Can FSA balances at year end be rolled over to an employer's 401(k) plan as employee contributions?

If so, can you point me in the right direction for research on:

- How this gets tested in the 401(k) plan

- How this comes into play with 2.5 month rule in FSAs and ADP/ACP Nondiscrimation in 401(k)s

- Payroll tax implications since FSA is tax free and 401(k) is FICA taxed with fed/state/local taxes deferred

- How doe employees make this election (what documentation is required)

If this is allowed and there is anyone out that there has it in place, I would love to speak with you or get your opinion on complexity of having this in place, etc.

Thanks!

If a plan charges distribution fees directly to the participant, should the fee be a part of the taxable amount or netted off before?

Any experience with compensation that is not taxable compensation to a service provider (for example where there is an exclusion under IRC 132 from taxable comp) but the service provider is receiving "indirect compensation" that meets the definitions under Schedules A and C?

It seems that since there is no similar exclusion from 5500 compensation as there is for taxable comp that it would have to be reported on Schedules A and C. Only two options here, one is to report the compensation on Form 5500 and the other is to exclude it since it is not taxable compensation. Any thoughts?

A 501©(3) employer adopts a plan that described itself as a SERP. The document has boilerplate language about ERISA top-hat status. Like a normal SERP, the benefit is calculated with reference to the employer's qualified retirement plans. However, the "SERP" benefit is vested and paid out annually, based on the amount accrued in the preceding year.

Is this an ERISA pension plan that is subject to the top-hat reporting rules? It does not provide for retirement income or for deferral of income past termination of employment, which are requirements for being a "pension plan" under ERISA. This looks to me more like a bonus plan that would not need to file a top hat report to avoid ERISA annual reporting requirements since it would not be subject to those requirements in the first place. Would there be any reason not to do the top-hat filing just to be on the safe side?

I'm new here so please excuse me if this question has been asked three thousand times already.

I'm seeking a website where I can go to find an interactive tool to input my non-Roth IRA info, personal demographics and whatever else is needed (assumptions regarding the future?) to analyze whether it is likely to be to my advantage to convert my regular IRA to a Roth IRA. Anybody know of such a tool?

Thanks.

I know that a PBGC covered plan that terminated in 2007 may not use the new segment rates for a payout in 2008. However, must you use the new mortality table or do you still use 94GAR?

I have two different Safe Harbor scenarios for plans that have short 401(k) eligibility requirements that elected to exclude participants who are not age 21 and have less than one year of service.

One plan is on a prototype and the other on an IDP, neither document clearly defines exactly when these first year participants should enter the plan for purposes of receiving a safe harbor contribution.

Plan 1 is on a prototype - 90 days of service is required to become eligible for salary deferrals and regular matching contributions with immediate entry upon satisfaction of the service requirement. For profit sharing contributions an employee must have a year of service and attain age 21 with entry dates being semi-annual as of 1/1 & 7/1.

For purposes of receiving the Basic Safe Harbor Matching contribution the plan excludes Employees who have not satisfied the greatest minimum age and service conditions permitted under Code Section 410(a)

For an employee who was hired in September 2006 would they become eligible and enter immediately upon completion of 1 year of service or are they not be eligible for the safe harbor match until the following January under the maximum age/service and dual entry provisions?

Plan 2 is on an IDP 3 months of service and age 18 is required to become eligible for the 401(k), regular match and profit sharing portions with quarterly entry dates.

This company makes a 3% Safe Harbor Contribution and their document stipulates that a Safe Harbor Participant will only include those Participants who have reached Age 21 and completed 1 Year of Service.

Under this definition would a participant become eligible immediate upon completing their year of service, i.e. hire date 8/23/06 eligibility met 8/22/07, or would they enter at the later quarterly plan entry date of 10/01/07?

For both cases, the correct entry date is important because this will also impact the amount of eligible compensation that should be considered since pre-date of entry comp. is excluded.

When a fiscal year plan does not pass the ADP test, which year is the refund taxable in? Is it the calendar year that the fiscal year begins in?

Anyone have a good board resolution I can borrow/steal to remove a trustee?

