Belgarath

Good suggestion. Thanks again!

Thanks!

I don't see any argument FOR including it. Seems to me that the participant was entitled to nothing for the year, so the permium must be "undone" somehow - this could get tricky if the insurance company has already credited the premium and isn't necessarily required to "reverse" or "undo" the transaction. But this $1,000 represents a plan contribution, and the terms of the plan will dictate that this $1,000 be allocated properly, so if paid to the insurance policy, the other participants will not be receiving their appropriate share of the employer contribution. It may also be tricky to determine his "distributable balance." You likely could not reduce it by the entire $1,000, as the insurance policy probably didn't increase in value by the entire $1,000 premium amount? sounds like loads of fun! So I guess you would somehow have to get the insurance compnay to determine what the value "would" have been if the premium was not paid. I suppose, maybe thinking outside the box, that perhaps if the participant wished to keep the policy in force, that the participant could simply reimburse the plan for the full $1,000 premium? Getting into murky water here...

That's precisely the section I was hoping to rely on, but I frankly wasn't sure if the language you highlighted applies in this situation. I wasn't sure if this applies, since the plan was already a prototype, and if the proposed amendment constituted an "adoption of a prototype " for these purposes which would exempt you from filing. But it doesn't seem to make sense that you don't have to file if you corrected a qualification failure for an IDP by adopting a prototype, yet correction of an operational failure within that prototype would require a determination letter?

Tom, your outfit brought to mind an excerpt from a compendium of classroom flubs, with a section on the Pilgrims that goes approximately like this: The Pilgrims crossed the ocean, and this was knows as Pilgrims Progress. When they landed at Plymouth Rock, they were greeted by the Indians, who came down the hill rolling their war hoops before them. The Indian squabs carried porpoises on their back. Many Indian heroes were killed, along with their cabooses, which proved very fatal to them. The winter of 1620 was a hard one for the settlers. Many people died and many babies were born. Captain John Smith was responsible for all this.

Alas, this is just the opposite. Union employees are automatically included unless specifically excluded. There is in fact an operational error. So my original questions still stand.

I'm just trying to see if my thinking here is off-base. IRS approved prototype plan. The plan always INCLUDED union employees. Then, as part of the EGTRRA restatement, the analyst inadvertently checked the box to EXCLUDE union employees. The subsequent valuation was done "correctly" according to how the plan was always administered, and INCLUDED union employees. The discrepancy was just noticed. This will be submitted through VCP, with a proposed amendment simply changing it back to include union employees. My question is, does this also require a determination letter filing? Section 6.05(3)(b) appears to cover this situation for an Operational Failure corrected by amendment, and seems to require that although the d-letter application should not be submitted with the VCP application if you aren't in an "on-cycle" year, it will require a subsequent d-letter application once you do reach the on-cycle year. I'm wondering, however, if a prototype, use of which which will otherwise generally allow the opinion letter to be treated as a determination letter for 2008-50 purposes, would exempt the plan from filing? It seems to me that filing is required. However, I'd love to hear opinions on this. Thanks!!

Are brothers 1-3 sons of Dad or Mom? Or just siblings? Or they happen to be brothers, but are unrelated in any way to Dad or Mom? Is there any attribution from stock options, for example? What is the company relationship, if any? Could they possibly a "management function" Affiliated Service Group? Make sure they get a legal opinion! Don't get yourself in trouble by telling them either yes or no - you can point out some of the issues they should discuss with their attorney.

Hard to say. The devil is in the details. I'd be concerned that if not handled VERY carefully, the TPA firm could be considered a Fiduciary. Does the PA/Trustee specifically direct the funds to be deposited to this account, and authorize all distributions? Is interest paid? If not, why not? Who gets the interest and how is it allocated? Does the TPA have any control over the funds at all? Etc., etc... I'm not sure that there is automatically an issue, but it does seem to offer a lot of opportunities to confer Fiduciary status upon the TPA.

