Belgarath

I believe GMK is correct - under the regulations, this RMD amount for the calendar year 2010 is not an eligible rollover distribution. I'm not sure where the IRA company is coming up with a date of 12/15/2010. Basically, the participant made an improper rollover of the RMD amount. Under IRC 408(d), this may be treated as an excess IRA contribution, and she must withdraw this amount (adjusted for earnings) by the deadline (including extensions) for filing her 2010 income tax return. The 12/15/2010 deadline, if that's what the IRA custodian is really quoting, sounds like more of an internal administrative deadline. I think the IRA custodian is making the correct interpretation of the the regulation. The example specifies (my emphasis)that "...the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies" and seems to me to be fairly clear. If you receive multiple distributions during the year, then to the extent the RMD has not already been satisfied, the first dollars distributed are considered RMD's and are therefore ineligible for rollover. Mind you, I think think this is a ridiculous rule. But that's another story.

K2 - we'll check into that angle. Of course, even that doesn't explain the request for actuarial information on a 401(k) plan...

Patricia - we just got notified by one of our clients that they received a 5500 penalty notice for a 12/31/2009 filing. I haven't seen the penalty notice yet, but the form was electronically filed (timely!!) and achnowledged by the DOL - no problems, issues, no nothing. Unbelievable. Does anyone have any ASPPA contacts who know some people at the IRS who can actually get something done? Someone needs to have their head removed - this is becoming absurd. Update - saw the letter. Exactly the same - said the actuarial information wasn't sent, etc. - and whether this is coincidence or whether 7/15 is the problem - this form was submitted on 7/15 just like yours.

I see, said the blind man, as he picked up his hammer and saw! Thanks for setting me straight.

Ok, then it becomes a procedural question. Do you send out a distribution kit and wait for an election, OR, if you determine the notice isn't required, do you just cut them a check, but also include the notice so they know they can roll it over if they want to?

Ok, now I'm just curious. While I still think a strict reading of 402(f) requires a notice for amounts <$200, I also wonder what everyone out there actually does in the real world. Do you provide the notices, or not? Do you utilize a "reasonable" interpretation that the notice isn't required of the plan doesn't allow a direct rollover option for amounts <$200?

Sieve - I've never been quite sure if that "dispensation" in Appendix B for the "brief exclusion" applies to this situation. A strict reading might lead one to think it only applies to a situation where the participant was not properly given the opportunity to defer, rather than also applying to a situation where the participant DID make an election and the employer failed to properly implement that deferral election. I have a tendency to waffle a bit on my leaning on this issue, but mosly waffle towards the strict interpretation. Has anyone out there ever actually discussed this with an IRS representative to get any indication?

I'm a little curious - does everyone report redemption fees on a Schedule A? I wouldn't have said that these were required to be included on the A.

I suspect that the ERISA 408(b)(2) regulations are designed with things like this in mind. I have no axe to grind here, and I don't work for Hancock or anything like that. But IMHO, there isn't anything wrong, per se, with someone approaching a potential client with a package that includes administration and investments. As long as there is PROPER DISCLOSURE of all the associated costs and fees, then it seems perfectly reasonable and appropriate for a Plan Administrator/Fiduciary to consider the pros and cons, and act accordingly. I just suspect that such disclosure isn't properly made very often. We also sometimes lose cases to other institutions/TPA's, but that's business. You can't keep every client happy (or at least we can't. )

Unusual number, and I am absolutely convinced that this is a screw-up either at the Lawrence, KS facility, or in the transfer of forms/information between EBSA and the IRS. We've had quite a number of these from clients who have always been religious about filing on time (although regrettably ignoring our instruction to send certified mail return receipt) and have gotten these letters. They all end up filing through DFVC, as the IRS absolutely has refused to accept that they were filed timely, without proof.

From a long list of things you would like to say at work, but can't: I can see your point, but I still think you are full of crap. How about never? Is never good for you? I'll try being nicer if you'll try being smarter. I like you. You remind me of when I was young and stupid. I'm not being rude. You're just insignificant. If I throw a stick, will you leave? I'm trying to imagine you with a personality.

Sieve - I'm curious about this - what do you think the IRS or DOL would say if they somehow got wind of the plan and audited? For example, plan document signed in 2009 establishing the plan as of 1/1/2010, with a 3% dollar for dollar match. But the Employer, for reasons unknown, delays implementation until November of 2010. Do you think the IRS, when they audit this in 2012 would say that this was acceptable and no "fix" was required? I just wondered if you had any actual situations like this that you had encountered. I haven't (seen one of these audited, that is) so I have only an opinion, unsullied by actual experience. And my opinion is that the IRS wouldn't just let this go. But I could be all wet on that. At any rate, I certainly wouldn't advise a client it was ok, I'd send him to one of you lawyers so you would be the one on the hook.

Mike - I'm sure Rene will fill you in, but based upon the information given as to contributions and the account balance, I don't believe there could possibly be life insurance in this plan. You'd never have that much cash in the account value relative to total contributions in the early years of a plan if there were insurance.

Rene - maybe you already cleared it with your client, or maybe the name is already changed. If not, you have your client's name, DOB, and salary history posted on the internet, so you might want to delete or change the name. Just thought I'd point it out in case it is an oversight.

