Belgarath

Well, I'll bite. Based upon obviously limited information, it doesn't sound like it is an affiliated service group. There doesn't appear to be be a FSO/A-org issue, since the A-org isn't regularly providing services to third parties in association with the FSO, and isn't regularly performing services for the FSO. Nor does there appear to be a B-org situation, where the B-org has a significant portion of its business as providing services to the A-org. Nor does it appear to be a management function group. So on the surface, sounds like it is not. But, that ERISA attorney is awaiting your call...

You say potato, I say potahto (and we'll ignore Dan Quayle's opinion)... I doubt anyone cares too much in real life, but I would use "in."

Question - has the "rumor mill" also opined as to whether the EZ will be reformed to allow ALL "one participant" plans to file the EZ? If not, then some of them will be forced into filing the SF, whether they want to or not. For example, plan is a controlled group/affiliated service group.

You could take a look at Revenue Procedure 2008-50, Section 6 (.07) - it's possible that you could correct this under VCP. Then they can file with the DOL under VFC if the plan is subject to Title I. Also possible that the Service would reject the VCP filing. These situations are tricky at best, because even if the loan papers were signed, the IRS/DOL could determine that it isn't a "bona fide" loan and deem the entire thing a prohibited transaction anyway. We always refer them to ERISA counsel in such a situation, and have the client instruct US, in writing, as to how they wish to proceed.

BUT - you must consider the total Schedule A payment, plus anything otherwise reported on the Schedule C, to determine whether you reach the 5,000 reporting threshold. Example, 3,000 on Schedule A, 3,000 additional direct or indirect compensation subject to Schedule C reporting. Even though 3,000 doesn't reach the threshhold, the total of 6,000 does, and you would report 3,000 on the Schedule C.

John, it's funny you should mention this, because for the first time in my 25 years in this business, I was contacted by an employer and encountered the same thing just a couple of weeks ago! It sounds like the same plan. We weren't interested in messing with a situation like this, and our advice was to contact an ERISA attorney. One has to wonder about the former so-called "advisor" ... The closest situation that I've encountered was a situation where a client operated a pension plan (a money purchase plan) for years without a document. When he decided to amend and restate to a PS plan, he adopted an appropriate EGGTRA PS document. Almost immediately thereafter, he was selected for a random audit. He must have caught the auditor on a good day, because the auditor apparently allowed him to retroactively adopt a money purchase document with a properly completed EGTRRA document, and did not impose ANY sanctions or penalties! (Not a plan we administer, so I only know sketchy details) I think all I can suggest is a John Doe submission under Revenue Procedure 2008-50.

Ah, the warm embrace of a loving family. My experience is that as soon as inheritance comes into play, the loving family is the exception rather than the rule. And as soon as there's a divorce and remarriage, then things turn REALLY ugly. Of course, I don't see most of the ones that go smoothly, so my perspective is somewhat skewed.

Thanks Blinky. Although I didn't mention it in the OP, I'm presuming the same treatment would apply to NHC. And as I think about it, the "hours" really is a red herring. They could have hours but no compensation, and it's the zero compensation that really drives this.

I've seen some discussion of this type of thing in an ADP testing context, but not in the basic 70% testing. I tried a search and didn't find it. 5 HC's who have satisfied age and service, and are participants in the plan. One is the owners wife. The wife for 2009 received zero compensation and had zero hours, but has not "terminated" employment. A strict interpretation of 410(b) would probably lead me to include her, but she clearly isn't "benefitting." Under this thoery, only 80% of HC are benefitting, so only have to cover 56% of the NHC. This seems very wrong to me, and allows for some rather gross manipulation in family situations. I think a much more reasonable result is to exclude her from the testing altogether, have 100% coverage for HC, and therefore require 70% of the NHC. Last I knew, there was no official guidance on this. Has that changed? Opinions? Thanks!

Yeah, and although we tried to "push back" and not include it, the reviewer insisted. So I'm just wondering if folks who have received d-letters have this language in their documents? If not, we can try removing it, but it seems that when you highlight the removal, it might prompt a reviewer to give you a different result than if it isn't there to start with... If they DO have this language, the it would appear that the IRS isn't enforcing this "rule" unless they view it as an operational issue, hence my prior question. What a bore!

Thank you both. Our problem with this is that in order to get approval of our VS document, the IRS forced us to put this in the adoption agreement in the section where the employer designates the groups: "...In the case of self-employed individuals (i.e. sole proprietorships or partnerships), consider the requirements of IRS reg. § 1.401(k)-1(a)(6) so that the allocation method does not result in a cash or deferred election being created for any self-employed individual..." So I guess we could remove this language and file for a d-letter on each such plan, to see how it goes. I suppose that raises another question - does the IRS consider this an operational issue rather than a language issue, so that the d-letter doesn't provide any protection upon audit? Seems like it would be rather unreasonable for them to argue this.

Let me ask for a bit of discussion on the issue where it is a sole prop rather than a partnership. There are some peoiple who believe it is perfectly acceptable to have the sole prop in a group all by themselves. Have any of you ever requested a determination letter or had an audit in such a situation? How did it go?

The plan reports it normally as with any other distribution on the 1099-R. If the client subsequently rolls this over, whether back into the same plan or not, the client must account for this on their 1040.

I don't want to work, I just want to bang on the drum all day...