I disagree. Please see the following excerpt from 1.72(p)-1, Q&A-20. the emphasis is mine. Q–20: May a participant refinance an outstanding loan or have more than one loan outstanding from a plan? A–20: (a) Refinancings and multiple loans —(1) General rule. A participant who has an outstanding loan that satisfies section 72(p)(2) and this section may refinance that loan or borrow additional amounts if, under the facts and circumstances, the loans collectively satisfy the amount limitations of section 72(p)(2)(A) and the prior loan and the additional loan each satisfy the requirements of section 72(p)(2)(B) and © and this section. For this purpose, a refinancing includes any situation in which one loan replaces another loan. (2) Loans that repay a prior loan and have a later repayment date. For purposes of section 72(p)(2) and this section (including the amount limitations of section 72(p)(2)(A)), if a loan that satisfies section 72(p)(2) is replaced by a loan (a replacement loan) and the term of the replacement loan ends after the latest permissible term of the loan it replaces (the replaced loan), then the replacement loan and the replaced loan are both treated as outstanding on the date of the transaction. For purposes of the preceding sentence, the latest permissible term of the replaced loan is the latest date permitted under section 72(p)(2)© ( i.e., five years from the original date of the replaced loan, assuming that the replaced loan does not qualify for the exception at section 72(p)(2)(B)(ii) for principal residence plan loans and that no additional period of suspension applied to the replaced loan under Q&A–9 (b) of this section). Thus, for example, if the term of the replacement loan ends after the latest permissible term of the replaced loan and the sum of the amount of the replacement loan plus the outstanding balance of all other loans on the date of the transaction, including the replaced loan, fails to satisfy the amount limitations of section 72(p)(2)(A), then the replacement loan results in a deemed distribution. This paragraph (a)(2) does not apply to a replacement loan if the terms of the replacement loan would satisfy section 72(p)(2) and this section determined as if the replacement loan consisted of two separate loans, the replaced loan (amortized in substantially level payments over a period ending not later than the last day of the latest permissible term of the replaced loan) and, to the extent the amount of the replacement loan exceeds the amount of the replaced loan, a new loan that is also amortized in substantially level payments over a period ending not later than the last day of the latest permissible term of the replacement loan.

I'm not aware of any formal guidance in 401(a)(9) or the regulations. How does the plan define "retirement?" If it requires "severance from employment" then it seems to me they could postpone RMD's if they just went from full-time status to part-time status.

There's no way out of here When you come in You're in for good There was no promise made The part you played The chance you took There are no boundaries set The time and yet You waste it still So it slips through your hands Like grains of sand You watch it go There's no time to be lost You'll pay the cost So get it right There's no way out of here When you come in You're in for good There never was there an answer There an answer Not without listening Without seeing There are no answers here When you look out You don't see in There was no promise made The part you played The chance you took There's no way out of here When you come in You're in for good There never was there an answer There an answer Not without listening Without seeing There's no way out of here When you come in You're in for good There was no promise made The part you played The chance you took There's no way out of here When you come in You're in for good There's no way out of here When you come in You're in for good There are no answers here When you look out You don't see in There's no way out of here When you come in You're in for good

Thanks for the replies. I think I like Lippy's approach for this specific situation, as Appendix A .02 of RP 2008-50 says the correction is to make the TH contribution. So you make it, and it is subject to normal deduction rules under 404 - which in this situation means you deduct it for 2010.

