mming

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.

The IRS website currently posts the 5307 dated September of 2001. Does anyone know of a more recent version? I remember reading that this version would only be valid up until March 31, 2002 and that the IRS is going to release a new reversion in November of 2001.

PS plan set up for small business owner by investment firm that never drafts a document or adoption agreement for it. Unsuspecting client never had TPA as he was led to believe investment firm will do it all. Contributions were made annually and deducted. 5500's have never been filed. Accounting is apparently OK as the sole employee has always had proper amts allocated to him. Total plan assets are only about $50,000. How can the plan now become qualified? Can the plan undergo voluntary compliance with the IRS w/o an FDL or an opinion letter? If so, how much of a sanction/fee would the IRS charge and how much would the client expect to pay a TPA to handle this (or would they need an atty.?)? Also, if this is done, would 5500's for all past years have to be submitted? What other options can be considered? All help appreciated.

I believe that they refer to one-man 401(k) plans. You probably won't find these names in any regs as they were created for marketing purposes by investment or admin firms. The plans are a result of EGTRRA legislation that permits elective deferrals to be excluded from the 25% of comp limitation effective in 2002 resulting in larger overall contributions. As they work more or less like a traditional 401(k) plan, additional info can be obtained from EGTRRA and how it relates to historical 401(k) legislation such as Treas. Reg. 1.401(k) and IRS sec. 401(k), and of course, from the cos. that set up such plans.

A new comparability PS plan fails 410(B) for calendar 2001 due to several participants terminating employment. The terminated participants all had over 1,000 hrs. and were all terminated on the same day. Plan has last day requirement for allocation. The document does not contain any failsafe provisions. Only a portion of the terminated participants would have to get an allocation for the plan to pass 410(B). Since they were all terminated the same day, with presumably the same number of hrs., is there a way to avoid giving allocations to all of them? Also, for new participants entering mid-year, the doc's definition of compensation says to only recognize comp from DOP. I'm pretty sure it's OK to also use partial comps for cross-testing but would appreciate verificiation of this. Are there any regs that require the use of total comp for the year in such a situation? Thanks in advance for all help.

The smaller plan will need a final return. As for the surviving plan's 5500, showing the transfer occuring during the year on the appropriate Financial Information schedule would seem the better way to go instead of showing the other plan's assets already being there on 1/1. If the plan has an EOY val date, I would expect all figures on the B to take into account both plans' benefits, including the RPA CL discounted to the BOY. The opposite would then be true if the val date was BOY, i.e., only the surviving plan's benefits would be reflected throughout the B.

I'm not sure why, but a company has adopted 2 profit sharing plans. For good measure, the eligibility requirements are different for each plan. This results in plan 1 covering 9 ees (including the 2 HCEs) while Plan 2 allows 8 of these 9 ees (including the HCEs) to participate plus an additional ee not eligible for plan 1. At least the plans are not top heavy and their limitation years coincide. If the er contributes 7.5% of pay to each plan would there be a discrimination issue for that one NHCE in each plan who receives 7.5% from that one plan while the other 8 participants get 15% total from the two plans? Also, since total eligible compensation is different in each plan, how would the 15% of pay maximum between the two plans be calculated?

We use the participant's current age since annuitizing a benefit in a cross tested plan is procedurally similar to the calculations performed in a DB plan and would produce a more "factual" representation of the participant's benefit.