Like many TPA's, we have folks on staff who "prepare" 5500 forms. They take the data certified by the client, and input it appropriately on the 5500 forms, based upon valuations performed using the certified data. Question is, is the IRS going to consider them "preparers?" This is a potential nightmare if the IRS takes this position, which doesn't seem reasonable at all - the analyst really doesn't have any "discretion" in the 5500 preparation, other than the EA who is already registered so no problem. But your typical DC analyst shouldn't fall under this foolish proposal. What are people thinking/doing about this? Is ASPPA going to advocate against this foolishness? Here's a link to the proposed regulations, and following is an excerpt of the applicable exception and examples. One problem, of course, is that this whole hoo-hah is really designed to "regulate" people who have discretionary ability to affect someone's income tax calculation, and that really doesn't generally directly apply to a 5500 form. http://frwebgate.access.gpo.gov/cgi-bin/ge...cid=fr26mr10-17 (g) Only for purposes of paragraphs (d), (e), and (f) of this section, the term tax return preparer means any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax. Factors to consider in determining whether an individual is a tax return preparer under this paragraph (g) include, but are not limited to, the complexity of the work performed by the individual relative to the overall complexity of the tax return or claim for refund of tax; the amount of the items of income, deductions, or losses [[Page 14545]] attributable to the work performed by the individual relative to the total amount of income, deductions, or losses required to be correctly reported on the tax return or claim for refund of tax; and the amount of tax or credit attributable to the work performed by the individual relative to the total tax liability required to be correctly reported on the tax return or claim for refund of tax. A tax return preparer does not include an individual who is not otherwise a tax return preparer as that term is defined in Sec. 301.7701-15(b)(2), or who is an individual described in Sec. 301.7701-15(f). The provisions of this paragraph (g) are illustrated by the following examples: Example 1. Employee A, an individual employed by Tax Return Preparer B, assists Tax Return Preparer B in answering telephone calls, making copies, inputting client tax information gathered by B into the data fields of tax preparation software on a computer, and using the computer to file electronic returns of tax prepared by B. Although Employee A must exercise judgment regarding which data fields in the tax preparation software to use, A does not exercise any discretion or independent judgment as to the clients' underlying tax positions. Employee A, therefore, merely provides clerical assistance or incidental services and is not a tax return preparer required to apply for a PTIN or other identifying number as the Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance. Example 2. The facts are the same as in Example 1, except that Employee A also interviews B's clients and obtains from them information needed for the preparation of tax returns. Employee A determines the amount and character of entries on the returns and whether the information provided is sufficient for purposes of preparing the returns. For at least some of B's clients, A obtains information and makes determinations that constitute all or substantially all of the tax return. Employee A is a tax return preparer required to apply for a PTIN or other identifying number as the Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance. Employee A is a tax return preparer even if Employee A relies on tax preparation software to prepare the return. Example 3. C is an employee of a firm that prepares tax returns and claims for refund of tax for compensation. C is responsible for preparing a Form 1040, ``U.S. Individual Income Tax Return,'' for a client. C obtains the information necessary for completing the return during a meeting with the client, and makes determinations with respect to the proper application of the tax laws to the information in order to determine the client's tax liability. C completes the tax return and sends the completed return to employee D, who reviews the return for accuracy before signing it. Both C and D are tax return preparers required to apply for a PTIN or other identifying number as the Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance. Example 4. E is an employee at a firm which prepares tax returns and claims for refund of tax for compensation. The firm is engaged by a corporation to prepare its Federal income tax return on Form 1120, ``U.S. Corporation Income Tax Return.'' Among the documentation that the corporation provides to E in connection with the preparation of the tax return is documentation relating to the corporation's potential eligibility to claim a recently enacted tax credit for the taxable year. In preparing the return, and specifically for purposes of the new tax credit, E (with the corporation's consent) obtains advice from F, a subject matter expert on this and similar credits. F advises E as to the corporation's entitlement to the credit and provides his calculation of the amount of the credit. Based on this advice from F, E prepares the corporation's Form 1120 claiming the tax credit in the amount recommended by F. The additional credit is one of many tax credits and deductions claimed on the tax return, and determining the credit amount does not constitute preparation of all or substantially all of the corporation's tax return under this paragraph (g). F will not be considered to have prepared all or substantially all of the corporation's tax return, and F is not a tax return preparer required to apply for a PTIN or other identifying number as the Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance. The analysis is the same whether or not the tax credit is a substantial portion of the return under Sec. 301.7701-15 of this chapter, and whether or not F is in the same firm with E. E is a tax return preparer required to apply for a PTIN or other identifying number as the Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidance.

