DTH

The participant was taking MRDs when he died. Can a nonspouse directly rollover the death benefit to an Inherited IRA after the MRD is taken for the year? Example 1: Participant dies in 2006 and took his MRD for the 2006 distribution calendar year. In 2007 the nonspouse is due an MRD. Can the nonspouse directly rollover to an inherited IRA after taking the 2007 MRD? Example 2: Participant dies in 2006 and took his MRD for the 2006 distribution calendar year. In 2007 the nonspouse takes the 2007 MRD. In 2008 can the nonspouse directly rollover to an inherited IRA after taking the 2008 MRD? Thanks

I would say yes since the plan will be giving a greater match. The basic match formula will apply up until the plan is amended for the enhanced formula. Also, a new Safe Harbor Notice will need to be provied a month before the effective day of the amendment.

Not if the participant/IRA owner is alive. If you are calculating a participant's MRD in a profit sharing plan or the IRA owner's MRD, you would use the Uniform Lifetime Table unless the individual is married. If the individual is married and the spouse is the only designated beneficiary for the entire distribution calendar year and the spouse is more than 10 years younger than the individual, you then will use the Joint and Last Survivor Table.

The error surfaced in April so there are only 8 months left in the plan year, so the 9 month rule would not apply. To the extent that participants who had a deferral election on file and the employer did not take deferrals from the bonus payment, there is an operational defect. The question is: Do only the correction principles apply under Section 6, where you would restore the plan to a position it would have been in had the erorr never occurrred? Here the employer makes a full QNEC on the amount that should have been deferred based on participant deferral elections. OR Can they use Appendix B, Section 2.02, Exclusion of Otherwise Eligible Employees, "missed deferral opportunity" where the QNEC would be 50% of the ADP for the representative group? Thanks.

There have been many postings on this type of error, but I am wondering what experiences folks have had under Revenue Procedure 2006-27. 401(k) plan does not exclude bonuses from the definition of compensation. The plan also does not have a separate deferral election on bonuses (deferrals from bonus is the same as for salary). The plan did not take deferrals from the bonus payments in January of 2007. There is no safe harbor correction in EPCRS for this problem. Do you use the general correction principles and the employer will make a QNEC on the bonus based on the participant's deferral election at the time of the error? Or do they make a QNEC based on the missed opportunity safe harbor under Section 2.02 of Appendix B? They cannot use the partial year correction because the error did not surface until April (calendar plan year). The employer matches on a payroll basis, so they will need to definitley give a contribution for the missed match based on the match formula when the error occurred. But since this is at the beginning of the plan year, do they need to do a QNEC for the missed match or can they just make a regular match subject to the vesting schedule? Thanks!

Just to make sure I understand your comment ... Grandfathered governmental 401(k) plans do not combine employer and employee contributions towards the 402(g) limit. Thus, for 2007 a participant can contribute $15,500 of employee pre-tax without adding in the employer contribution. Thanks.

I just want to confirm that a 501©(6) (e.g., business leagues, chambers of commerce, professional football leagues) can have a 401(k) plan. Is there any special recordkeeping ot tax reporting that needs to occur?

The participant's designated beneficiary is his estate. The participant died in 2007. The 401(k) plan allows nonspouse beneficiaries to directly roll over the death benefit to an inherited IRA. Can the executor of the estate directly roll over to an inherited IRA?

No. For the determination/filing, collection, or refund of taxes IRC section 7503 provides that if the due date falls on a weekend or legal holiday, the due date becomes the next business day "after" the date required. There is no revenue ruling nor Code section for corrective and required distributions. Thus, if the due date falls on a weekend or legal holiday, the due date becomes the immediate Friday or next business day "before" the date required. For initial MRDs due by 4/1, the 2007 due date is 3/30/07.

There is not much information about grandfathered governmental 401(k) plans. A 457 governmental plan combines both the employee pre-tax and employer dollars for the 402(g) deferral limit. I assume that if the plan is a grandfathered governmental 401(k) plan that only the employee pre-tax dollars are counted towards the 402(g) limit. Does anyone have a cite or IRS procedure/Notice that states how these are treated. Also, Form W-2 also does not mention how to treat grandfathered governmental 401(k) plans. I assume the employer would only report the employee pre-tax deferrals in Box 14 as Code D; employer contributions would not be reported at all. A 457 governmental plan would report both employee pre-tax and employer dollars as Code G.

