Dougsbpc

We administer a 401(k) plan where the employer mistakenly funded an employer contribution to one of the participants old SEP account. I would think the proper thing to do is have the trustee send a letter to the IRA custodian indicating the mistaken deposit. Then we should determine earnings/losses on the deposit and have them either make a payment out of the SEP account for $xxx to the trustee or to the plan directly. The IRA custodian is claiming the only way they can do this is by claiming the deposit is a taxable distribution. Does anyone have experience with this? Thanks.

A group of 12 physicians adopts a 401(k) plan and wants to adopt a DB plan. All are HCE's and key from compensation and ownership. No employees yet. They may hire 1 or 2 employees in the future. Only 4 want to participate in the DB but others will participate at a minimal level to pass 401(a)(26). The meaningful benefit of 1/2% of pay per year has appeared in a few memos, especially the June 2002 IRS memo. It appears from reading the memo that only non-owner nhce's would have to be provided at least 1/2% of pay to be considered as benefiting. In this case, any nhce's they hire would have much higher benefits than 1/2% of salary. Question: suppose 2 more physicians want to participate at a level of less than 1/2% of pay. Would they pass 401(a)(26)? Or must they receive at least 1/2% of pay to be considered?

A 401(k) plan does not allow concurrent loans. However, it does allow participants to refinance loans. The plan also allows for extended amortization for loans used to purchase real estate. A participant took a loan 7 years ago at a much higher rate than now. He has 23 years remaining. He wants to refinance the existing loan to the current lower rate and expects the new refinanced loan to have 23 remaining years. I could be wrong, but I contend that the new refinanced loan repayment cannot exceed 5 years. This because the new refinanced loan is not for the purchase of a principal residence at this time. I checked the plan document and looked in other places but could not find anything on point regarding this. Has anyone run into this before? If so, do you agree the new loan cannot exceed 5 years?

Thanks Andy. We will need to be careful with 401(a)(4) and past service credits. I think it will not be a problem in this case as the same employees would simply be resuming benefit accruals from the prior year.

Thanks David They should not have a 415 problem going forward as nobody accrued more than $900/mo per year of participation and they never had a DB plan before the prior plan. Their intention will be to have about the same level of benefits they had in the prior plan.

A small professional service employer had a DB plan for 5 years, terminated it and distributed benefits by 12/31/09. They are now seeing the tax bite of not having the plan and want to adopt a new DB plan effective for 2010. Is there a problem adopting a new plan within one year of terminating the prior plan?

We inherited a DB plan that has a 100% J&S Normal Form of Benefit for married participants and single life for unmarried. For terminated participants, must we provide the Qualified Optional Survivor Annuity? I would think not since the normal form is 100% J &S.

Benefits were distributed a few months after the termination date. That was a long time ago already. Back a few years ago we had a DC plan termination that took almost two years. Benefits were not distributed with that plan until after the DL letter was secured. We did not hear from the IRS after the initial letter indicating they received the DL request. The client got impatient and started a calling Frenzy and screamed at the IRS every day for a week. Immediately, we received the favorable DL with no questions asked! That was a first. They normally have at least a few benign questions.

We have one terminated DB that was submitted to IRS in September 2008. Other than the initial letter indicating they received the package, we have not heard a word from them.

Thanks for the replies. We did not think this could be done with a DB distribution. A CPA recently mentioned that one of his clients had a DB plan and that they charged participants distribution processing fees. The benefitslink board is fabulous. However, we have found the search feature to not be the greatest.

We administer a few DC plans that insist on charging terminated participants the distribution processing fee. We know this is somewhat common. Is this possible with a distribution from a defined benefit plan?

Agree with SoCal as it is unlikely that employees will accrue a meaningful benefit of at least .5% of pay per year of participation.

We have a number of clients who would want us to complete everything for them including signing the 5500/SF for them if we could. I am not so sure we couldn't. Unlike most though, we are the plan administrator and are listed as such on the 5500.

Are the same employees eligible for both plans? If so, there should not be a problem. Some years ago we took over a small DB and PSP. The company owner, his wife and his son were covered under the DB plan and four employees were covered only under the PSP. The DB was the only plan to allow loans. We thought this may be a problem as only HCE's were effectively allowed loans as they were the only participants of the DB. They agreed to amend the PSP to also allow loans.

