Belgarath

I think a voluntary amendment would rarely qualify for the "not possible" exception. In this situation, I'd tell the employer they have two choices - don't make the loan provision effective for at least 30 days, or make the loan provision effective immediately BUT, can't charge any fees to the participant's account until there has been at least 30 days notice. So any loan taken prior to the expiration of the 30 days - no fee. But maybe I'm overly conservative. A major PIA as far as I'm concerned.

Yeah, this is where my thought process was going although as I reread my post I'm not sure I stated it very well. But this contemplates that all of the excess death benefit (over and above the required repayment of principal and interest to the IRA) is to be retained by the charity. It can't go back to the IRA. I'm rather dubious that this scheme would satisy RMD options if the individual lives to ripe old age, but I really didn't think that aspect through - just a knee-jerk reaction. Anyway, legal/tax counsel can advise you on all of this

If your IRA loans money to a charity, and the charity buys life insurance, and some of that life insurance benefit goes to anyone other than the charity, (your family members, for example) then I think you have a real problem. Congress has steadfastly refused to allow the use of IRA's to purchase life insurance. If the charity pays a portion of the death benefit back to your beneficiaries, this is indirectly purchasing life insurance with IRA funds, IMHO, and goes back to ERISAToolkit's discussion. I'd suggest really strongly that you seek COMPETENT legal counsel before initiating any such transaction. Sometimes charities are bamboozled into promoting transactions that are questionable or incorrect by a life insurance agent who comes up with a scheme to make sales. If ALL of the death benefits go to the charity, it might possibly be a different answer, but again, I'd recommend legal counsel. Caveat Emptor!!

Who is your software provider? Is it possible that the glitch was specific to your provider? (doubtful... ) We have not yet received any such incorrect notices, but that could change in a hurry!

Up here in the Arctic, we escaped all but some moderate rain and a bit of wind. Minor inconveniences. For all of you and your families and friends who are affected, my best wishes for whatever you will need to overcome. Hang in there.

I think this should be generally allowable. HOWEVER - if the original loan was for 5 years or less, it is very possible that the Plan Administrator did not request documentation to determine that it was a "principal residence" loan. If it is refinanced and extended as a principal residence loan, then there should be very good documentation required to show that the original loan was in fact used to purchase a principal residence.

That's a good one. Our daughter teaches chemistry and biology and algebra and other such horrifying subjects (well, biology was fun) so I'll pass this along to her. If you want some real laughs, look up "di-hydrogen monoxide" on a web search, and look at all the dire consequences regarding this horrific substance that they posit to fool people. Or "Burmese Mountain Dogs" - naturally there is no such thing, but the websites provide very entertaining misinformation. Same daughter has a Bernese Mountain Dog, which is, of course, the actual breed. Have fun!

Thanks for the reply. I must admit to being confused. Since the housing is not subject to withholding, and is not reported on the W-2, I'm having trouble getting to including this for plan comp purposes. To give the full W-2 definition in the document: Information required to be reported under Code Sections 6041, 6051 and 6052 (Wages, tips, and other compensation as reported on Form W-2). Compensation means wages, within the meaning of Code Section 3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules in Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). So, can you elaborate a bit? Assume for the moment that this housing is neither reported to the employee nor taxable, in any form. Do you still believe it is compensation for plan purposes? Now, suppose that while not reportable on the W-2 itself, it is in fact taxable income. Same answer as above, or a defferent answer? Thanks.

A farm has certain employees who are required to live in farm-provided housing, as they are essentially "on-call" 24 hours per day. This is NOT included in W-2 wages - and this appears legitimate, based upon a cursory scan of the IRS Publications 15 and 51. The plan uses W-2 for the definition of compensation. We've got a CPA (who I think is wrong) who is claiming that this housing - valued at "x" dollars, SHOULD be included for plan compensation purposes. CPA is basing this on the fairly standard wording in the prototype definition of W-2 compensation which, in the final sentence, says that "Compensation must be determined without regard to any rules in Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2))." While it is an interesting argument, I don't agree with the CPA. I think this is intended only to include wages paid for agricultural labor, and NOT housing which is not included as reportable under IRC 6041, 6051, and 6052. Anyone agree with the CPA?

I think DB plans were created to make sure that work can never be truly enjoyable. For a plan year 4-1-12 to 3-31-13, what is the deadline to make a MAP election to use MAP-21 rates for just the funding calculations and opt not to use them for determining liabilities? (As I understand it, this is for 2012 plan year only, as 2013 would require MAP regardless, right?) And what, if anything, does this do to any required funding notices? Is there a good source that explains this garbage in English? Thanks! (P.S. - seems like it is perhaps by the first day of the 10th month, which would be...ugh, math before noon - so by December 31st?)

Interesting question came up. Employer has a calendar year plan. Was a PS plan only, and was amendmed to add a 401(k) provision, including the 3% safe harbor, on July 1. Several participants terminated PRIOR to July 1. Must they receive the 3%? The IRS approved prototype document language is basically silent on this issue; the adoption agreement says "for purposes of the ADP test safe harbor contribution, the term "eligible participant" means any participant who is eligible to make elective deferrals..." Depending upon your interpretation, the regulations, including example 4 of 1.401(k)-3©(7) don't really address this directly. Since the plan is using plan year comp for the safe harbor contribution, my interpretation is to say that yes, since participants who remain are receiving the 3% based upon comp prior to the safe harbor being implemented, the same treatment must be accorded those who terminated, in spite of the potentially opposite conclusion based solely upon the AA language. But I can see a reasonable argument being made for the opposite interpretation - in other words, taking the AA at face value and not overthinking the issue. Just wondered if anyone else had grappled with this rather specific situation? Hmmm - the more I think about this, the more I disagree with my initial conclusion. I think they don't need to receive it. If they return to work this year, they are immediately eligible, and would then have to get it based upon entire plan year comp. Otherwise, since they were never eligible to defer, they don't need to receive it.

