mming

He can't. The fiduciary is on the hook for everything. And consider how the question on the 5500 will look that asks whether 20% or more of the plan's assets were invested in a single security, etc.

Pax, was that recently?

A DB plan covers only the owner and his wife who each consistently have annual compensations that are less than $10,000. Each has an annual benefit in the plan of $10,000 due to its de minimus provision. They are considering adding a deferral-only 401(k) plan, but I remember somebody mentioning a while back that you can't have more than one plan when your compensation is less than $10,000 and you're getting a de minimus benefit in a DB plan. Is anybody familiar with this? It seems there's not a lot of guidance about this topic available. The employer does not have any other employees. All help is appreciated.

From what I have seen in large metropolitan areas, a multiple of revenue is the main determinant of sales price. At the height of the economy, 3x revenue was possible; at the lowest point, you were lucky if you could get 1x. Informally guestimating current conditions, 1.5x may be possible. I suppose the range may be narrower in smaller communities. I, too, would be curious to hear about what others have experienced.

I don't think the employee should be taxed on interest accrued on an amount that was previously distributed. There are circumstances where the plan must continue to accrue interest on deemed distributions for plan reporting purposes, but when the participant terminates and their net benefit is paid out, the amount accrued on the deemed distribution is negated.

If a 401k plan that uses the 3% NEC safe harbor terminates during the first month or two of the plan year, is it OK to base the 3% contribution on compensation for that short period, or are there a minimum number of months of compensation that must be used?

There wasn't sufficient time to satisfy the notice requirements when the sponsor first mentioned terminating the plan. My question comes down to what period of compensation must you use to calculate the 3% safe harbor NEC. The sponsor wants to make as small a contribution as possible, so if the plan's terminated 1/31/06, would he only be obligated to deposit 3% of the participants' January compensations? I have to think there are exceptions to the 12-month rule in Notice 98-52 when a plan is terminating, making it OK to distribute all of the assets mid-year and file a final return for the pye 12/31/06, similar to non-safe harbor plan terminations?

Plan uses the 3% NEC safe harbor design and client wants to terminate plan asap. It seems that this calendar year plan would have to remain in existence until at least 12/31/06 given that IRS Notice 98-52 requires a safe harbor plan year to be 12 months long. Would making the 3% contribution in October based on estimated total 2006 compensations be allowable so that the plan can distribute all benefits by the end of the year? How is this normally done? All help is greatly appreciated.

It seems to me that if you provide the safe harbor notice, the plan must make the 3% SHNEC contribution. Generally, if the notice requirements are made and the SHNECs are contributed, the plan would be considered safe harbor. The results of the 70% test addresses the allocation method, not whether the plan is safe harbor.

Thanks for the response. What I forgot to ask is whether a participant must always terminate employment before receiving an annual early retirement benefit (if the document doesn't address this). Would it be viewed as a type of prohibited in-service distribution if the owner kept working?

A DB plan covers the owner and several of his employees. The owner borrowed $50,000 in 2003 but the loan went in default during 2004 and was considered a deemed distribution. He now wants to take out another $55,000 from the plan and an early retirement provision is being considered in order to accomodate this intent. The plan is somewhat underfunded but there would be more than enough assets left after taking out this additional amount to pay all of the other participants' benefits. A colleague seems to remember hearing about a rule stating that an HCE cannot receive a distribution that is more than 50% of the plan's assets under certain circumstances. I'm not familiar with this - has anyone heard of this rule? I've looked through many research materials and haven't been able to find a reference. If this rule does apply, and since he would have taken distributions in two different years, would there be no problem if the plan's assets at the time of the $55,000 distribution were at least twice the sum of $55,000 plus the deemed distribution amount (I'm guessing brought up with interest to the date of the $55,000 distribution)? While trying to find this in the regs I stumbled across Treas. Reg. 1.401(a)(4)-5(b) and Rev. Rul. 92-76 which gave me something else to worry about. If I understood them, a restricted employee (as this owner seems to be) cannot be distributed more than what he would receive as a monthly annuity for the year? There were three exceptions to this, but none of them apply in this case. I've spoken to some TPAs who've said they have HCE clients who receive varying partial lump sum distributions every year, sometimes skipping a year or two, with no systematic method. Is the Treas. Reg. and the Rev. Rul. only applicable under certain circumstances? Thanks for any advice.