Unincorporated client sponsors both a DB and a PS. PS plan provides for the 5% top heavy minimum. Calendar plan and fiscal years. Client says they will contribute (x) for 2009, which is substantially higher than the 5% TH minimum. At a later date, LONG after the tax filing deadline, says they decided not to contribute to the PS plan. (Not realizing/understanding that the 5% isn't discretionary in this case.) Client did NOT have a tax extension for 2009, so filing date was 4/15/10. So they are now contributing within the next 30 days, and DEDUCTING for the fiscal year in which paid - that is, 2010. So here's the question: under the 415 regulations, in order to be considered "allocated" for 2009 - the contribution must be made within 30 days after the end 404(a)(6) period. (B) Date of employer contributions. For purposes of this paragraph (b), employer contributions are not treated as credited to a participant's account for a particular limitation year unless the contributions are actually made to the plan no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends. If, however, contributions are made by an employer exempt from Federal income tax (including a governmental employer), the contributions must be made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends. If contributions are made to a plan after the end of the period during which contributions can be made and treated as credited to a participant's account for a particular limitation year, allocations attributable to those contributions are treated as credited to the participant's account for the limitation year during which those contributions are made. With no tax extension, does this mean that in order to be considered "allocated" for 2009, it must be made by 30 days after 4/15, since there is no tax extension? Or, can the phrase "no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends" be considered to include the 404(a)(6) period that would have been available if there was a tax extension? I choose to employ the latter interpretation, but it does seem a bit gray to me, and I wondered what others thought. The former just seems to arrive at a ridiculous and unreasonable result.

Absolutely true, but I guess since I'm not the one forking out the money, $750 seems pretty small (compared to what it would be without DFVC.) And since we give them umpteen followups and warnings, then I generally have no sympathy. I think I'm just a mean, uncaring person.

I may be in a distinct minority here, but I don't get that stressed out over the 10/15 deadline. If clients don't get us the requisite data in a timely fashion, and forms have to be filed a week late, then they are just going to be filed under DFVC. The penalties are pretty small if you are only talking about a few days. And we'll charge 'em for any extra work/revisions. Of course, this relaxed attitude doesn't necessarily extend to EZ forms...

You're welcome. But be aware that the excess amount is also included for qualification purposes, so theoretically, this could cause a 415 problem if you are otherwise at the 415 limit without taking into account the difference between the CSV and FMV. Just to use ridiculous numbers by way of illustration, say your 415 lump sum limit is $150,000. You have $125,000 in regular assets, and $25,000 for the life insurance CSV. So if the policy is purchased for $25,000, (which satisfies the DOL) but the FMV is $70,000, then you have a distribution of $45,000, which means you can only distribute $105,000 from your other assets. And this problem doesn't go away if he purchases it for FMV, because you then have more funds in the plan, ($195,000) but you still have the same 415 limit.

Ok - just wanted to make sure there wasn't some additional guidance out there. For purposes of the DOL and satisfying Prohibited Transaction Exemption 92-6, the purchase price that the plan receives must only be at least equal to the amount necessary to put the plan in the same cash position. That is, cash surrender value. See DOL Advisory Opinion 2006-03A. However, for plan qualification/taxation purposes, the Fair Market Value must be used, as per Revenue Procedure 2005-25, and the final regulations under 1.402(a). So in your situation, if the participant doesn't mind taxation, he could buy the policy from the plan for the $25,000+ surrender value, and would be taxed on the difference between the $68,000+ fair market value and the $25,000+ surrender value.

"The DOL says to use the cash surrender amount to pay to the plan and get a 1099 for the difference between the cash surrender amount and the perc amount." Can you provide a citation of where the DOL states this? Thanks.

Thanks. Sigh. We'll investigate.

This qualifies for Ripley's believe it or not. We just had a bunch of 5500 forms bomb yesterday, for lack of proper credentials. So when the clients finally got a live person at the DOL, the clients were informed that the credentials had been deactivated because the clients hadn't used them!!! The clients just applied for and received these credentials this year, and we haven't even reached the first extended filing date! My theory is that there is a major conspiracy between the drug companies and the DOL, and the DOL receives illegal kickbacks on the sale of blood pressure medication. But I do know that whatever mentally arthritic people at the DOL are responsible are very fortunate that they are not within my arm's reach right now.

