An employer maintains a cafeteria plan for its employees which provides a number of benefits including medical coverage offering a number of different options. Most of the coverage is provided on a self-funded basis with the exception of the HMOs, which are considered insured. The plan defines the term dependent as including any child of the participant up to age 19 or any child of the participant up to age 23 provided that s/he is a full-time student at a post-secondary institution. Someof the HMOs having a service area in certain states have a state insurance law provision which either defines the term dependent child as an individual who is older than the term defined in the plan document.

(1) Can the employer impute the employer portion of the cost of covering a child whose age exceeds that contained in the plan definition of dependent into the employee's income and treat the employee's payment of his/her portion of the cost of coverring such child as made on an after-tax basis without either (a) determining whether the child qualifies as a dependent of the employee under federal tax law; or (b) offering the employee the opportunity to prove that the child qualifies as a dependent under federal tax law? (This is particularly relevant in MA which provides for a 2-year continuation period for a child losing dependent status under Section 106 of the Code).

(2) Let's assume that, regardless of the answer in (1), the employer is conducting a dependent audit to determine whether the claimed dependents are in fact eligible. If the employer uncovers a child who falls outside the plan definition and the employee is forced to offer proof that the child is eligible to be covered under a state law mandate, which proof also determines whether the child is a federal tax dependent, if the employer determines that the child is a federal tax law dependent, must the employer treat the dependent as a federal tax dependent in spite of the plan's definition of dependent?

I am currently enrolled in an employer sponsored Roth 401k plan. I have only been enrolled in the plan for a few months but will soon be taking a job with a new employer that does not offer any type of Roth plan. Is it possible to Rollover the Roth 401k from my old employer to a Roth IRA, even though I have not met the 5 year rule? Thanks for your help in advance.

Have a handful of 412i plans that now are "converting" to traditional DB plans but keeping some of the insurance policies (policies become part of the assets; envelope funding used).

In my way of thinking the benefit formula is unchanged so that there should not be any 411(d)(6) issues with the accrued benefit since it would be as defined under the plan document which hasn't changed. Howver, my opposing thought is when it was a 412i the accrued benefit was equal to the contract value. Does this contract value have to be preserved at a minimum for each participant in the 412i plan ? Kind of a de minimus benefit until new accruals (if any) surpass it ?

Thoughts ? Thanks.

DB plan is aggregated with a DC plan for general testing. Both plans terminate 12/31/07 because the firm is dissolving on that date. The company will remain in tact largely as a shell for the time being to collect receivables and pay invoices. There will be some residual employees to perform these tasks.

The DB only benefits the HCE principals of the business. Upon distribution soon in 2008 the value of the assets will exceed PVAB's under the plan formula. If the excess is allocated to the principals, the value of the benefit due to that excess will not cause the plan to fail general testing if the excess is tested as a 2007 accrual.

So here's my question. Do you think the excess allocation is a 2007 accrual even though it technically doesn't happen until 2008? The doc has the standard Rev. Rul. 80-229 language for excess assets. I am having trouble thinking it's a 2008 accrual since both plans terminated 12/31/2007.

For purposes of determining if two or more entities will be treated as a single employer (for purposes of the separation from service rules), Treasury Regulation § 1.409A-1(g) states that the controlled group/common control group rules of sections 414(b) and 414© apply.

For purposes of the brother-sister common control group test under Treasury Section § 1.414©-2©, there are two requirements: (1) the “at least 80% requirement” (which is the controlling interest requirement) and (2) the “more than 50% requirement” (which is the effective control requirement). Treasury Regulation § 1.409A-1(h)(3) states that the at least 80% requirement is replaced with an “at least 50%” ownership level (this is the default rule), and can be reduced to as low as 20% if the selection is based on legitimate business criteria.

However, Treasury Regulation § 1.409A-1(h)(3) does not address if the more than 50% requirement (which is the second requirement needed in order to have a brother-sister group) can be reduced to 20% as well. It seems that the 20% ownership threshold should apply to both requirements of the brother-sister common control group test (the at least 80% requirement and the more than 50% requirement), although neither the final regulations nor the preamble even mention this point. I look forward to receiving any thoughts or comments you may have on this issue.