I have a terminated employee in a DC plan that requested $10,000 a year in installments. With actuarial assumption for earnings, the installment period is less than 10 years. (These also did not go beyond her life expectancy.) Each year the individual has been directly rolling over the $10,000 into an IRA. (Don't ask me why she doesn't roll the whole thing in.) After 5 years, she has now requested the installment amount be reduced to $3,000 a year. My question is, are these still subtsantially equal payments attached to the first series of $10,000 a year installments? Treasury regulation 1.402©-2 Q&A 5© states that if the payments change so that subsequent payments are not equal to the prior payments, you would make a new determination. If they are linked to the prior $10,000 yearly installments, the combined period would be over 10 years and not eligible for rollover. If they are not linked and a new determination is to be made, then the new series of $3,000 a year installment would be less than 10 year and eligible for rollover. I have not been able to find any examples for this. I looked at Revenue Ruling 2002-62, which defines substantially equal payments, but this type of scenario is not described. Thanks!

I had an interesting question from a client today on the new PPA rule where a participant can request a hardship for a designated beneficiary. The participant wants to designate two primary beneficiaries to get his death benefit. He want to designate 99% of his death benefit to his spouse and, with spouse consent, he wants to designate 1% to his son-in-law. Hw wants to do this to be able to gat a hardship distribution out of the plan to help pay his son-in-law's medical bills. IRS Notice 2007-07, III Section 826 of PPA '06 defines a primary beneficiary as an individual who is named as a beneficiary under the plan and has an unconditional right to all "or a portion" of the participant's account balance under the plan upon the death of a participant. While it does not appear to be kosher, it looks like this can be done. Any opinions?? Thanks.

Generally, the plan document says that a distribution for an unforeseeable emergency may be in an amount reasonably needed to meet the financial need created by such unforeseeable emergency.

How restrictive should a 457 plan be for granting a hardship withdrawal for imminent foreclosure on a participant's primary residence. Would a default letter from a mortgage company or bank threatening foreclosure proceedings will begin by a certain date if the mortgage is not brought from arrears be enough to grant a hardship or would foreclosure proceedings actually need to begin? I have noticed that when the bank actually begins foreclosure proceedings it goes to an attorney and the participant incurs substantially more debt to pay for attorney fees and other expenses to begin the public sale of the home. Thanks.

A plan accepted a rollover that was later found to be impermissible to be rolled into the plan. The regulations permit the plan to distribute the impermissible rollover and earnings. Does the plan tax report the corrective distribution? Generally, a distribution to an individual from a qualified plan must be reported on Form 1099-R. The Form 1099-R instructions do not address the distribution of an invalid rollover contribution. Also, the final regulations are also silent regarding any tax reporting requirement. I don't think that silence means that in certain circumstances that the corrective distributions should not be tax reported. Especially since plan earnings are returned. If the rollover came in as a direct rollover, I am recommending that the impermissible rollover and earnings thereon be returned to the issuing institution with no tax reporting. If the rollover came in as an indirect rollover, then I assume that the impermissible rollover and earnings thereon be tax reported on Form 1099-R. Please let me know if there is anyone with experience with this. Thank you.

I have a plan that terminated on 12/31/05. The plan has some lost participants and their assets have not been distributed. Does the 1-year waiting period to start a new plan begin on 12/31/05 or when all the assets are actually distributed. Thanks!

Thanks to you all. anne1, even if the contribution just goes to the NHCEs, it would still be subject to 415 testing - correct?

Thanks. The plan document says that forfeitures can be used to pay "Plan" expenses (not limited to just administrative expenses). My research has shown that some individuals think that a CDSC can be treated as a plan expense and some say not. I'm just looking for insight from others.

I have a plan that is transferring from one insurer to another. The insurer's contract has a surrender charge for leaving before five years. Can the CDSC be treated as plan expense and be paid by forfeitures and/or the plan sponsor?

Would coverage testing ever apply to forfeitures that are reallocated?

Yes, it was a form to request a SH plan design, but the title was Safe Harbor Plan Amendment. The plan sponsor thought the form was an actual amendment, checked the SH formula they wanted, signed it before the effecive date of the SH plan year, and provided Eligible Employees with the SH Notice on time.