I think this may have to do with PPA 701. See below. There is a reference to plans funded with a variable annuity, but what this really means in real terms I don't know. I'll leave that to the cash balance mavens. See specifically the excerpt below, with the full text following that: [ADEA §4(i)(10)] `(E) INDEXING PERMITTED- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1) solely because the plan provides for indexing of accrued benefits under the plan. `(ii) PROTECTION AGAINST LOSS- Except in the case of any benefit provided in the form of a variable annuity, clause (i) shall not apply with respect to any indexing which results in an accrued benefit less than the accrued benefit determined without regard to such indexing. TITLE VII--BENEFIT ACCRUAL STANDARDS [Rules relating to cash balance plans and other hybrid pension plans. See JCX-38-06 explanation.] [PPA] SEC. 701. BENEFIT ACCRUAL STANDARDS. PPA §701(a) Amendments to the Employee Retirement Income Security Act of 1974 PPA §701(b) Amendments to the Internal Revenue Code of 1986 PPA §701© Amendments to Age Discrimination in Employment Act PPA §701(d) No Inference PPA §701(e) Effective Date [PPA §701] (a) Amendments to the Employee Retirement Income Security Act of 1974- [PPA §701(a)] (1) RULES RELATING TO REDUCTION IN RATE OF BENEFIT ACCRUAL- Section 204(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(b)) is amended by adding at the end the following new paragraph: `[ERISA §204(b)](5) SPECIAL RULES RELATING TO AGE- [ERISA §204(b)(5)] `(A) COMPARISON TO SIMILARLY SITUATED YOUNGER INDIVIDUAL- [ERISA §204(b)(5)(A)] `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) if a participant's accrued benefit, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated, younger individual who is or could be a participant. [ERISA §204(b)(5)(A)] `(ii) SIMILARLY SITUATED- For purposes of this subparagraph, a participant is similarly situated to any other individual if such participant is identical to such other individual in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age. [ERISA §204(b)(5)(A)] `(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT BENEFITS- In determining the accrued benefit as of any date for purposes of this clause, the subsidized portion of any early retirement benefit or retirement-type subsidy shall be disregarded. [ERISA §204(b)(5)(A)] `(iv) ACCRUED BENEFIT- For purposes of this subparagraph, the accrued benefit may, under the terms of the plan, be expressed as an annuity payable at normal retirement age, the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation. [ERISA §204(b)(5)] `(B) APPLICABLE DEFINED BENEFIT PLANS- [ERISA §204(b)(5)(B)] `(i) INTEREST CREDITS- `(I) IN GENERAL- An applicable defined benefit plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the terms of the plan provide that any interest credit (or an equivalent amount) for any plan year shall be at a rate which is not greater than a market rate of return. A plan shall not be treated as failing to meet the requirements of this subclause merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return. `(II) PRESERVATION OF CAPITAL- An interest credit (or an equivalent amount) of less than zero shall in no event result in the account balance or similar amount being less than the aggregate amount of contributions credited to the account. `(III) MARKET RATE OF RETURN- The Secretary of the Treasury may provide by regulation for rules governing the calculation of a market rate of return for purposes of subclause (I) and for permissible methods of crediting interest to the account (including fixed or variable interest rates) resulting in effective rates of return meeting the requirements of subclause (I). [ERISA §204(b)(5)(B)] `(ii) SPECIAL RULE FOR PLAN CONVERSIONS- If, after June 29, 2005, an applicable plan amendment is adopted, the plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the requirements of clause (iii) are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment. [ERISA §204(b)(5)(B)] `(iii) RATE OF BENEFIT ACCRUAL- Subject to clause (iv), the requirements of this clause are met with respect to any participant if the accrued benefit of the participant under the terms of the plan as in effect after the amendment is not less than the sum of-- `(I) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect before the amendment, plus `(II) the participant's accrued benefit for years of service after the effective date of the amendment, determined under the terms of the plan as in effect after the amendment. [ERISA §204(b)(5)(B)] `(iv) SPECIAL RULES FOR EARLY RETIREMENT SUBSIDIES- For purposes of clause (iii)(I), the plan shall credit the accumulation account or similar amount with the amount of any early retirement benefit or retirement-type subsidy for the plan year in which the participant retires if, as of such time, the participant has met the age, years of service, and other requirements under the plan for entitlement to such benefit or subsidy. [ERISA §204(b)(5)(B)] `(v) APPLICABLE PLAN AMENDMENT- For purposes of this subparagraph-- `(I) IN GENERAL- The term `applicable plan amendment' means an amendment to a defined benefit plan which has the effect of converting the plan to an applicable defined benefit plan. `(II) SPECIAL RULE FOR COORDINATED BENEFITS- If the benefits of 2 or more defined benefit plans established or maintained by an employer are coordinated in such a manner as to have the effect of the adoption of an amendment described in subclause (I), the sponsor of the defined benefit plan or plans providing for such coordination shall be treated as having adopted such a plan amendment as of the date such coordination begins. `(III) MULTIPLE AMENDMENTS- The Secretary of the Treasury shall issue regulations to prevent the avoidance of the purposes of this subparagraph through the use of 2 or more plan amendments rather than a single amendment. `(IV) APPLICABLE DEFINED BENEFIT PLAN- For purposes of this subparagraph, the term `applicable defined benefit plan' has the meaning given such term by section 203(f)(3). [ERISA §204(b)(5)(B)] `(vi) TERMINATION REQUIREMENTS- An applicable defined benefit plan shall not be treated as meeting the requirements of clause (i) unless the plan provides that, upon the termination of the plan-- `(I) if the interest credit rate (or an equivalent amount) under the plan is a variable rate, the rate of interest used to determine accrued benefits under the plan shall be equal to the average of the rates of interest used under the plan during the 5-year period ending on the termination date, and `(II) the interest rate and mortality table used to determine the amount of any benefit under the plan payable in the form of an annuity payable at normal retirement age shall be the rate and table specified under the plan for such purpose as of the termination date, except that if such interest rate is a variable rate, the interest rate shall be determined under the rules of subclause (I). [ERISA §204(b)(5)] `© CERTAIN OFFSETS PERMITTED- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) solely because the plan provides offsets against benefits under the plan to the extent such offsets are allowable in applying the requirements of section 401(a) of the Internal Revenue Code of 1986. [ERISA §204(b)(5)] `(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS OR BENEFITS- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) of the Internal Revenue Code of 1986 are met. [ERISA §204(b)(5)] `(E) INDEXING PERMITTED- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides for indexing of accrued benefits under the plan. `(ii) PROTECTION AGAINST LOSS- Except in the case of any benefit provided in the form of a variable annuity, clause (i) shall not apply with respect to any indexing which results in an accrued benefit less than the accrued benefit determined without regard to such indexing. `(iii) INDEXING- For purposes of this subparagraph, the term `indexing' means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by means of the application of a recognized investment index or methodology. [ERISA §204(b)(5)] `(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE SUBSIDY- For purposes of this paragraph, the terms `early retirement benefit' and `retirement-type subsidy' have the meaning given such terms in subsection (g)(2)(A). [ERISA §204(b)(5)] `(G) BENEFIT ACCRUED TO DATE- For purposes of this paragraph, any reference to the accrued benefit shall be a reference to such benefit accrued to date.'