Belgarath

No. A bona fide participant loan that satisfies the loan requirements is not a distribution - hence, you wouldn't add it back in.

We've just had a couple of "additional information" requests on this, and it's the first time this has ever happened. One reviewer was from Cincinnati, OH and the other was from Portland, OR. In questions 17 j of the 5310, they ask if any participant received a distribution within the past 5 years. If we answered yes, we had to indicate the largest amount distributed. In these two, both reviewers asked us to provide the name of the particpant who received the distribution, their allocations to their accounts for the prior 10 years, or if they had been in the plan for less than 10 all the amounts allocated to their accounts since their participation. In the one we are responding to today, the amount distributed was $15,000+. The other one was a similiar amount. On the first plan the participant had been in the plan since 1987, however, it was a takeover, and we had to go back to the Trustees to ask for information for the years where we do not have the information. Has anyone else run into this? And if so, what in %$**& is the IRS asking this for? This is a lot of work for nothing - we haven't talked to the reviewers yet to ask them what kind of a game they are playing, but before we do, I wanted to see if anyone else is encountering similar problems, or knows why they are doing this? Thanks.

Well, you can try, but I'd be surprised if it gets you anywhere. My understanding is that under Revenue Ruling 82-66, if a document defect isn't corrected by the end of the remedial amendment period, the amendment will only help for the plan year in which the amendment is adopted. So as in your situation, this leaves prior years hung out to dry. And the only way I know of to correct this is to submit under what is now VCP under the new Rev. Proc. 2003-44. And under Section 10(.07)(2) of that Rev. Proc., the fee in your situation is the Audit Cap fee, not the normal VCP fee. Good luck!

Thanks. Actually, my initial reference wasn't on point - after reading these further, I believe I should have referenced 1.413-2(a)(3)(iv), and I think this confirms RTK's answer that disqualification of one disqualifies the rest. But these are old regs, and maybe as Mbozek says the IRS only disqualifies the applicable plan, which surely would be more logical. P.s. Here's a reference I just found through CCH on the above. But it appears that you are at the mercy of the Service. Thank you both! TD, PEN-RUL ¶23,034, COLLECTIVELY BARGAINED PLANS AND PLANS MAINTAINED BY MORE THAN ONE EMPLOYER , (Nov. 09, 1979) However, in the rare case of total disqualification, hardship could result to the offending and nonoffending employers maintaining the plan. Although no exceptions to total disqualification are provided in the final regulations, it is expected the Service’s administration of these provisions may shelter innocent and nonnegligent employers from some of the harsh results of disqualification. Accordingly, in a proper case, the Commissioner could retain the plan’s qualified status for innocent employers by requiring corrective and remedial action with respect to the plan such as allowing the withdrawal of an offending employer, allowing a reasonable period of time to cure a disqualifying defect, or requiring plan amendments to prevent future disqualifying events.

Since this is a subject about which I know nothing, thought I'd solicit some opinions. Suppose you have a multiple employer plan. Under 1.413©-2, each employer is treated as having a separate plan for purposes of nondiscrimination testing. Now suppose company "y" fails. If there is a disqualification, how does this work? Is the entire multiple employer plan disqualified? Doesn't seem reasonable... but what are the mechanics of leaving disqualified money in plan, or getting it out if there's a disqualification, etc.? I'm not looking for specific cites - just some opinions from folks who may be more familiar with these issues! Thanks.

I would say yes. It is now a plan asset, and there's no exception I'm aware of in the law exempting these rollover amounts from the anti assignment/alientation requirements.

