For HSA's, some other forms of health coverage are allowed to exist alongside the HSA/CDHP format. I've attached what the IRS says on their website below. Is there a list of specific diseases/illnesses allowed? If so, could you direct me to that list. As for the hospitalization insurance, is it just hospitalization or insurance classified as "hospital indemnity"? Some hospital indemnity policies carry reimbursement for outpatient surgeries. What about a surgery done at a hospital that does not require "hospitalization"? Clarification would be great.

Here is what the IRS says:

http://www.irs.gov/publications/p969/ar02.html#d0e174

Other health coverage. You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan.

You can have additional insurance that provides benefits only for the following items.

* Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of

property.

* A specific disease or illness.

* A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

* Accidents.

* Disability.

* Dental care.

* Vision care.

* Long-term care.

Can you tell me if you put this language in a document - do you need to make the document an individual drafted document - or is there something in the prototype document that accounts for this. We use corbel. The plan sponsor wants this language.

Definition of Employee: An individual qualifies as an Employee only if the Employer treats the individual as its employee for payroll purposes by reporting his or her compensation on a Form W-2 reflecting Employer's Employer Identification Number. Individuals not so treated by Employer are to be excluded from Plan participation even if a court or administrative agency determines that such individuals are common law employees and not independent contractors. Notwithstanding anything to the contrary in this paragraph, also excluded from the term Employee and from Plan participation is any individual (i) who enters into an agreement with Employer to perform services as a sales consultant and/or to solicit sales of sales-consulting services on behalf of sales consultants, or (ii) who is subject to an agreement with Employer that the individual has signed, which provides that the individual has no right to participate in any benefit plans or programs that Employer maintains for its employees.

I have been doing some thinking about the ADP/ACP testing for plan years beginning on or after 1/1/2008 and I think I have come up with something interesting based on the current status of our economy (at least for this testing season).

Let’s say ADP testing is being performed on a 2008 calendar year plan on 4/1/2009. When I process the test, I find that one HCE (not CUC eligible) is due a refund of contributions of $5,000. When I calculate the earnings (through 12/31/2008) on the refund, I come up with -$2,500. Now I know that gap earnings are no longer required on ADP refund distributions, but they can be optional based on how the documents are written. Therefore, in this case, if the document supports the option for the calculation of gap earnings utilizing either methods, I think that I could use the safe harbor method. If I do so, I take 10% of the earnings for every month. If I wait for ten monthly periods, I will have gap earnings equal to -$2,500. If I add this to the earnings previously calculated (-$2,500), I have total earnings of -$5,000. When I add this to the contribution amounts to be refunded, the refund amount is $0 ($5,000 - $5,000). (I hope I have written this so that it makes sense.)

Does this sound correct? I think it is, but I am trying to see if anyone can poke any holes in this. Any comments would be greatly appreciated.

(Please note that the plan sponsor will still have to pay the 10% excise tax.)

I am the TPA on a PSP that is scheduled to have their 2006 plan year audited by the IRS. The plan sponsor is a member of a controlled group of corporations (2 companies) and both companies participate in the plan and make profit sharing contributions. I just realized that the plan document does not provide for participation by one of the companies. The document says an affiliated employer may participate in the plan if it adopts the plan, but it does not appear that this was ever done. Also, the document says the sponsor is not a member of a controlled group (which is obviously incorrect).

Anybody know what kind of sanctions we might be faced with? Also, is there a way to include the other company in the plan at this point in time?

Thanks in advance for any assistance.

My client is a closely held corporation with one shareholder who runs the business. It had 18 employees. He has apparently been telling employees he planned to retire, and encouraging them to take other job opportunities if they came up. In 2007, fifteen of them did so and were not replaced. He came to me recently to discuss terminating the profit sharing plan and dissolving the corporation, and I told him the IRS would likely look at 2007 as a partial termination, requiring the departing employees to be 100% vested. He has already cashed them out at their place in the vesting schedule as of 12/31/2007. The obvious problem is that given the market issues, he no longer has the funds in the trust to cash these people out at 100%, to say nothing of the remaining participants, which include himself.