. [PPA §701(a)] (2) DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF BENEFIT ACCOUNT OR EQUIVALENT AMOUNTS- Section 203 of such Act (29 U.S.C. 1053) is amended by adding at the end the following new subsection: [ERISA §203] `(f) Special Rules for Plans Computing Accrued Benefits by Reference to Hypothetical Account Balance or Equivalent Amounts- [ERISA §203(f)] `(1) IN GENERAL- An applicable defined benefit plan shall not be treated as failing to meet-- `(A) subject to paragraph (2), the requirements of subsection (a)(2), or `(B) the requirements of section 204© or section 205(g) with respect to contributions other than employee contributions, solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in the hypothetical account described in paragraph (3) or as an accumulated percentage of the participant's final average compensation. [ERISA §203(f)] `(2) 3-year VESTING- In the case of an applicable defined benefit plan, such plan shall be treated as meeting the requirements of subsection (a)(2) only if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions. [ERISA §203(f)] `(3) APPLICABLE DEFINED BENEFIT PLAN AND RELATED RULES- For purposes of this subsection-- `(A) IN GENERAL- The term `applicable defined benefit plan' means a defined benefit plan under which the accrued benefit (or any portion thereof) is calculated as the balance of a hypothetical account maintained for the participant or as an accumulated percentage of the participant's final average compensation. `(B) REGULATIONS TO INCLUDE SIMILAR PLANS- The Secretary of the Treasury shall issue regulations which include in the definition of an applicable defined benefit plan any defined benefit plan (or any portion of such a plan) which has an effect similar to an applicable defined benefit plan.'. [PPA §701] (b) Amendments to the Internal Revenue Code of 1986- [PPA §701(b)] (1) RULES RELATING TO REDUCTION IN RATE OF BENEFIT ACCRUAL- Subsection (b) of section 411 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: [iRC §411(b)] `(5) SPECIAL RULES RELATING TO AGE- [iRC §411(b)(5)] `(A) COMPARISON TO SIMILARLY SITUATED YOUNGER INDIVIDUAL- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) if a participant's accrued benefit, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated, younger individual who is or could be a participant. `(ii) SIMILARLY SITUATED- For purposes of this subparagraph, a participant is similarly situated to any other individual if such participant is identical to such other individual in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age. `(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT BENEFITS- In determining the accrued benefit as of any date for purposes of this clause, the subsidized portion of any early retirement benefit or retirement-type subsidy shall be disregarded. `(iv) ACCRUED BENEFIT- For purposes of this subparagraph, the accrued benefit may, under the terms of the plan, be expressed as an annuity payable at normal retirement age, the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation. [iRC §411(b)(5)] `(B) APPLICABLE DEFINED BENEFIT PLANS- `(i) INTEREST CREDITS- `(I) IN GENERAL- An applicable defined benefit plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the terms of the plan provide that any interest credit (or an equivalent amount) for any plan year shall be at a rate which is not greater than a market rate of return. A plan shall not be treated as failing to meet the requirements of this subclause merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return. `(II) PRESERVATION OF CAPITAL- An interest credit (or an equivalent amount) of less than zero shall in no event result in the account balance or similar amount being less than the aggregate amount of contributions credited to the account. `(III) MARKET RATE OF RETURN- The Secretary may provide by regulation for rules governing the calculation of a market rate of return for purposes of subclause (I) and for permissible methods of crediting interest to the account (including fixed or variable interest rates) resulting in effective rates of return meeting the requirements of subclause (I). `(ii) SPECIAL RULE FOR PLAN CONVERSIONS- If, after June 29, 2005, an applicable plan amendment is adopted, the plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the requirements of clause (iii) are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment. `(iii) RATE OF BENEFIT ACCRUAL- Subject to clause (iv), the requirements of this clause are met with respect to any participant if the accrued benefit of the participant under the terms of the plan as in effect after the amendment is not less than the sum of-- `(I) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect before the amendment, plus `(II) the participant's accrued benefit for years of service after the effective date of the amendment, determined under the terms of the plan as in effect after the amendment. `(iv) SPECIAL RULES FOR EARLY RETIREMENT SUBSIDIES- For purposes of clause (iii)(I), the plan shall credit the accumulation account or similar amount with the amount of any early retirement benefit or retirement-type subsidy for the plan year in which the participant retires if, as of such time, the participant has met the age, years of service, and other requirements under the plan for entitlement to such benefit or subsidy. `(v) APPLICABLE PLAN AMENDMENT- For purposes of this subparagraph-- `(I) IN GENERAL- The term `applicable plan amendment' means an amendment to a defined benefit plan which has the effect of converting the plan to an applicable defined benefit plan. `(II) SPECIAL RULE FOR COORDINATED BENEFITS- If the benefits of 2 or more defined benefit plans established or maintained by an employer are coordinated in such a manner as to have the effect of the adoption of an amendment described in subclause (I), the sponsor of the defined benefit plan or plans providing for such coordination shall be treated as having adopted such a plan amendment as of the date such coordination begins. `(III) MULTIPLE AMENDMENTS- The Secretary shall issue regulations to prevent the avoidance of the purposes of this subparagraph through the use of 2 or more plan amendments rather than a single amendment. `(IV) APPLICABLE DEFINED BENEFIT PLAN- For purposes of this subparagraph, the term `applicable defined benefit plan' has the meaning given such term by section 411(a)(13). `(vi) TERMINATION REQUIREMENTS- An applicable defined benefit plan