My husband’s employer has an FSA plan with a plan year from 7/1/2009 to 6/30/2010. Last July he requested $1,200 be deducted from his pay for FSA. To date we've only used $400 of the $1,200. I do not believe his FSA plan is defined as limited or special purpose.

Just recently my company converted from a PPO plan to an HSA plan for a 1/1/2010 to 12/31/2010 plan year, so it overlaps my husband's FSA plan. In this situation, what do we do? Can we continue to use the FSA funds even though they are not defined as limited/special purpose? Am I free to make contributions to my new HSA plan? Would we be okay if we just make sure the total of pre-tax dollars in the 2 plans don’t exceed the $6,150 HSA limit for 2010? Or are limits different for HSA's and FSA's.

When asked this question, the medical insurance broker for our company suggested:

"You cannot contribute to both FSA and H.S.A accounts. Because you and your spouse elected the FSA and it is in the middle of the plan year you have to use that money first. Once that plan ends then you can start putting funds into your H.S.A account. Example: medical and pharmacy bills will need to be paid with the money from your FSA. After July 1st you can start using your H.S.A."

If that's correct, what happens if I run out of funds in the FSA account prior to July 1. Can I start contributing to my HSA before July 1?

If I can’t contribute to the HSA until July 1, how does that affect the maximum limit I can contribute to the HSA for the year? The annual cap for 2010 is $16,500. Does that mean if I can’t start until July 1 I can only contribute 50% of the limit, or $8,250? Or can I still contribute $16,500 for the calendar year, but it would just all be in the second half of the year?

Any help you can offer would be greatly appreciated!!

The rules seem clear that when a highly compensated employee is eligible to participate in 2 plans of an employer that the elective contributions are aggregated in determining the actual deferral rate for the employee in both plans. This rule is in both plan documents.

OK - so if a corrective distribution is required from plan but the elective contributions in plan 1 are NOT sufficient to correct, can payment be made from the 2d plan? Neither plan document contemplates this possibility.

It's really complicated because the plans have different plan years.

Can anyone provide a specific ruling, etc. that permits matching contributions to be stopped? I know you can do it on a prospective basis, but nothing to back it up. Any help would be appreciated.

An accountant asks if he must include accrued interest - shown on the IRA statement - in calculating a Required Minimum Distribution.

Any ideas?

I see they gave small Plans 7 business days to remit deferrals. What is the rule for large Plans? Is it 2 business days or just the vague DOL reg of ASAP but not later then the 15th day of the month following?

My employer has lost a large number of clients in the past year. In an effort to avoid lay offs, document work for another company has been brought in. As I've been training on how the new company does things, I've learned that they routinely back date their amendments. Although I don't agree with that practice, when the amendment is to change trustees or plan name, I'm not terribly concerned about it. However, in the first 10 amendments they sent us, one of the amendments is to remove a safe harbor non-elective contribution effective 1-1-10 and another is to remove a fixed non safe harbor match with no accrual requirement effective 1-1-10.

My manager, whose background is mutual fund recordkeeping,, not qualified plans, is struggling to understand why this is a problem. If we are ultimately directed to write the amendments according to the direction of the other company, what sort of problems might I create for myself, personally? (I'm reminded of the Nazis who claimed innocence of war crimes because they were following orders....)

Ok, this is a first for me...

One of my clients (who has a high turnover rate due to the line of work), had several terminated participants with small balances. The client requested from the investment company that they be forced out of the plan (which the plan allows for balances under $1,000). For the distributions over $200 (but under $1,000), 20% federal withholding was taken out and sent to the DOT. A few of the participant checks were redeposited (voided checks) at the investment company because they weren't cashed within 6 months. The issue I have is that no 1099 will be issued for those whose checks were cancelled since the participant did not receive the check (or cash the check whichever the case may be). However, I would have to report the withholding on the 945 correct (since the DOT did receive the withholding)? How will this work? If the IRS tries to tie out the 1099's reported withholding with the 945 reported withholding it will not match.

Has anyone ever had this issue? If so, how did you handle it?

Thanks so much in advance!

The 10% Penalty exception for Distributions applies to employees who terminate employment during or after that year in which they turn age 55. I get that.

But what happens when the PLAN terminates? Do those who are age 55 get an exception? And what date to use – plan term eff date or plan distribution date?

Can a QACA plan, which has the auto enrollment provision and safe harbor, have a one year waiting period for the safe harbor match? I assume it operates the same as a traditional safe harbor plan, but wanted to see if anyone had a different opinion.

