Belgarath

I'm not a DB person, so I'm jumping far into the realm of speculation here for purposes of discussion. The DB'ers can correct all that's wrong with what I'm speculating! I don't think you can ever cut back the accrued benefit. I'm under the impression, however, that many 412(i) plans have assets that exceed the 415 lump-sum limit. So when you convert, if this is the case, perhaps you amend the formula under the traditional plan to zero, until such time as the new benefit "catches up" with the assets accrued under the 412(i)?

Off the cuff, I'd tend to agree with you that she would generally be included in his plan. Even if they have to file separate Schedule C's when they elect this "joint venture" thing, they would have a controlled group, I think? I don't know enough about income taxation/social security etc., to know what the benefit is of it being a joint venture as opposed to employer/employee. Maybe one of the accountants who understands this garbage can chime in?

Interesting. I'm not aware of any specific guidance that's directly on point for this question. Does either spouse have any legal authority whatsoever in the other's business - for example, to sign checks in the case of absence, incapacity, etc., of the other owner? If so, I'd say they don't qualify for the spousal noninvolvement exemption. Sounds like the 'ole facts and circumstances routine.

Yes. I still read it as not applying to the brother-sister. And the regulation you reference seems to me to support that interpretation. Emphasis below is mine. Pursuant to section 415(h), for purposes of section 415, sections 414(b) and 414(c ) are applied by using the phrase "more than 50 percent" instead of the phrase "at least 80 percent" each place the latter phrase appears in section 1563(a)(1) and in the regulations under section 414(c ) (except for purposes of determining whether two or more organizations are a brother-sister group of trades or businesses under common control under the rules in §1.414(c )-2(c )).

Tom - as I understand it, you are correct that this is not a CG, and if the plans individually require 1,000 hours for an allocation, and he doesn't have 1,000 hours in either plan, then he's not eligible for an allocation in either plan. Seems like if he's a 100% owner, he'll manage to get in 1,000 hours in that business... On the other subject, I think your 415 issue doesn't apply if Bob owns the 60% directly, rather than his corporation owning the 60%. I believe this applies only to parent-subsidiary situations, and not "brother-sister." See 1.415(f)-1(j). However, you don't want to take my word on this...

I claim no credit for this, by the way - I'm not sure who composed it - some taxpayer's union or something, perhaps.

[To be sung to the tune of "Hit the Road, Jack" ] Cut the tax, Jack, and please don't spend no more, no more, no more, no more. Cut the tax, Jack, and please don't spend no more. Woo Politician, politician don't treat us so mean. You're the biggest spenders that we've ever seen. Pretty soon we'll be out of dough, and you'll have to pack your things and go. Cut the tax, Jack, and please don't spend no more, no more, no more, no more. Cut the tax, Jack, and please don't spend no more. Now voter, listen voter hear what we say, They have to cut spending, ain't no other way. If they spend all our money that just ain't okay. Remember if you say so, They'll have to pack their things and go (That's right). Hit the road, Jack, and don't you spend no more. Don't you come tax no more.

Thanks Tom. That makes sense to me. But of course there are other contributions - that is, the employer discretionary in this case, so TH comes into play in this situation.

Question: Under a 401(k)(12) safe harbor, the 3% nonelective can be used to exempt from ADP testing, to meet top heavy, and in 401(a)(4) testing. Is there any basis for believing the 401(k)(13) nonelective could be used similarly (i.e. also used for 401(a)(4) testing of the discretionary cross-tested allocation)? Common sense would seem to say so, yet I'm not finding specific support for this. Thoughts?

Let's suppose you have a somewhat typical small 401(k) plan - <100 employees. Some of them make deferrals - maybe 60% of them. Of these, there are a few - say a half dozen or less - who have not made an election as to what investments will be chosen, so they must be deposited into the "default" fund. Historically, this has often been a money market fund. So here's the question: the employer must make the determination as to whether the fiduciary liability relief available by complying with the QDIA requirements is worth the potential hassle. While I would expect that most fiduciaries would want this protection, what potential penalties are there if they don't? I know there's a 20% civil penalty based upon the "applicable recovery amount" under ERISA if there's a settlement agreement with the DOL. Presumably a participant could bring suit for recovery of the difference between what they think they "should" have earned and what they actually earned - but these amounts are likely to be extremely small, and unlikely to be pursued in court. What else? For my own edification I'm trying to understand what the realistic risk is in most circumstances. For additional discussion - could all or most of this be avoided more simply by a Plan Administrator having a deferral election which plainly states that the election is NOT valid UNLESS it is accompanied by an investment election? Of course this wouldn't help if there are employer discretionary or nonelective contributions for participants who aren't deferring, but if it is a straight safe-harbor matching 401(k) this might work. Is an employer legally able to say, "make an election within the next 90 days or I'll fire you?" Just looking to generate a little discussion.

