Returned from ASPPA

[Tom Poje]

Thought it was a good conference. can always learn something.

compensation used for determining 25% deduction purposes. one session noted that in the past you could count anyone eligible to defer. now that deferrals do not count toward the total deduction, you could not use the comp of someone who deferred but did not get a match or profit sharing.

guess I am slow to pick up on stuff like that.

...................

highlight:

riding down on the elevator, stops on one of the floors and 3 ladies walk in. the one lady, looks at me and says "Oh, we were just talking about you"

turns out it was Kate Smith, PA, formerly Kate Smith, MD who way back when confused us into thinking she was a doctor rather than being from Maryland. what a laugh, what are the odds of actually ending up on the same elevator like that.

It was neat to see a few other faces from BenefitsLink, and one or two who referred to themselves as 'lurkers'.

..................

think my talk went well. showed off 'the devestator', hopefully there will be some pictures on the ASPPA website some day. of course, my talks include some very bad dry humor, including the following advertisement for an unmarried woman (Anita Haircut) that owned a chain of resteraunts that featured steak.

[Belgarath]

Hi Tom - glad to hear it went well.

Could you, once you catch up on the pile undoubtedly awaiting you, please elaborate a bit on your first paragraph? I'm not certain I'm understanding what you are saying. Suppose you have 10 people, each with compensation of 10,000, deferring. 2 of them are not eligible to receive a discretionary employer contribution, due to, say, less than 1,000 hours. This would give you a maximum of 20,000 for a deductible discretionary employer contribution (80,000 x .25). Is that what you are saying, or are you saying something else? Thanks.

[pmacduff]

Hi Tom - never had a chance to catch up with you & say "Hi" but alot of people were buzzing about the "IRS rubberband gun"...I heard comments from the session and then throughout the rest of the time I was there. I heard one girl musing that she wondered if you had built that thing yourself !

[Tom Poje]

Belgareth: that is how I understood the comments to be taken (unless the person also received a match, then since he received employer money you count his comp toward the limit)

sorry any session notes are packed in a shipping box sent via slow boat to China, so someday I may see them again. The scary part is that the deduction issue makes logical sense to me.

Lady MacDuff: tried looking for your name badge, thought maybe you didn't make it.

good grief. I have no talent to build something like that, getting a big kick out of the fact it was a talked about item. Next year we were thinking of having a drawing so someone can fire the silly thing - set up some paper targets like : irs agent, pbgc man, dol figure, your favorite client, your software vendor and your boss.

The night before I ended up talking to the photographer about misc. stuff and had mentioned I was going to haul out the rubber band gun. he remembered me as the scarecrow at last years session, so he said he would be in the room to get pictures. so, as I said, hopefully there will be some pictures someday.

(sob, sob. I'm hurt if all they remember was the gun and not the Louis Armstrong pension song!)

[Effen]

Tom,

Any discussion about the possibility of the proposed 415 Regs becoming final? I know they are being heavily criticized and wondered if any changes were coming.

[Tom Poje]

well, I didn't make those discussions, but the boss did and said, besides the grumbling, that in all likelyhood the retroactive effective date will be later, and most likely there will be some changes to some of the stuff, but there is no definitive word on anything.

I did not make the IRS Q and A session, so my question to anyone out there who did, how did the IRS answer #62 regarding penalties for not depositing safe harbors within 12 months.

[rcline46]

Hello Tom.

The deduction thing - by LAW anyone benefitting in the plan has their pay counted for deduction purposes, and by LAW, if you are eligible for to make a 401(k) deduction you are treated as benefitting. So the IRS lady is just wrong, as she was on other points.

Late 401(k) SH contributions - Mr. Holland mumbled something about it being an operational failure, EPCRS, and don't know.

[Tom Poje]

Reed:

deduction issue wasn't via IRS agent, but from a session by Piper and Preston. I heard tell there was a mean and nasty IRS agent explaining something. I will have to find the cite that was used in the session - however, traveling light means any handouts I took are in some shipping boxes along with the devastator. I suppose we could have tried to take that on the plane. there was only a few metal screws so it might have made it past the metal detector. still, those rubberbands are awful dangerous...

safe harbor: in other words, his answer was no different than last year, make the SHNEC and get on with life, apparently.

[Guest stevena1]

Tom, I went to your session. Although I enjoyed the gun, (and I was one who questioned to my friend if you had made that yourself!- guess not!) your singing was the highlight.

You sound like you have a very nice voice, for real.

I came back from ASPPA and totally forgot my logon and password. Guess I logon so much, a few days away and I completely forgot. I had to totally re-register and add a "1" to my user id, so I am brand new...

Nice job on your session.

[Tom Poje]

ha. I had to logon and change my password just to get on, so you are not alone. I'd suspect your logon is simply stevena, I would try that and then ask for a new password. maybe that will work.

thanks for the compliments. if people only knew how much energy I expend giving a talk like that. I am physically drained after a session like that. Of course, I never said I did things in the normal fashion.

The idea for the song came sometime during last years conference, and the words sort of just flowed. the voice characterization, well, even I don't know where that came from.

[jevd]

Tom,

For us that were unable to make it, how about the lyrics and the tune you used??

[Guest KFM]

Tom Poje:

No one can accuse you of understatement in your concession that you were slow to pick up the rule that, in determining the amount of the deductible limit, you can only take into account compensation of employees who were eligible to receive an allocation that year. Specifically, that rule is (at least) 40 years old. However, many other people are unaware of that rule, which was stated in Revenue Ruling 65-295.

Rev. Rul. 65-295

Advice has been requested whether compensation paid to certain employees is includible in the computation of the limitation upon deduction for contributions of an employer to a qualified profit-sharing plan under the circumstances described below.