I was put in this position once, 20 years or so ago, on a plan. I refused. Fortunately, I wasn't fired, but I was fully prepared for it, and also fully prepared to file a suit, (likely unwinnable) against my company if they retaliated. I was also prepared to report them to the DOL, the IRS, the SEC, and various State regulatory agencies. I think they knew this, and they ultimately decided not to proceed with the amendment because the costs of such a suit, and the horrible publicity they would receive. But, it is a dangerous game of brinksmanship which usually goes against the employee, and I was prepared to lose. I just couldn't stand the thought of having this on my conscience. I'd try a little harder to force your manager's hand. I would discuss your position, pointing out exactly why this is illegal, with accompanying citations from the IRC/ERISA. As you say, some managers simply don't really understand the problem, and they aren't necessarily "bad" or unethical people. I had a similar situation a couple of years ago with a new manager (although I don't prepare the amendments any more) where the manager was directing someone else to do it. I sat down with the manager and explained that in the situation he was contemplating, we would be involved in knowingly assisting in tax fraud. Once the manager truly understood the gravity, the decision was changed so we refused to process the amendment desired by the employer. If manager still persists, you may want to consult an atorney first to find out your options, and the specific steps you should take to protect yourself if you decide to refuse. Good luck with whatever you decide.

You know, one of the things I love about these boards is the "human interest" aspect - where theory gets applied to real life situations. A 90 year old who is still working and participating in a plan is really neat. Hopefully he'll have sufficient assets when he reaches old age. At any rate, I don't see how you could possibly tell him much without knowing the specific provisions of the plan. A lot of policies "mature" at some specific age, so the advisor may actually be talking about maturity rather than death. I'm not sure what special advantage there is, if any, if such maturity occurs inside or outside the plan, but I'll leave that the financial advisor.

Did the arrest report require a co-siner with the arresting officer? But I'm going off on a tangent here.

Thanks Andy.

This is a question that came up in a discussion. I'm currently operating on nearly zero information, so my apologies for that. Say you have some sort of association/organization that is tax exempt - say the Boy Scouts or Girl Scouts. Apparently the local troops have the option to participate in the plan "sponsored" by the national organization. From what came up in the discussion, (now relayed to me 4th hand!) the local troop can set up their own private, "outside" DB plan if they prefer to do that instead. I'm assuming that if this is true, the Scout plan must be a "Multiple Employer Plan." If the troop already has a plan through the Scouts, are there any particular problems that you know of if they want to get out of that one and establish their own separate plan? I'm not sure I see any special problems, (difficulties moving assets, perhaps, for example?) but I thought I'd see if you DB types have any special caveats? Thanks!

Then make the first payment is due January 22 instead, and you still have it repaid within 5 years. But if there's a built-in delay in the system, such as Lisa posits, then yes, I could see this being a violation - although I'm not sure if the IRS/DOL would really care. But to be safe, if you have such a system, then Lisa's 59 month limit should work fine.

I' ve got HEART on the brain today. Just to see if you agree: If someone who is on qualified military duty of more than 30 days receives differential wage payments from the employer, then deferrals can still be currently made from these payments, under the effects of 414(u)(12)(A)(i). If, however, the employee took an in-service distribution of deferrals under 414(u), then deferrals must be suspended for the normal 6-month period. Agree/disagree? But this same treatment wouldn't require a current employer profit sharing contribution unless the employee actually had the requisite hours for the year in question, right? This would be covered under the make-up provisions of USERRA.

Call me dense, but I'm not sure I understand the perceived problem. The plan processes a loan, effective 1/1/2010. First payment is due 1/31/10. etc---so your 60th payment is due on 12/31/2014. That's within the 5 years, and 60 total monthly payments. What am I missing?

Thanks Bird. In that case, it would seem that you could interpret the requirements of the HEART act to override the normal incidental premium limitations without plan disqualification. It seems like it would be impossible for the IRS to assert a violation when following the requirements of the law... How would you interpret it if the participant had only been there for 2 or three years - it would be quite possible for the premium to exceed the account balance after another 2 or three years. In that case, then it would seem there's no alternative other than for an employer contribution in the amount of the premium? All this seems so ridiculous - the employee's account balance is going to suffer badly. I suppose that another interpretation might be that incidental limits still applt - and therefore, the employer must make the full contribution required to keep the ongoing premium within incidental limits. What a PIA!!

401(a)(37) as amended by the HEART act seems innocuous enough. But the devil is in the details. It's clear enough that someone who dies while performing qualified military service would become 100% vested if the plan provides for 100% vesting at death. What happens when you have a Profit Sharing plan that provides for life insurance? While the Code itself says nothing about this, the JCT explanation includes the term "ancillary life insurance" benefits. So, must an employer continue to pay premiums for any person who is in qualified military service? Let's assume the answer is yes. Is the premium deductible as a contribution under 404? And if the participant never returns to qualified reemployment, is the increase in value then treated as a forfeiture? The same basic issue could apply to a DB plan as well, I suppose, modified due to the differences in benefits vs. account balances. And another thing - I have an impression that perhaps not all life policies pay the full face amount for death due to war/military service? If so, then this could require some pretty fancy plan language to make sure the plan itself doesn't incur a huge liability for which it doesn't receive the requisite face amount from the insurance company. I've seen a big fat nothing in terms of IRS discussion/guidance. Does anyone with "contacts" there know if they are considering this issue?

I once read something (doubtless written by an engineer) along similar lines. The engineer said that if you had several thumbs and no common sense, then you became a scientist. Engineers, on the other hand, had to be smarter than scientists because they had to create practical, WORKING solutions to the garbage posited by the scientists. The parallels with the IRS and the actuarial/TPA community are too depressing to contemplate.