Belgarath

I was doing a search due to a similar question, and wondered how you felt about the following solution: Employer simply writes a check to the Trustee of the plan for 25,000. Now it is a plan asset. Trustee simply turns around and endorses the check to the First National Bank of East Overshoe FBO John Doe IRA, or whatever. Plan properly reports the distribution, employer deducts the contribution, and everyone is happy. If there's no rollover and 20% withholding is required, do it with 2 checks insted of one. Only potential hole in this that I can see might be the plan language on how a contribution is allocated - this 25,000 isn't really being "allocated." On the other hand, it seems like a reasonable accomodation, particularly where this preserves plan assets for the remaining participants by not forcing a liquidaton of assets at a loss. Hard to see how the Regulatory Powers would get upset over this?

Yes, I believe the 410(b)(6)© provisions allow you to exclude the surgery center employees for coverage testing purposes.

I wouldn't make a blanket statement that plans which use leverage to buy real estate are exempt from UBTI. There are several restrictions - see IRC 514©(9)(B). As to why the difference between this and IRA's, sorry, I haven't a clue.

Thanks all.

Suppose you have an LLC, taxed as a partnership. Therefore, the pension contribution is calculated based upon the earned income. This would normally be the line 14a on the Schedule K-1, and then you take the 1/2 SE tax reduction, and perform the reduced earned income deduction. A question came up on this, and since I don't do tax filings, I'd like to solicit opinions. Apparently, the CPA is saying that the contribution (let's say 40,000) on behalf of the partners should be on Line 13, and therefore the line 14a figure is already reduced by the 40,000. For example, if the earned income after the 1/2 SE tax reduction is 180,000, and the partner will receive a 40,000 contribution, the CPA is saying that the Line 14a should be 140,000, not 180,000. This doesn't seem right to me. As I read the Schedule K-1 instructions for line 13, yes, it does seem that the 40,000 should be reported here, but this is so the partner can deduct the 40,000 on his 1040. It does NOT seem to me that it should reduce the Line 14a amount. Any thoughts on this? Thanks!

I tend to agree with Alf here. But whether the "benefits" to the employer outweigh the costs/liabilities is subjective at best. Certainly there are many benefits to the employees. But how to quantify the benefit to the employer that is received through increased employee satisfaction/productivity/recruitment/retention is pretty tricky. If they have a stable workforce without tons of turnover, then it might tip the scales toward installing such a plan. Again, depending upon demographics and normal contribution patterns to the profit sharing plan, a safe harbor might possibly be appropriate with a corresponding reduction in the contribution otherwise made to the PS - this could do away with some testing issues and reduce administrative burden/costs, which might make the CEO happy. You might try some of the big mutual fund or insurance companies. They probably would be more than happy to provide you with marketing materials in this area, at no charge.

If you want to look at the PT exemption that SoCal mentions, see PTE 92-6. You also want to be careful here - the PTE is based on cash surrender value, but the IRS, in the guidance issued in February of 2004, is concerned with Fair Market Value. So even if you satisfy the PT exemption, you could run afoul of the IRS guidance if your cash surrender value is less than your fair market value.

I find these discussions very interesting. What happens in a compressed time situation where there's no "neglect" by the original AP. For example, Mr. & Mrs. Bumbledicker get divorced. Divorce settlement calls for a 50/50 split of the pension payments. Whilst the QDRO is being drafted, but has not yet been submitted to the Plan Administrator, Mr. Bumbledicker, who will attain Normal Retirement Age in 1 week, marries his 21 year old secretary, the former Miss Riggafrutch. Mr. Bumbledicker retires immediately, the better to enjoy the pleasure of his new spouse's company aboard his yacht, the Enron Star. After receiving his first payment (at the 415 maximum, of course) he dies. Does the newly widowed Mrs. Riggafrutch/Bumbledicker continue to receive the entire J&S payment, or does the QDRO, submitted a month later, require that 50% of this benefit go to the gay divorcee, if this takes place in Circuits 3-5? Or is this unanswerable until such situation is placed before the Courts?

They can't just pay an eligible rollover distribution over 200.00 without a notice. The 402(f) notice requirement still applies. Oops - I see Rcline already replied.

De gustibus, you know, but if I were an employer, I'd never allow anything other than a lump sum option for any and all payouts. Subject, of course, to any mandatory QJSA requirement. Any participant or beneficiary who wants an installment payment can go out and buy it themselves, and the plan sponsor is spared the hassle of getting quotes, information, etc...

http://www.irs.gov/pub/irs-regs/13024104.pdf

Depends on the lunch. I often find I'm eating crow. Sounds like yours will be much better!

I agree with Kirk - it's impossible to make such a determination from the limited information given. Depending upon specific facts and circumstances, I think it is possible that there could be a PT, but generally unlikely. Reviewing the examples 2550.408b-1 (link attached) should prove helpful. And some of the folks here may be able to give you references to specific court cases, perhaps. http://www.dol.gov/dol/allcfr/ebsa/Title_2...2550.408b-1.htm

WOW! I don't know securities rules, but would seem likely that this violates some sort of NASD or SEC rules? Shouldn't the broker be concerned about license revocation/penalties/whatever? I'm not sure how this should be handled. I'm inclined to think that the the Plan Aministrator must write to the participant, explain that it was an unauthorized distribution, and request return of the funds plus interest. If the money is not returned, I can't see that most PA's would actually bring suit, because what is gained? The funds are returned, then immediately paid out again, as the participant is now actually entitled to a distribution. Suppose the broker is sued? Suppose the broker repays the plan the $10,000.00. Is the plan still liable to pay the participant $10,000.00? Even though the original payout was improper timing, the amount wasn't incorrect, and it was in fact paid from plan assets. So you go around and around to come back to the place you started. I'm not necessarily saying this is incorrect, but I wonder of the PA has the ability to refuse to initiate legal action if the costs outweigh the benefit? It isn't like the participant got overpaid. Humor me for a moment - is the IRS really going to disqualify a plan for this if the money isn't recovered, to be paid right back out again? I've never seen a real life situation like this, so I truly don't know how much room there is for a common sense solution.

