Are you aware of any states that offer creditor protection to an HSA? Please give as much detail as possible. Thanks--GSL

We are looking for a way to treat an across the board cut in pay as a change in status under Section 125. As a cost-savings measure, the employer is considering cutting compensation and hours for all non-union employees. This would not affect anyone's eligiblity or the cost of benefits under the group health plan. However, the cost of benefits would be a bigger chunk of employees' checks since they would be paid less.

Because this would affect all employees, the employer would like to treat this as a change in status so participants can elect lower cost options (such as moving from PPO to HMO or dropping coverage). However, Treas. Reg. Sec. 1.125-4 doesn't seem to cover a drop in compensation since plan eligibility is not affected. Additionally, it doesn't seem to fit under the change in employment status since only compensation is changing, not any other aspect of employment. Finally, the change in costs rules don't seem to apply because the actual cost is not changing, it is just a larger percentage of compensation.

any ideas on whether this can work?

Is a deferred variable annuity in a qualified plan considered "life insurance" for the purpose of plan feature code 4B? I can talk myself into either position!

Med

I have a client that was on a pre-approved VS plan effective 1 August 2003. Subsequently they changed administrators and went to another pre-approved VS plan effective 1 April 2005. Can they be a "prior adopter" since they had adopted a pre-approved plan prior to 17 February 2005? I don't think they can use the 6-year cycle by signing an 8905 because the requirements for an "intended adopter" require the employer to have a qualified individually designed plan. Any thoughts?

Hi there,

I'm wondering if any of the DB plans you work with take the position based on the DOL 2003 FAB that a DB plan may pass along the reasonable administrative fees related to the preparation of a QDRO. I personally think this is a risk based on what I've read, but I'm curious to know whether market practice has perhaps moved in the direction of charging a fee, in particular because DB plans are far more complicated and thus QDROs for these plans take more time to prepare.

Anyone? Thanks so much!!

does the same 6% contribution limit apply to the sep contributions that apply to p/s contributions if the employer is contributing more than 25% ofpay to a DB plan and the plan is not pbgc covered?

I only can find mentions of DC issues when i see combo plans on irs.gov or any other site.

thanks

Background: My client participated in a qualified plan in 2006. Later that year, he left the company and took a full distribution. The plan's administrator issued him a 1099-R indicating that the distribution was eligible for rollover. He did, in fact, roll the distribution into an IRA.

Problem: In 2008, my client's former employer discovered that he was never eligible to participate in the plan. In December of 2008, the plan's administrator sent my client a corrected 1099-R to correct the 2006 1099-R, indicating that the distribution was not eligible for rollover. We presume that his IRA's custodian will subsequently distribute the rolled over funds and issue a 1099-R.

Question 1: Is the plan administrator allowed to issue a 1099-R to correct a prior year's 1099-R? I believe not, but the regulations citation would be much appreciated.

Question 2: Is my client obligated to amend his 2006 tax return as a result of receiving the corrected 1099-R in 2008?

Many thanks,

CTB

Hello to all. I have about 3 plans total that I have to run ADP/ACP tests on. I have a failing test <gasp!>, and have recharacterized deferrals as Catch-Up and am now passing the ADP.

Someone, Please! refresh my memory on what happens with the ACP test that is also failing... is there any correlation to the match that was based on the now-catch-up deferrals? I remember seeing somewhere, that I can disregard that matching, but cannot find where I would have read such a wonderful non-sensical thing.

I'm pretty sure the answer will be to distribute (??) the matching amount over the ACP limit.

Thanks SO much!!!

A employee makes $1,000 a week, with $100 deducted for medical on a Pretax basis.

The participant has elected that 10% of his pay be deducted for his 401(k) Employee Contribution.

Shoud the employer withold $100 for the EE deferral ($1,000 * 10%) or $90 ($900 * 10%)?

Is the deferral based on the Gross Comp or Net Comp after the $100 Medical deduction?

I have a plan where the plan year end is 11/30. Their corporate plan year end is 12/31. The plan year end use to be 12/31 - but 3 years ago they changed it to 11/30. I dont know why - we just took over as TPA.

If they want to change it back to 12/31 - do I need to do a short plan year from 12/1 thru 12/31? It seems silly to do it for one month.

What about vesting - do the participants get another year of vesting for the 1 month short plan year?

Thanks

I understand that if a participant receives a distribution from his or her 401(k) plan then changes his/her mind and instead wants a rollover, that person would have 60 days from the date of distribution to roll that money into an IRA (or other qualified plan), PLUS any amounts that may have been withheld for taxes, to not incur any taxes on the distribution or penalties. A similar question has come up regarding loan defaults.