Also, the plan document may state whether or not it can pay expenses (in conjunction with the DOL conditions). The remaining participants bearing more cost than they ordinarily would have should not pose an operational failure. Although a 50% reduction in the number of participants is significant, there are some plans that charge the administration fees to those who are participants at the beginning of the year, regardless if anyone terminates during the year. If this is a fee that can be paid by the trust and the document gives the administrator the choice of whether or not to charge the participants, the admistrator may consider having the participants pay only a portion of the fee in order to avoid personnel issues. I think that any expenses not paid by the plan can be a business deduction.

I think I've read too many interpretations from too many sources and now need clarification. Regarding the reduction of the $5,000 threshold, I am under the impression that if it's reduced to $1,000 and a missing participant has a vested interest of <$1,000, the trustee does not have to automatically roll it over into an IRA for the participant. In other words, nothing changes in regards to distributions of <$1,000. If this is true, why would a plan consider decreasing the threshold below $1,000 or even bring it down to $0? Eliminating it completely would force terminated participants with vested interests of <$200 to fill out election forms where they previously were not needed. All help is greatly appreciated.

I also believe an amended filing is not necessary. If I remember correctly, the instructions for Form 1099-R even say that a 1099-R should not be filed for a payout consisting entirely of residual earnings.

Although we had many, many conversations and approached them from many different sides, the end result was a $500 reduction. Their "reasoning" was that the MPA would be way over $3K considering the tax liability created by the plan losing its qualified status and the sponsor losing the deductions for contributions, paying taxes on investment earnings, etc., even in this tiny plan. True, but they still showed a lack of perspective. BTW, we were told that $3K is a default amount in most cases. Better than nothing I suppose. And, of course, they said at the end that the main reason for the inflexibility was that the IRS is in a big yank to generate revenue, more than they normally are. Lame. Are you working on one of these currently?

The owner and sole participant/employee of a profit sharing plan that has been filing 5500-EZs every year recently got divorced and now his ex-wife is an alternate payee with a segregated account balance in the plan. A colleague tells me that the plan can still file an EZ. I'm thinking that since the alternate payee is afforded the status of a beneficiary (e.g., getting copies of SPDs, SARs, a certificate showing her balance) a 5500 should be filed until the year after she is paid out. Who is correct?

The owner and sole participant/employee of a profit sharing plan that has been filing 5500-EZs every year recently got divorced and now his ex-wife is an alternate payee with a segregated account balance in the plan. A colleague tells me that the plan can still file an EZ. I'm thinking that since the alternate payee is afforded the status of a beneficiary (e.g., getting copies of SPDs, SARs, a certificate showing her balance) a 5500 should be filed until the year after she is paid out. Who is correct?

Plan was requesting a favorable determination letter from the IRS when they discovered that the CRA amendment from last year was adopted two weeks late. It was forwarded to audit cap for a document failure where they issued a letter stating the sanction to be a non-negotiable amount of $3,000. This was after it was explained to them in writing that the late amendment had absolutely no operational impact on any participant (this a basic profit sharing plan - no transportation fringe bfts.), the total trust assets are only $20,000 and it was amended only 2 weeks late. Rev. Proc. 2003-44 states that the sanction for audit cap is a negotiated percentage of the Maximum Permissable Amount ( MPA seemingly defined as the amount charged if they were to throw the book at you). Also, "Sanctions will not be excessive and will bear a reasonable relationship to the nature, extent, and severity of the failures." Have any of you had any similar experiences? We are the tpa and are taking responsibility for the oversight but we hope there is a way to reduce the amount. The assessment of a non-negotiable sanction of $3,000 on such a small trust for such a minor infraction seems excessive. Is there anything that can be done? Thanks in advance.

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.