An employer established a profit-sharing plan which meets the qualification requirements under section 401(a) of the Internal Revenue Code of 1954. The trust forming a part thereof is exempt from tax under section 501(a) of the Code. The plan provides that employer contributions to the trust shall be allocated as of the last day of each year to those employees who are participants on that date. The plan also provides for the distribution to terminating employees, in the year of their termination, of only their account balances as of the last day of the preceding year. The terminating employees, in the year of their termination, are, thus, ineligible to participate in the allocation of employer contributions. The specific question in this case is whether the compensation of the terminating employees, under these circumstances, should be included in the computation of limitations on deductions for employer contributions under section 404(a)(3)(A) of the Code.

Section 404(a)(3)(A) of the Code provides, in part, that contributions paid by an employer to a profit-sharing trust shall be deductible in the taxable year when paid, if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 501(a), in an amount not in excess of 15 percent of the Compensation otherwise paid or accrued during the taxable year to all employees under the profit-sharing plan.

Section 1.404(a)-9(b) of the Income Tax Regulations states that the amount of deductions under section 404(a)(3)(A) of the Code for any taxable year is subject to limitations based on the compensation otherwise paid or accrued by the employer during such taxable year to employees who are beneficiaries of the trust funds accumulated under the plan.

The illustration of the foregoing which is contained in section 1.404(a)-9(g) of the regulations, states that the compensation against which the limitation applies is `compensation otherwise paid or accrued during the year to the employees who are beneficiaries of trust funds accumulated under the plan in the year.' Therefore, the term `all employees,' as used in section 404(a)(3)(A) of the Code, refers to those employees who participate in the allocation of the employer's contribution to the plan in the year for which such contribution is made.

Thus, an employee who terminates his employment during a given year and who is ineligible to share in the allocation of the employer's contribution for such year cannot be considered to be under the plan for that year, for the purpose of computing the deduction limitation.

Accordingly, it is held that where a profit-sharing plan provides that a terminating employee does not participate in the allocation of the employer contributions to the trust for the taxable year in which such termination occurs, the compensation paid such terminating employee in such taxable year may not be included in the total compensation paid or accrued during the taxable year for the purpose of determining the deduction limitation provided in section 404(a)(3)(A) of the Code.

[Tom Poje]

song lyrics, though I should make you buy the tape. (and 'suffer' with the best I could immitate the raspy voice)

if you can't figure out what song it is adapted from, well, you are not trying hard enough.

Another pension song by Tom! you are lucky I can even find this thing. I think one of the disadvantages to being single is I am a disorganized mess.

anyway, hope you can enjoy it!

I see skies of blue

Clouds of white

The bright blessed day

I’m in a 401(k)

And I think to myself, what a wonderful world.

I defer wads of green

Get a match too

They put it in

For me and for you

And I think to myself, what a wonderful world.

The number of investments

They reach up to the sky

Reflected in perspectives

They keep passing by

I see the trends of the land

Saying I’m good for you

They’re really saying

BUY ME TOO!

I see the stocks go high

I watch them grow

They’ll earn much more

Than I’ll ever know

And I think to myself, what a wonderful world.

Oh I think to myself, what a wonderful world.

[stephen]

Another topic I found intriguing was the Safe Harbor notice. In 2000-3 you could incorporate a list of 4 items in the safe harbor notice by referencing the SPD. However, it seems the final safe harbor regulations do not include one of these items: withdrawals and vesting (see 1.401(k) - 3(d)iii). Thus, since the final regs apply to the 2006 plan year you need to add withdrawals and vesting to your safe harbor notice (unless it was already included).

It seemed the IRS was suprised by this change (as if it was perhaps a scriveners error on their part). But to follow the letter of the law the 2006 notice should include these items.

They did give the impression that if you had already sent out your 2006 notice without including these items that it would probably not violate your plans safe harbor election. They (IRS Marty Pippins & Jim Holland) said they would look into it further.

Also, IRS Question #43. If a profit sharing plan is adopted but no contributions are ever made, is a 5500 required?

Answer: YES. It is our holding that a plan exists, even if the corpus of the trust is never funded.

[Belgarath]

KFM - there are lots of folks who are aware of the RR you mention, but instead choose to interpret 410(b)-3 to modify the RR. Aggressive, but a lot of the industry does it this way. Personally, I prefer your approach as more technically accurate. Have any of you applied for a determination letter using the 410(b)-3 approach? If so, success or failure?

[Tom Poje]

I think the 'change' is that a few years ago your deductible contribution consisted of deferral + match + profit sharing. therefore could anyone who benefited under those (even if no deferrals)

now the deductible is match + profit sharing. therefore the group benefiting under deferral only is tossed out.

this idea seems to be further borne out by a Q and A

Q 21 at ASPPA IRS Q and A gave an example of combo db and dc.

the only ee common to both plan had deferrals only (excluded from match and profit sharing). the question was whether that would still trigger the combo limit.

the answer was no, as long as the ee has elective contributions only you dont have to worry about combined limit under 404(a)(7)

......................................................................

I have the printed notes. Again to those who attended, what was the IRS discussion for #2 (the second part. the answer says discussed from podium.

[jevd]

Tom,

Thanks for the Lyrics. I think I know the tune. Performed it once or twice before in another life. Before kids & wife.

[stephen]

When is the eligible compensation exclusion for deferrals only to have changed? A few years ago when we started excluding deferrals from annual additions or with the final regs?

So what if you have a plan with deferrals only? Is there no eligble compensation and thus no deduction?

#2 Part 3- Since the participant is under age 50 you have a problem because they are not eligible for catch-up and since you created the problem by your plan design you have plan design issues. I am sure there was more said but I did not get it all...

[Guest KFM]

Belgarath:

I don't think that a determination letter provides any protection on the deduction issue.