mming

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.

Employer has an existing integrated profit sharing plan that is top heavy for calendar 2000. A non-integrated ESOP plan is added for 2000. The 2 only key employees benefit under both plans making both plans a required aggregation group and entitling all participants to a top-heavy allocation for 2000. The plans have different eligibility requirements allowing 3 employees who are not eligible for the profit sharing plan to be eligible for the ESOP. The ESOP's first year contribution was only $1,000 while approximately 4% of comp. was contributed to the profit sharing for 2000. Everyone will receive at least 3% of comp. in the PSP. The $1,000 ESOP contribution is less than 3% of comp. for the 3 ESOP participants who are not eligible for the PSP. Would it be acceptable to allocate the $1,000 entirely among these 3 employees since the other ESOP participants are receiving a top-heavy minimum allocation under the PSP? Also, since these 3 employees would be receiving less than 3% of pay in the ESOP, should a portion of the PSP contribution be allocated to them for the difference, i.e., allow them to prematurely participate in the PSP so they can get 3% of pay between the two plans? All help will be very much appreciated.

Pax, you're correct re "affected taxpayers". However, for people who are affected taxpayers only due to mail service disruption, the only relief available is item (5) under the Grant of Relief section. This would allow "payments required" between 9/11 and 10/31 to be made until November 15th. I'm hoping "payments required" also refers to minimum funding (after all, those contributions are required) since this potential relief would apply to taxpayers all over the country.

A company currently sponsors a non-safe harbor 401k plan where very few NHCEs defer, limiting the owner to very small deferrals and matching contributions for himself. Present match is 100% up to 3% of comp with a 2/20 vesting schedule. It would appear amending the plan to a safe harbor design where the match would be 100% vested and be increased for an additional 50% match on the deferrals between 3 and 5% of comp. would be worthwhile so that the owner could defer $11,000 next year and receive the full match. Since the owner stands to significantly benefit while contributing a match to a very small portion of the employees, would the plan have to be cross-tested for 401(a)(4), or does the safe harbor design eliminate this concern? The plan has about 20 employees and is currently not top-heavy, but if the owner will be making maximum deferrals and receiving full matches, he will have to provide all participants a min. TH benefit of 3% of comp. in an estimated eight years.

We have found that TPAs have differing interpretations regarding which divisor to use under the new 401(a)(9) regs. Some say you use the divisor from the MDIB table based only on the participant's age if the beneficiary is not more than 10 years younger (beneficiary in this case is three years older). Some others say you should take the divisor from the Sec. 72 joint annuity tables based on the beneficiary's age and the participant's age less 10 years. Who is right? Any clarification on this would be greatly appreciated.

I've seen documents that have a provision allowing a contribution that was made as a result of a "mistake of fact" to be returned to the Employer within 12 months of the date of the deposit. Perhaps adding such a provision can help if it's not too late? However, I'm not sure whether the excise tax for nondeductible contributions would still apply in such a situation.

If a non-U.S. citizen owns a U.S. corporation that sponsors a qualified plan it appears that he cannot be the plan's trustee. It seems that he should either get a U.S. financial institution/TPA that offers trustee services or appoint a U.S. citizen (or group of) to be trustees. Are there any other options? It's been suggested that the U.S. corporation be a trustee, but with the sole owner not being a U.S. citizen it appears to cause the same original problem.

I agree that not filing a 5310 is a legal option that usually doesn't warrant IRS suspicion. However, it's a good idea to take into consideration the amount of the resulting distributions. Since 1099-R forms must be filed when distributions occur, the IRS will (or should) see if someone received a large payout. If they see that one participant received, e.g., several hundred thousand dollars or more, they may be interested in proof that it was all legit, especially if it was ROed and no taxes were paid. Also to be taken into consideration is the client's risk tolerance and whether they can wait to receive the distribution until the IRS has approved the formal termination. You can tell the client the pros and cons for filing and not filing the 5310, but ultimately it should be their decision. Sometimes, of course, a client may imprudently insist on not filing a 5310 to save on admin fees, even though they're due to receive a 7 digit distribution.

Pax - the benefits do vest upon death which may make things interesting should the unfortunate occur. By the way, they're currently considering my request for adoption - I'll let you know if it falls through. Thanks for your help.

We have a client who, in his late seventies, started a business that is now sponsoring a DB plan. There are no other employees. His NRA is 83. Will putting 83 on line 6b of the Schedule B practically guarantee an audit? The doc defines NRA as 65 and 5P, but it's my understanding that you have to put the actual average age on line 6b. Does anyone have a different interpretation?

Can a Roth IRA be rolled over into a PS/401k plan? If so, can it still be rolled over even if the Roth was a conversion from a contributory IRA, i.e., not a conduit IRA?

I believe Schedule R is meant for the reporting of all types of distributions including those for hardships.

A mortgage broker would like to start a qualified retirement plan and invest a portion of the plan's assets in mortgages that his firm puts together. Is this allowed? If it is allowed, how acceptable would it be for him (or his firm) to receive the commission from the resulting transaction?