I am trying to exclude (from both the numerator and the denominator) an employee who worked less than 500 hours and terminated during the year. My problem: This is a 3% NEC Safe Harbor plan so he is benefitting. My understanding of the exeption for less than 500 hours is that they cannot be "benefiting" under the plan. Are there any exemptions that I am not aware of that allows this person to be excludible from the plan for the determination of coverage and nondiscrimination. Under 401(a)(4) rate group testing he is causing a rate group to fall under 70% AND, becuase he is 72 years old, he is killing my Average Benefits Percentage test. An exception in either the rate group testing under 401(a)(4) to get all the rate groups over 70%, or, an exception under the average benefits percentage calculation which will reduce my rate group testing threshold would be helpful.

A retired participant in medical plan dies and her husband is told he is no longer be covered under the retiree plan. An inquiry tot he plan administrator results ina letter that say "There is no evidence that you should be covered" but includeds a bullet point dewscriptionof plan that says that spouses of retirees are covered if the retiree has any remaining credits which weere earned at rate of 1000 credits o for each year of full time employment. When PLan Administrator is asked for proof that credits have been exhausted, the reply (by telephone) is that "If you want more infomration, w you will have to provide a supoena"

My question is, assumiing I want to sue, what type of action is it.? No actual claims have been denied yet.

I know this is probably a very elementary question, but I just don't wanna screw this up...

10/31 fiscal year amending to calendar. So now I have a short year from Nov 1 thru Dec 31. What do I do with vesting?!?

Thanks!

Hey Ya'll - client has 30 year old DC plan which was originally set up with whole life insurance policies. Corporation has stopped making contributions to plan (it's been 7 or 8 years). All life policies have been surrendered but one. Participant whose life is insured is still an employee. XYZ Insurance Co. holds assets in a deposit administration contract, and life policy was written by same XYZ Insurance Co. The insurance premium has been withdrawn from the contract and forwarded directly to pay premiums during the past few years. The premium payment is deducted from the participant's very old account balance. XYZ Insurance Co. rep handling deposit admin contract is now saying that they will no longer be able to deliver premiums, that it is beyond the terms of the contract. The problem as I see it is that if the corporation pays the premiums directly, that is a contribution which should be allocated among all eligible employees, which means there isn't enough contribution to pay the premium.

Can the participant pay the premium? She has been paying tax on PS-58 costs for nearly 30 years. If she can pay the premium herself, will she still have PS-58 cost? She is 3 years from retirement, and will be willing to purchase the policy at this time, but what is the best way to handle this in the meantime?

BTW, the IRS has audited this plan in the past 2 years, and auditor was fine with an ongoing plan not having contributions for this long, mainly because of the age of the plan.

Thanks for your help on this.

It seems like I remember several years ago reading something about Bar Associations not being legal entities so they cannot have govermental plans. I ran across a governmental 457(b) plan for a Bar Association so I am wondering if my memory fails me. This sound familiar to anybody?

Thanks

Does anyone know anything about the "Pension Transfer Trust Plan" or a "pension liquidity trsut plan"? Based on the brochure I'm looking at, for a small fee of under $7,000, you set-up a c-corp, become an employee of the c-corp, set-up a 401(k) plan, transfer your old company 401(k) plan assets into your new c-corp 401(k) and then you use all of the 401(k) money to purchase stock in the c-corp so that you now have the cash on hand, tax free. An example they gave related to $100,000 in a 401(k) plan said:

"..the buyer can get the down payment for his new business and keep the $45,000 check to the IRS as cushion for additional operating money".

It doesn't feel right to me. Comments anyone?

PAL

I posted this topic in the DB section as well, yet thought those here might have valuable insights.

We have a client who has a defined benefit plan and is looking to add a 401(k) profit sharing plan. As the assets for the 401(k) are separately accounted for and investing is segregated, they are interested in placing the profit sharing and defined benefit plan assets in the same 401(a) trust. Can this be done? I don't see a problem legally, yet . . .

Appreciate your thoughts.

We have a client who has a defined benefit plan and is looking to add a 401(k) profit sharing plan. As the assets for the 401(k) are separately accounted for and investing is segregated, they are interested in placing the profit sharing and defined benefit plan assets in the same 401(a) trust. Can this be done? I don't see a problem legally, yet . . .

Appreciate your thoughts.

My client has a KSOP. It gets only one annual valuation each year and uses that value for the entire year to purchase company stock through 401(k) deferrals (offered as an option under the 401(k) feature -- I know, don't go there).

The client is closely held, but does have two or three brokers who will from time to time trade the shares; assume the stock is considered not traded on an established market.

The FMV for the traded stock is consistently higher than the appraised value. Assume there have been no transactions between the plan and any disqualified person other than contributions of stock for the ESOP and purchases of stock through the 401(k) deferrals. The ESOP is not leveraged.

Is there a problem with using the annual valuation when the client knows that value is lower on a consistent basis when compared to the market price the brokers get for the stock? FYI, the company uses the appraisal value for all relevant purposes, e.g., including for the 404 deduction limits, 415 limits, etc.

Any thoughts would be appreciated.

When I worked in private industry, my company had a "full" cafeteria plan in which each employee was alloted a fixed amount of money. Each employee could specify which benefits (s)he wanted to "buy" with the employer's money. The menu included:

disability insurance (mandatory)

medical insurance (mandatory unless you were on a spouse's plan)

dental

vision

life insurance

401k (or 403b/457) investments

medical FSA

dependent care FSA

Other benefits could be on the menu depending on the company offerings. The way it worked is that you selected the benefits you wanted and they would be paid for with pre-tax money. If your choices cost more than the allotment, extra was withheld from your pay. If your choices cost less, you would receive more in pay. Your pay was taxable except for the menu choices that were paid with pre-tax dollars.