Our plans are all being amended to allow it, so I have no axe to grind either way. However, for purposes of the discussion, I offer the following excerpt of a recent commentary by Natalie Choate: "A new version of technical corrections is now proposed in Congress, the "Tax Technical Corrections Bill of 2007" (S. 2374, H.R. 4195). The new version says nothing about beneficiary rollovers; the provision clarifying that beneficiary rollovers are mandatory on plans is gone without a trace. And the IRS has issued its annual list of amendments that qualified retirement plans must adopt in order to stay qualified, Notice 2007-94. For guidance on implementing beneficiary rollovers, this "2007 Cumulative List of Changes in Plan Qualification Requirements" refers only to Notice 2007-7…which of course says that beneficiary rollovers are optional for the plan. There is no mention of mandatory beneficiary rollovers coming in 2008 or any other time." So I dunno what will ultimately happen on this.

The IRS has flip-flopped on the issue of whether the DB plan participants in this situation are considered as "benefitting" under the PS plan if they are "beneficiaries" due to having an account balance. However, my recollection of their latest flop position is that if they are not benefitting for 410(b) purposes in the PS plan, then there is no overlapping participation and 404(a)(7) shouldn't be an issue. But it's one of those dreaded "gray" areas.

We just got a 2005 kickback today. They said they never received a 2005 form. Only problem is they somehow got the Trust id# on the form, rather than the employer id#! We checked, and of course NO 5500 form was ever filed using the Trust id#, so it appears that somehow their retarded system must have pulled a Trust id# off the Schedule P, and produced a kickback for a 5500 form? This is starting to frazzle my normally good humor. But, since I'm on vacation until January 2, I'm in a much more tolerant mood than I otherwise might be. Happy holidays to y'all.

Who did plan administration? If the required level premiums were not paid, the plan dropped out of 412(i) status, and became subject to normal minimum funding requirements - would presumably have needed an actuary, Schedule B, etc. Even if the plan is annuity only and there's no "lapse" per se, the level contribution/premium requirement still must be satisfied. They need to clean this one up in a hurry before the IRS gets hold of it.

The Golden Phone > > > A man in Topeka , Kansas decided to write a > book about Churches around the country. He started by > flying to San Francisco and started working east from there. > > > Going to a very large church, he began taking > photographs and making notes. He spotted a golden > telephone on the vestibule wall and was intrigued with a sign, which > read 'Calls: $10,000 a minute.' Seeking out the pastor he asked about > the phone and the sign. The pastor answered that this > golden phone is, in fact, a direct line to heaven and if he pays the price > he can talk directly to God. > > > > The man thanked the pastor and continued on > his way. As he continued to visit churches in Seattle, > Dallas, St. Louis, Chicago, Milwaukee, and around the > United States, he found more phones, with the same sign, and the same > answer from each pastor. > > > Finally, he arrived on the East Coast. Upon > entering a church in Boston. Behold - he saw the > usual golden telephone. But THIS time, the sign read "Calls: 35 > cents." > > > > Fascinated, he asked to talk to the pastor, > "Reverend, I have been in cities all across the country and > in each church I have found this golden telephone and have > been told it is a direct line to Heaven and that I could talk to God, > but in the other churches the cost was $10,000 a minute. Your > sign reads only 35 cents a call. > > "Why?" > > > The pastor, smiling benignly, replied, 'Son, > you're in Boston, Massachusetts now, home of the Boston > Red Sox, Patriots and Celts > You're in God's Country, It's a local call.

Question: is this plan termination being filed with the IRS? If yes, will they ALLOW you to treat this as a forfeiture?

Reminds me of the world chess championships, held in New York City a few years ago. The "official" hotel for the tournament was the Ritz. As the players gathered in the lobby to check in at the front desk, there was a computer glitch which messed up all the reservations, requiring some time to correct. Naturally enough, the players fell to discussing their exploits and great matches of the past. Very shortly, the manager came out, and asked them all to leave immediately. When asked why, he replied that there was nothing worse than, "Chess nuts boasting in an open foyer."

