Belgarath

No, I absolutely do not read it to allow this. No way, no how, nyet!

Sorry, but I don't even find a Section 635 of PPA. Are you referring to is Section 612? And I don't read that to allow avoiding penalties for late submission of contributions - it is concerned with certain (not all!) transactions between the plan and a party in interest involving securities and commodities. SEC. 612. CORRECTION PERIOD FOR CERTAIN TRANSACTIONS INVOLVING SECURITIES AND COMMODITIES. (a) Amendment of Employee Retirement Income Security Act of 1974.-- Section 408(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(b)), as amended by sections 601 and 611, is further amended by adding at the end the following new paragraph: [[Page 120 STAT. 976]] ``(20)(A) Except as provided in subparagraphs (B) and ©, a transaction described in section 406(a) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period. ``(B) Subparagraph (A) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security (as defined in section 407(d)(1)) or the acquisition, sale, or lease of employer real property (as defined in section 407(d)(2)). ``© In the case of any fiduciary or other party in interest (or any other person knowingly participating in such transaction), subparagraph (A) does not apply to any transaction if, at the time the transaction occurs, such fiduciary or party in interest (or other person) knew (or reasonably should have known) that the transaction would (without regard to this paragraph) constitute a violation of section 406(a). ``(D) For purposes of this paragraph, the term `correction period' means, in connection with a fiduciary or party in interest (or other person knowingly participating in the transaction), the 14-day period beginning on the date on which such fiduciary or party in interest (or other person) discovers, or reasonably should have discovered, that the transaction would (without regard to this paragraph) constitute a violation of section 406(a). ``(E) For purposes of this paragraph-- ``(i) The term `security' has the meaning given such term by section 475©(2) of the Internal Revenue Code of 1986 (without regard to subparagraph (F)(iii) and the last sentence thereof). ``(ii) The term `commodity' has the meaning given such term by section 475(e)(2) of such Code (without regard to subparagraph (D)(iii) thereof). ``(iii) The term `correct' means, with respect to a trans- action-- ``(I) to undo the transaction to the extent possible and in any case to make good to the plan or affected account any losses resulting from the transaction, and ``(II) to restore to the plan or affected account any profits made through the use of assets of the plan.''. (b) Amendment of Internal Revenue Code of 1986.-- (1) In general.--Subsection (d) of section 4975 of the Internal Revenue Code of 1986 (relating to exemptions), as amended by sections 601 and 611, is amended by striking ``or'' at the end of paragraph (21), by striking the period at the end of paragraph (22) and inserting ``, or'', and by adding at the end the following new paragraph: ``(23) except as provided in subsection (f)(11), a transaction described in subparagraph (A), (B), ©, or (D) of subsection ©(1) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period.''. (2) Special rules relating to correction period.--Subsection (f) of section 4975 of such Code (relating to other definitions and special rules), as amended by sections 601 and 611, is amended by adding at the end the following new paragraph: ``(11) Correction period.-- [[Page 120 STAT. 977]] ``(A) In general.--For purposes of subsection (d)(23), the term `correction period' means the 14-day period beginning on the date on which the disqualified person discovers, or reasonably should have discovered, that the transaction would (without regard to this paragraph and subsection (d)(23)) constitute a prohibited transaction. ``(B) Exceptions.-- ``(i) Employer securities.--Subsection (d)(23) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security (as defined in section 407(d)(1)) or the acquisition, sale, or lease of employer real property (as defined in section 407(d)(2)). ``(ii) Knowing prohibited transaction.--In the case of any disqualified person, subsection (d)(23) does not apply to a transaction if, at the time the transaction is entered into, the disqualified person knew (or reasonably should have known) that the transaction would (without regard to this paragraph) constitute a prohibited transaction. ``© Abatement of tax where there is a correction.--If a transaction is not treated as a prohibited transaction by reason of subsection (d)(23), then no tax under subsections (a) and (b) shall be assessed with respect to such transaction, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment. ``(D) Definitions.--For purposes of this paragraph and subsection (d)(23)-- ``(i) Security.--The term `security' has the meaning given such term by section 475©(2) (without regard to subparagraph (F)(iii) and the last sentence thereof). ``(ii) Commodity.--The term `commodity' has the meaning given such term by section 475(e)(2) (without regard to subparagraph (D)(iii) thereof). ``(iii) Correct.--The term `correct' means, with respect to a transaction-- ``(I) to undo the transaction to the extent possible and in any case to make good to the plan or affected account any losses resulting from the transaction, and ``(II) to restore to the plan or affected account any profits made through the use of assets of the plan.''. © <<NOTE: 26 USC 4975 note.>> Effective Date.--The amendments made by this section shall apply to any transaction which the fiduciary or disqualified person discovers, or reasonably should have discovered, after the date of the enactment of this Act constitutes a prohibited transaction. [[Page 120 STAT. 978]]

