DTH

Plan is an EACA, eligibility is 1 year of service with quarterly entry. Just taking a poll --- How are you basing the notice timing - off of the enrollment date or the first payroll date after the enrollment date? The regs say eligible employee, I assume they really mean when the EE can participate in the plan. They are not clear about the mid-year entry timing - seems to leave too much room for interpretation. The "reasonable time" rule of thumb usually is 30 days before the notice is required. Here are the "clear as mud" EACA regs. section: 1.414(w)-1(b)(3)(iii) Timing--(A) General rule. The timing requirement of this paragraph (b)(3)(iii) is satisfied if the notice is provided within a reasonable period before the beginning of each plan year (or, in the year an employee becomes an eligible employee, within a reasonable period before the employee becomes an eligible employee). In addition, a notice satisfies the timing requirements of paragraph (b)(3) of this section only if it is provided sufficiently early so that the employee has a reasonable period of time after receipt of the notice and before the first elective contribution is made under the arrangement to make the election described under paragraph (b)(ii)(A) of this section. (B) Deemed satisfaction of timing requirement. The timing requirement of this paragraph (b)(3)(iii) is satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes an eligible employee after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes an eligible employee (and no later than the date the employee becomes an eligible employee).

The Form 1099-R instructions are not that clear on how to report designated Roth contributions from a retirement plan where the participant "meets" the qualified distribution rules (contributions in the plan for 5 years and the participant is age 59-1/2 or older, is disabled, or dies). Here the earnings are not taxable. I assume that the designated Roth account (contributions + earnings) are tax reported as follows: Box 1 = Gross amount (designated Roth contributions + earnings) Box 2a = Taxable amount is 0.00 Box 5 = Designated Roth contributions + earnings Box 7 = Category of distribution is a 7, 3, or 4 (T would only be used if payor doesn't know if participant meets the 5-year period) Additionally, the 1099-R instructions indicate that a separate 1099-R be created for a designated Roth account distribution. If it meets the qualified distribution rules, can one 1099-R be used for a Roth and non-Roth distribution? Thanks!

I'm veifying that the earnings from 2000 - distribution are being calculated correctly. Assuming it was... Normally, if there was a loss and a check produced there's no problem. For example: P contributed $16,500 in 2007 Excess deferral of $1,000 paid 2/28/08 Loss is $50 Check amount will be $950 P will get one 2008 Form 1099-R. The $1,000 excess deferral will be tax reported with a Code "P" (taxable in 2007); the loss is not reported at all. The taxpayer will receive a letter of explanation indicating there was a $50 loss. Generally, the taxpayer will include the $1,000 in box 7 of the 2007 IRS Form 1040 and the taxpayer may take the loss by entering the loss as a bracketed amount ($50) in line 21 of the 2008 Form 1040. Since the net check is actually zero. could you say that there is a "de facto loss" and nothing needs to be distributed. Or would you say that the $400 still needs to be distributed with a 2008 1099-R with Code "8" (taxable in 2008) and send the participant a letter of explanation that there was a loss of $430? Makes you kinda go hummmm.

Yes. The $400 excess was run through the gap period earnings calculator and the gain/loss shows as a loss of ($430). Scary I know.

When the gap earnings were applies from 2002 through 2008 there was a loss of $430. Timing is everything.

I have a participant for deferred 11,400 in 2002 (deferral limit was $11,000). During a plan audit, it was discovered that the plan never distributed the $400 excess. When earnings/losses were determined there was a loss greater than the 402(g) excess deferral: $ 400 excess deferral $(430) loss $ (30) total EPCRS says to tax report the 402(g) excess deferral in the year of the deferral and the excess deferral plus gain/loss in the year distributed. 2002 is a closed tax year. Since 2002 is a closed tax year, should the plan still report the $400 on a 2002 Form 1099-R? The plan will process the excess deferral in 2008 with the loss. Is there anything that needs to be tax reported on a 2008 Form 1099-R? The 1099-R instructions indicate that only distributions of $10 or more are reported. Thanks!

Can a 457(f) plan allow unforeseen emergency withdrawals? Treasury regulation 1.457-6 does not provide an exception so I assume it applies to both 457(b) and 457(f) plans, but want to confirm it. Thanks!