Thank you very much.

A tax-exempt entity sponsors a non-governmental 457(b) plan. We are getting conflicting information from several attorneys regarding the taxation of distributions.

Is there any circumstances that would allow a participant to defer taxation of their account balance to a date later than their termination (but in no event later than attainment of age 70.5)? In this case, the participant is not interested in taking installment payments and wants to defer to a single lump sum distribution several years down the road.

It was my understanding that a participant could elect to defer their payment to a later time providing that the election was in place prior to their termination. Thus, deferring taxation to a later time as well. A prominent attorney is telling us otherwise. According to him, taxation takes place upon termination unless installment payments are elected.

Any input would be appreciated.

Can anyone point to where the government has issued pro-forma notices related to AFTAP certification, restriction of lump sum, annual report, etc.?

A flexible spending account TPA (who will remain nameless) agreed to complete the manual creation of FSA accounts for plan members for a plan effective date of 1/1/08. The plan's sponsor admittedly does things the old way -- they agreed to send a monthly check to the TPA with a roster of FSA participants and their corresponding contributions, hence the manual process.

We just discovered that now 6 weeks into the plan year, the FSA accounts have not been created. At this point, some employees have contributed on a weekly basis and there are pending claims. We are in the process of working with this highly non-respondent TPA to rectify the situation, but the plan sponsor (our client) is concerned that there may be some legal liability if as a result of this the claims are not reimbursed in a timely fashion.

Is there a defined limit to the time that a plan sponsor can take to establish FSA accounts on behalf of employees who have had pre-tax contributions deducted from pay--similar to the maximum time for establishing a 401(k)? Is the plan sponsor left with any legal exposure in this situation?

I assume that because FSA accounts are not interest bearing and there is no significant risk for financial loss when they account is not created quickly (as in a 401(k), for example) that there may be no real issue.

Thanks in advance for any help you might be able to provide.

It's a 401k Safe Harbor Match

provisions read that match is to be made on a payroll by payroll basis

Client has HC participants that receive varrying amounts of comp, sometimes large, sometime not at all

Client also has participants that have instructed not to defer on bonuses

Needless to say, the match %'s are all over the place.

We have highly comp's that have well over the $225,000 in comp but are not receiving the full $9000 because the calculation is done on a payroll basis. If we true him up, shouldn't we true everyone else up.

Also, am I correct in instructing the client to defer and match on bonus utilizing provisions of the document, not necessarily what the participant wants to do.

One of our small plan clients took out a loan for himself and informed us after the fact. There was and is no documentation (the plan does permit loans).

Does anyone have any thoughts about what is the best way to correct this? The payments are not yet delinquent.

Med :angry:

If an ESOP aquires more than 50% of the company, is that a change in control for purposes of 280G?

I haven't obtained a trust ID number online for a couple years, but here's a new wrinkle. Plan was established late last December, effective 1/1/07. Using the IRS online EIN system today, I obtained a TIN. Here's an excerpt from the IRS letter: "Based on the information from you or your representative, you must file the following form(s) by the date(s) shown.

Form 945 2/28/08.

After a review of your information, we have determined that you have not filed tax returns for the above-mentioned tax period(s) dating as far back as 2007. Please file your return(s) by 2/28/08. Penalties and interest accumulate from the due date of the return until it is filed."

Okay fine, but the 945 instructions say: "You are not required to file form 945 for those years in which you do not have a nonpayroll tax liability."

Knowing how the IRS has been issuing bogus missing 5500 letters recently, I figured that it would be best to just go ahead and file a 945 showing all zeroes. The alternative, to not file based on the 945 instructions, could result in an IRS follow-up letter and more work to fix the IRS error.

Just an FYI in case other people encounter the same problem.

Maverick

I do not generally work with governmental plans so I am very confused right now. In this situation, a hospital has been determined to be a governmental unit. It owns 100% of an LLC that employs physicians. The physicians are planning to lease the staff from some other organization. The LLC wants to sponsor a 401(k) that benefits to the Drs only. It was told that as an affiliated governmental unit, it is exempt from the nondiscrimination testing for qualified plans. Is this possible??

