ETA Consulting LLC

As for the Salary Deferrals for the Owner, it should be on the 1040 with all other Owner Contributions to the plan; Never on the Schedule C. I am not aware of any exception for the DB plan either. Hence, when an amount is funded, there should be a determination of what portion of the amount is attributable to that individual owner. He would take that deduction on the 1040 with all other "OWNER" contributions. A deferral should never be posted on the Schedule C for the Owner, but on the 1040 with any other contribution for the owner. Keep in mind that this is an issue when the entity is not taxed as a corporation. Good Luck!

Since the business is not incorporated, all NON-owner contributions will be deducted on the Schedule C with other business expenses. Then, you would calculate the self-employment taxes on the Schedule C income. The Schedule C income will be reduced by 1/2 of those self employment taxes. You will then engage in the circular calculation with respect to the owner's "company contribuitons"....... (you know this story). All OWNER contribution deductions will be taken on the 1040 (this includes deferrals and employer contributions). It may appear as if they are all one-type on the actual tax form, but are different from a plan recordkeeping perspective (meaning that you must ensure the appropriate distribution restrictions apply to each source of funds within the plan). Good Luck!

My question (really a question) is does the need for a nondiscriminatory benefit structure come into play here. It would appear that a deliberate series of structures to that effect would create a discriminatory benefit structure, but I don't know enough about the subject matter to determine how it's calculated. I would like to know how this works.

You "MAY" be on to something. You should obtain a copy of the plan's Summary Plan Description (SPD) that would explain all the provisions. That will given an apples to apples comparision of what actually happened and was should have happened. If that SPD explains that the 3% will be given each year, then you have a valid issue. Good Luck!

Your point is understood; and was the basis for the entire IBM case and Cash Balance scrutiny in the first place. By definition, the accrued benefit within a DB plan is the straight life annuity at NRA. By definition, the accrued benefit in a DC plan is the account balance. This created the entire issue with age discrimination in Cash Balance plans because the accrued benefit for an older employee with the same amount of service and earning the same salary was lower. So, you are right. I am not sure about the exact semantics, but as far as I remember, the definition of 'accrued benefit' for a DB plan has not changed. Also, a Cash Balance plan is still a DB plan. So, I think is was a mere rule that 'deemed' the hybrid plan non-discriminatory with respect to age when employees who are simularly situated receives the same allocation. I don't think the accrued benefit changed; either by calculation or by definition. Hope this helps.

I have never seen a plan document without that language. You should start there. Your argument would go along the lines of stating that it is a requirement to be included in the plan document. I wouldn't necessarily disagree with you, but think this conclusion would be a culmination of several rules. I would even argue that if you, at the very least, do not have an option to discontinue, then it is no longer 'elective'; but that's just hyperbole. Good Luck!

You are correct. Typically, you would use 7.5%, 8.0%, or 8.5% as the rate for the Defined Contribution Plan. You won't use that rate for the Cash Balance (i.e. more like 5.5%, but don't hold me to this). Keep in mind, however, that you are using the same rate for "ALL" participants in each plan. So, to a large extent, the proportions will remain consistent.

Just a few parameters on the surface. The US tax code is specific to the US; not Switzerland. What this means is that he will not lose his tax deferred status under the US tax code. He can roll over from his qualified plan into an IRA. Qualified plans are Section 401(a) of the Tax Code while IRAs are Section 408 of the Tax Code. Nothing changes in that regard. With that said, he will not be able to conduct a tax-free rollover to a Swiss retirement plan because you are now dealing with an entirely separate tax code in another country. One typical issue that exists between the US and other countries is a type of reciprosity (through treaty) that basically allows an individual with assets in a retirement plan of another country not to be recognized as income in this country while they are in the plan. The details are specified within the treaty. The only treaty I am vaguely familiar with is one between US and Canada where there are several non-recognized income items for U.S. Citizens in Canadian Retirement Plans. Don't know full details off hand, but it is something like the contributions are still not deductible from U.S. income but the gains remain tax deferred (but don't take this as law because it's late and I'm shooting from the hip). Hope this adds a little more structure to your equation. Good Luck!

