Belgarath

While I do not believe there is anything in the regulations specifically authorizing this, I would have no problem with it.

Purely a function of your plan document. Some allow participation waivers, some don't. Timing and operational requirements should also be specified in the document language.

I've been wondering if the IRS would start taking the very reasonable approach that although these are not eligible for DFVC, that they would voluntarily limit their penalty structure to be the same as what would be charged under DFVC. This seems to be a fair compromise for everyone involved, but I haven't heard if this is being considered or actually being done. I'm guessing that now that DFVC is formal and available, that they would be more reluctant than they were in the past to completely waive penalties for EZ filers. Anyone had any recent experience with this situation?

I agree that they can be eliminated. 1.411(d)-4 actually refers to 1.411(d)(6) protected benefits. A hardship withdrawal isn't a protected benefit.

Although I've never done it, I read the form and instructions to allow only applying for determination of ASG status. However, assuming that is correct, which it may not be, I have no idea where this falls in the heirarchy of IRS processing.

IMHO, 508 doesn't have any exception on the permitted disparity disclosure for the individual account plans. a) Amendments of ERISA- (1) IN GENERAL- Section 105(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025(a)) is amended to read as follows: `(a) Requirements To Provide Pension Benefit Statements- `(1) REQUIREMENTS- `(A) INDIVIDUAL ACCOUNT PLAN- The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement-- `(i) at least once each calendar quarter to a participant or beneficiary who has the right to direct the investment of assets in his or her account under the plan, `(ii) at least once each calendar year to a participant or beneficiary who has his or her own account under the plan but does not have the right to direct the investment of assets in that account, and `(iii) upon written request to a plan beneficiary not described in clause (i) or (ii). `(B) DEFINED BENEFIT PLAN- The administrator of a defined benefit plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement-- `(i) at least once every 3 years to each participant with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is to be furnished, and `(ii) to a participant or beneficiary of the plan upon written request. Information furnished under clause (i) to a participant may be based on reasonable estimates determined under regulations prescribed by the Secretary, in consultation with the Pension Benefit Guaranty Corporation. `(2) STATEMENTS- `(A) IN GENERAL- A pension benefit statement under paragraph (1)-- `(i) shall indicate, on the basis of the latest available information-- `(I) the total benefits accrued, and `(II) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable, `(ii) shall include an explanation of any permitted disparity under section 401(l) of the Internal Revenue Code of 1986 or any floor-offset arrangement that may be applied in determining any accrued benefits described in clause (i), `(iii) shall be written in a manner calculated to be understood by the average plan participant, and `(iv) may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant or beneficiary. `(B) ADDITIONAL INFORMATION- In the case of an individual account plan, any pension benefit statement under clause (i) or (ii) of paragraph (1)(A) shall include-- `(i) the value of each investment to which assets in the individual account have been allocated, determined as of the most recent valuation date under the plan, including the value of any assets held in the form of employer securities, without regard to whether such securities were contributed by the plan sponsor or acquired at the direction of the plan or of the participant or beneficiary, and `(ii) in the case of a pension benefit statement under paragraph (1)(A)(i)-- `(I) an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment, `(II) an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified, and `(III) a notice directing the participant or beneficiary to the Internet website of the Department of Labor for sources of information on individual investing and diversification. `© ALTERNATIVE NOTICE- The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan-- `(i) updates the information described in such paragraph which is provided in the pension benefit statement, or `(ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits. `(3) DEFINED BENEFIT PLANS- `(A) ALTERNATIVE NOTICE- In the case of a defined benefit plan, the requirements of paragraph (1)(B)(i) shall be treated as met with respect to a participant if at least once each year the administrator provides to the participant notice of the availability of the pension benefit statement and the ways in which the participant may obtain such statement. Such notice may be delivered in written, electronic, or other appropriate form to the extent such form is reasonably accessible to the participant. `(B) YEARS IN WHICH NO BENEFITS ACCRUE- The Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b) of the Internal Revenue Code of 1986) under the plan need not be taken into account in determining the 3-year period under paragraph (1)(B)(i).' (2) CONFORMING AMENDMENTS- (A) Section 105 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1025) is amended by striking subsection (d). (B) Section 105(b) of such Act (29 U.S.C. 1025(b)) is amended to read as follows: `(b) Limitation on Number of Statements- In no case shall a participant or beneficiary of a plan be entitled to more than 1 statement described in subparagraph (A)(iii) or (B)(ii) of subsection (a)(1), whichever is applicable, in any 12-month period.' © Section 502©(1) of such Act (29 U.S.C. 1132©(1)) is amended by striking `or section 101(f)' and inserting `section 101(f), or section 105(a)'. [PPA §508] (b) Model Statements- (1) IN GENERAL- The Secretary of Labor shall, within 1 year after the date of the enactment of this section, develop 1 or more model benefit statements that are written in a manner calculated to be understood by the average plan participant and that may be used by plan administrators in complying with the requirements of section 105 of the Employee Retirement Income Security Act of 1974. (2) INTERIM FINAL RULES- The Secretary of Labor may promulgate any interim final rules as the Secretary determines appropriate to carry out the provisions of this subsection. [PPA §508] © Effective Date- (1) IN GENERAL- The amendments made by this section shall apply to plan years beginning after December 31, 2006. (2) SPECIAL RULE FOR COLLECTIVELY BARGAINED AGREEMENTS- 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, paragraph (1) shall be applied to benefits pursuant to, and individuals covered by, any such agreement by substituting for `December 31, 2006' the earlier of-- (A) the later of-- (i) December 31, 2007, or (ii) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after such date of enactment), or (B) December 31, 2008.