I don't know if anyone wants to continue discussing this, but what if you had a partnership of corporations? Suppose you had 10 partners and each 10% partner was a corporation covering one individual? In this scenario, I would think the partnership would sponsor the profit sharing plan and each corporation could adopt the plan as a participating employer. Each corporation should then be able to determine its own contribution for its employees without the plan being considered a CODA.

It looks like we may get a break for 2010 from freezing benefits as long as the 2008 AFTAP was at least 80%. So for example, if you have a calendar year plan and your 2008 AFTAP was 85% and you did not get a certified AFTAP for 2009 and 2010, benefit accruals would not be frozen until 10/1/2011 unless your 2011 AFTAP was certified at 80% or more by that date. Of course the other benefit restrictions would apply. Does anyone disagree with this? Is there anything special that needs to be done?

We administer a DB plan for a small husband and wife company. The plan was active for 5 years then they froze the plan effective January 1, 2007 (hard freeze). Since then, they have hired two full time employees who would have entered the plan July 1, 2009. They wish to now unfreeze the plan effective for 2010 and prospectively credit the same 5% of FAC per year of participation as they had in the past. We should be able to accomplish this with a fresh start. Under this scenario, the owners will not receive accruals for the three years the plan was frozen. They would like to exclude the two NHCE's from receiving benefits under the DB and would instead cover them under a profit sharing plan and provide contributions of 15% every year for the NHCE's. They would pass the general test. Does anyone see problems with not covering NHCE's in the DB plan?

A 20 participant DB plan will be terminating effective 8/31/2010. NOIT was provided to participants timely. All benefit accruals were frozen in 2008 and all participants were provided with 204(h) notices at that time. Is there any need to again provide a 204(h) notice upon plan termination? The rate of future benefit accruals will not be significantly reduced as all benefit accruals were already frozen in 2008.

Thanks for your answers. I went back and re-read 430 and 436 and indeed there seems to be no connection as you both mentioned. This is good news. I can toss a coin and get heads 50% of the time but when it comes to PPA funding, the bad result usually shows up 85% of the time. Not this time.

Suppose we have a top heavy 401(k) plan with 15 participants where the key employee (over age 50) made $100,000 and salary deferrals of $5,500. No employer or match contributions were made. When we run the ADP test, our system tells us he would only be entitled to $2,100 of catch-up. This would mean $3,400 would be considered non-catch up and they would fail the test. This would also create a top heavy minimum correct? Shouldn't we be able to use the entire $5,500 as catch up not subject to ADP testing and top heavy?

1/1/2009 valuation data was sent to us late and we were not able to obtain certified AFTAP from actuary until after 10/1/2009. Actually done in January 2010 at 128%. The presumed AFTAP of <60% applies to benefit restrictions. I believe it also applies to credit balances correct? So for the 2010 year the MRC cannot be reduced by the pre-funding balance because of the late AFTAP. Correct? Thanks.

I agree. We will probably be using age nearest from now on. Out of curiosity, could the IRS or PBGC (in the case of a plan termination audit) really force you to use age nearest or exact age when the plan document, code and regulations do not specify you must?

Yes. Age 49 Age month last meaning the age as of the month containing the last birthday?

We would like to, but in reading some of the past threads on this, many believe you must provide interest right up to the day the lump sum distribution is paid. If using present value factors (which is what we have been doing after PPA segment rates), this would mean interpolating. We have consistently been using attained age. Again, the document is silent on this and we have not found anything that states you must use a specific method. Does anyone know of an authoritative source (regulation etc) that clarifies this?

Our administration system provides present value factors to determine lump sum benefits at various ages based interest rates and the mortality table input. The factors are calculated for AE and 417(e). A friend who works at a plan admin firm recently sent us a copy of the questions asked on a PBGC post-termination audit. One of the questions asked for the interest rates, mortality table and age methodology used in determining lump sum distributions (age last, age nearest or interpolation). We will be terminating a 30 participant DB as a standard termination. If a participant is 47.765 years old at the date of distribution, must we interpolate between the factors at age 47 and 48? How about just using age nearest to the nearest month? Or what about age last birthday? The document is silent on the age methodology issue. Thanks for any input.