Belgarath

Yeah, it's only politicians and weather forecasters who get to screw up all the time and keep their jobs.

One thing to particularly watch out for on the carve out plans in general. Those blessedly few I've seen tend to be "tweaked" to the ultimate degree to favor the HC while giving the absolute minumum to the NHC. While this is fine in the first year, it is also not uncommon for them to explode with a change of even one person on the census. So for your own protection, make sure the client knows this!

Re #2 - are you using a policy loan to "use" the cash value to pay the premium? If so, you may wish to consider UBTI issues as this may be considered "debt financed income." I stress "may" as this is a bit of a gray area.

I don't think the issue of not having a designated beneficiary is in question here. There is a designated beneficiary, but that bene is apparently incompetent, and her other son has a POA. Really, it is up to the Plan Administrator seek legal counsel to determine precisely what constitutes a valid POA for these purposes. Presumably once that requirement is satisfied, then that individual can request a distribution on behalf of the beneficiary, and the Plan Administrator can then pay it.

The more I think about this, the more wrong it seems. If minimum wage laws apply, then the spouse is absolutely "entitled to payment" and the plan should be fine (and the IRS is just plain wrong - now, the employer may have all kinds of trouble for violating minimum wage laws, but that's a separate issue.) If they do NOT apply, and a spouse simply decides not to take any salary, (or agrees not to take a salary, if spouse isn't an owner) I still think the spouse is "entitled" to payment. One can posit all kinds of situations - suppose the spouse is a shareholder in an S corporation, and decides to take no W-2, but takes it all as pass-through income. Can the IRS seriously argue that the spouse/owner is not "entitled to payment?" I realize that the apparent situation in the audit was for a non-owner spouse. Wish I knew more about the particular facts of the audit situation, because I suppose I could be doing the IRS an injustice here - the "facts" as relayed to Sal might not be all that accurate. Austin's solution appears to be the only safe (for the TPA) approach. I'd love to see the outcome if this were ever litigated - as long as I wasn't paying for it...

David - at least for the plans we service, the Trustee is the "owner" of the funds, and a participant cannot sign for or authorize a distribution. The Trsutee must request the withdrawal for the various fund companies/custodians to disburse the funds.

We have not yet had this experience. But in our case, we send information to wherever the Plan Administrator/Trustee directs us to send it. So if the PA has no problem with it, that's fine with us. However, if I were the PA, I would share your concern.

Well, they need a bond that covers the requirements. I believe that it is POSSIBLE for their company policy to have an acceptable "ERISA clause" or "rider" - but in my limited experience with ERISA bonding, this isn't typically how I've seen it handled. Among other things, the plan is the named insured. I believe that FAB 2008-04 addressed this issue in some manner, although I can't recall how specific it was. Easiest thing (I would think) is for plan sponsor to check with the insurance company to see if they are an the list of approved surety providers, and if so, can they combine it or not. And of course, since it is a fiduciary duty, the plan sponsor will want to be thorough in checking all this out.

We were just discussing that question this morning. Of course, we don't know the circumstances in the plan audit in question, but lots of times the cost of litigation, even if you believe you will prevail, exceeds the gain if you prevail (winning the battle but losing the war.) So just because an audit was closed on this basis doesn't necessarily mean it is correct, or that the IRS would prevail if challenged in court. I agree with you that it is most unreasonable to deny a YOS in such a situation. Might be a good issue to bring up at ASPPA conference.

Thanks!

Sorry - I have the book edition, not the on-line.

PensionPro - could I trouble you to provide the EOB reference? Thanks!!

Austin - as I said, I'm not knowledgeable in this arena. A quick internet search confirms that! It seems pretty clear that on a state level, many states don't require minimum wage for spouses. But I'm not at all sure that generally applies at the federal level, particularly if FLSA applies. Sorry I can't give you a better anser - hopefully someone else here will know.

Was the participant zero% vested when terminated in 2005? Assuming yes, then I'd agree that 2010 counts and the rule of parity applies.

I'm not knowledgeable in minimum wage laws, but it seems to me that I heard before that Federal minimum wage laws (and many states for that matter) don't apply to spouses. If that's the case, then she's been "eligible" right along, but just has had zero compensation. So it wouldn't be a problem to have her start immediately - in fact, it would be required absent a valid exclusion.

While I'll have to let the actuaries speak for themselves, I think that actuaries are generally not fiduciaries, at least not solely by performance of actuarial functions, including discretion in setting certain assumptions. But under the new regs you refer to, they are likely to be "covered service providers" and as such, in order to avoid Prohibited Transaction situations, then they would have to comply with the new rules. There are actually different sets of "new" rules. One is the ERISA 408(b)(2) regulations, which as you describe, are disclosures by covered service providers to the plan fiduciary. These are not participant disclosure regulations. Then, you DO have new participant disclosure regulations, under (don't quote me, I didn't look it up) ERISA 404. These are indeed participant disclosure rules, effective for plan years beginning on or after 11/1/11. And then of course, you have the new proposed regulations on fiduciaries, under ERISA (3)(21). All in all, letting us all in for a lot of fun.

