infected with insurance, but sometimes people can't be talked out of it. I believe the main reason for the insurance was the premiums can possibly be paid with pre-tax monies (hence my questions re: sources) and since they were going to get insurance and pay premiums with or without this plan, deducting the premiums as contributions would be a plus. How do you usually see 401(k) plans handle premiums?

Client would like to start up a 401(k) plan for he and his wife (only employees) that also allows PS contributions. They both have account balances from an old SEP-IRA that they would like to rollover into the new plan. Can these rollover amounts be used to pay for insurance premiums in years where they do not make any contributions? Although every year the premiums cannot exceed 50% of the contributions (they want whole life), would the elective deferrals count as the contribution in addition to the profit sharing? The document can be drafted to allow for withdrawals pursuant to the IRS 2-year rule. The doc also states that such amounts can be used in addition to the incidental benefit limit to pay premiums. That would seem like an easy way to circumvent the incidental benefit limit by using plan assets to pay for the premiums (at least partly) as opposed to the employer paying the whole amount. Are there any other aspects to this that should be considered?

Cut and paste: http://www.sgiusa.com/actuaryjokes.htm

Advise against it - a trust cannot be considered qualified if it allows a transaction that would impose a lien on the plan (unless its done by the IRS).

A trustee paid a participant his fully vested account balance from their PSP even though the participant is still employed, hasn't yet attained NRA and in-service distributions are not allowed. This occurred because the participant is trying to buy his first house and his accountant informed him that if he transfers the money first to an IRA he could pull the money out of there and avoid the premature distribution excise penalty. I seem to recall hearing about the IRA/first home thing but I'm not sure how to report this on the PS side. Looking at 412©(4), an eligible rollover distribution is defined as all distributions except the several that are listed. I have to think that the section is only discussing distributions due to valid distributable events and a distribution that should never have been made could not be allowed to be rolled over. If this is true and a 1099-R is needed for the distribution, it should be shown as a taxable distribution even if it somehow ended up in an IRA. I'm also guessing that a schedule R would be needed for the Form 5500 (there were no other distributions). Is this the best way to handle this? All help is appreciated.

Does anybody think that submitting a DFVC filing and paying the appropriate fee would somehow earmark that plan for a future audit, even if there wouldn't be an obvious reason for an audit? Also, has anyone heard of the IRS and/or DOL assess any additional penalties (civil or otherwise) after a plan has filed with the DFVC program. Thanks for any info - I'm curious to hear about people's experiences with the above.

There are some very good points being posted - no doubt you can end up in a world of hurt with one false step. I suppose things can be worse for these guys. Fortunately, they do not employ anyone other than their spouses and all participants within the 3 plans are members of the same family, so the prospect of potential lawsuits is diminished (unless they get along like my fam, or a divorce occurs). Assuming a reasonable level of familial bliss, enough consideration will likely be paid by all to sell the 3 portions of the RE at the same time or do whatever necessary to avoid probs with minority interests, discounts, etc. However, what is it they say about good intentions.........?

The main reason they're considering the purchase among the 3 plans is that the parcel costs too much to have in one plan, i.e., none of the 3 plans could buy it entirely and maintain reasonable diversification of their assets. Personal reasons, arguably valid, are also partly to blame as you have suggested, Katherine. The main business performed by the three sponsors involves real estate. I know that it's a problem to try to run your business through your plan, but perhaps that may not be the case in this instance. If the trustees honestly believe that real estate will be a good investment in light of the weak economy, and there will be no commissions, kickbacks, etc. received by either the sponsors or the participants personally as a result of the transaction, do you agree there's no problem if the purchase is made following copious research and assessment of its FMV?

Thanks everyone for all the input - it's much appreciated

Mike, you got the drop on me - you're faster with the reply button...

I think the 80% rule applies to parent-subsidiary groups and the 50% rule is for brother-sister groups. The Vogel Fertilizer case of 1982 touched upon this, although I've read there was a split among the judges who presided, and the arguement for the decision was somewhat weak. I wouldn't be surprised if a different outcome was reached if the case was tried today. Anyhow, in my situation, the attorney evidently pronounced the relationship a parent-subsidiary group. Does controlled group status (or lack of) determine whether an investment can be split up or are there additional considerations?

The trustees of 3 different plans would like buy a large piece of real estate with plan assets and apportion it among their plans. One person owns 100% of plan 1's employer and 79% of plan 2's employer (other 21% owned by his brother). The majority owner is also a co-trustee of both plans, trusteeing with his son-in-law in plan 1 and trusteeing with his wife in plan 2. His daughter owns 100% of plan 3's employer and she co-trustees it with her husband, the above son-in-law. They have obtained a legal opinion that a controlled group / affiliated service group does not exist. Is there anything that would prevent the three plans from purchasing and each owning a one-third interest in this investment?

The majority of the plan assets are trust deeds, so rolling over the distribution to an IRA would be difficult. I've heard of some firms that offer IRAs which would accept such investments but they go out of business by the time I need them (are there any goods ones out there?). Because they are trust deeds, however, the assets in the plan have been steadily increasing over the last three years, contrary to the market. I may be a little rusty on this - it's been awhile since I've had to deal with a 414k account - but the impression I have is that the goal is to establish it before one's PV exceeds the lump sum 415 limit. The benefits are underfunded, but if the assets exceeded the PVs a reversion would exist as there wouldn't be any other participants to soak up the excess. How does one segregate the value of 100% of the total benefits once the assets grow to the right amount in this situation? As for the transfer of the assets, I remember seeing it done in the past as just a "paper" transaction, i.e., the 414k account remained part of the DB (in this case it would be 100% of the DB) without any new investment accounts being opened or any existing ones being renamed. The trust stays intact and a Schedule B gets filed every year with lots of zeroes and a footnote that says the applicable assets are now utilizing the provisions of IRC 414k. Have I been running with the wrong crowd?

There's a DB plan whose only employees and participants are the two owners. They have identical salary and service histories. Their PVVABs are even identical as their DOBs are just a few weeks of each other. The combined PVs exceeded the total plan assets when their 414k elections became effective. Must they each sign an election to waive a portion of their benefits to make their PVs equal to the value of the assets even though there are no other participants, or is this not allowed? I vaguely remember hearing some time ago that owners cannot waive benefits. Also, the 414k elections became effective two and a half months into the plan year (plan has EOY val date). Would it be acceptable to not establish formal PVs as of the effective date of the elections and just split the assets down the middle at the EOY? FMVs for the assets as of the elections' date would be hard to come by, but it's obvious that contributions would have not been required at any time during the year. All help is appreciated.

I'm thinking it would be based on the results of the DB plan's last valuation in the calendar year immediately preceding the calendar year for which the distribution is being made. In other words, the DB valuation performed during 2002. As far as which results of that valuation to use, I've seen different actuaries use different methods - some use the participant's PVVAB and divide by the applicable life expectancy multiple, while others just pay out 12 times the monthly benefit (much easier to figure out).

If an existing profit sharing plan wants to contribute 25% for 2002, must an amendment increasing the formula be in place by 12/31/02, or will just doing the EGTRRA restatement before 9/30/03 be OK? Thanks.