The 414(w) regulations permit 90-day permissible withdrawals. These are not eligible for rollover, are taxable in the year distributed and are not subject to the 72(t) additional tax on premature distributions. I can't find anything stating whether the taxable portion of a 90-day permissible withdrawal is subject to federal income tax withholding. I assume since these are not eligible for rollover, the normal 10% withholding rules apply? If these are not subject to federal income tax withholding, can you please provide the reference material or cite. Thanks!

One of the Congressmen that worked on PPA told the IRS after they pubished Notice 2007-7, that they intend to make nonspouse direct rollovers an eligible rollover distribution. They did not intend this to be a plan provision elected option as stated in Notice 2007-7. S. 1974 was passed by the Senate on 12/19/2007 H.R. 3361 was passed by the House on 3/12/2008 Both of these bills make a technical correction to PPA section 829. Once one of them is passed into law, plans will not longer have the plan provision option. Effective with 2009 distributions, all plans must accept a nonspouse benes request to directly rollover to an inherited IRA.

Proposed regulations state that the particiapnt must make an election to withdraw no later than 90 days after the date the first deferral is taken from pay under the EACA. Ihe regs.don't say when the plan must make the actual payment. As long as the plan administrator has the election form by the 90-day deadline, it appears the actual distribution can wait until after blackout. However, if the plan has a QDIA, it must be paid within the 120-day window. We are under good faith compliace, will be interesting to see what the final regs state.

There are three partners that are more than 5% owners. The partners had negavtive earnings for 2007. Do you count them in the 2007 ADP/ACP test?

I have a QDRO where the alternate payee is getting 50% of the account balance as of December 1, 2007 (DRO valuation date). The plan provides for a profit sharing contribution to all eligible employees who either worked over 500 hours during the plan year or who are employed on the last day of the plan year. The participant has accrued a right to the 2007 profit sharing contribution, but it will be made to the plan until March of 2008. Do I split the account as of 12/1/2007 only or does the alternate payee also get 50% of the 2007 profit sharing allocation made in 2008? Thanks.

Please settle and argument for us. The QDIA Notice is required anytime there is a QDIA in the plan. It applies to plans "with" and "without" ACAs, EACAs, or QACAs. Thanks.

I have a 414(h) pick-up plan where the mandatory employee pick-up contributions are 3% of compensation and the employer contributions are 8% of compensation. The employer also has a 403(b) that only holds only employee contributions. If the employee is in the pick-up plan they can also elect to participate in the 403(b) plan. How is the annual deferral limit determined? Do you count the 3% mandatory contribution plus the 403(b) employee contributions? Thanks.

A 401(k) plan permits designated Roth contributions. If a participant terminates employment and takes his/her entire account balance and then is rehired, does the 5-year Roth period start over?

Can an individual calculate the MRD from each 403(b) contracts they have and have it paid from one or more contract even if the individual has contracts with different employers? The regs (1.403(b)-6(e)) state that "...only amounts in section 403(b) contracts that an individual holds as an employee may be aggregated..." This leads me to believe the aggregation rules only apply to multiple 403(b) contract held under one employer. If the employee has a contract with a school plan and a contract with a hospital plan, the indivudual would need to get two MRDs, one from each plan.

I have an ERISA 401(k) plan where all the employees have terminated employment and only the owner is left. Some of the terminated employees with account balances over $5,000 want to keep their money in the plan and the owner still wants to continue contributing. Can an ERISA 401(k) plan still exist with only one employee who is the owner? If not, must the plan be terminated? If yes, can he still contribute? The plan has a discretionary match and profit shaing contribution, can the employer (himself) contribute those too? Thanks.

I'm still try to figure out how there can be a more than 5% owner in a 403(b) plan. If ABC (a not for profit) is bought by XYZ (a for profit) ... can the 403(b) continue? I assume that XYZ can keep ABC as a not for profit entity (and the 403(b) can continue), but can the EEs of XYZ participate in ABC's 403(b) plan. If yes, I can see where the owners of XYZ could be a more than 5% owner in the ABC 403(b) plan. If I'm way off base, please provide me a better example. Thanks!

