mming

Thank you both for responding. I'm glad the coverage aspect was brought up. I think that normally, even if a participant chooses not to defer, they are still considered to be benefitting because they have the choice to defer. It sounds like signing a waiver changes this? I know this setup may sound less than ideal for a 401k - it was established originally to accept a large RO of illiquid assets. The elderly owner is hoping to create permanency with just deferring a catch-up contribution every year (so testing won't be an issue). It's true that bonding is generally inexpensive , but the illiquid assets mentioned above are nonqualifying assets, making coverage rather pricey. We generally refer plans to a company that specializes in offering ERISA fidelity bonds who have cautioned us that most insurance companies that provide business liability policies onto which such a rider can be added will not cover nonqualifying assets.

There are 2 participants in a 401k plan, the owner and an nhce, and no other employees. Although the nhce has said he'll never elect to defer, it seems that the owner will still have to obtain a fidelity bond since it's technically an ERISA plan. Would the bond still be required if the nhce signed an irrevocable waiver of participation?

Couldn't the plan issue a 1099R using either codes 1,2 or 7, with the critical item being the amount reported as taxable? For example, if a plan purchasing an annuity from an insurance company to pay a participant is considered a non-taxable event, the participant would still be the recipient, zero would be shown as taxable, and the insurance company would then issue a 1099R for any taxable amounts or 1035 exchanges made afterwards, even if they're made in the same year as the initial annuity purchase.

After our neighbor was done showing us the new sports car he just bought his wife, my wife sighs and says "Why can't I have something shiny and new that can go from zero to 200 in a flash?". The next day I bought her a bathroom scale.

Thank you for the quick reply. The plan's investment policy does allow for 3rd party loans and, knowing the owner, he can justify the loan's prudence and produce collateral. Can it be considered a valid 3rd party loan even after the employee enters the plan since, technically, the plan did not lend money to a participant - or must it be now considered a participant loan? Not sure of the balance forward reference - I'm not familiar with that type of plan - this one is a traditional 401k which can have either/both participant and 3rd party loans. For the IRA loan, it is definitely the owner's IRA holding a loan to an employee who later became a 401k participant. I should clarify that either the IRA made the loan directly to the employee or the IRA acquired an existing debt that the employee had. The IRA is being held by a company who's known for holding assets that most IRA custodians wouldn't (or couldn't) normally hold, so I'm not surprised to see a note in one of their IRAs - perhaps this is one of those oddball situations. The owner's IRA, which owns a loan to an employee who is now also a participant in the plan, is being rolled over into the plan - sounds like it shouldn't pass the smell test but I can't point to any specific rule being violated. As for where I find these people, I guess I'm just lucky that way - I've been asked that question many times, especially after I've asked a colleague "Have you ever seen this in a plan......"

An employee (neither an owner, officer or relative of one) borrows money from the company 401k plan shortly before he is eligible to partipate. Is this construed to be a participant loan once the employee enters the plan? No payments or accrued interest have ever been shown on the loan, which I suppose could be acceptable if the loan is considered to be just a third-party loan that's structured as a balloon note. This same employee evidently has another loan that is owned by the owner's personal IRA. This IRA is currently being rolled over into the plan mentioned above. It does not appear that this would be a prohibited transaction since the employee isn't a party in interest - would this transaction be legally acceptable? All help is greatly appreciated.

For the amendment to be effective for 2010, it should have been signed before any participant became eligible for a 2010 accrual, e.g., before the participant worked 1,000 hours during the year if that's what's needed for an accrual. A 2010 BOY val, however, would be unaffected.

A Form 5307 is being filed for a determination letter regarding a volume submitter DC plan that is being restated, and the question has come up as to whether or not the employer would be exempt from the applicable IRS user fee. The form instructions for the 8717 say that the plan would be exempt if it "was first in effect no earlier than January 1 of the tenth calendar year immediately before the year in which the submission period for the plan's current remedial amendment cycle begins" Is this submission period considered to have started on 5/1/10 and will end on 4/30/16 since the deadline for the EGTRRA restatements was 4/30/10? If this is the case, the plan would seem to qualify for the exemption, as its effective date was 11/1/01 (and it's an eligible employer). In other words, plans effective 1/1/00 or later can be exempt from the fee - is this accurate?