My sense from reiewing the law is that we could argue that these were voluntary terminations which did not constitute a partial termination but it would be our burden to demonstrate the terminations were voluntary. Does anyone have experience with this issue?

My other issue is I cann't find out what happens when a defined contribution plan does not have the funds to meet its obligations. Obviously that isn't supposed to happen, but it did here. Any suggestions would be appreciated.

Does anyone know if a plan takes the automatic 5-yr extensions for the charge bases in the 2008 valuation, if they would be permitted to take another automatic 5-yr extension on bases created in the 2009 valuation (investment losses)

In other words, can you keep taking the 5-yr extenstion on new bases every year or is it "one and done" kind of thing?

I didn't see anything saying I can't keep taking the exentions, but then again I didn't see anything that said I could.

we are taking over a large non profit organization profit sharing plan. The plan excludes certain divisions. As I set this up on Relius I want to make sure that I am coding employees in that division properly as far as category/eligibility so that they are counted correctly for coverage.

I did look on the Relius support site for guidance but couldn't find anything relative.

Thanks in advance.

Suppose a TPA is hired by a plan whose asset holder (TPA is independent) pays asset-based fees to the TPA. TPA normally would offset those payments against the invoice TPA would generate for testing, Form 5500 etc.

For various reasons, TPA and client part ways before any work is done. TPA has received payments from asset holder and wants to return them because no services were rendered.

Investment holder will not accept the money.

What is the best way to approach this - send it to the new TPA who is providing services? Send it to the client and instruct them to put it back in the plan as earnings (not sure the asset holder can accommodate a deposit that is earnings and not a contribution).

Any suggestions? Predecessor TPA is not entitled to the funds and does not want to keep the money. No invoice rendered to client thus no billing available to offset. Thanks for any help.

OMIT

DB/DC combo plans are being aggregated for 401(a)(4).

The aggregated plans do not pass under the "Annual Method". So the next option is to use the "Accrued-To-Date Method".

Can one use the following approach?

1) Compute the DB plan's Normal & Most Valuable annual accruals (NARs & MVARs) using the "Accrued-To-Date method", and

2) Compute the DC plan's Equivalent annual accruals using the "Annual Method" (to avoid having to collect data required for the "Accrued-To-Date Method").

Then add the DB & DC's annual accruals and compute the accrual rates therefrom.

Suppose you have plenty of FSCOB and AFTAP supports its use.

E.g., as of 1/1/2008, FT =2,000,000; Assets = 2,500,000; FSCOB=1,000,000, 2008 TNC=300,000, and contribution of 300,000 made. Quarterlies ared due in 2009 because of PPA convoluted rule of backing credit balance out of assets to test funded status. It is now 2009 and we find FT=2.300,000; Assets=2,500,000 (diversified in matress in 2008); FSCOB=1,000,000; TNC=300,000. Since net assets = 1,500,000 < 94%FT, 2009 contribution = 300,000 (TNC only; no amortization) and quarterly contributions of 75,000 due.

Employer does not wish to make contributions in 2009. To apply FSCOB to quarterlies, we think we must elect a priori.

But, can't we just wait until we file Schedule B to have plan sponsor elect to apply FSCOB at 1/1/2009 to reduce year's contribution?

I deposited $5000 earlier this year (2008) in a traditional IRA (a 2008 contribution). I have since cashed in the entire IRA account (understanding that I do face early withdrawal penalties and taxes). I have two questions: 1) Will I face an early withdrawal penalty on this 2008 contribution? (obviously I'll face a penalty on earlier contributions), and; 2) Can I make another 2008 traditional IRA contribution since I effectively deposited and shortly thereafter withdrew my the 2008 contribution?

Thanks in advance for any insights.