Q–5. For required minimum distributions after an employee's death, what is the applicable distribution period? A–5. (a) Death on or after the employee's required beginning date. If an employee dies after distribution has begun as determined under A–6 of §1.401(a)(9)–2 (generally on or after the employee's required beginning date), in order to satisfy section 401(a)(9)(B)(i), the applicable distribution period for distribution calendar years after the distribution calendar year containing the employee's date of death is either— (1) If the employee has a designated beneficiary as of the date determined under A–4 of §1.401(a)(9)–4, the longer of— (i) The remaining life expectancy of the employee's designated beneficiary determined in accordance with paragraph ©(1) or (2) of this A–5; and (ii) The remaining life expectancy of the employee determined in accordance with paragraph ©(3) of this A–5; or (2) If the employee does not have a designated beneficiary as of the date determined under A–4 of §1.401(a)(9)–4, the remaining life expectancy of the employee determined in accordance with paragraph ©(3) of this A–5. (b) Death before an employee's required beginning date. If an employee dies before distribution has begun, as determined under A–5 of §1.401(a)(9)–2 (generally before the employee's required beginning date), in order to satisfy section 401(a)(9)(B)(iii) or (iv) and the life expectancy rule described in A–1 of §1.401(a)(9)–3, the applicable distribution period for distribution calendar years after the distribution calendar year containing the employee's date of death is determined in accordance with paragraph © of this A–5. See A–4 of §1.401(a)(9)–3 to determine when the 5-year rule in section 401(a)(9)(B)(ii) applies (e.g., there is no designated beneficiary or the 5-year rule is elected or specified by plan provision). © Life expectancy —(1) Nonspouse designated beneficiary. Except as otherwise provided in paragraph ©(2), the applicable distribution period measured by the beneficiary's remaining life expectancy is determined using the beneficiary's age as of the beneficiary's birthday in the calendar year immediately following the calendar year of the employee's death. In subsequent calendar years, the applicable distribution period is reduced by one for each calendar year that has elapsed after the calendar year immediately following the calendar year of the employee's death. (2) Spouse designated beneficiary. If the surviving spouse of the employee is the employee's sole beneficiary, the applicable distribution period is measured by the surviving spouse's life expectancy using the surviving spouse's birthday for each distribution calendar year after the calendar year of the employee's death up through the calendar year of the spouse's death. For calendar years after the calendar year of the spouse's death, the applicable distribution period is the life expectancy of the spouse using the age of the spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each calendar year that has elapsed after the calendar year of the spouse's death. (3) No designated beneficiary. If the employee does not have a designated beneficiary, the applicable distribution period measured by the employee's remaining life expectancy is the life expectancy of the employee using the age of the employee as of the employee's birthday in the calendar year of the employee's death. In subsequent calendar years the applicable distribution period is reduced by one for each calendar year that has elapsed after the calendar year of the employee's death.

The only place I ever saw it stated "definitively" was in IRS Notice 2008-13. You might want to read it if you want your blood pressure to rise. Two excerpts below. Mind you, as in my other posts on this subject, I think it is ridiculous. Until further guidance is issued, solely for purposes of section 6694, an information return listed on Exhibit 2 that includes information that is or may be reported on a taxpayer's tax return or claim for refund is a return to which section 6694 could apply if the information reported constitutes a substantial portion of that taxpayer's tax return or claim for refund. A person who for compensation prepares any of the forms listed on Exhibit 2, which form does not report a tax liability but affects an entry or entries on a tax return and constitutes a substantial portion of the tax return or claim for refund that does report a tax liability, is a tax return preparer who is subject to section 6694. Exhibit 2 - Information Returns That Report Information That is or May be Reported on Another Tax Return That May Subject a Tax Return Preparer to the Section 6694(a) Penalty if the Information Reported Constitutes a Substantial Portion of the Other Tax Return Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding; Form 1065, U.S. Return of Partnership Income (including Schedules K-1); Form 1120S, U.S. Income Tax Return for an S Corporation (including Schedules K-1); Form 5500, Annual Return/Report of Employee Benefit Plan; Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues; Form 8038-G, Information Return for Government Purpose Tax-Exempt Bond Issues; and Form 8038-GC, Consolidated Information Return for Small Tax-Exempt Government Bond Issues.

I remember that when I was young (lo, those many, many years ago) I thought that Yogi Berra had been named after the cartoon. At some point, my parents informed me it was the other way around, and I was crushed.

Generally yes, BUT... as per DOL Reg. 2520.102-3, the SPD must properly disclose this.