Dougsbpc

Suppose you have a new plan with a 12/31/10 year end. The contribution will be funded 3/15/2011. The maximum contribution is the target normal cost. However, interest is applied to the minimum contribution from 1/1/11-3/15/11. Can the company contribute the target normal cost or must they contribute the amount with interest for the first year?

A small non-pbgc plan terminates December 31, 2010 with benefits that are slightly less than the value of assets. The plan was to allocate plan assets per ERISA 4044. They are now ready to distribute but have had an unexpected major increase in the value of plan assets within the past month and now have excess assets of about $30,000. They would like to allocate excess assets in a non-discriminatory manner rather than pay the 50% excise tax. However, it is now after the plan termination date. Is it possible to have them adopt an amendment allocating excess after the termination date? We will be applying for a determination letter soon but don't want to wait to distribute benefits. Back about 10 years ago we had a similar scenario and the IRS let the plan sponsor adopt an amendment allocating the excess. Anyone have any experience with this? Thanks.

Suppose you have a partnership with 8 partners that buys a corporation with 25 employees. Is there anything wrong with having the partnership sponsor a safe harbor match 401(k) plan and the corporation sponsor a separate but identical safe harbor match 401(k) plan? The partnership plan would exclude all non-keys and the corporation plan would exclude all keys. They are a controlled group and affiliated service group so both plans would be aggregated for purposes of 410(b). All employees that meet age and service would be covered with exactly the same benefits under either plan. The reason they may want to have two identical plans rather than one is that the partnership plan could file a 5500-EZ and not be subject to the audit / high bonding requirement for non-traditional assets. Many of the partners are big non-traditional asset investors. A controlled group can now qualify to file an EZ.

The majority of the 401(k) plans we administer have all of their assets invested with one of the major platform providers. They will be able to provide the investment disclosure information. What about small 401(k) plans that allow each participant a brokerage account? Identifying the investment alternatives and the investment performance of each investment alternative would be impossible as there may be thousands and thousands of investment alternatives. Does anyone know if this has been addressed in the new disclosure requirements?

A small DB plan covers the company owner and 5 employees. Plan assets are invested very aggressively (not our recommendation). In early 2008 the plan had assets of $1.8m and liabilities of $1.4m. As of January 2009 assets of $200k and liabilities of $1.5m. As of today assets of $1.8m and liabilities of just under $1.7m. The owner has reached NRA and we would like him to be able to take an in-service distribution of his entire benefit. This way he can satisfy his gambling addiction with his benefits and not affect employees. I believe any reasonable method can be used in valuing benefits for determining whether plan assets will exceed remaining benefits by more than 110%. How about valuing benefits using funding segment rates (yes those same rates that make new DB plan benefits exceed assets by 20%)?

A partnership sponsors a DB and a 401k. The partnership is owned by two corporations. Each own 50% of the partnership. Each corporation has one employee (the owner of each corporation). They are related employers so each corporation adopted the plans as participating employers. Each corporation (as a participating employer) deducts the contributions that are funded for its employees (just the owners of those corporations). The participating employer section of the DB is somewhat ambiguous on contributions. However, it appears to indicate that all compensation paid through all related employers is considered. Each of these participants have w-2 salary from their corporations of more than $245K and each have DB contributions of about $75k. One participant has no contributions in the 401(k) (no SD and no ER contribs.). The other would like to contribute $54,500 to the 401(k). Something tells me he must be limited to a 6% employer contribution in the 401(k). But then again, the participating employer section of the document seems to indicate that compensation from all related employers is considered. Does anyone have any insight on this? Thanks much.

Suppose an employer sponsors a safe harbor 401(k) plan with a safe harbor match. Also, suppose the sponsor a cross-tested profit sharing plan. The profit sharing plan must be tested for 401(a)4. Must all components of the safe harbor 401(k) be aggregated for testing purposes? Or does the safe harbor 401(k) stand on its own? Thanks.

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.