shall not be treated as meeting the requirements of clause (i) unless the plan provides that, upon the termination of the plan-- `(I) if the interest credit rate (or an equivalent amount) under the plan is a variable rate, the rate of interest used to determine accrued benefits under the plan shall be equal to the average of the rates of interest used under the plan during the 5-year period ending on the termination date, and `(II) the interest rate and mortality table used to determine the amount of any benefit under the plan payable in the form of an annuity payable at normal retirement age shall be the rate and table specified under the plan for such purpose as of the termination date, except that if such interest rate is a variable rate, the interest rate shall be determined under the rules of subclause (I). [iRC §411(b)(5)] `© CERTAIN OFFSETS PERMITTED- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H)(i) solely because the plan provides offsets against benefits under the plan to the extent such offsets are allowable in applying the requirements of section 401(a). [iRC §411(b)(5)] `(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS OR BENEFITS- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) are met. [iRC §411(b)(5)] `(E) INDEXING PERMITTED- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1)(H) solely because the plan provides for indexing of accrued benefits under the plan. `(ii) PROTECTION AGAINST LOSS- Except in the case of any benefit provided in the form of a variable annuity, clause (i) shall not apply with respect to any indexing which results in an accrued benefit less than the accrued benefit determined without regard to such indexing. `(iii) INDEXING- For purposes of this subparagraph, the term `indexing' means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by means of the application of a recognized investment index or methodology. [iRC §411(b)(5)] `(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE SUBSIDY- For purposes of this paragraph, the terms `early retirement benefit' and `retirement-type subsidy' have the meaning given such terms in subsection (d)(6)(B)(i). [iRC §411(b)(5)] `(G) BENEFIT ACCRUED TO DATE- For purposes of this paragraph, any reference to the accrued benefit shall be a reference to such benefit accrued to date.'. [PPA §701(b)] (2) DETERMINATIONS OF ACCRUED BENEFIT AS BALANCE OF BENEFIT ACCOUNT OR EQUIVALENT AMOUNTS- Subsection (a) of section 411 of such Code is amended by adding at the end the following new paragraph: [iRC §411(a)] `(13) SPECIAL RULES FOR PLANS COMPUTING ACCRUED BENEFITS BY REFERENCE TO HYPOTHETICAL ACCOUNT BALANCE OR EQUIVALENT AMOUNTS- [iRC §411(a)(13)] `(A) IN GENERAL- An applicable defined benefit plan shall not be treated as failing to meet-- `(i) subject to paragraph (2), the requirements of subsection (a)(2), or `(ii) the requirements of subsection © or section 417(e) with respect to contributions other than employee contributions, solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in the hypothetical account described in paragraph (3) or as an accumulated percentage of the participant's final average compensation. [iRC §411(a)(13)] `(B) 3-year VESTING- In the case of an applicable defined benefit plan, such plan shall be treated as meeting the requirements of subsection (a)(2) only if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions. [iRC §411(a)(13)] `© APPLICABLE DEFINED BENEFIT PLAN AND RELATED RULES- For purposes of this subsection-- `(i) IN GENERAL- The term `applicable defined benefit plan' means a defined benefit plan under which the accrued benefit (or any portion thereof) is calculated as the balance of a hypothetical account maintained for the participant or as an accumulated percentage of the participant's final average compensation. `(ii) REGULATIONS TO INCLUDE SIMILAR PLANS- The Secretary shall issue regulations which include in the definition of an applicable defined benefit plan any defined benefit plan (or any portion of such a plan) which has an effect similar to an applicable defined benefit plan.'. [PPA §701] © Amendments to Age Discrimination in Employment Act- Section 4(i) of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 623(i)) is amended by adding at the end the following new paragraph: [ADEA 4(i)] `(10) SPECIAL RULES RELATING TO AGE- [ADEA §4(i)(10)] `(A) COMPARISON TO SIMILARLY SITUATED YOUNGER INDIVIDUAL- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1) if a participant's accrued benefit, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated, younger individual who is or could be a participant. `(ii) SIMILARLY SITUATED- For purposes of this subparagraph, a participant is similarly situated to any other individual if such participant is identical to such other individual in every respect (including period of service, compensation, position, date of hire, work history, and any other respect) except for age. `(iii) DISREGARD OF SUBSIDIZED EARLY RETIREMENT BENEFITS- In determining the accrued benefit as of any date for purposes of this clause, the subsidized portion of any early retirement benefit or retirement-type subsidy shall be disregarded. `(iv) ACCRUED BENEFIT- For purposes of this subparagraph, the accrued benefit may, under the terms of the plan, be expressed as an annuity payable at normal retirement age, the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation. [ADEA §4(i)(10)] `(B) APPLICABLE DEFINED BENEFIT PLANS- `(i) INTEREST CREDITS- `(I) IN GENERAL- An applicable defined benefit plan shall be treated as failing to meet the requirements of paragraph (1) unless the terms of the plan provide that any interest credit (or an equivalent amount) for any plan year shall be at a rate which is not greater than a market rate of return. A plan shall not be treated as failing to meet the requirements of this subclause merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return. `(II) PRESERVATION OF CAPITAL- An interest credit (or an equivalent amount) of less than zero shall in no event result in the account balance or similar amount being less than the aggregate amount of contributions credited to the account. `(III) MARKET RATE OF RETURN- The Secretary of the Treasury may provide by regulation for rules governing the calculation of a market rate of return for purposes of subclause (I) and for permissible methods of crediting interest to the account (including fixed or variable interest rates) resulting in effective rates of return meeting the requirements of subclause (I). `(ii) SPECIAL RULE FOR PLAN CONVERSIONS- If, after June 29, 2005, an applicable plan amendment is adopted, the plan shall be treated as failing to meet the requirements of paragraph (1)(H) unless the requirements of clause (iii) are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment. `(iii) RATE OF BENEFIT ACCRUAL- Subject to clause (iv), the requirements of this clause are met with respect to any participant if the accrued benefit of the participant under the terms of the plan as in effect after the amendment is not less than the sum of-- `(I) the participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect before the amendment, plus `(II) the participant's accrued benefit for years of service after the effective date of the amendment, determined under the terms of the plan as in effect after the amendment. `(iv) SPECIAL RULES FOR EARLY RETIREMENT SUBSIDIES- For purposes of clause (iii)(I), the plan shall credit the accumulation account or similar amount