You might also look into filing for a determination letter on a form 5300 - this has an option to request IRS determination of ASG status. But I second SoCal's advice to have an attorney make the determination.

I'm not actually sure. I think #2 in the second paragraph of the general explanation could perhaps be read to allow reference to the SPD, for example. As a practical matter, I suspect that the Employee Benefit Statement that is already produced (which presumably shows vesting) will form the basis for most of the new quarterly statements anyway. It is certainly safest to include this information until such time as the DOL issues regulations/model statements that permit otherwise.

JCT stands for Joint Committee on Taxation.

PPA Section 508. At least on my copy, pages 121-123 of the JCT explanation.

I agree - in general terms. You can still get burned - the ownership is either more than 50% of the value, or more than 50% of the voting power. So the adult children could own non-voting stock, for example, and therefore bring it back into controlled group status even though it might not appear to be so on the surface. Ditto with attribution from options, etc.. great stuff! Which is why we always refer them to their attorney to make the determination!

I had spent some time sifting through it yesterday, and had the same problem. The following is the closest I could find: http://www.dol.gov/ebsa/pdf/savingsfitness.pdf Hopefully, the DOL will provide some interim guidance, but in the absence of any, I'd like to think they'd be lenient on any reasonable attempt at good faith compliance.

And just to further muddy the waters, don't forget about "management function" affiliated service groups. See IRC 414(m)(5). These do NOT require cross ownership in any form, and neither group needs to be a "service organization."

The IRS has approved, in some volume submitter documents, such a "waiver" - or whatever term is used to define it - by the HC employees. Apparently, they let it go through in some prototype documents during the GUST restatement, but I have not personally seen a newer prototype where it is allowed, whereas I have personally seen it in VS documents. I'd stick with Planman's advice and check your document - it should be pretty clear as to whether permissible or not.

Although I'm not aware of a specific pre-approved fix for this in Rev. Proc. 2006-27, that doesn't necessarily mean that it is ineligible for correction. Depending upon facts and circumstances, I think this could still be submitted under VCP, or at worst as a "John Doe" submission.

I've seen the "waiver" approach used, and approved, for years and years. However, we recently had a case where the reviewer said that a "waiver" was not possible, but that the owner could sign a statement "foregoing receipt" of the benefit and that this would be accepted. Whatever works...

You can always make a vesting schedule better than the minimum required. The PPA just establishes the new requirements for "worst case" vesting that is allowable.