Lori - there is truly no disrespect meant by this response, so if it sounds that way, I apologize. Are you a TPA? And if so, do you really not have any professional liability coverage for your firm? If you aren't a TPA, then you probably don't need to know all the possible reasons why it might come into play. But consider just one small example - your actuary (yeah, let's pick on the actuaries) totally misapplies the law/regulations, and advises the client to either over contribute or under contribute by several million dollars, as well as blowing the nondiscrimination tests for several years running. Plan is subsequently disqualified by the IRS. While the client is liable for the penalties, how many clients do you know who wouldn't then require reimbursement? If you have such clients, I'd love to know where to find some of them. Ours attempt to hold us liable for the mistakes THEY make. Our world is fraught with peril...

Do you propose carve-out plans for Thursday?

Many people just use the term E&O loosely to refer to any kind of professional liability or malpractice policy, or use the terms interchangeably. I'm guilty of this myself. Fortunately, we never make mistakes.

Good gravy! I yam shocked! Someone should give you a good dressing down.

This entire line of thinking should be squashed.

Be careful - you'd have to have a non-model SEP. I don't think this would fly under the current IRS model 5305-SEP form.

I believe it depends upon the plan document language. See ERISA 402(b)(3), which specifies that the plan shall have a procedure for amending the plan, "and for identifying the persons who have the authority to amend the plan..." I would guess that most plans give that authority to the employer, or any person or persons to whom the employer delegates that authority.

We take Blinky's and Effen's approach. However, we would consider accepting a DB plan if they have a SEP, IF they sign a hold harmless after consultation with their attorney. But we first explain, as Blinky mentions, that the combined plan situation brings them under the combined plan deduction limitation. Since the DB cost (in these types of cases) nearly always exceeds 25%, then the SEP contribution is nondeductible. This subjects them to the nondeductible contribution penalty tax for EACH year that it remains nondeductible. Since the DB cost is likely to exceed 25% for many years, the SEP contribution remains nondeductible for many years, and this gets expensive. Once we explain this, and once they go to their attorney (attorneys generally hate hold harmless statements) they never install the plan - they wait until the next year. But I suppose if they had made a very small contribution to the SEP, that the larger DB deduction could make it all worth it in certain very select situations. We just haven't had one where it works out.

Yes, SIMPLE-IRA plans are required to be maintained on a calendar year basis. For a corporation with a fiscal year other than calendar year, they take their deduction for the fiscal year in which the calendar year ends.

I believe they can be excluded - subject to normal coverage testing, of course.

I'm hesitant to opine without full information on the plan and limitation year, and whether this is really about 415 limits or is it about deductions. Assuming you are just talking about 415 limits, and assuming that you really meant the plan year begins 10-1-05 (and not 10-1-06), and assuming the limitation year is the same as the plan year (and therefore ends in calendar year 2006) then yes, the 44,000 is ok. You could refer the TPA to 1.415-6(a)(2), and proposed reg 1.415(d)-1(b)(2)(iii). I would ask the TPA to give you a detailed explanation, with references to the the IRC and the plan document where appropriate. The TPA may be correct depending upon the situation.

Veba - I neither dispute my lack of imagination, nor do I dispute that Schedule A filing is the responsibility of the Plan Administrator. However, if you read my response a bit more carefully, you'll see that I said, "...since the insurance company is required to provide the necessary information to complete a schedule A..." See DOL 2520.103-5. In my experience, I haven't had much trouble getting this data, but my experience with this is limited, so I yield to your expertise in dealing with insurance carriers to obtain the required data.

This is such a difficult issue. Maybe ASPPA et al can lobby IRS/DOL/PBGC to have all such accounts turned over to the PBGC. This will help the PBGC deficit if the employees never demand the funds, and it takes a difficult legal burden off the Plan Administrator, and puts ID verification in the hands of the PBGC, which is a more appropriate place for it! I don't know if the PBGC regs as directed under PPA will cover this or not. Hopefully yes - has anyone had conversations with folks there to get any feeling for what is planned? Sorry, this is no help in answering your question, just a bully pulpit for expressing what I'd like to see on these situations.