A company with an existing PSP wants to start a SEP so that it can contribute to one specific employee who's not eligible for the PSP yet. Would all employees be eligible to participate in the SEP or can you just specify a class of employees to be eligible (e.g., owners' spouses)? All other employees would get a comparable allocation in the PSP. The PSP has a 1 year eligibility requirement while the SEP would have a 6 month requirement. There would only be 2 employees who would qualifiy for the SEP but not for the PSP. If most employees cannot be excluded from the SEP, would it be possible to 1) have those two employees waive participation from the SEP, and 2) not contribute to the other employees in the SEP since they would be getting comparable allocations in the PSP? I imagine you would have to combine both plans to do the crosstesting (since the PSP is a new comparability plan). All help is greatly appreciated.

Right - this would seem to make the PTE n/a in this case. I imagine another option may be for the ER to refund the plan for the reimbursement and have the plan pay the participants - yes, they would get paid twice, but at least the amts are small and the distributions would be made correctly. Do you think this would fly if the refund is made with interest within a year? The doc's "mistake of fact" provision only addresses return of contributions and is silent on erroneous payments.

A prohibited transaction, no? The immediate issue is whether or not to file 1099s - we're leaning towards not doing them since it wasn't the plan that paid the terminated participants. Luckily it was for a small amount ($300 between 2 participants, both under $200 apiece in a plan with about 40 lives). Technically, I suppose a 5330 s/b filed (perhaps guaranteeing an audit) and an IRS correction program should be used (is self-correction permissible for this?), but as a practical matter I can't imagine plans go through all this for the amount in question. What's the best way to handle this, especially the 1099 situation?

I believe the bond requirements are applied to the total plan assets and do not offer relief based on who has what asset in their account. BTW, they should at least "offer" the stock to all participants to minimize liability (but, as I've seen to be the norm, they'll make it sound terribly unappealing so they don't invest in it).

We've been periodically contacted by overseas firms who offer qualified plan admin on U.S. plans and are considering talking to them. As it's been several years since this was last discussed, I'm curious as to what experiences other employee bfts administrators on this board have had with offshoring and whether the general opinion on this topic has moved one way or the other over the last five years.

From the IRS website re 8955 FAQs at http://www.irs.gov/retirement/article/0,,id=238940,00.html Q & A 1 is: "I understand that the Form 8955-SSA replaced the Schedule SSA (Form 5500). When is the PY 2009 filing data due? The Form 8955-SSA is to be used for Plan Year (PY) 2009 filings and thereafter. The due date for filing the 2009 and 2010 Forms 8955-SSA is the later of (1) January 17, 2012 or (2) the due date that generally applies for filing the Form 8955-SSA for the 2010 plan year." Seems that both the 2009 and 2010 forms for a 6/30 YE would be due 1/31/12, with an extension possible to 4/17/12.

Am I correct to think that even though the instructions for Form 5500-SF say that it requires no other schedules or attachments, Form 8955-SSA would still be required to be filed (separately, not with the SF)? And that the 8955 is not applicable for plans that file Form 5500-EZ?

A >5% owner attains age 70 1/2 on 12/28/11, so it appears that the RBD for his RMD will be 4/1/12. His advisor, however, insists that there's an exception for participants who are born in the latter half of June, i.e., he wouldn't be considered attaining 70 1/2 until 2012, and therefore his RBD isn't until 2013. We were not able to find such a provision after looking through both IRC 401(a)(9) and Treas. Reg. 1.401(a)(9)-2. The Treas. Reg. even had the example of someone who was born on 6/30/33 having an RBD on 4/1/04. The advisor's belief seems unfounded - has anybody ever heard of such an exception?

I have been asked to isolate exactly where in the federal laws it says that elective deferrals in a qualified 401k plan are deductible. So far, I have cross-referenced IRC sections 401(k)(2)(A) and (B), 402(g)(3)(A), 402(g)(a)(8), and 415©(1) and (2). Although I did not expect the references to be very direct, I was hoping for something a little more useful. Are there any other areas in the laws that more clearly describe how deferrals are technically considered employer contributions and, therefore, deductible?