I'm with Austin on this one. If the benefit is paid by the employer, or is paid through insurance where the premiums are paid by the employer, then it's appropriate W-2 income. (Although when I looked into this way back when, I never considered whether it would count as "earned income" for an unincorporated owner, and I'm not going to look it up until it happens!!) I think it's pretty clear that it is generally counted for 415 purposes. See 1.415©-2(b)(3), which also refers you to IRC 104. And note that 104(a)(3) INCLUDES disability pay from insurance IF the premiums are paid by the employer. And as Austin says, if the plan defines compensation for accrual/allocation purposes as W-2, given the above, how can you exclude it? I have no idea how you would handle the actual mechanics of a deferral in this situation. That's a tough one! The only situation I saw, the participant stopped making deferrals once disabled, and this item only came up for purposes of a 3% nonelective safe harbor contribution.

IMHO, yes, the distribution is exempt from the penalty tax. The statute says distribution to an "employee" which the person in your situation clearly isn't, but I don't think you should take a hard line on that basis, since the rest of that section 72(t)(2) refers to "employee" for other exemptions as well - for example, (v) gives the exception to an "employee after separation from service..." and once separated from service the person obviously isn't still an "employee."

Let us say a doctor has a clinic in the U.S., and he's a 100% owner. He's also a 100% owner of a clinic in Puerto Rico. If the U.S. clinic establishes a plan, is it a controlled group and must he include the Puerto Rico employees? I believe it IS a controlled group. I find no dispensation for this in the CG rules. HOWEVER, it sems to me that he can perhaps make a valid exclusion from his U.S. plan of all the Puerto Rico employees if they receive no U.S. source income. So this would allow him to exclude them all and still pass testing. Agree/disagree? thoughts? Thanks!! As I look into this further, I think my initial opinion was probably incorrect. It appears to me that the Puerto Rico employees will generally need to be included, or at least included for testing purposes. It may be possible to exclude them on a "regular" basis such as for hours, or by classification if you can still pass coverage testing. There's no exception in the controlled group/affiliated service group rules, and it appears that the exclusion under IRC 410(b)(3)© - that is, for employees who are non-resident aliens and receive no U.S. Source Income - is not generally available for employees in U.S. possessions. See the following from Revenue Ruling 2008-40 - emphasis is mine. There might possibly be some "wiggle room" on this, but apparently many Puerto Rico workers are either U.S. citizens OR are considered U.S. residents for income tax purposes. I guess it would require an ERISA or tax attorney to apply this to the specific situation with the Puerto Rico employees. 4. Application of section 410(b) to U.S. plans of employers with excluded Puerto Rico employees. (a) Background. Section 410(b) requires the sponsor of a qualified plan to include all employees in testing coverage regardless of whether the employees benefit under the plan. Section 410(b)(3) provides certain exceptions to this coverage requirement, such as §410(b)(3)© which permits the exclusion of nonresident aliens who receive no U.S.-sourced earned income from the employer. However, employees in possessions of the United States, such as Puerto Rico, are not excluded from coverage testing under §410(b)(3)© because they generally are not nonresident aliens. Section 410(b) also precludes the aggregation of a nonqualified plan, such as a plan qualified only under the Puerto Rico Code, with a qualified plan for purposes of testing coverage.

I should know this, but I'm drawing a blank. Presumably 20% withholding doesn't apply, but does 10% withholding apply, absent an election by estate representative not to have any withholding? P.S. - FWIW, my opinion is that the 10% withholding applies if the estate representative doesn't elect out of it.

I'm sure I'm missing something, but could you consider this a corrective contribution, and therefore under 1.415©-1(b)(6)(ii)(A), consider it for 415 purposes as a 2009 allocation? I agree that if they took a deduction for it already, they have to amend prior tax return to deduct for 2011. Depending upon how their legal counsel interprets things (opinions vary) the corporate resolution stating a contribution of (x) for 2009 may be considered an enforceable obligation. So if that's the case, then your contribution was already calculated for 2009, based upon 2009 compensation, and the employer is just now making it. Or, are you contemplating an increased contribution now instead of what was calculated for 2009, and presumably memorialized in a corporate resoultion?

How is the "election" made? Just a board resolution, or written statement if entity isn't corporate? And since I'm not a DB person, does this have any effect on how the 5500 or the SB is completed? This almost seems too easy, which makes me nervous! But I did read the conference commitee reports, and it seems clear that the intent was to make it easier to have DB plans adequately funded, so maybe it really is this easy!

Sieve - FWIW, I read that instruction to apply to the appplication, not the plan documens, for example. But my instruction to staff was that "it wasn't all that clear..."

Depends upon how they completed the 5305-SEP form. There's an option to either include or not include those folks under the comp limit.

I believe I heard that the next iteration of the Revenue Procedure will include a "nonamender" fix for 403(b) plans. But I don't know if this will actually come to fruition, or when it will be. Doesn't help you much now...