Thank you in advance for any guidance.

Participant, age 60, is taking a hardship withdrawal. No other in-service withdrawals are allowed under the plan. The financial insititution holding the assets is taking the position the 20% mandatory withholding applies because the participant is over 59 1/2. Thye cannot provide me with any cite to support that position.

It is my understanding that a hardship withdrawal is not subject to mandatory withholding. The participant's age is irrelevant. I son't see anything that says otherwise. Am I missing something?

Thanks in advance for any guidance.

I'm not very familiar with DC plans and am not sure if this belongs here or in the Cafeteria Plan section.

My client has a profit-sharing plan with a 401(k) feature. They also have a cafeteria plan that allows them to make additional elective deferral contributions to the 401(k) plan in addition to the deferrals elected in the 401(k) plan.

I am doing 415 (i.e. $45,000 limit) and max deductible testing of contribution amounts and am unsure of how to treat these additional "transfer" contributions. Can someone point me in the direction of guidance that indicates if the transfer contributions are subject to the 415 and/or 404(a) limits?

TIA

In Sunday's New York Times their was a article about being able now for a spouse to file a schedule C in a family business so that she can get her social sec. credits before you needed a partnership. I have a Solo 401k and she has one from a business that she stopped 1 1/2 years ago. Now if she is able to file a schedule C from my work will she be able to add to her solo 401k or can she now be included in my solo 401k. Her last company was as a private duty nurse and mine is a pest control company. She helps by answering the phone etc. Also if I do split the income to the 2 schedule C's do i have to split the gross income and then take expenses away or just do one gross and then give her a amount?

WE are looking at adding either a rider on our dental plans to cover TMJ services in our dental plans and/or adding a dollar amt. limit in our medical plans. I would like to know what other employers' dental and/or medical plans provide in regard to TMJ benefits.

Thanks!

We currently drop dependents who are no longer full-time students. Do we need to then add them when they decide to go back to school? Some dependents are then having multiple events due to not having the required number of credit hours and administration has become a nightmare. Any thoughts to make this easier?

As I talk to the various actuaries/programmers about when/if they'll have a 417(e) J&S annuity factor program for those plans where the true normal form of benefit is a subsidized 100% J&S benefit, it's apparent that this is a cumbersome programming effort not likely to be completed immediately. What would you think of the following approach for a calendar year plan where there is a 2008 termination and client is pushing hard for a lump sum distribution to be paid immediately (plan allows for it too).

1. Since current plan document in 417(e) section of actuarial equivalence still references 30-year GATT rates for 417(e), pay out on pre-PPA 06 417e rates per plan document (Our plans don't just reference 417(e) in general; there is extra language that ties it to old 30-year treasury bond rates).

2. If ultimately later in 2008 it can be shown that old 417(e) rates used to pay out someone in early 2008 produce slightly higher PVABs than new mortality table & segment rates do, which I think will generally be the case, then I think we've both followed the terms of the plan and met minimum thresholds on lump sums (417(e)). Yes, we may have paid a small amount more than we would otherwise have to but if client is ok with that.....

3. If ultimately later in 2008 the new mortality table (post PPA 06) more than compensates for the higher segments rates so that new 417(e) PVAB is GREATER than old 417(e) PVAB, then we'd have to do an additional true up distribution and also amend the plan to reflect the new rates (the amendment will be needed anyway at some point so that's nothing extra really).

What do you think ? I'm going to try to delay lump sum distributions on subsidized J&S plans until some annuity tables for J&S can be developed, but if push-comes-to-shove have I violated anything going the route above given the plans haven't been amended yet for new 417(e) language and aren't auto-amending plans in the 417e area of the plan doc.

EBIA has a premium access service. Does anyone know whether that service allows users to ask questions of other benefit professionals? We have a person handling cafeteria plans that wants to subscribe & use it as meesage (like this one) to ask cafeteria questions. I doesn't look to me like the premium access does that, but figured I could double check.

Thanks in advance for any guidance.