with the amount of any early retirement benefit or retirement-type subsidy for the plan year in which the participant retires if, as of such time, the participant has met the age, years of service, and other requirements under the plan for entitlement to such benefit or subsidy. `(v) APPLICABLE PLAN AMENDMENT- For purposes of this subparagraph-- `(I) IN GENERAL- The term `applicable plan amendment' means an amendment to a defined benefit plan which has the effect of converting the plan to an applicable defined benefit plan. `(II) SPECIAL RULE FOR COORDINATED BENEFITS- If the benefits of 2 or more defined benefit plans established or maintained by an employer are coordinated in such a manner as to have the effect of the adoption of an amendment described in subclause (I), the sponsor of the defined benefit plan or plans providing for such coordination shall be treated as having adopted such a plan amendment as of the date such coordination begins. `(III) MULTIPLE AMENDMENTS- The Secretary of the Treasury shall issue regulations to prevent the avoidance of the purposes of this subparagraph through the use of 2 or more plan amendments rather than a single amendment. `(IV) APPLICABLE DEFINED BENEFIT PLAN- For purposes of this subparagraph, the term `applicable defined benefit plan' has the meaning given such term by section 203(f)(3) of the Employee Retirement Income Security Act of 1974. `(vi) TERMINATION REQUIREMENTS- An applicable defined benefit plan shall not be treated as meeting the requirements of clause (i) unless the plan provides that, upon the termination of the plan-- `(I) if the interest credit rate (or an equivalent amount) under the plan is a variable rate, the rate of interest used to determine accrued benefits under the plan shall be equal to the average of the rates of interest used under the plan during the 5-year period ending on the termination date, and `(II) the interest rate and mortality table used to determine the amount of any benefit under the plan payable in the form of an annuity payable at normal retirement age shall be the rate and table specified under the plan for such purpose as of the termination date, except that if such interest rate is a variable rate, the interest rate shall be determined under the rules of subclause (I). [ADEA §4(i)(10)] `© CERTAIN OFFSETS PERMITTED- A plan shall not be treated as failing to meet the requirements of paragraph (1) solely because the plan provides offsets against benefits under the plan to the extent such offsets are allowable in applying the requirements of section 401(a) of the Internal Revenue Code of 1986. [ADEA §4(i)(10)] `(D) PERMITTED DISPARITIES IN PLAN CONTRIBUTIONS OR BENEFITS- A plan shall not be treated as failing to meet the requirements of paragraph (1) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) of the Internal Revenue Code of 1986 are met. [ADEA §4(i)(10)] `(E) INDEXING PERMITTED- `(i) IN GENERAL- A plan shall not be treated as failing to meet the requirements of paragraph (1) solely because the plan provides for indexing of accrued benefits under the plan. `(ii) PROTECTION AGAINST LOSS- Except in the case of any benefit provided in the form of a variable annuity, clause (i) shall not apply with respect to any indexing which results in an accrued benefit less than the accrued benefit determined without regard to such indexing. `(iii) INDEXING- For purposes of this subparagraph, the term `indexing' means, in connection with an accrued benefit, the periodic adjustment of the accrued benefit by means of the application of a recognized investment index or methodology. [ADEA §4(i)(10)] `(F) EARLY RETIREMENT BENEFIT OR RETIREMENT-TYPE SUBSIDY- For purposes of this paragraph, the terms `early retirement benefit' and `retirement-type subsidy' have the meaning given such terms in section 203(g)(2)(A) of the Employee Retirement Income Security Act of 1974. [ADEA §4(i)(10)] `(G) BENEFIT ACCRUED TO DATE- For purposes of this paragraph, any reference to the accrued benefit shall be a reference to such benefit accrued to date.'. [PPA §701] (d) No Inference- Nothing in the amendments made by this section shall be construed to create an inference with respect to-- (1) the treatment of applicable defined benefit plans or conversions to applicable defined benefit plans under sections 204(b)(1)(H) of the Employee Retirement Income Security Act of 1974, 4(i)(1) of the Age Discrimination in Employment Act of 1967, and 411(b)(1)(H) of the Internal Revenue Code of 1986, as in effect before such amendments, or (2) the determination of whether an applicable defined benefit plan fails to meet the requirements of sections 203(a)(2), 204©, or 204(g) of the Employee Retirement Income Security Act of 1974 or sections 411(a)(2), 411©, or 417(e) of such Code, as in effect before such amendments, solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in a hypothetical account or as an accumulated percentage of the participant's final average compensation. For purposes of this subsection, the term `applicable defined benefit plan' has the meaning given such term by section 203(f)(3) of the Employee Retirement Income Security Act of 1974 and section 411(a)(13)© of such Code, as in effect after such amendments. [PPA §701] (e) Effective Date- [PPA §701(e)] (1) IN GENERAL- The amendments made by this section shall apply to periods beginning on or after June 29, 2005. [PPA §701(e)] (2) PRESENT VALUE OF ACCRUED BENEFIT- The amendments made by subsections (a)(2) and (b)(2) shall apply to distributions made after the date of the enactment of this Act. [PPA §701(e)] (3) VESTING AND INTEREST CREDIT REQUIREMENTS- In the case of a plan in existence on June 29, 2005, the requirements of clause (i) of section 411(b)(5)(B) of the Internal Revenue Code of 1986, clause (i) of section 204(b)(5)(B) of the Employee Retirement Income Security Act of 1974, and clause (i) of section 4(i)(10)(B) of the Age Discrimination in Employment Act of 1967 (as added by this Act) and the requirements of 203(f)(2) of the Employee Retirement Income Security Act of 1974 and section 411(a)(13)(B) of the Internal Revenue Code of 1986 (as so added) shall, for purposes of applying the amendments made by subsections (a) and (b), apply to years beginning after December 31, 2007, unless the plan sponsor elects the application of such requirements for any period after June 29, 2005, and before the first year beginning after December 31, 2007. [PPA §701(e)] (4) SPECIAL RULE FOR COLLECTIVELY BARGAINED PLANS- In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified on or before the date of the enactment of this Act, the requirements described in paragraph (3) shall, for purposes of applying the amendments made by subsections (a) and (b), not apply to plan years beginning before-- (A) the earlier of-- (i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of enactment), or (ii) January 1, 2008, or (B) January 1, 2010. [PPA §701(e)] (5) CONVERSIONS- The requirements of clause (ii) of section 411(b)(5)(B) of the Internal Revenue Code of 1986, clause (ii) of section 204(b)(5)(B) of the Employee Retirement Income Security Act of 1974, and clause (ii) of section 4(i)(10)(B) of the Age Discrimination in Employment Act of 1967 (as added by this Act), shall apply to plan amendments adopted after, and taking effect after, June 29, 2005, except that the plan sponsor may elect to have such amendments apply to plan amendments adopted before, and taking effect after, such date.