The policyholder being the Trustee/Plan Administrator, I presume. Yes, since the insurance company is required to provide the necessary information to complete a schedule A, then I can't imagine that they would refuse. A threat of complaint to the DOL/IRS might have a salutary effect if they are uncooperative, but I can't imagine why they wouldn't cooperate with the Plan Administrator/Trustee. If it is an individual participant, then I'd expect they could only provide to the Administrator/Trustee. Don't know if a state banking & insurance department would be helpful or not. Also, I believe most insurance companies utilize some sort of form disclosing the precise commissions - which must be approved by the plan fiduciary.

Under IRC 72(p)(3), the interest deduction is denied if the loan is made to a key employee as defined in 416(i). So I think the owner is out of luck.

Yes. See 416(g)(2)(A)(i)(I). And for these purposes, all members of a controlled group are treated as a single employer.

My 2 cents worth... "I have a DB plan that has two participants, both HCE's. In addition there is a 401(k) plan that covers 3 particpants, the two in the DB plan plus another HCE. In the past, the two participants in the DB plan have fully funded their required DB contribution (whcih exceeded 25% of pay) and put the maximum 401(k) deferrals in the 401(k) plan. The newest HCE is eligible for the 401(k) plan for the current year, but not the DB plan. The DB contribution for the two other HCE's does exceed 25% of all 3 HCE's compensation." I think that at this point, the "combined deduction" limit is irrelevant, since elective deferral only plans are ignored under 404(a)(7)©(ii). Now the third employee, who is not eligible under the DB plan, is going to get a discretionary employer contribution under the DC plan. It seems like a bit of a stretch to assert that this DC contribution is nondeductible under 404(a)(7)©. Do you just use the disaggregation logic to assert that that the deferrals only are a separate "plan" and that therefore, in this situation, there is no overlapping participation between the DC plan and the DB plan? And since of course we Bosox fans stick together, I must also agree with Andy that the lack of guidance is somewhat distressing. There is a lot of confusion on this issue, rightly or wrongly, with very bright and experienced people having very definite and yet opposing opinions. It really doesn't seem like it would be too challenging for the IRS to provide specific guidance, and clear this up once and for all.

What is your relationship to this plan? Are you a participant? If so, you should be asking this of the Trustee/Plan Administrator. Are you the employer? If so, you should be asking your TPA. If you are an insurance agent, you'd want to check with the Trustee/Plan Administrator (who will likely refer the question to the TPA). Friend, advisor, accountant, etc.? - check with the Trustee/Plan Administrator. "How do I do it" is not a question that can be (or should be) specifically answered for you on these boards, because the answer is very plan-specific. As previous posts already indicate, yes, a plan can allow life insurance, and yes, there are rules. Lots of them! But to apply them to a specific plan situation requires the answer to be given by someone familiar with the specific provisions of the specific plan in question.

They have to come out of current pay.

If 'twere me, I'd have him take the RMD from the plan, then file the form 5329 with the IRS (without the penalty check) and ask them to waive the penalty. The IRS has generally appeared to be reasonable about this, but you never know... There's also a potential fix under Revenue Procedure 2006-27, but it involves a VCP filing, so I'm dubious that it would be worth it for one missed RMD.

Interesting question. I agree with Qdrophile that the guidance isn't terribly up-front on this. If you look at the preamble to the final DOL regs, published in the Federal Register on 12-19-05, page 75280, you'll see reference to the proposed regs from the IRS regarding current deferrals made from "differential pay." Essentially, as I understand it, some employers continue to pay a portion of the employee's salary while they are on active duty. If so, then this would have allowed current deferrals for the differential pay. The actual final DOL regs dealing specifically with pension plans, sections 1002.259 through 1002.267 do not address this. I'd say that the person on active duty cannot submit a current deferral check - this can only come during the permissible make-up period once re-employed. And as I recall the HERO act, although it applies to IRA contributions, wouldn't permit deferrals to a 401(k) from normal military pay.

An employee may defer to both, but the two are aggregated for 402(g) purposes. (In other words, total deferrals between the two can't exceed the 15,000 plus catch up if applicable.) Don't get 402(g) confused with 415 here - 415 can get a little trickier.

I believe it is a no-no for us (TPA's) to discuss specific fees. I'll go out on a limb somewhat, and say that based upon what I have seen and heard (so this is rather unscientific) that the fee you mention is pretty high. I'm not familiar with any source document/report/survey that gives the information you are looking for, but there's probably something somewhere!