I wouldn't automatically assume that a real estate company isn't a service organization. Even though it isn't one of the automatic categories included as a service orgainization, that listing is not the exclusive means of determining whether or not a business is a service organization. It can also be considered a service organization if capital isn't a material income-producing factor. Under Proposed Reg. 1.414(m)-2(f)(1), capital is not a material income-producing factor if the income from the business comes promarily from fees or commissions for ersonal services performed by one or more individuals. Your situation probably isn't an ASG, but I'd just be cautious about assuming who is and isn't a service organization. I second the comment to use Derrin Watson's book as a reference tool! (And we always tell them to consult their attorney for such determinations anyway.)

Also see Notice 2005-95. But be aware that for plan terminations, the IRS is requiring that they be adopted. While I have this bully pulpit here, I'd like to put in a plug for those of you connected with ASPPA, IRS, etc., as something that could use some change, IMHO. I have yet to find anything positive to say about the foolishness of being required to amend a terminating plan in such situations. If you have operational compliance with the required amendment, or if it is completely inapplicable (the last one, for instance, had not had any minimum distributions to make, as no one working, or terminated within the last 15 years, or with a current account balance, had even been 65 years old) why in the world must everyone jump through these hoops? It accomplishes nothing as far as I can see. There, that's my rant for the day. But seriously, I know I'm not the only one with this complaint, and perhaps the powers that be could be persuaded to change this requirement?

I don't quite agree with your interpretation of the 5305-SEP form language. What the 5305-SEP form says is that it may not be used by a CG/ASG UNLESS all eligible employees of all members participate in the SEP. I agree that you can use 3 year eligibility to exclude those employees who do not have 3 years of service.

Let's suppose you have a sole prop who makes a $30,000 contribution to a PS plan. He has life insurance in the plan, TTC of $1,000.00. In this situation, he just deducts $29,000 on his 1040 when he files it. So far, so good. Now suppose that in a given year, he makes no contribution to the plan. There's still TTC, since premium paid from the fund. How does he report this on his 1040, since there's no otherwise normally deductible contribution from which to subtract it? As miscellaneous income on line (well, I don't have the form handy, but whatever line you use to report miscellaneous income?) I guess that's what I'd do in lieu of anything more concrete... Other?

Although many plans will actually send the check directly to the new institution, see 1.401(a)(31)-1, Q&A-4, which indicates that the method you outline is acceptable. Subject to specific requirements for the payee line of the check itself, outlined in the Q&A-4.

Qdrophile - I'd like to explore your idea of having such funds delivered to escrow to avoid these problems. This is, to me at least, an innovative concept, and I've never seen anything on this subject. But I like the idea as long as it works! How exactly would this work? If the closing doesn't take place, is there any specific IRS guidance or bulletproof legal principle that would avoid this having to be reported as a distribution, and allowing it to "revert" to the plan? To my non-legal mind, it would seem that it is nevertheless distributed from the plan, even though still held in "trust" for lack of a better term. Please excuse my probably inaccurate terminology, as I'm not familiar with the ins and outs of escrow funds/accounts. Thanks!

I'd call your attention to the point that Tom makes regarding the limitation year. Be a little wary about assuming that the plan and limitation year are the same. While that is nearly always true, it isn't always. Section 415 limits are determined on a limitation year basis. You might consider modifying his mantra to "The annual addition limit is an end of limitation year limit." I have a vision of Tom playing Puck, and leading the chorus in a Greek play, whispering this in your ear. Mixing Shakespeare and Greek tragedy (with qualified plans thrown in) seems bizarre enough for his considerable talents.

The following excerpt is from IRS publication 794, regarding determination letters. A "Final" Form 5500-EZ must be filed if the plan is terminated or if assets drop below $100,000 and you wish to stop filing Form 5500-EZ. This is not what the 5500 or EZ instructions allow. Absent further guidance, we would continue to have our clients file if they drop below the $100,000 level. However, I wondered if any of you have seen this, discussed with anyone at IRS, etc...