The plan sponsor of a frozen PBGC covered DB plan called and wants to terminate the plan. They are not going to file with the IRS. Since the plan was long ago frozen for all benefits and participation I don't think there is a 204(h) notice required (please correct me if I'm wrong). There is the PBGC Notice of Intent to Terminate required between 60 and 90 days before the Proposed Termination Date. I seem to recall the Proposed Termination Date for PBGC purposes does not have to be the same date as the actual plan termination date on the board resolution to terminate the plan. Is that correct? It would be nice to use an actual plan termination date of 12/31/08 to save the sponsor the need for a 2009 actuarial valuation and then use some later date as the PBGC Proposed Termination Date in order to get the NOIT issued in a timely manner. Problems?

Client is a closely held corporation with a 401(k); one participant (a 60% owner) also participates in a 403(b) plan with a different employer (501©(3)). Under IRC 415(k)(4), the 403(b) and 401(k) are aggregated for applying the 415© limit, and we are now finding that the limit was blown for years up to and including 2007. The 415(k) rules provide that when there is an excess amount in this circumstance, the excess is treated as a disqualified 403(b) contribution, and the annuity contract must be bifurcated between taxable and nontaxable portions.

My first question is -- does this constitute a failure of the 401(k) plan, of the 403(b) plan, or both? Since the 415(k)(4) rules seem to treat the excess as nonqualified 403(b) contributions, is the corporation the proper party to request a correction?

If the corporation is NOT the appropriate party, does the 501©(3) have to seek a correction? The annuity provider? The employee?

If the corporation is the appropriate party, can corrective distributions be made (since the 415(k)(4) regs don't seem to permit distributions under these circumstances, probably because 415© failure is not a 403(b) distributable event).

Any help would be greatly appreciated.

I have a bank that I insure for Long Term Disability. They have self funded their short term disability for years and I just found out that they have no handbook or formal written agreement that defines their short term disability. What kind of trouble can they get into without a written agreement? Thanks.

A deposit has been made the wrong money type in a 401(k) Plan. The participant elected to defer Roth contributions into a plan, however, payroll coded it improperly and the money was deposited into the participants pre-tax salary deferral money type instead. I have not found a corrective process. Has anyone else had this happen and how was it handled. Also, where did you find the corrective process that provided the guidance.

Thank you!

In case you are a 'fool' and don't subscribe to such things: This is quite good, its the first explanation I've seen for a failure involving a safe harbor match. subscription is free http://www.irs.gov/retirement/content/0,,id=154836,00.html

Fall 2008 edition IRS Retirement News for Retirement Plans

Fixing Common Plan Mistakes:

Failure to Provide a Safe Harbor 401(k) Plan Notice

Each issue of the RNE looks at a common error that occurs in retirement plans and provides information on fixing the problem and lessening the probability of its recurrence.

Background:

A safe harbor 401(k) plan requires the employer to provide:

• timely notice to eligible employees informing them of their rights and obligations under the plan and

• certain minimum benefits to eligible employees either in the form of matching or nonelective contributions.

The employer should provide the rights and obligations notice within a reasonable period before the beginning of each plan year (or in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). In general, the law considers notices timely if the employer gives them to employees at least 30 days (and no more than 90 days) before the beginning of each plan year. The notice must include, at a minimum, details on:

• whether the employer will make matching or nonelective

contributions, • other contributions under the terms of the plan,

• the plan to which the safe harbor contributions are made, if more than one plan,

• the type and amount of compensation that may be deferred under the plan,

• how to make cash or deferred elections,

• the specific time periods available under the plan to make cash or deferred elections,

• withdrawal and vesting provisions for plan contributions, and

• how to easily obtain additional information about the plan (including a copy of the summary plan description).

The Problem:

Rainbow Company established a safe harbor 401(k) plan in 2005. The plan provides for matching contributions in an amount equal to: 100% of elective contributions up to 3% of the employee’s compensation plus 50% of elective contributions greater than 3%, but not more than 5% of the employee’s compensation. Eligible employees received timely notices in 2004, 2005, and 2006. However, in 2007 Rainbow failed to provide safe harbor notice to its employees. In addition, Rainbow did not furnish notices to employees who became eligible to participate in the plan in 2008. Rainbow discovered the problem when it conducted an internal review of its plan operations at the end of 2008.