Blinky - I can think of at least one other possibility, depending upon what ultimately happens with estate taxes. And I'm no estate planner, so I'll leave it to the experts. Having said that... one of my pet peeves with large amounts of life insurance in a qualified plan is that you subject the entire death benefit to inclusion in the taxable estate, whereas if purchased outside the plan by a trust, estate taxation can generally be avoided. (And anyone who can afford a 412(i) plan can afford the insurance outside the plan!) I don't see this aspect getting much publicity. However, if they (Congress) do away with estate taxation, then even following proper incidental limits, you can still purchase more life insurance in a 412(i) than in a "regular" DB plan. So if you can buy it with tax deductible dollars, and you will be purchasing the life insurance anyway, could be very beneficial. Again, there are a lot of "ifs" there and a very small niche. As to the issue of not getting deductions as large in future years, I suspect that under the current interest rate environment, at least, annuity interest returns aren't substantially above the guarantees, so your high level of deductions would likely continue for quite some time.

1. Agree with Pax. It is generally a matter of convenience as to which is chosen. 2. Yes, it could be established mid-year, same as any other plan. But you might want to give consideration to having the initial plan year being a full year in order to avoid prorating the limits. My understanding is that the IRS has informally stated that this approach is ok. But I guess I'd want a determination letter if I were going to do this. Probably safest (or at least easiest) to simply prorate for the short year. 3. Yes, if the Ins. company allows it. 412(i) requires "level annual, or more frequent, premium payments..." 4. Not that I'm aware of. I'll just add this. Ignoring the debate about insurance products, etc. - I have nothing against 412(i) plans. In the right situation, with full disclosure and responsible administration, they can fill a niche and be very valuable for certain select situations. What I do have a problem with is how some of them are sold and marketed, and there are currently companies out there which actively promote some (in my opinion) ridiculous abuses. And I think they will get their wings clipped very shortly, as KJohnson mentions - and about time. I've also seen cases where the CPA making the recommendation to install the plan is licensed as an insurance agent, and receives the commissions. I just can't help myself - such an arrangement makes me feel very uncomfortable. FWIW, if you are going to have a sales force promoting these plans, I'd be exceptionally careful in any disclosure and signoffs, promotional literature, etc. - whatever you are going to do. I'll climb down off my soapbox now - I try not to stand up here too often, so I'm getting dizzy.

I agree. The documents I've seen allowing life insurance say something to the effect that by the Annuity Starting Date, or if later, by Retirement... I do believe that if the participant had a greater than cash out benefit, and was young enough to not require minimum distributions, and elected not to receive any benefit currently, that the insurance could be maintained, assuming incidental limits were met. But since this participant has had an "Annuity Starting Date" already, I agree that there's no way to keep it in the plan. But maybe there are IRS approved documents out there that have other provisions, although I'd be surprised if the IRS would allow it - I seem to remember that such provisions were based upon IRS provided LRM language.

Hi Blinky - I'd interpret the instructions (which I just got out and looked over) to require the final form for the MP plan for 2001. Under the last sentence in the "who may not have to file" section on page 2 of the instructions, it includes the words "...or distributed to another plan." FWIW.

I haven't checked the form instructions, but I seem to remember that a final 5500 for an EZ filer must be filed REGARDLESS of the amount of assets. If so, the issue of whether to count on accrual or cash basis is moot.

It is owned by ABC as Trustee. If Bob Doe dies, the Trustee is responsible for distributing the plan's death benefit to Bob's beneficiary(ies) that he has on file with the Trustee. Depending upon the plan language and whether there are other participants, etc., the entire assets are not necessarily payable to Bob's plan beneficiaries. You'll have to check the document language which will define what the death benefit is, and how the determination is made as to whom the benefit is payable.

This would be under the 1.401(a)(4) regulations - specifically I believe it would be a "right or feature" under -4(e)(3) of the above cited reg. It shouldn't be a problem, unless the only life insurance product offered, for example, had a minimum premium that was too high for the rank and file to purchase it. Then it would fail to meet the "currently and effectively" available standard under the regs.

My "off the cuff" opinion, for what it is worth, is that it is effective for reemployment initiated more than 60 days after 12/12/94. Although the plan has the two year period to come into compliance, I don't think that relieves the employer of the obligation to make up the requisite amount. Fortunately I haven't run into such a situation, so have been able to avoid thinking about it! I'll be interested to see what others think.