Just reposting this to see if by chance anyone has heard anything new on the issue?

Question - if these had been submitted through VCP first as nonamenders for a clean-up, would the reduction in penalties be sufficient to offset the added expense of the separate filing? I second the Princess Bride comments. I often refer to the IRS or DOL as ROUS when they do something particularly vexing.

One might speculate that not working for two years could be a red flag if the IRS ever questions why an RMD wasn't taken... What if he's "on call" for 10 years without working? Where is the cutoff? I don't have those answers, but given that the penalties are Draconian, I'd sure be inclined to err on the side of caution. At the very least, require WRITTEN instruction from the plan sponsor that this person has in fact not terminated and that no minimum distribution is required.

Many thanks, Tom.

I've often wondered - in this situation, say the tax treaty was misunderstood, or the Plan Administrator didn't understand that tax treaties might be involved, or just intentionally ignored it - and the 30% is withheld anyway. Is there a "penalty" to the payor for doing this?

Every time an answer seems obvious to me, that's when I get nervous that I'm missing something! Here's the situation. Employer sponsors a deferral only 401(k) plan (or even if they had a match, for that matter). Currently there is no employer profit sharing contribution provided for under the plan. They MAY want to amend the plan to provide for an employer contribution for only 2 NHC. There would NOT be any PS contribution for any HC, and not for any other NHC either. So after you disaggregate the plans, you are just testing the PS, on an ALLOCATIONS basis - no cross testing, no gateway. Since no HC receives a contribution, then you automatically pass the rate group testing using the ratio test, right? Am I suffering from brain cramp and missing something?

Sounds like a joyous exercise. Thanks for the opinions. One additional question which occurred to me, if I may trouble you further. And I'm venturing into dangerous waters (for me) - would such a provision possibly have the effect of reducing funding requirements somewhat, as in essence it is forfeiting benefits? Again, this is just curiosity - no actual plan involved!

Without opining on whether or not is is a "good" or "valid" risk, I can tell you what most people I know would do: they would just correct it with the 4.99 and neither worry about it nor report it. And take their chances with explaining it upon audit. On the other hand, maybe this just means I hang out with bad people.

2 quick questions: Am I correct that under Heinz, a frozen DB plan that currently has no suspension of benefits provisons cannot be amended to provide for suspension of benefits on those benefits already accrued? Also, just soliciting opinions - if you were installing a new DB plan, would you normally recommend that they do have a suspension of benefits provision? They can always amend to remove it, so would there be any particular downside? This is really just a matter of curiosity, so please don't waste your time if this requires a lot of research or time to offer an opinion. Thanks!

IMHO - The lookback year for the compensation test is 12 months. So you'd look at compensation from 10-1-11 to 9-30-12. Assuming you are counting all comp for a calendar year as being earned on 12/31, then this would be all compensation in 2011, as 12-31-11 falls within the lookback period.

I think I'd be even more aggressive than ERISAtoolkit - for example, suppose the plan had 6-year graded vesting for employer PS contributions, and the SH notice naturally shows this. If the employer decides, mid-year, to change vesting to 100% immediate, I'd say that is fine. Is an IRS auditor seriously going to object to this amendment, which in NO WAY affects the 3% nonelective safe harbor provisions?

This is bizarre. Is this some attempt to refuse to pay child support or something? Anyway, I tend to agree with Qdrophile, although I have no real legal arguments to back my gut feeling. Seems like this gets into some pretty murky legal ground. First, since I doubt that any IRS prototype or VS document would permit this, I guess you'd have to submit for a d-letter. And IF the IRS approved it, the the Plan Administrator is bound by the terms of the plan. Wouldn't want to mess with it myself! I hope to never have to consider this in real-life...

Section 4 .07 of Revenue Procedure 2008-50 allows use of the VCP program even for terminated plans. However, this probably needs to be balanced against reality - how much interest are you talking about? If the amount to be allocated to a participant is 12 cents, are you really obligated to cut a check for that? You may be able to rely on Section 6 .02(5)(b). However, there is some hair-splitting here, as this relief does not apply to "corrective contributions." I think in the real world a lot of these situations are determined by the amount of interest to be allocated. If it is small enough, it is likely to be ignored, and the "risk" to the employer is accepted. (My experience is that the client's CPA is much more inclined to advise the client to ignore than the TPA's generally are.) If it is significant, then it is corrected. http://www.irs.gov/irb/2008-35_IRB/ar10.html#d0e951

Yes, although it happens only rarely. They are usually more interested in just seeing proof of the IRS Opinion or Advisory letter (assuming it isn't going to be a custom plan.) Of all the employers adopting prototype/VS plans I've known of over the years, I think I've only known of the client actually consulting an attorney on a handful. Possible that lots more have done it without my awareness...