The final 403(b) regulations provide that for contracts that are not part of a governmental or church plan, the required beginning date for a more than 5% owner is 4/1 of the year following the year the participant attains age 70-1/2. When would there be a more than 5% owner in a 403(b) plan?

The participant named his spouse as primary beneficiary and his son as contingent beneficiary. The beneficiary designation form does not say under what conditions the contingent beneficiary will receive the death benefit nor does the plan. The plan document's beneficiary hierarchy is the spouse then the participant's estate if the participant does not designate a beneficiary. The participant died before his required beginning date and the spouse disclaimed the death benefit before 9/30 of the year after participant's death. Who gets the death benefit the contingent beneficiary or the estate? I always view a contingent beneficiary as an individual who would get the death benefit if the primary beneficiary(ies) were to die. I can find no cite that would state otherwise. I assume that the beneficiary designation form could specifically state that the contingent beneficiary receives the death benefit if the primary beneficiary dies or disclaims the death benefit, but that is not the case in this scenario. Thanks.

I would like to confirm my understanding on temps that are hired as a common law employee. The temp would need to meet the 414(n) requirements before they would be considered a leased employee for plan purposes. 1. If the temp did not meet the leased employee requirements (e.g., did not work on a substantially full-time basis in their first year), you would not count their temp service with the employer for plan purposes. 2. If the temp did meet the leased employee requirements, you would count the service while s/he was a temp. 3. If the plan excludes leased employees, will the same apply as in 1 and 2? I think yes, because in order to be excluded from the plan the temp would need to be considered a leased employee first and then they would be excluded as a classification of workers. Then you would count service as you would when someone transfers between excluded classification of workers, i.e., you would count all service for all plan purposes.

The 401(k) plan provides that death benefitd commence in the calendar year following the calendar year of the participant's death and is paid in a lump sum unless the beneficiary elects another form of benefit under the plan. The plan permits annuities and MRD installments. The participant died in 2002 before his required beginning date. The particiapnt would have turned 70-1/2 in 2015. The spouse designated beneficiary made no election in 2003 and still has an account balance in the plan. Clearly the plan has an operational defect since no benefit payment begain by 12/31/2006. To the extent she did not make an election as to how she wanted the death benefit to be paid, I assume that the plan's default form of death benefit prevails - the lump sum. Is the entire lump sum eligible to be directly rolled over to an IRA or other eligible retirement plan? Or does the plan need to pay her beneficairy MRD for 2003 - 2007 first?

Under this scenario, once the QRP assets are moved to the inherited IRA, can the nonspouse beneficiary elect the 5-Year Rule or the Life Expectancy Rule or are they stuck with the Life Expectancy Rule?

If a nonspouse designated beneficiary elects to directly rollover to an Inherited IRA in the 2nd - 4th year after death, does the plan need to distribute the MRD first? Example: Participant dies in 2007. The plan only permits the 5-Year Rule. Year of Death (2007) - Nonspouse can directly rollover entire account to the inherited IRA. The nonspouse can elect the 5-Year Rule or Life Expectancy Rule under the IRA. Year After Death (2008) - Nonspouse can directly rollover the account to the inherited IRA but only after the MRD is paid first. The plan assumes that the nonspouse is rolling over to the inherited IRA to elect the Life Expectancy Rule. The nonspouse can still elect the 5-Year Rule or Life Expectancy Rule under the IRA. 2nd - 4th Year After Death (2009 - 2011) - Nonspouse still can directly rollover to the inherited IRA, but to the extent only the 5-Year Rule applies under the IRA, does the plan need to pay the MRDs due first? 5th Year of Death (2012) - Direct rollover not permitted since this is the 5th year after death and the entire account balance is the MRD. Would there be any difference in the scenario above if the plan allows the nonspouse designated beneficiary to elect either the 5-Year Rule of Life Expectancy Rule. Thanks!

Has anyone seen where a plan administrator has given plan signing authority to the TPA? I'm not sure if a TPA would want to do this since it would also make it a fiduciary. If this can be done, would it be considered a prohibited transaction? ERISA does permit a fiduciary to be able to be compensated for fiduciary services. Thanks!