The plan is drafted on a prototype. A plan sponsor was given a form to request that their plan be amended to a safe harbor plan. At the top of the form is a title "Safe Harbor Amendment," but when you read the form it states that the form is used to request the plan to be amended to a safe harbor plan. The plan sponsor elected the basic safe harbor match beginning 1/1/05, signed the election form before 1/1/05, and provided eligible employees with the 2005 and 2006 safe harbor notices on time. Can the employer rely on this election form as a plan amendment? If no, what has been the forum's experience where the plan provided the notices on time, administered the plan as a safe harbor, but failed to amend the plan? If the plan sponsor files under VCP, do you think the IRS would allow the plan sponsor to treat the plan as a safe harbor beginning 1/1/05? I have heard they are tough on this issue.

Tom, The 2005 Form 5500 Instructions are clear stating that if you meet one of the exceptions you don't need to file Schedule R. However, I have not seen any changes to Rev. Proc 93-42. So if the three-cycle testing cycle still exists and say in year two of the cycle I am required to file Schedule R, do I re-do the coverage test or can I use the numbers from year one of the cycle? Here is the note from the 2005 Schedule R: "Questions regarding coverage were previously raised in the Schedule T but the Schedule T has been discontinued. The instructions to the Schedule T provided that the Schedule T need not be filed every year if the employer was using the three-year testing cycle of Rev. Proc. 93-42. 1993-2 C.B. 540. That exception does not apply to Part IV of the Schedule R." I can interpret this two ways: 1. Each year you need to file Schedule R, you need to do coverage testing. 2. The three-year cycle still exists, and each year you file Schedule R, use the figures from the first year of the cycle. It would not make sense that you only need to do coverage testing only if you file Schedule R ... What if you don't need to file it for numerous years (past the three-year cycle). Let me know your thoughts. Thanks!

We give our employees American Express gift cards for achievement awards and for other purposes. It is my understanding that this is taxable income to the employee. For all plan purposes, we use W-2 as our plan's definition of compensation excluding safe harbor fringe benefits. I assume that in the payroll period in which we tax the amount of the gift card that I would also take out elective deferrals from the gift card amount. For example for the pay period salary is $1,000 and the gift card is $50, I would take deferrals from $1,050. If I don't want to deal with this, I am thinking about excluding cash awards from the plan's definition of compensation. I assume that I'll need to do a Compensation test under 414(s)(3) to do this. Please let me know your thoughts.

Okay. Thanks for being patient. Let's see if I can get this striaght: $50,000 - [highest outstanding loan - current loan] - current loan = maximum loan can take I can see different results depending on the facts: Example 1: 3/1/05, Participant takes a loan of $30,000 12/5/05, Participant repays the $30,000 loan balance 12/6/05, Participant takes a loan for $20,000 12/15/05, Participant requests another loan. 12/5 $50,000 - $30,000 = $20,000 maximum loan 12/15 $50,000 - $10,000 ($30,000 - $20,000) = $40,000 - $20,000 = $20,000 maximum loan Total outstanding loans $40,000 _____________________________________________________________________________ Example 2: 3/1/05, Participant takes a loan of $20,000 12/5/05, Participant repays the $20,000 loan balance 12/6/05, Participant takes a loan for $30,000 12/15/05, Participant requests another loan. 12/5 $50,000 - $20,000 = $30,000 maximum loan 12/15 $50,000 - $.00 ($30,000 - $30,000) = $50,000 - $30,000 = $20,000 maximum loan Total outstanding loans $50,000 ______________________________________________________________________ Example 3: 3/1/05, Participant takes a loan of $50,000 12/5/05, Participant repays the $50,000 loan balance 12/15/05, Participant requests another loan. 12/15 $50,000 - $50,000 ($50,000 - $.00) = $.00 maximum loan Total outstanding loans $50,000 Here the participant will need to wait until 12/7/06 to request another loan I had thought the entent of the law was to only allow no more than $50,000 of all the highest outstaning loan amounts for one 12 month rolling period. Thus, for each loan taken in a twelve month period you would add together the highest outstanding loan amount resulting no loan amount in all in all three scenarios. The participant would not be able to take another loan for a year. Example 1: $50,000 - $30,000 [($30,000 = highest loan one + $20,000 = highest loan two) - $20,000 = current loan] = $20,000 - $20,000 = $.00 Example 2: $50,000 - $20,000 [($20,000 = highest loan one + $30,000 = highest loan two) - $30,000 = current loan] = $30,000 - $30,000 = $.00 Example 3: $50,000 - $.00 [$50,000 - $50,000] = $50,000 - $50,000 = $.00 Something does not compute. ha ha Please show me you math for each of the scenarios.