Situation: Participant terminated employment. Upon termination, he had an outstanding loan amount. Through some confusion, the date to make restitution of his outstanding loan came and went. (Participant believed he had more time to make the deposit, which was substantial.) Recordkeeper put the loan into default. Now participant is upset because of the confusion over his payoff date (which was incorrectly given to him by one of the customer service reps of the Recordkeeper). Based on administrative error and detrimental reliance, we will probably make an exception and allow the participant to repay the loan by the given due date (and undo the loan default). However, I was thinking that this whole thing could be much simpler.

Couldn't we just keep the default and instruct the participant to roll over that money into an IRA within 60 days of the loan going into default? Wouldn't that action have the same impact as if the guy would have paid it to the plan?

I think yes, but wanted to get your expert opinions. Thanks in advance for your help (and sorry for the long message!).

Per adoption agreement.

1. Calendar year PSP (Standardized Plan)

2. Eligibility requirements = 1 year & 1000 hours

3. Entry dates allowed = 1/1 and 7/1

4. Must receive allocation in employment termination year .... if worked 500 hours during plan year or employed on last day of plan year.

An employee was hired on 4/1/07 and then worked well over 1000 hr during eligibility period (4/1/07 - 3/31/08).

The employee entered the plan on 7/01/08.

The employee quit on 8/ 10/08.

During the period 1/10/8 - 8/10/05, he worked 1,160 hours.

But during the period 7/01/08 - 8/10/08, he only worked only 200 hours.

Now, here are my questions:

In order to be allocated some of the 2008 PSP contribution .... does he have to have worked 500 hours during the period 1/10/8 - 8/10/08 ? Or during the period 7/01/08 - 8/10/08 ?

I understand that COBRA does not define the term "legal separation" for qualifying event purposes. It is also my understanding that the family law rules of many states also do not formally recognize the concept of a legal separation. That is to say, although parties may be "separated" and living apart, they are still viewed as legally married until the final divorce. Although there are some states that may have a classification of "legal separation" or certain forms of divorce like a "divorce from bed and board" that might rise to a "legal separation," that appears to be a minority.

Given the confusion over the lack of an express definiton of "legal separation" and participants' status during a usual "separation period" etc., I was curious how many worked with plans that attempted to provide a definition of the term "legal separation" and how such a definition was drafted so that it is broad enough to cover multiple states and still provide some meaningful clarification (e.g., I don't think saying something like "legal separation as may be recognized under applicable state law" really helps much.)

I have a tax client who put too much in his Roth in 2008. His AGI is over the limits and him and his wife put in $4,800. I believe he said he was also over the limit in 2007. Of course it was not deductible, but what does he need to do now? Any consequences/penalties when I prepare his 2008 returns? Thanks.

Is a fidelity bond required for a 412(e) plan if the have employees, Even though they are only invested in guaranteed insurance contracts and annuities? Thanks

I have limited experience with VEBAs but a client under IRS audit has come to us for guidance. The IRS is stating that based on the assets in the LTD plan, the plan is over funded. I know in the past they were concerned that these vehicles did not become a way for companies to hide money away in a tax deferred vehicle.

Does anyone have references to regs that address the overfunding issue?

Thank you

If an employer that sponsors an individually-designed plan switches to a prototype, are there any employee notification requirements analogous to the notice to interested parties? Assume, for example, a Cycle C filer switches from an IDP by adopting a newly-approved prototype by January 31, 2009. Obviously, the switch eliminates (generally speaking) the requirement to file a determination letter request, but I'm concerned that I not overlook any notification requirements that go along with the switch.

Thanks.

What happens if a key EE is the only one who defers in a safe harbor match plan? Would this mean he would have to allocate the top heavy minimum to all NHCs, since the plan is top heavy?

When would a retirement plan not need to amend for 401(a)(31)? Does it refer to involuntary distributions?

Can anyone recommend a reference for more information on reimbursement for expenses of establishing and administering an ESOP under Code Section 409(i)? I find very little on it and unfortunately many searches turn up materials on 409(l) rather than the actual (i).

409(i)(1) provides that, "as reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan [up to 10% of the first $100,000 the employer transfers to the plan plus 5% of the excess]."

We represent an individual who is selling his entire ownership in the company to a new ESOP. He would like to get some of his costs involved in this process paid by the ESOP or the company and we are trying to use 409(i).

An indirect way would be to negotiate with the company that it can take advantage of 409(i) to contribute less to the ESOP and so, since it has more money available to it, it can pay some to the seller to offset its costs. I am hesitant however to have an agreement directly tying the amount paid to the seller to the amount the company holds back from the ESOP. Do I need to be so concerned?

The statute includes the parenthetical, "(or the plan may pay)". I'm more hesitant to use money coming directly from the plan. I haven't done a thorough prohibited transaction analysis, but my initial thought is that a payment from the plan to the seller, even after he no longer owns any of the company, could be a prohibited transaction. Likewise, a payment from the plan to others on behalf of the seller seems problematic (both prohibited transaction and exclusive benefit concerns).

Any thoughts on how to get a payment to the seller or where to get additional analysis on 409(i) would be appreciated.