Thank you for your response. The transfer of employees occurred because co. B has fewer workers comp claims than co. A, so they can save on wc premiums if they show the employees working for co. B. Initially, their cpa likened the new arrangement to co. A subcontracting their payroll function to co. B, but I'm guessing if that was true they would still be considered co. A employees and the wc premium issue wouldn't change. Since my original post I have been told that the cpa has recommended that about 3/4 of the employees be shown as terminating their employement with co. A, as they continue to be paid by co. B only. This seems to have somewhat clarified how this should be handled. However, I imagine this would result in a partial plan termination causing the terminated employees to be entitled to 100% vesting.

Company A has sponsored a PS plan that has covered many employees for several years. A 25% owner of co. A also owns 95% of company B, which never had any employees. Co. A figures out that its workers comp premiums would be much less if they show all of the employees working for co. B and on 1/1/11 start having co. A pay all payroll amounts to co. B, who in turn pay the employees (and, I assume, the owners). This would appear to indicate that everyone's employment terminated at co. A and they were hired by co. B on 1/1/11, and that the "same-desk" rule is not invoked since neither co. A or its assets were sold. If this is correct, all of these employees are now allowed to receive distributions even though they're working at the same location doing the same job they had before 1/1/11. Co. A is still in existence, at least on paper, and its 3 owners haven't yet decided whether they would like to keep the plan and continue providing benefits to the employees (they may still decide to keep making small contributions in the future). If they want to keep it going, I suppose the plan can be amended to include co. B as a participating employer. Although both companies once in a while work together to perform services for third persons, each company provides less than 5% of the other company's revenue. And since providing payroll services is not a service historically performed in the service field of co. B, it appears that an affiliated service group situation does not exist. Althought the payroll arrangement may not be legit, is it correct to consider all of the participants to now be terminated employees and the plan will not have any new participants until co. A starts paying the compensations? All help is greatly appreciated.

That's great news! Where can I find the name and address of the Director, or would you mind posting it? Thanks!

Thank you for your responses. Gary, in this case it would be better if we didn't have to reflect a 415 increase, which appears to be an allowable, though conservative, approach. I would also guess that if it's done this way you couldn't revise the high-3 with higher comps paid after the date the benefits were frozen. Andy, the amendment didn't specify how the 415 limit may affect the frozen benefits. If this is dependent on an amendment's wording, it would suggest that increasing or not increasing the ABs would both be acceptable methods and that the lack of such detail in the amendment would permit either interpretation.

A plan freezes accruals and one participant's accrued benefit was being capped at the time to 30% of the 415 high-3 limit based on 3 YOS. A year later the participant has 4 YOS - would his frozen AB increase to the lesser of 40% of the 415 limit or what his AB would've been at the time the benefits were frozen without a cap? In other words, is the frozen AB literally written in stone even though the participant's 415 limit continues to grow? Is the answer different if he was being capped by the 415 $ limit instead?

I've had similar situations in the past regarding status requests with different IRS departments. What usually happened was I would call several times, each time being told that they would look into it, and sometimes asking me to put the request in writing. When pressed to have a callback with any info, I was told that they couldn't guarantee someone would call, and, of course, they didn't. As you probably are aware, you can never be transferred to a supervisor, although once I was transferred for an actuarial audit (but that was many years ago). Unfortunately, you're probably right in your suspicion that it's not being worked on. My experience has been that after several follow ups I eventually talk to someone who says they don't have any record of it and the whole process should be restarted, which would lead to a discussion about the cashed user fee check (I'm assuming they cashed it and the client has the cancelled check). Wish I had a better solution, but you may just have to keep following up until you get someone who knows or cares enough to give you a meaningful answer. Although between the acknowledgement letter and the cancelled check you have solid evidence it was submitted, I would guess that when it comes time to restate again, they would expect you to submit the application assuming no FDL was issued, so I would keep following up and not let it slide. Hope it all works out.

In addition to the insurance company's prototype, we were also using FT William's for several DB clients, only to find out they did away with them for the EGTRRA restatements. They claimed they had very few takers for GUST docs, so they didn't see the need to keep them going! Thanks for the reply, though.

Can anyone recommend a firm that sponsors a DB prototype that gives the trustee the freedom to invest the plan's assets anywhere they like and not be restricted to the investments offered by the sponsoring company? We have been using such a prototype offered by an insurance company for decades, but their customer service has deteriorated so much that it's time for a change.