I work for a school district now and the only option (other than medical insurance carrier) we are offered is the medical and dependent care flexible spending account that is withheld from our paychecks. The other benefits are fixed whether we want them or not. Because of upcoming fiscal problems at the state (California) level which will impact the school districts, I would like to see the flexibility in having the employees specify their choices. This would allow the district to cap their spending on benefits while allowing the employees to select the benefits they most want. If an employee wants everything, have them "pay" for it. If employees have both spouses in a family work for the district, why have dual medical coverages? Allow one of them to put the money in their retirement plan.

I would like to propose that my district offer the full package but have been unable to find other school districts that offer it as an example. Is there a reason why? Do you know of any districts that do? (if you don't want to list a school district name, please tell the county and state)

I know that the full plan is available to some city agencies, so it is not a matter of working for a non-profit. I wonder if the requirement applies that says employees from all pay grades need to participate, so that the plan doesn't just benefit the higher salaried people. If that is the case, that would explain why school districts don't participate--they tend to have many part-time teacher aides, cafeteria workers, bus drivers, etc who may not be interested in "purchasing" benefits when they have a lower income.

Employer switched record-keeper mid-year for its 401(k) plan. Employee either forgot to change election, or his change was lost. Employee did not defer max amount (also entitled to catch-up contribution because of his age). Employee wants to contribute the max amount for 2007 (he could have contributed an additional $12,000). Is there any way to do this now that we are in 2008? Thanks.

We acquired a case in 2007. We ended up being responsible for the 2006 valuation. In doing the valuation it was discovered that a participant had an outstanding loan when he teminated and received a distribution of his vested account in 2006. The vendor distributed the participant account but did not default the loan. The 1099R reflected "code G". The defaulted loan has not been reported on a 1099R and is still showing as an asset in the plan. What is the best way to correct this situation? Do we have the vendor default the loan now in 2008 and issue a 1099R or go back and have the loan defaulted in 2006. Any and all guidance would be appreciated.

I have a 414(h) pick-up plan where the mandatory employee pick-up contributions are 3% of compensation and the employer contributions are 8% of compensation. The employer also has a 403(b) that only holds only employee contributions. If the employee is in the pick-up plan they can also elect to participate in the 403(b) plan.

How is the annual deferral limit determined? Do you count the 3% mandatory contribution plus the 403(b) employee contributions?

Thanks.

The following question was posted under the SEP and SIMPLE board some time back but there has not been any response and I find myself with the same question. Was just wondering if somebody more used to dealing with 401(k)s in mergers and acquisition situations may have run into this issue and how to handle. Many thanks.

Buyer maintains a 401(k). In April of 2008, it will acquire Seller, the sponsor of a Simple IRA. I've read 408(p)(10) and understand (I think) about the transition period permitted with respect to the Simple IRA. I've also seen some discussion about the fact that Simple IRAs must generally be maintained for a full year. But does that rule still obtain in an M&A setting? Would the Simple really have to be maintained through year-end 2008 on side-by-side with Buyer's 401(k)? If the Simple IRA were a 401(k), it could be terminated on the eve of closing, so that Buyer could get on with life and have all its employees in the same plan immediately. Why should the result be different with a Simple IRA? And if Buyer does have to maintain the Simple IRA through year-end 2008, how does that impact its 401(k) testing??

Would love it if anyone wanted to share their thoughts about most common way of handling this situation. I need to know how this story ends!

1) I've gathered that unless a plan is requesting a determination letter due to a required legislative change, there is no "time limit" for amending a plan. Is that correct?

2) Does a board resolution amend the plan (before the actual amendment)? If not, is there a time by which the plan administrator must amend the plan after the resolution has been signed?

i'm eligible for a 401k plan. if i fall below the thresholds for the IRA can i max out both for 2008. $15,500 in the 401k and $5,000 into the ira?

The Form 5434-A is now available from the JBEA.

Sorry for this basic question.

Parallel PSP and MPP that have been frozen and in the process of being terminated - rollovers clearing out the plans were distributed in 2007 leaving the plans with zero balances.

Schedule R still must be filed?

Assume the following facts:

Plan has 401(k) and non-elective profit sharing components.

401(k) eligibility is immediate, PS eligibility is 2YOS/21.

PS allocation has dispartate rates and is cross-tested.

Plan is top-heavy.

All non-key employees not terminated during year get TH minimum contribution. NHE's who get TH contribution must also get gateway, even if they are not eligible for the PS portion of the plan due to service. Tripodi says I can apply disaggregation of otherwise excludables to avoid having to give gateway to those who get TH min but are below statutory eligibility. Assume I elect to apply otherwise excludable such that I have 3 groups:

1) Those with 2 YOS who get a contribution if they meet contribution eligibility for the year.

2) Those between 1 and 2 YOS, may get TH minimum, and if so, get bumped up to 5% gateway.

3) Those less than 1/21 who get TH min if employed at year end.

My question is: In performing the nondiscr classification portion of the cross-test, do I have to bring group 2 people into the test? (I know that for purposes of the ABR test I have to include group 2 and their contributions). Thanks.

Are you required to withhold taxes prior to escheating amounts to a state's unclaimed property fund? If so, what if you don't have a valid SSN?