The proposed cafeteria plan regulations provide that a cafeteria plan may not discriminate in favor of highly compensated employees with regard to eligibity to participate in the plan (or with respect to contribuions and benefits provided under the plan). The eligiblity test is a two-part test. First, the cafeteria plan will not be discriminatory if the plan benefits a group of employees who qualify under a reasonable classification established by the employer, as defined in Treas. Reg. 1.410(b))-4(b). Second, the group of employees included in the classification must satisfy the safe harbor percentage test or the unsafe harbor percentage component of the facts and circumstances test in Treas. Reg. 1.410(b)-4©. Treas. Reg. 1.410(b)-4(b) provides that a classification must be reasonable and established under objective business critieria that identify categories of employees. Reasonable classfications include specified job categories, nature of compensation, geographic location and similar boa fide busines critiera.

The employer would like to exlude true temporary employees (e.g., who work for six months or less to fill FMLA and other leave spots), but does not wish to impose a six-month wait for all employees. In 2006 ABA Qs and As, the IRS indicated an exclusion for temporary emloyees under a qualifed retirement plan may violate Section 410(a) because it may relate to a service requirement instead of simply relating to a job catogey (contrast with on-call employees). Any thoughts on whether the exclusion of temporary employees would violate the reasonable classification test? Note: we go with the 1,000 hour rule for all retirement plans regarless of job description.

A qualified plan directly purchases an interest in a small start-up business. After this occurs it's discovered that the 100% owner of the plan sponsor is a partial owner in this new company, so it appears the purchase is a prohibited transaction based on these circumstances. My question is at what level of ownership does this become a PT? For example, if the plan were to buy shares of stock in Microsoft and the sponsoring employer also owns Microsoft stock personally, both the plan and the employer would technically be partial owners in Microsoft but the plan wouldn't be considered a party to a PT. Is there an aspect that's being overlooked here or is there just simply a threshold for substantial ownership that must be exceeded before a transaction is deemed a PT? All help is greatly appreciated.

A combined plan design I have used includes:

- safe harbor 401k

- profit sharing plan

- defined benefit plan (not cash balance)

I then combine all three plans for non discrimination testing on an accrual basis.

I convert the current year PS allocation to an accrual rate and I determine the DB accrual using either the accrued to date method (i.e. inclusive of past service) or the annual method.

I meet the gateway based on the annual allocation of the highest HCE.

Does anyone see any problem with the above approach?

Hi,

I have a plan that is making a discretionary PS contribution. The document states an eligible employee must complete 1000 hours and be employed on the last day of the plan year. I have a participant who completed 1000 hours but terminated on 12/31/07. Relius isn't giving her a contribution. Would she be considered an employee on the last day of the year??? She would have been an employee at the begining of the day but not at the end. . .

WASHINGTON – The Internal Revenue Service and the Treasury Department cautioned taxpayers about participating in certain trust arrangements being sold to professional corporations and other small businesses as welfare benefit funds and identified some of the arrangements as listed transactions.

There are many legitimate welfare benefit funds that provide benefits, such as health insurance and life insurance, to employees and retirees. However, the arrangements the IRS is cautioning employers about primarily benefit the owners or other key employees of businesses, sometimes in the form of distributions of cash, loans, or life insurance policies.

“The guidance targets specific abuses involving a limited group of arrangements that claim to be welfare benefit funds,” said Donald L. Korb, Chief Counsel for the IRS. “Today’s action sends a strong signal that these abusive schemes must stop.”

The guidance explains that, depending on the facts and circumstances, a particular arrangement could be providing dividends to the owners of a business that are includible in the owners’ income and not deductible by the business. The arrangement could also be a plan of nonqualified deferred compensation. Even some arrangements providing welfare benefits may have tax consequences different than what is claimed.

In Notice 2007-83, the IRS identified certain trust arrangements involving cash value life insurance policies, and substantially similar arrangements, as listed transactions. If a transaction is designated as a listed transaction, affected persons have disclosure obligations and may be subject to applicable penalties. Taxpayers who otherwise would be required to file a disclosure statement prior to Jan. 15, 2008, as a result of Notice 2007-83 have until Jan. 15, 2008, to make the disclosure.