Panda - FWIW - I would not read anything extra into the 1.410(b)-6(f)(1)(iv) exclusion. If the employees actually terminate employment with less than 500 hours, the reason is immaterial. I agree that you should be ok.

As per the new IRC 430(g)(1), all determinations for a plan year will be made as of the plan's valuation date for the plan year unless otherwise provided. As per 430(g)(2)(A), generally a plan's valuation date will be the first day of the plan year. However, as per 430(g)(2)(B), there is an exception for small plans. (100 or fewer participants.) This is effective for plan years beginning after 12/31/2007. [PPA §112] (b) Effective Date- The amendments made by this section shall apply with respect to plan years beginning after December 31, 2007. [iRC §430] `(g) Valuation of Plan Assets and Liabilities- [iRC §430(g)] `(1) TIMING OF DETERMINATIONS- Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of the plan for such plan year. [iRC §430(g)] `(2) VALUATION DATE- For purposes of this section-- `(A) IN GENERAL- Except as provided in subparagraph (B), the valuation date of a plan for any plan year shall be the first day of the plan year. `(B) EXCEPTION FOR SMALL PLANS- If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer's controlled group) shall be treated as 1 plan, but only participants with respect to such employer or member shall be taken into account.

Penman - I don't know what size plans you administer, but you can still do EOY valuations for the small (<100) plans. Not being actuarially minded, I have no opinion on whether EOY or BOY is better!

A man after my own heart. Send me the leftovers... Many years ago, I informed our kids that Santa would really prefer Champagne and shrimp-with-cream cheese sandwiches(with shallots and a little mayo and tobasco stirred into the cream cheese) to milk and peanut butter sandwiches. This worked very nicely, although at a very early age, our daughter asked Santa to leave her "a few drops of Champagne." One of the very few good ideas I've ever had.

Yeah, I don't really feel comfortable with the forfeiture angle. A forfeiture is based upon a non-vested benefit. In this case, it is just overfunding being transferred to a DC plan, so there was no forfeiture of a benefit. I'd instead argue that the allocation to the participants' accounts is in fact tantamount to accruing a benefit. And I follow the same "logic" with a transfer or rollover - these are referring to specific participants' benefits, and I don't think this qualifies either. 'Twould be interesting to see how the IRS would rule if a PLR request was made. Be careful carving that roast beast!

Hi Tom - you're looking far more handsome than usual today. That new barber must be working wonders! I would say no. The specific instructions say that you may not maintain "during any part of the calendar year another qualified plan with respect to which contributions are made, or benefits accrued, for service in the calendar year." Since the DC suspense account money cannot be allocated except based upon compensation for the year or future years, (for example, if no compensation in 2008, then no money an be allocated from the suspense account to the individual's account) then I'd say this precludes using the SIMPLE. I don't see anything in Notice 97-6 to help. Seems like it would be a pretty aggressive interpretation to establish and deduct contributions to a SIMPLE under these circumstances. I can see the argument, I just wouldn't use it myself. That's my story, and I'm sticking to it. HO HO HO. It's nice to have private message boards where free speech isn't censored so badly. Our daughter teaches high school, and had a couple of paper snowflakes on her window, along with the words, "let it snow." School administration told her she had to take them down because, "They could be associated with the Christmas Holiday." Which of course is unmentionable. Sheesh...

We got one yesterday with a plan # of 333! But everything else on the form was legit, as well as the telephone #'s etc. We worked our way through the earlier batch of letters where forms were filed timely, (there weren't all that many) but I sure hope this isn't the start of some new screw-up on their part. I'm suspicious, because the earlier batch was 2004 forms, and the one we got yesterday was 2005. I sure wish we had the privilege of screwing up with impunity the way the IRS/DOL seems to be able to...

Unless I'm missing the boat, I'd say that no, an amendment wouldn't generally be required by then. The final 415 regs are effective for limitation years beginning on or after 7-1-07. The general amendment deadline is the due date of the employer's tax return, including extensions, for the tax year with or within which ends the first limitation year to which the new rules apply. So for a limitation year beginning 7-1-07 and ending 6-30-08, the earliest the amendment would generally be required would be 9-15-08, and it could be later than that. I'll be interested to see what others think.