mming

A Canadian citizen wants to sponsor a qualified plan for the U.S. corporation that he owns. He has a U.S. social security number and pays U.S. taxes. Although he owns a house in the U.S., his main residence is in Canada. He and his wife (also a Canadian citizen) will be the only participants in the plan and they would like to also be the trustees. Can they be trustees even though they are not U.S. citizens? Where in the regs is this addressed?

A DB plan's first PYE is 12/31/99. On that date, no participant has a vested benefit because vesting is based on years of participation and they're using a 2/20 vesting schedule. There are 4 participants: the owner and his wife, and his adult daughter and her husband who do not have any ownership. It seems the plan should/will be covered by the PBGC, but when should coverage begin? Should it be covered from 1999 inclusive, i.e., does the PBGC expect coverage even in the absence of vested benefits just in case the plan terminated and everyone became 100% vested in the first year? Also, in the case of a new plan where PBGC coverage is needed from the start, do most of you file a PBGC return for two premium payment years the first time you do the tax forms? Thanks much.

SMB, Cal-Surance's tel. # is (714) 939-0800.

If I understand the instructions for Schedule T and Rev. Proc. 93-42 correctly, a plan that filed a 1997 5500-C that did not apply the substantiation guidelines on line 21 must file a Schedule T for 1999. Afterwards, one wouldn't be needed until 2002. Is this correct? Thanks for all help.

SMB, I neglected to specify that the plan uses the volume submitter version of the Corbel document. The Average Benefits Test was conducted as soon as we discovered the Ratio % Test failed, with similar results. Of the 2 tests it would appear that less contributions are required to correct the Ratio % Test.

We have a profit sharing plan based on a Corbel document that does not seem to address how to correct a failed 410(B) test. There are 13 NHCEs participating at some point during the year in question, but only 9 are entitled to receive an allocation. All of the HCEs are eligible for an allocation - meaning that I need at least 10 NHCEs to pass the test (I assume you have to round up after calculating 70% of NHCEs). Plan is not top heavy. The document has both a 1,000 hours and a last day of the year requirement for a participant to receive an allocation. The four remaining NHCEs were new participants who terminated during the year, 2 with >1,000 hours and two with 500-1,000 hours. I've heard about the "failsafe" method that lowers the hours requirement until enough participants receive an allocation so that 410(B) passes, but I don't know how I could use this here - I only need 1 more NHCE and there's 2 with more than 1,000 hours. I'm guessing you can't just give an allocation to the one with the most hours. Would the solution be to waive the last day requirement as the "failsafe" and give an allocation to the 2 terminated participants with >1,000 hours? Are there other options and can they be used without the document specifying them? Any info is much appreciated.

Can anyone recommend a good source for E and O insurance? I have a small TPA firm (no product) and am surprised that the half dozen or so huge national insurance firms that I contacted at random don't even offer this. I found several firms via the internet (all in other states) and they all recommended using a firm in the state where I'm located - Arizona. All info will be much appreciated.

The instructions for Form SS-4 seem to make a trust ID# mandatory, as rhp pointed out. I'm guessing most clients of TPAs are like mine - you can get the number for them, tell them how and why to use it, and most will still register their plan investments under their EID#. Thankfully, in the majority of such instances the IRS doesn't catch this. However, once in a great while we do receive an IRS letter stating that 'Joe Client owes us a ton in back taxes, penalties, etc. because we've noticed he's never paid tax on any of the dividends, interest or capital gains on the investments in this corporate taxable account'. It usually gets straightened out without the client having to pay anything, but only after you've twice explained what the intention of the investments were to half of the IRS. Avoiding this potential frustration is another reason to get a trust ID# now. One more reason is that you may be the unfortunate one to get an IRS agent who won't let it slide as an "innocent clerical error" and demands payment. We haven't seen this happen yet, but you never know. [This message has been edited by mming (edited 05-16-2000).]

Hoard1 - I don't think you can retroactively adopt a 401k plan, i.e., deferrals shouldn't be made unless the doc has been executed and made "official". Why not make the plan effective currently, even if it means having a short PY?

Thanks everyone for your responses. rhp, it happened during PYE 12/31/99 and fortunately the extra deferral amount is only about $400 (associated match is about $200). Doc is silent re deferrals for ineligibles.

The employer somehow allowed an NHCE to begin making deferrals to their 401(K) plan about four months before that employee met the eligibility requirements. The employer even made a quarterly match for the employee before her date of entry. Should the employee be given back the deferrals that were made before her DOP and revise her W-2 (consider it a contribution in error)? A 402(g) violation did not occur, so it can't be treated as an excess deferral. It happened to an NHCE, so it seems it shouldn't be treated as an excess contribution. What is the best way to handle this? Would giving the match back to the employer also as a contribution in error be advisable (overall match made throughout the year for her exceeded what she should have been allocated)? All help much appreciated.

Can participants who have self-directed accounts be offered individual life insurance policies withing their 401(K) plan? The type of insurance being considered by the trustee would be term, so it would be purely an expense item from each participant's account, not an "investment" as there would not be any cash value accumulating. Would there be any discrimination issues, e.g., assigned risks having to pay higher premiums for the same benefit that non-risks are getting? The agent says that males could pay less for insurance through the plan since unisex rates must be used to be nondiscriminatory(?). If that's the case, I wouldn't think any of the females would want to pay the higher premiums this would create for them. I'm also guessing that, in light of the 25% of contribution limit for premiums, a participant would lose their insurance coverage if they stopped deferring. I don't know that much about insurance, but it seems that its advantages are usually outweighed by the complications it causes in qualified plans.