I agree that there's no problem if the sole reason for exceeding the 50% limitation is a drop in asset value. It's probably stated more clearly in English somewhere else, but take a look at DOL Reg. 2550.408b-1(f), which essentially says that it is ok if you satisfy the requirements immediately after origination of the loan.

Thanks. This is new for them, too, so maybe this will be changed in the future. Maybe someone at ASPA should raise this issue at the podium at the next ASPA conference?

Haven't run into this yet, but undoubtedly will soon. Line 3C on the 5310 says that if you don't have a determination letter, you have to submit initial plan, all amendments, etc.... Under IRS Announcement 2001-77, there will be batches of Prototype and Volume Submitter plans where adopters no longer file for determination letters, and instead use the document sponsor's Opinion or Advisory letter as a determination letter. My question is this: has anyone talked to the powers that be in the Plan Termination unit at IRS to determine if such plan adopters can, under Line 3C(1), answer "yes" and submit a copy of the most recent Opinion/Advisory letter plus subsequent amendments, or must they answer "no" and be forced to go back to day one, or at least to the last actual determination letter? It would seem consistent with the spirit of 2001-77 to allow the former rather than to require the latter, but I don't know. Anybody have any information/experience? Thanks!

What does the document say? Since the Safe Harbor requirements are to make sure that the NON highly compensated employees receive their required minimum, I can't see that there would be any violation of the law. HC are NOT required by law to receive a safe harbor nonelective. And if the document contains language permitting such a waiver, then you should be all set. But if it doesn't, then you are stuck.

Included. So, for example, participant has vested account balance of 50,000, with a 5,000 outstanding loan. When calculating the maximum loan allowable, you'd use 50% of 50,000, not 50% of 45,000. So maximum would be 25,000, reduced by highest outstanding balance in the last 12 months, etc...

Just wanted to check something regarding the attribution rules for adult children under IRC 1563(e)(6)(B). Controlled group questions are generally posed in terms of stock ownership. Yet the code seems, to me, to indicate that the determination of ownership of the "more than 50%" requirement is based upon the ownership of VOTING stock, or VALUE. So am I correct that if you have a father and adult son, and the stock ownership is 50/50, yet the father's stock is all voting stock and the son's is not, that the son's stock will nevertheless be attributed to the father, in spite of the fact that the number of shares owned is 50/50? I always refer clients to their attorneys to get these questions answered, but I like to try to know what I'm talking about... Thanks!

Saw that this just passed the house. I have a couple of questions, for anyone who follows this stuff: 1. If I'm reading it correctly, it would require quarterly statements for any plan that allows participant directed investments. Other opinions? 2. If I'm correct, does anybody have "contacts" in the industry or on the Hill who have a feeling for how likely this is to pass, in current form or something reasonably close to it, the Senate and have the Head Cheese sign it into law? A lot of plan currently allow participant directed investments, yet only require annual statements. A quarterly requirement would be a pain. Any input/thoughts appreciated!

I don't think so, but I hestitate to make a statement that is too definitive without double checking. The "Uniform Lifetime Table" in the 2002 regs replaced the "Uniform Table" in the 2001 regs. And my understanding is that you MUST use the new "Uniform Lifetime Table" for 2003 and beyond.

You might take a look at IRS Form 4461, 4461-A, and 4461-B. These should get you headed in the right direction.

I have seen a couple of BOY target plans, but they weren't set up the way you decribe. The limitation year had an overlap, to avoid some of the problems you mention. So although the plan year might be 1-1-03 to 12-31-03, the limitation year would be 1-2-02 to 1-1-03. I'm not sure how a plan such as you describe could be justified - I can't see a way to do it, at least.