Midas - here's the first part of your original question, which I was addressing: "I have a plan failing coverage. The adoption agreement does provide for Discretionary Non-Elective and does not provide for a Discretionary QNEC (only a QNEC to pass adp/acp testing). If I want to make a QNEC, as an employer contribution to increase the total benefit to pass the average benefits test, can you make the QNEC even though the document does not allow for a QNEC?" When I look at (g)(2), it does indeed say that a corrective amendment may retroactively increase accruals or allocations for employees who benefited under the plan during the plan year being corrected, ... However, if you move on the (g)(3)(i), it says that the amendment will not be given retroactive effect unless it satisfies each of the applicable requirements of (g)(3)(ii) through (vii). Moving on to (g)(3)(vii)(A), it states that "In the case of a 401(k) plan, a corrective amendment may only be taken into account...for a given plan year to the extent that the corrective amendment grants qualified nonelective contributions within the meaning of 1.401(k)-6 (QNECs) to nonhighly compensated nonexcludable employees who were not eligible employees within the meaning of 1.401(k)-6 for the given plan year..." I would still interpret this as not allowing the QNEC you mentioned as a valid correction for employees already eligible, as I stated previously. Can you provide your reasoning for believing otherwise? Anyone else have another opinion? I freely admit that I find the (a)(4) regulations challenging... As to the prototype comment, it is simply meant as a caution - a prototype document generally cannot be amended to provide an option that is not already an allowable choice in the adoption agreement without removing it from prototype status. Sometimes there will be an "other" category in the applicable adoption agreement section where such an amendment can be made. But sometimes not, so it is something to be watched. Of course, I just realized that it isn't a 410(b) coverage requirement that you're concerned with correcting, so I think that negates my answer, as the (g)(3)(vii) is concerned with a 410(b) failure, and you are apparently looking at the average benefits failure. Would help if I read the question carefully...

I can't say what the reasoning might be, but yes, every TPA I know does it, 'cause it's required.

I'm not aware of any guidance that would allow this. Is it by any chance an unincorporated plan, where they could delay the deferral until after the close of the year for the owner(s)?

Midas - if you take a look at 1.401(a)(4)-11(g)(3)(vii)(A), this seems to me to say that you can only use the retroactive amendment to provide QNEC's to employees who were NOT (my emphasis) eligible. So it doesn't seem to me that you can simply increase or provide a QNEC to participants who were already eligible and receiving contributions. I also think Rclines's point is well taken that if whatever option is ultimately chosen isn't already present in the adoption agreement, that you're tossing it out of prototype status. ?? I hate 401(a)(4)!!

I'm not entirely sure what you are asking - you may be rolling a couple of different questions into one here. The basic restrictions for a PENSION plan - that is, no distribution allowed until retirement, termination of employment, disability, death are in 1.401-1(b)(1)(i). For plan termination, see 401(a)(20). If you are talking about premature distribution penalties for a distribution prior to age 59-1/2, with some exceptions, see 72(t). That should get you started.

FormsRmylife - thanks for the cite. I never realized this - since SEP's are exempt from most of the other ERISA reporting and disclosure requirements, I always assumed (and you know what that leads to!) that they weren't ERISA plans. What practical application does this have? I mean, there's apparently no bankruptcy protection such as a "normal" Title I plan would have, no Trust requirement, no QJSA, etc... Thanks again.

I think there are two separate issues here: 1.What is and isn't a cashout benefit, and once you have determined that it IS a cashout benefit subject to an involuntary payout, 2. Is it subject to mandatory rollover rules. So, you have an account balance of 800, with an additional rollover balance of 7,000. For part one, your plan can be written to define this as a cashout benefit by NOT counting the rollover account, or it can be written to include the rollover when determining whether it is a cashout, in which case it is over 5,000 and no longer a cashout. Assuming you choose the former (as many people did so that they would be able to force a payout on small account balances) it is a cashout benefit subject to involuntary payout. Now you must COUNT the rollover amount to determine if you are over the $1,000 threshhold, as referenced by Kirk. Since you are over 1,000, mandatory rollover rules apply.

I agree with WDIK that this can't be corrected as a plan document failure. And while I will leave it to the ERISA attornies for a definitive answer, I respectfully disagree with FormsRmylife that a SEP is an ERISA plan just because there are employer contributions. I think the employer is stuck - pay up, then check with counsel to see if there is recourse against the broker. Or better yet, check with counsel first.

1.416-1, M-17. Hope it went well!

I think it's actually closer to 1. So the benefit at retirement is (x). A level premium to the annuity policy, based upon a guaranteed interest rate and number of years to fund the required cash value at retirement produces a premium of (pick a number - let's say $5,000) which is paid into the annuity policy. And his accrued benefit is then the cash surrender value of that policy. At least that's how I understand it. Gary, is that what you are saying?

Thanks for the responses. And based upon this, I questioned further how and when the penalties were imposed. Turns out the folks I was talking with were incorrectly lumping this situation in with a situation where there is a TIN/Name mismatch. Whew!