In Notice 2007-84, the IRS cautioned taxpayers that the tax treatment of trusts that, in form, provide post-retirement medical and life insurance benefits to owners and other key employees may vary from the treatment claimed. The IRS may issue further guidance to address these arrangements, and taxpayers should not assume that the guidance will be applied prospectively only.

Today, the IRS also issued related Revenue Ruling 2007-65 to address situations where an arrangement is considered a welfare benefit fund but the employer’s deduction for its contributions to the fund is denied in whole or part for premiums paid by the trust on cash value life insurance policies.

Related Items:

Revenue Ruling 2007-65

Notice 2007-83

Notice 2007-84

Brand new 401k plan is effective 1/1/2007. The plan has 1 year/age 21 entry requirements. To bring in the doctors as of 1/1/2007, they have an eligible if hired by 7/1/2006 date. Now, this leaves out severral NHCEs who were hired after that date but before 1/1/2007. I was wondering if this type of "feature" can be said to be discriminatory based on BRF or something. I understand about a pattern of amendments and such that would favor the HCEs but if this is the only thing the plan does that brings in HCEs and leaves out NHCEs for this year, is there a potential problem?

I want to confirm that non-ERISA governmental plans are exempt from the 403B Regs. (i.e., employee-contributions only) My understanding is that these plan will not be affected by the Regs. So...no need for a written plan document, its still okay for partics to continue to self-certify hardships, there will be no reporting requirements, etc.)

PEO contracts with a number of different types of clients to provide employees at the client's workplace. One client entered into an agreement with the PEO for "permanent, full-time" employees at its location. Clearly, there is some question of whether the employees are the common law employees of the client, not the PEO. This has been somewhat ignored for the past few years.

The PEO has sponsored a 401(k) plan since 2000 for the benefit of all those worksite employees. Exclusive benefit issues were raised by a new TPA. To comply with the exclusive benefit rule, the PEO would like to convert the plan to a multiple employer plan. But, have all the deadlines passed for doing so? Now, what??

Any help would be greatly appreciated.

Thank you.

I am 64 and planning to invest money in an IRA this year. My question is about the tax benefits or penalties that might ensue. I believe that with the Roth IRA in order for me to avoid penalties I must leave the money in for 5 years. Could someone elaborate on this, because I think it refers only to the money earned, not the capital. What about the traditional IRAs? Since I am 64, if I invest this year, can I take money out without incurring a penalty at any time? Thank you for answering these questions.

We administer a 401(k) plan that excludes certain HCE's from participation. The plan has S/R and P/S only.

We just received the 2007 data and found one of the excluded HCE's made salary deferrals. Our document indicates that salary deferrals and earnings be distributed to the ineligible participant.

I have read all the discussions about this.

Rev Proc 2006-27 provides correction by amendment and DL. However, it appears to only permit this if the employee has not met age/service requirements or met age/service and entered before the entry date. It does not appear to apply to an excluded class, particularly if that excluded class is comprised of HCEs. In fact, it starts out by saying "The operational failure of including an otherwise eligible employee in the plan who doesnt meet age/service or enters early"

This seems to not apply to excluded employees as they are not otherwise eligible.

Given this we are inclined to follow the terms of the document and distribute the salary deferrals and earnings. Should these salary deferrals be included in the ADP test?

My understanding is that starting in 2008, a participant may rollover (and simultaneously convert) funds, other than a Designated Roth Account, from a qualified employer plan to a Roth IRA. This is addressed in Pub 590 in a rather blasé fashion, imo. I have also read the instructions for 2008 Forms 1099-R and 5498 but cannot find specific instructions on how these rollover-conversions are to be reported. Maybe I'm overcomplicating it, but that's a hazard of this job...

Does anyone know if there will be a special distribution code for Form 1099-R (other than G)? When the funds are deposited, the 5498 instructions indicate to report them as rollovers, not conversions. It seems I'm missing something. How will the IRS know the funds are taxable?

I know we have lots of time for this, but I'm putting together a chart for internal use and need to address this.

Any insight or direction is appreciated.

Thank you!