I don't interpret the instructions to allow an SF. See excerpt from SF instructions below. Since you were not eligible to file as a small plan for 2008, you fail the first test in (b), and since you have more than 100 participants for 2009 you fail the test for (a), so no SF. That's my take on all this. 1. The plan (a) covered fewer than 100 participants at the beginning of the plan year 2009, or (b) under 29 CFR 2520.103-1(d) was eligible to and filed as a small plan for plan year 2008 and did not cover more than 120 participants at the beginning of plan year 2009 (see instructions for line 5 on counting the number of participants);

Probably just one - the one that made them put this in the instructions!

They sent the money back, so everyone ended up reasonably happy.

Hi Sieve - well, my answer is the dreaded "it depends." See the following - from 1.72(p)-1: Q–19: If there is a deemed distribution under section 72(p), is the interest that accrues thereafter on the amount of the deemed distribution an indirect loan for income tax purposes and what effect does the deemed distribution have on subsequent loans? A–19: (a) General rule. Except as provided in paragraph (b) of this Q&A–19, a deemed distribution of a loan is treated as a distribution for purposes of section 72. Therefore, a loan that is deemed to be distributed under section 72(p) ceases to be an outstanding loan for purposes of section 72, and the interest that accrues thereafter under the plan on the amount deemed distributed is disregarded for purposes of applying section 72 to the participant or the beneficiary. Even though interest continues to accrue on the outstanding loan (and is taken into account for purposes of determining the tax treatment of any subsequent loan in accordance with paragraph (b) of this Q&A–19), this additional interest is not treated as an additional loan (and thus, does not result in an additional deemed distribution) for purposes of section 72(p). However, a loan that is deemed distributed under section 72(p) is not considered distributed for all purposes of the Internal Revenue Code. See Q&A–11 through Q&A–16 of this section. (b) Effect on subsequent loans —(1) Application of section 72(p)(2)(A). A loan that is deemed distributed under section 72(p) (including interest accruing thereafter) and that has not been repaid (such as by a plan loan offset) is considered outstanding for purposes of applying section 72(p)(2)(A) to determine the maximum amount of any subsequent loan to the participant or beneficiary. (2) Additional security for subsequent loans. If a loan is deemed distributed to a participant or beneficiary under section 72(p) and has not been repaid (such as by a plan loan offset), then no payment made thereafter to the participant or beneficiary is treated as a loan for purposes of section 72(p)(2) unless the loan otherwise satisfies section 72(p)(2) and this section and either of the following conditions is satisfied: (i) There is an arrangement among the plan, the participant or beneficiary, and the employer, enforceable under applicable law, under which repayments will be made by payroll withholding. For this purpose, an arrangement will not fail to be enforceable merely because a party has the right to revoke the arrangement prospectively. (ii) The plan receives adequate security from the participant or beneficiary that is in addition to the participant's or beneficiary's accrued benefit under the plan. (3) Condition no longer satisfied. If, following a deemed distribution that has not been repaid, a payment is made to a participant or beneficiary that satisfies the conditions in paragraph (b)(2) of this Q&A–19 for treatment as a plan loan and, subsequently, before repayment of the second loan, the conditions in paragraph (b)(2) of this Q&A–19 are no longer satisfied with respect to the second loan (for example, if the loan recipient revokes consent to payroll withholding), the amount then outstanding on the second loan is treated as a deemed distribution under section 72(p).