I realize that a husband and wife who both have day care accounts, whether from the same company or different companies, can only have $5000 in total elections and the rest would have to be treated as taxable income. However, is there anything preventing a case where husband and wife both work for the same company and each elect the max for their individual medical FSA's? The only thing I can see at the moment is that the plan administrator would have to ensure that there is no double-dipping of claims.

I have a corporation that made its first distributions (to owners) in 2009 from a Target Plan, a Keogh plan and a DB plan. I don't see where any of these plans applied for separate EINs in the past. Do these plans have to have EINs that are separate from the corporation's EIN in order to complete the 1099-R? Or can they merely file using the corporation's EIN?

Are there regulations relating to how a funding deficiency is allocated within a multiemployer plan? For example, one reasonable interpretation may be to allocate the funding deficiency as a percentage of contributions made to the plan. Maybe the answer to my question is included in the participation agreement?

Any direction would be greatly appreciated.

Thanks,

Doug

This may be a silly question, but...

A plan has 25% deferral limit and 25% after tax limit with a combined 25% limit for both sources. If the person goes over the combined limit, can pretax money then be reclassified to become catchup to bring them below the 25% combined limit?

Does anyone have any thoughts on whether someone responsible for determining if a DRO is a QDRO would be a plan fiduciary under ERISA? I would tend to think they would since this determination involves exercising discretionary authority in the administration of the plan, but just wondering if there is any black letter law or at least a consensus on the issue.

Specifically, we represent an annuity provider who believes they might be responsible for making QDRO determinations with respect to ERISA 403(b) plans. I'm trying to explain to them that this should be the plan administrator's responsibility and it would be a bad idea for them to do it because it would make them a plan fiduciary.

Any thoughts are appreciated. Thanks.

What is the recourse if a participant requests a hardship from their plan and submits that appropriate proof that later turns out proved to be fraudalent. Participant already received the money. I believe this is correctable under SCP with the participant required to pay the money back. What if the employee is terminated because of this act? Still have to pay the money back? How do you get it from them? They now have a separation from service and are requesting a distribution. Can you hold it up until the repay?

For purposes of the STD exception, is a life annuity considered a "single payment" such that there is no deferred compensation where the annuity is scheduled to commence (and actually commences) within 2.5 months following the end of the service recipient's fiscal year?

A life annuity is clearly a single payment for purposes of subsequent changes to the time/form of payment (1.409A-2(b)(2)(ii)), but what about for purposes of the STD rule?

Anyone have any thoughts or know of any guidance that I'm unaware of?

Suppose a corporate plan sponsor contributes their required 2009 Safe Harbor contribution on December 31, 2010 (due to cash flow reasons). The plan document requires the contribution and the notice was issued timely. They have lots of room under their eligible compensation for doubling up their 2010 and 2009 contributions since they are only planning on contibuting the SH amounts.

By doing this, they will miss the deduction deadline for their 2009 tax return. I assume this would be deductible on their 2010 return?

If so, I don't see the section under 404 that quite gets me there - any ideas?

Also, if a participant quit in 2009 and the deduction for that person occurs with the 2010 return, that's not a 415 issue, right?

I have a question that came up on a defined benefit plan holds a life insurance policy. The participant is 90 years old. He has been advised by his financial advisor that it would be good to get that policy out of the plan before it "matures." I received this voicemail and was hoping someone could direct me to appropriate sections dealing with life insurance held in a DB plan as I have no experience with it. He will have to contact his attorney about this, but was hoping to somewhat intelligently answer some questions for him off the clock. I don't know anything about this plan other than what was provided in the voicemail.

A doctor has a retirement plan and would like to convert some of his assets to a Roth IRA. He is in his 30s and looking for ways to have some retirement income that is tax-free down the road. If his plan is amended to allow an in-service distribution of his vested profit sharing account (say an age 35 requirement and the contributions need to be in the plan for at least 2 years), can he take those assets and convert them to a Roth IRA? Administratively, this sounds burdensome so I would like to discourage it. Are their AGI limits that could restrict this?

This is a specific Relius Cycle D question.

It's my understanding that Cycle D submissions will review PPA provisions (i.e. they are on the applicable Cumulative List). If anyone that uses Relius didn't notice, their original DB PPA amendment was a load of crap and they corrected it with a new release in December sometime.

The problem is that the Cycle D documents have that load of crap PPA language in them. The 436 language is the biggest culprit. They also come with a PPA amendment that seems to incorporate some of the provisions not already in the document. In other words it's a cut-down version of the full PPA amendment because many of the provisions are in the document body.

Has anyone noticed this? If so, what are you doing, assuming you don't want to have the client sign a document that has bad 436 language in it? My initial thought is having the client sign an entirely new PPA amendment, even though they signed a good PPA amendment previously. That new amendment would override the bad language in the document.