Tinman

Looking for some type of documentation here to help explain the law to a combative client. Here's the details: Client sponsors 401(k) plan which has continued to withhold and submit deferrals through 2/2007. Plan sponsor now wants to terminate plan, effective 12/31/2006, and have all 2007 deferrals returned to his employees as a "mistake in fact" in order to avoid the cost of nondiscrimination testing for 2007. We have told this client we cannot do this - the contributions have been posted to participant accounts and there is no legit reason for a "refund" - that in fact we would be facilitating a prohibited transaction. Any ideas on best way to "show" this to the client?

IRA's not my area of expertise so I'm looking for some guidance! I believe a trust can be named as beneficiary for an IRA. Our client would like to set up a IRA with the beneficiary as a trust for his 10 year old son (the client is unmarried). He would like to stipulate there be no access to the money until his son is 25. Here are the questions we have: 1) Is this possible? 2) If the client dies, will the IRA then pay a benefit to his son (regardless of his age)? Or will the funds stay in the IRA until the son reaches Age 25? If there is a payout, can it be lump sum or does it have to be calculated and paid out according to the son's life expectancy? 3) What are the trigger that require money to be paid out to his son (generating a taxable event)? 4) Once there is a distribution, how are the taxes calculated? Based on current rates? Any excise tax? Your help is appreciated!

We ask plan sponsor to send us copy of notice when it is complete (we send them one that needs them to fill in a few items before posting/distributing) and keep the copy with their adoption agreement. As far as low participation, you can set up an administrative policy to get enrollment forms where employees indicate they don't want to participate, but are you going to get them from everyone each year? Maybe just have the employer keep them on file if you feel the need to have them completed. Obviously you can't force participation, so provided the notice is properly delivered and the employer is following a set procedure for soliciting all employees to participate, I'm not sure there's much else you can do.

I can understand your confusion! This is a "rent-a-cop" organization and many employees are "on call" and may not be used during the year. However, the plan sponsor still considers them employees and lists them on the certified census they submit each year.

A plan has eligible employees, still on payroll, but worked no hours and earned no compensation for the 2003 plan year. Question - are these people counted on 7a of Form 5500 as "active participants"? For 2003, it won't affect the filing of Sch H vs. Sch I, but may have an effect in the future. Opinions?