Violet first became eligible to participate in the plan on January 1, 2008. She did not receive notice and Rainbow did not inform her of her right to make elective contributions to the plan. She earned $20,000 in compensation in 2008.

Indigo has been a participant in the plan since 2005. She has made elective contributions of 2% of compensation each year, after receiving notices in 2004, 2005, and 2006. While she did not receive a notice in 2007, the human resource department (HR) informed her that the employer’s matching contribution formula will remain the same for 2008 and that she should inform HR if she wanted to make any changes to her elective contributions for 2008.

Finding the Mistake:

In order to find the mistake, review:

• The deferral decisions among eligible employees. If many eligible employees are either not making elective contributions or deferring at low rates, it is possible that they did not have timely access to the information contained in the notice.

• The plan’s procedures for issuing notices.

• The plan’s records showing that the employer followed the plan’s procedures relating to the distribution of notices.

Fixing the Mistake:

Rainbow must evaluate the impact of its failure to provide notice to its eligible employees. The solution might be different for each affected employee. As illustrated in this problem, the failure to provide notice could require correction for the exclusion of an eligible employee or a simple revision to an administrative procedure.

Exclusion of an eligible employee. Violet belongs in this category. Due to its failure to provide notice, Rainbow did not inform Violet of her ability to make an elective contribution when she was eligible. To correct the failure, Rainbow must make a corrective contribution for Violet to replace her missed deferral opportunity and the missed matching contributions that occurred because Rainbow improperly excluded her from the plan. The corrective contributions are determined as follows:

(a) Missed deferral opportunity: If an employee is not provided with the opportunity to elect and make elective deferrals to a safe harbor §401(k) plan that uses a rate of matching contributions to satisfy the safe harbor requirements of §401(k)(12), then the missed deferral is deemed equal to the greater of 3% of compensation or the maximum deferral percentage for which the employer provides a matching contribution rate that is at least as favorable as 100% of the elective deferral made by the employee. Violet’s missed deferral is 3% of her compensation of $20,000, or $600. Violet’s missed deferral opportunity is 50% of her missed deferral of $600, or $300. Rainbow needs to make a corrective contribution to replace Violet’s missed opportunity to make elective contributions of $300 (adjusted for earnings).

(b) Missed matching contribution: If Violet made an elective deferral of $600, she would have received an employer matching contribution of $600. Rainbow needs to make a corrective contribution to replace the missed matching contribution of $600 (adjusted for earnings).

Fixing an administrative problem. Indigo belongs in this category. The failure to provide notice did not prevent her from making an informed timely election to change (or maintain) her elective contribution to the plan. No corrective contribution for Indigo is required. The plan needs to reform its procedures to ensure that she receives timely notices in the future.

Do the 100x or 2/3 limitations on life insurance apply anytime the plan invests in an insurance type product? or do they only apply if the plan's death benefit involves proceeds from the policy.

That is, if the only death benefit is the PVAB, does it matter if the plan invests all its money in an insurance policy?

Situation: H & W own 100% of Corp. H & W are Corp's only 2 EEs. Corp has a QRP. It's only asset is a loan on which H & W are obligated (possible 72p problems are being explored separate and apart from this post). While loan is yet outstanding, H & W divorce. H receives in the divorce split of assets all of the stock of Corp. W no longer is an owner of Corp directly or by attribution, but yet has benefits in the QRP.

Question: Has the non-ERISA QRP become subject to ERISA by reason of the divorce since W is no longer an owner of Corp but has benefits under the QRP? If so, what steps need to be taken by the fiduciary (H) to diversify the assets and establish the liquidity to be able to pay benefits (specifically, W's benefits)? It would seem if ERISA applies that the small employer exception to independent audit by an accountant is also blown by virtue of the loan being the QRP's only asset.

We have a client that is terminating its SERP this year. The company has been using search firms to locate missing participants, but we are preparing for the possibility that a few may not be located by year end. One approach is to report the distribution amount as a taxable distribution to the IRS and pay the benefit, less tax withholding, to a bank account for the participant's benefit. Does anyone have any comments or suggestions?