"Medicare beneficiaries are free to reject employer plan coverage, in which case they retain Medicare as their primary coverage. When Medicare is the primary payer, employers cannot offer such employees or their spouses a supplemental plan that pays for services covered by Medicare."

Is there a definitive list of ineligible "supplemental plans" out there? Would participation in an employer based POP plan be an "ineligible supplemental plan"? How about a medical FSA? How about a Medicare advantage plan which operates within the scope of "Medicare".

CMS is rather vague on this topic. Any links or clues to more information would be helpful. Thanks for any help.

Political subdivision allows unused vacation time to be converted into a contribution into a 457 plan at the end of each year. I believe this would be an employer contribution subject to FICA. Question: Assume $1,000 at issue. Would FICA be imposed in such a way so that the plan receives $1,000 minus FICA? Or does $1,000 go into the plan, with FICA on the 457 contribution effectively coming off of the employee's salary? Or can the employee have a choice (especially if there is a collectively-bargained agreement covering employees)? We foresee that if $1,000 goes into the plan, employees will gripe that FICA from the contribution will leave them short that pay period.

Circumstances

The taxpayer established a qualified ESOP plan under code section 401(a) exempt from tax under code section 501(a). The plan was terminated several years ago and the taxpayer took the distributions and treated them as a tax-free rollover into a qualified IRA account.

The IRS has audited the plan and has determined that the plan is disqualified. Consequently, the total distribution amount is being included in the taxpayers gross income in the year they were distributed, code section 402(b). Additionally, the distributions constitute an excess contribution under code section 4973.

Questions

Do the funds now have to come out of the IRA because they are no longer eligible? Please include citations/authority if possible.

If so, are they taxed again? Please include citations/authority if possible.

If not, how does the taxpayer "unwrap" the IRA characterization so that he is not taxed again when the IRA account manager issues a 1099R?

What are the administrative procedures between the taxpayer and the IRA account manager and the taxpayer and the IRS?

Suppose a small plan had a beginning of year valuation date for

calendar year 2007.

The 12/31/07 proposed regs permit a change to an end of year val date

for 2008.

Can the plan change the val date back to BOY for 2009? 2010?

Thanks for any help.

Could an employer set up a separate self-funded health insurance plan that covers only mental health benefits (with different financial and treatment limitations than its other health plan that covers medical benefits other than mental health/substance abuse), and avoid the new mental health parity rules?

My background has been life/health and would like some guidance on a general quesiton regarding retirment. It involves a relative who is now incapable of making decisions and needs 24 hour care. My wife and I have relocated from west coast to east coast to care for him, living in his home. Another sibling has power of attorny.

Background is a 80 year old male, widowed, health is somewhat fragile (but no immediate threat to death), has $130k for investments, a house worth about $180k (paid off), SS income of $1,100 per month, and life insurance of $32k. We do not the exact amount, but the $130k was substantially higher prior to the market crash. We do not know what types of investments were involved.

Current cash needs are about $2,000 per month, but could go down somewhat as we get a better understanding of his expenses and can trim some of them. Our guess is that the expenses could go down a few hundred per month, but no real figures yet.

Our concern is that the cash be preserved. We are looking for professional help from financial planners as what to do.

My question concerns the allocation mix that we are beginning to hear from these planners. Is there a certain type of mix we should be aiming for? One in particular proposed a mix of 25% cash, 30% fixed, and 45% equities. I was a little shocked to hear the mix contained equities at 45%.

Any thoughts or ideas would be greatly appreciated.

A sole proprietor had a SEP IRA plan. She died in 2008, at age 78. Her husband was the death beneficiary and about the first of December requested a payout equal to the 2008 required minimum distribution for his dead wife. The brokerage house refused, saying he must first set up rollover IRA in his name as surviving spouse and take the required distribution from the rollover IRA.

The surviving husband refused to do that, on advice of legal counsel that the 2008 required distribution for his dead wife was not eligible for rollover and if rolled over, would cause a 6% penalty. In addition, the withdrawal from the rollover IRA would not satisfy the 2008 required distribution for the dead wife.

The brokerage house held tight when this advice was explained to its technical compliance and then legal departments. December 31 passed with no distribution being taken, and now a 50% penalty applies.

Should the husband notify the IRS about this situation? Is the brokerage house that refused the withdrawal request responsible for paying the 50% penalty?

Liquidity:

When you look at your investments and wet your pants.

Which code section requires amending the plan for GUST, EGTRRA, 401(a)(9) and 401(a)(31)?

How do deemed earnings figure into 415 limits?

How do deemed earnings figure into 415 and 404 limits??

Terminating a retirement plan; what must one do?

What must one do when one terminates a retirement without restating or amending it to get it qualified? I know one would have to pay early distribution fees and could not do a rollover to a qualified plan or IRA, but what else must one do?

One person plan - corporation

Sole participant at 415 high-3-year salary limit and not accruing more.

12/31/08 Funding Target: $1,000,000

2008 TNC = $0

Trust assets also $1,000,000

Under PPA the minimum is obviously $0 but is the maximum

deductible contribution $500,000? - the cushion amount?