That I would trust? There certainly hasn't been one that I've seen that I would trust for all situations, as situations are rarely the same. Added to that, as you mention, they either leave out one or more assumptions that (to me) seem important, or the assumptions they do have aren't necessarily assumptions with which I agree. Doubtless some are better than others, but I haven't made any study or comparison of the ones I've seen. I caveat this by saying I'm no investment expert or financial planner.

It would depend upon whether the loan can be "offset" or not. If it is just a deemed distribution and there has been no "distributable event" then the loan can't be "offset." Technically it is still an asset of the plan, and technically the obligation to repay still remains. (In real life, it is rarely repaid, and the PA rarely attempts to collect it) But, if repaid, you will then have non-taxable basis which must be separately tracked. If it can be "offset" then you could no longer carry it on a separate line, as the account balance would then be reduced.

From Sal Tripodi: At the Western Benefits Conference in Los Angeles earlier this week a DOL official said that the DOL will NOT be issuing any automatic extension of the Form 5500 series for 2009 reporting years, in spite of difficulties with the new EFAST2 filing system. Accordingly, if you are wanting extra time to file for any of your clients, Form 5558 needs to be filed to obtain the extension. Remember that the filing of Form 5558, if timely, results in an automatic extension. For calendar year plans, the Form 5558 for 2009 needs to be filed by July 31, 2010 (assuming the plan did not have a short year due to an amendment or a final distribution of assets).

Well, hang on a minute. If he wants to keep the insurance in force and not pay current income tax, there are strategies for doing that - the simplest being to write a check to the plan for the full FMV, and the plan assigns the policy to him. He can then roll his entire plan benefit to an IRA. He just can't roll the policy ITSELF to an IRA. Might possibly also be able to have the Trustee/PA do a maximum policy loan to "strip" the CV out prior to assignment to minimize current taxation, but this may not be viable or desirable. Rcline - see 1.72-16(b)(4). Seems that the taxable term costs are not included in "basis" by an owner-employee.

Be careful on that. If the "single participant" is an unincorporated owner, then the taxable term costs are not recoverable as basis.