Archimage - I've pasted in the following excerpt from DOL 29 CFR 2520.104-46. The original question was whether the additional disclosure on the SAR was necessary. I interpret this that it is. In other words, assuming the investment is in a "qualifying asset" the additional disclosure on the SAR is NOT required if the participant is furnished with the statement, at least annually, from the company(ies) under which they have their participant directed accounts. See the last paragraph of the excerpt. But from the sound of this question, they are not being furnished with such a statement, hence the SAR disclosure is required. This shouldn't be a big deal - they still qualify for the audit waiver, it's just that they aren't exempt from the SAR disclosure that is required from most other "qualifying assets." At least that's how I read it. But again, I may just be paranoid. Of course, I wouldn't be paranoid if everyone wasn't out to get me... (a) General. (1) Under the authority of section 103(a)(3)(A) of the Act, the Secretary may waive the requirements of section 103(a)(3)(A) in the case of a plan for which simplified annual reporting has been prescribed in accordance with section 104(a)(2) of the Act. (2) Under the authority of section 104(a)(3) of the Act the Secretary may exempt any employee welfare benefit plan from certain annual reporting requirements. (b) Application. (1)(i) The administrator of an employee pension benefit plan for which simplified annual reporting has been prescribed in accordance with section 104(a)(2)(A) of the Act and Sec. 2520.104-41 is not required to comply with the annual reporting requirements described in paragraph © of this section, provided that with respect to each plan year for which the waiver is claimed -- (A)(1) At least 95 percent of the assets of the plan constitute qualifying plan assets within the meaning of paragraph (b)(1)(ii) of this section, or (2) Any person who handles assets of the plan that do not constitute qualifying plan assets is bonded in accordance with the requirements of section 412 of the Act and the regulations issued thereunder, except that the amount of the bond shall not be less than the value of such assets; (B) The summary annual report, described in Sec. 2520.104b-10, includes, in addition to any other required information: (1) Except for qualifying plan assets described in paragraph (b)(1)(ii)(A), (B) and (F) of this section, the name of each regulated financial institution holding (or issuing) qualifying plan assets and the amount of such assets reported by the institution as of the end of the plan year; (2) The name of the surety company issuing the bond, if the plan has more than 5% of its assets in non-qualifying plan assets; (3) A notice indicating that participants and beneficiaries may, upon request and without charge, examine, or receive copies of, evidence of the required bond and statements received from the regulated financial institutions describing the qualifying plan assets; and (4) A notice stating that participants and beneficiaries should contact the Regional Office of the U.S. Department of Labor's Pension and Welfare Benefits Administration if they are unable to examine or obtain copies of the regulated financial institution statements or evidence of the required bond, if applicable; and © in response to a request from any participant or beneficiary, the administrator, without charge to the participant or beneficiary, makes available for examination, or upon request furnishes copies of, each regulated financial institution statement and evidence of any bond required by paragraph (b)(1)(i)(A)(2). (ii) For purposes of paragraph (b)(1), the term ``qualifying plan assets'' means: (A) Qualifying employer securities, as defined in section 407(d)(5) of the Act and the regulations issued thereunder; (B) Any loan meeting the requirements of section 408(b)(1) of the Act and the regulations issued thereunder; © Any assets held by any of the following institutions: (1) A bank or similar financial institution as defined in Sec. 2550.408b-4©; (2) An insurance company qualified to do business under the laws of a state; (3) An organization registered as a broker-dealer under the Securities Exchange Act of 1934; or (4) Any other organization authorized to act as a trustee for individual retirement accounts under section 408 of the Internal Revenue Code. (D) Shares issued by an investment company registered under the Investment Company Act of 1940; (E) Investment and annuity contracts issued by any insurance company qualified to do business under the laws of a state; and, (F) In the case of an individual account plan, any assets in the individual account of a participant or beneficiary over which the participant or beneficiary has the opportunity to exercise control and with respect to which the participant or beneficiary is furnished, at least annually, a statement from a regulated financial institution referred to in paragraphs (b)(1)(ii)©, (D) or (E) of this section describing the assets held (or issued) by such institution and the amount of such assets.