Looking through the proposed regs on assets and liabilities, appears that what we exclude from FT is the benefit guaranteed by the insurance solely based upon premiums paid prior to the valuation date (and assuming no further payments). Let's just say you're starting a plain jane DB plan partially funded through whole life insurance. Appears minimum contribution would still just be the TNC with no special provision for the insurance (i.e., side fund would be TNC less premium paid). Assume that 2nd year would be especially underfunded since your CSV would be close to $0.

What I'm getting at: how does insurance funding work in DB plans post PPA? Just saw a 2008 proposal that made no sense to me (loaded with insurance) wherein their 2008 side fund and premiums were approximately double what the TNC would be on their porported end of year accrued benefit. Any consensus out there how insurance will work in '08 and beyond?

401(k) Plan using safe harbor hardship withdrawal provisions allows participant to take hardship withdrawal to prevent foreclosure.

Validity of financial hardship is not in question however plan administrator approved withdrawal without first requiring participant to take out plan loan.

Maximum plan loan available would not alone have been sufficient in amount to prevent foreclosure but taking out maximum loan was not a "counterproductive action" as it might have been if employee needed hardship withdrawal to qualify for first mortgage. See Treas. Reg. 1.401(k)-1(d)(3)(iv)(D).

In such an instance what is the correction under VCP? (Plan must submit for other unrelated operational errors.) Does the sponsor have to back the employee out of the hardship distribution to the extent it could have been processed as a plan loan?

Isn't the more important task to simply demonstrate that the sponsor/administrator has procedures in place to prevent participants from "skipping" the step of taking out a plan loan to the extent doing so is not 'counterproductive'??

Any comments welcome.

This is a good one. A client recently sold his business, but has a two-year employment agreement with the new owners. The client has $2,000,000 in the company's profit sharing plan. As the client still has 12 months to go under his employment agreement, he is not entitled to receive a distribution from the profit sharing plan.

The profit sharing plan does allow participants to self-direct their investments. Additionally, the profit sharing plan allows participants to set up investment accounts at other providers for investment purposes. The client wants to pay cash for a $1.6 million dollar home. The home will be rented so we dont need to worrry about prohibited transations.

Clearly, this would be permitted under a self-drected IRA or a qualified plan in which the individual was the only participant. In the past, I've only considered this issue with self-directed IRAs. Does anyone know of any contacts that would permit a account to hold real estate for a participant in this situation.

Thanks in advance.

Ed

We have a client that insists on restricting access to their benefit plan to only their managers. Assuming it could pass the safe harbor testing, would "managers" be considered a "reasonable" classification based on "valid business criteria" as required by 1.410? I have seen examples using hourly vs salary, geographical location and references to "job category" but I'd like to make sure that "manager" would qualify.

Thanks

May I use any mortality table for cross testing, even if I use SSRA in the test?

How are the transition rates to be calculated for EOY vals? For a 12/31/08 val, date, for example, our sofware provider blends the December 08 segment rates with the January 08 CB rate. Their rationale for using the 1/1 CB rate is that the CB rate is based on 412(B)(5)(ii)(II) which references the "...beginning of the plan year".

The IRS Notices all refer to the "...rates... applicable for (month)", so their position seems to be that the segment rates should be blended with the CB rate for the same month.

Does anyone have a checklist or list of the documents, policies and/or procedures that a Benefit Office (Plan Administrator) should have in its possession? If you were organizing a benefit office, what documents should the Plan Administrator make sure they have in the office?

Thanks

Here's another question that has me stumped (this is getting to be a bad habit) about 409A errors. In this case (with facts modified for clarity), a NQDC plan participant had elected to have his compensation deferred until April 30, 2008, but due to administrative error the plan did not make a distribution until November 2008.

Section 1.409A-3(d) provides that a delayed distribution is treated as paid on the designated distribution date if paid within the same taxable year or by March 15th of the following year. Under the scenario above, because the distribution falls within the specified period, it appears there is a not a 409A failure under the regulations.

The problem arises in determining the amount of the distribution. The plan provides for earnings/losses of accounts by indexing the bookkeeping entries to investments selected by the participants. As you may imagine, the account value in March was much higher than the value in November. As I noted above, section 1.409A-3(d) indicates that the distribution is deemed to be made on the designated date (April 30, 2008). Does it follow that the amount of the distribution should be based on the April 30 account value? And no, the plan does not include language that clearly addresses this situation.

For further thought: If the distribution had been made after 2008, but on or before 3/15/2009, would the distribution be taxable in 2008 or 2009? Although the regulations deem the payment as having occured on April 30, 2008, this is a 409A rule rather than an income inclusion rule (IRC 61 and 451) -- but then, wouldn't the payment be includable in 2008 under the constructive receipt (or economic benefit) doctrine? See, for example, PLR 9337016.

Yet further: If the distribution had been made after 3/15/2009, and it is appropriate to treat the payment as "received" (and taxable) in 2008 (again, because of constructive receipt), should the arrangement therefore be treated as failing 409A? The regulations suggest that this would be the case.

Thanks for any thoughts on this.