No. That was the point of the PPA, to 'deem' the plan non-discriminatory since those two participants are receiving the same 'allocation'. Key words, 'deemed' and 'allocation'. The issue that you are speaking is what the entire IBM case was about. That case stated that a defined benefit plan "by definition", could not provide a decrease in benefits for 'older' participants. So, because of the 'definition' of 'accrued benefit' within DB being based on annuity at the individual's NRA, then the Cash balance failed this primary DB requirement. When the PPA was passed, it was done on a prospective basis, which left the IBM case to the courts. Even though IBM clearly lost, the courts appeared to rule in their favor; keeping their ruling consistent with the new PPA rules. This has nothing to do with ADEA. The reason is that it is only the 'technical' definition of accrued benefit within DB plans which creates this difference in value. Time value of money states that a dollar today is worth more than a dollar in the future. In any event, one dollar today is worth only one dollar today. The DB plan, which defines NRA as a fixed point in time; even though it is different lengths for different employees creates a lop-sided advantage to older employees. The PPA ruling merely takes that lop-sided advantage away, so it wouldn't violate ADEA. Hope this adds a little more perspective. Good Luck!

Correct. The plan isn't Safe Harbor 401(k).

I agree with QDROphile. Generally, amendments that are at least the same or better in all instances (i.e. true up) are allowed since there is no potential for cutback. You should be fine since you are not taking away anything that has already accrued. Good Luck!

No, as long as each plan passes 410(b) on its own merit, there shouldn't be a problem. Good Luck!

I would say that they are actually protecting you. They, probably, should've defaulted the loan a long time ago. At any rate, they are right not to extend the term of the loan. I would not challenge them on this one. Good Luck!

I would file them together; no need to pay two filing fees. Good Luck!

I imagine the DB plan has always used the annuity method for RMD where the annual requirement was met since the distribution was being paid over the life of the participant. Now that the plan is terminating, I presume that the participant opted for a lump-sum payout in lieu of a settlement annuity purchased by the plan from an insurance company granting the same stream of payments over the participant's life. Given this, it would appear reasonable to use the actuarial present value of the participants accrued benefit at the beginning of the year and divide that amount by his life expectancy during the year in order to calculate his RMD for the year. Any amounts already paid would go toward satisfying that amount. Any remaining amounts due would be distributed directly to the participant while the rest may be rolled directly to an IRA. I would, certainly, consult with your actuary on this; it's their show. Good Luck!

The SIMPLE IRA becomes disqualified for that year (but only with respect to contributions made during that year). So, it's not the end of the world, but you may file a $250 VCP submission to the IRS in order to approve the mid-year termination. While there is no clear precedent on this particular scenario, you can apply the methodology of correcting it as if another plan existed during the year. In such event, the employee deferrals (plus earnings) would be distributed to the participant with a 1099-R coded as ineligible for rollover. The employer contributions will be returned to the employer and subject to a 10% excise tax as they were non-deductible contributions. A request "MAY" be made under VCP to distribute only the HCEs while "letting sleeping dogs lie" for the NHCEs. The IRS has approved many stranger requests under VCP. This is merely one of many approaches given that there is no clear precedent. Good Luck!

I agree with the oldman. The only thing I would suggest is to consider a 403(b) for all emloyees since the tax exempt 457(b) would be offered to only the executive director and/or other highly compensated employees. The 403(b) would be the closest plan to what they already had in place. This is taking it one step beyond your question, but oldman is right on about the differences between the two types of 457(b) plans. Good Luck!

It would seem that the actual plan document would clarify the meaning, but I always used severance from employment. Good Luck!

He can put it back in the same account. Still treated as an IRA to IRA rollover. No more may be done within the next 12 months since it was not a direct transfer. Good Luck!

While the maximum catchup would be $11,000 since it spans two calendar years, the year of catchup would depending on the calendar year for which the excess deferrals (term used lightly) would be attributed. For instance, you know that $1992.66 is already a catchup for 2010. You also know that ADP failures come from the first deferrals made, so would begin to take from 2010 deferrals. Subsequent catchup would then come from the deferrals made in the first part of 2011. It would be best to write out your 'flowchart' on the sheet of paper to ensure your timing is correct. Good Luck!

Yes. There must be income in order to defer.

You would provide the employee with a copy of the Form 5304 with instructions. You would also provide them a copy of the financial institutions procedures for taking withdrawals from SIMPLE IRA accounts that are set up at their institution. That should satisfy the Summary Description requirements. Good Luck!

That rule pertains only to the SIMPLE IRA, not the SARSEPs that predated the SIMPLE IRA. It's commonly called the 'exclusive plan' rule which states that you cannot make contributions to a SIMPLE IRA and other retirement plan during the same calendar year. Again, this rule does not apply to the SARSEP. Good Luck!

The 3 year rule is for gifts. If you sell something for fair market value, then (by definition) it is not a gift. Good Luck!

The TPA is mistaken. That rule of pre-existing deferral arrangements does not apply to SAR-SEPs. Good Luck!