Belgarath

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!

I don't think that is what 401der is saying. If I understand 401der correctly the suggestion in this case would be to total the assets (I get 743,000) and assuming the marital property split is 50/50, the alternate payee is entitled to 371,500. I believe 401der is recommending in this case that the alternate payee take 100% of the house, checking, IRA, 401(k), and as little as possible of the NQ - in this case, 31,200 from the NQ. I have no opinion as to whether this is better than a straight 50/50 split of all assets, but I think this is what 401der is advocating. 401der - am I correctly understanding your position?

I have a question on this as it relates to new mandatory rollover rules. In a conversation with someone who handles 1099 reporting, it appears that the IRS imposes a penalty of $50.00 if a 1099 has an incorrect address. I'd like to explore how this relates to the new mandatory rollover rules. Suppose a Plan Administrator sends a distribution kit to the last known address of a terminated participant. Everything is done correctly, SPD's disclose mandatory rollover rules, 402(f) notice, etc.... After 30 days, or whatever "reasonable" period PA has selected has gone by, the PA processes a mandatory rollover to First National Bank of East Overshoe in the name of the participant. Everything has been done in accordance with the IRC, and the DOL safe harbor regulations. Now the PA does the 1099. But it turns out the address of record is incorrect. Not an unlikely occurrence in these situations. It appears PA is fined $50.00 when the IRS does its annual "audit" or whatever it is called. 1. Is this true, or am I misunderstanding? 2. Does the PA have any recourse? I am given to understand that they do not. 3. Can this expense be reasonably charged to the plan? Seems difficult if the participant's account has already been completely liquidated - I'd say no. And as an editorial comment, if the above scenario is correct, it really stinks if the PA is following the law and DOL safe harbor, and still gets fined. Comments or discussion? Thanks!

At the most basic level, if you have an option to buy stock, you are deemed to own the stock. As to what constitutes an "option" it gets trickier. I know there are a couple of Revenue Rulings addressing this - 68-601 and 89-64, but all this is something we refer to the client's attorney anyway. For some good information on this, I'd recommend Derrin Watson's book, "Who's the Employer - and although I haven't looked up this specific subject in Sal Tripodi's Erisa Outline Book, I'd be surprised if he doesn't have some good information as well.

It is because you file separate returns. Since her AGI is over 10,000, she cannot contribute to a ROTH. The exception would be if you are married an live apart for the entire taxable year, which doesn't appear to be the case here. See 1.408A-3, Q&A-3.

Aside from him increasing the (k) contribution, if she wants a plan of her own, why doesn't she sponsor a SIMPLE IRA rather than a SEP? The SIMPLE is limited only by dollars, not % of income, so she could actually contribute far more to the SIMPLE.

Kirk - yes, as you have correctly surmised, the technical term would be "optical rectitis." I just didn't want to get too graphic during family viewing hours. Honesty compels me to admit that I suffer from temporary attacks of this dreaded disease myself. But at least it isn't permanent, yet.

The only time that I actually saw an employer do such a letter (a good idea, and probably lots of them do such a letter and we just don't see it) they had a typo and inserted 8.3% instead of the 3.8% they actually contributed. Employees raised such a stink that the employer immediately terminated the plan to "fix the ungrateful @$#^$%^'s!"

Amen to that! And I try to avoid jousting with the DOL - their lances are keener, their armor is stronger, and their horses are heavier. Their eyesight is poorer, due to an optical ailment which I shall not name, but that's another issue altogether.

"A committee of persons who are capable of understanding and doing the job. A typical configuration is the head of HR, the CFO and another person to have an odd number." I fully agree with this approach for larger employers, and I assume this is what you are talking about. What would be your recommendation for a small employer - say 15 employees or less? These functions are generally all rolled into one person - the sole owner - or the 2 or 3 owners/partners in most such businesses. I think over the years I've seen maybe 4 plans in this size range where there has been an independent Plan Administrator appointed.

Corgi - like you, I know nothing whatsoever about HIPAA. But since you don't appear to agree with the advice of the previous posters, here's a website that should give you more information than you ever wanted to know. http://www.hhs.gov/ocr/hipaa/

Thanks!

The court apparently just ruled on this that IRA's can't be seized by creditors in bankruptcy proceedings. Also apparently not unlimited protection, the law shields them only to the extent "reasonably necessary for the support of the debtor and any dependent." Don't know if anyone has access to documentation on this - if so, do you know where I can look at it on line? I tried the Supreme Court website, but I could only find the oral arguments. Thanks!

My question is: how can the words "flammable" and "inflammable" mean the same darned thing? If that isn't "counter-intuitive" I don't know what is.

He became disabled and came back to work during the same plan year (2004).