Plan definition for comp is 3401(a) - Does anyone know if 3rd party sick pay is to be included in compensation for plan allocation purposes? Insurance carrier is making us include the 3rd party sick pay in gross wages on our W-2s. Questionning this because 3rd party sick pay is not a payment for services.

If the plan is using the triple match scenario intending to meet the SH requirements, must all of the match be 100% vested?

If a corporation has offered a cafeteria plan to its employees for years under the mistaken assumption that it was a participating company under the plan document of an affiliate (but in fact the plan document did not provide for participation by such corporation), so in fact the plan has not had a plan document at any time (dating back probably to the 1970's), how do you fix it retroactively?

I have heard that the IRS has informally permitted cafeteria plan elections to be revoked in certain cases after the plan year in question has begun. If anyone has any experience with this, I have the following questions: (1) under what circumstances did the IRS consider it a mistake of fact warranting revocation? (2) how far into the plan year did the participant go before requesting to revoke his/her electio? (3) How far did the revocation reach -- was the participant permitted to get a refund of amounts previously deducted from his/her paychecks? Was the participant able to prospectively cease future payroll deductions? Or both?

Thank you for your assistance on this. I have a live situation where this is the crux of the issue.

A profit sharing plan had forfeitures needing to be allocated for 2002 but were never made to the individuals' accounts. The plan terminated in 2004 due to company merger (this doctor group joined another doctor group and adopted their 401(k) Plan) and still no forfeiture allocation. In 2006, all assets were removed from the plan. In 2006, they used the forfeitures to pay plan fees for the terminated plan instead of transferring to the individual accounts. Are these forfeiture amounts still considered to be receivables? And are they receivables to the new company created when the two companies merged?

This profit sharing plan also had 3 HCEs overcontribute in 2003 creating a liability since there was to be no employer contribution for that year. These HCEs have rolled their money into the 401(k) plan. Does the liability follow them to this plan?

Thanks

Just want to see what other people believe the following means:

Effective Date "The amendments made by this section shall apply to plan years beginning after December 31, 2007, except that the amendments made by subsection (f) shall take effect on the date of the enactment of this Act.

This is on page 1039 of Public Law 109-280, the Pension Protection Act of 2006.

The change in the taxation for ADP/ACP refunds is amended in the section referred to above....

So, if a plan fails the ADP test in for the 2007 plan year and the refunds are processed within 2 1/2 months, the refund will be taxable in 2007 or 2008.

I think 2007 since the plan year that failed did not begin after December 31, 2007.

Any thoughts?

If an employment agreement provides for a lump sum payment to be made upon an involuntary termination of employment for any reason, is that a substantial risk of forfeiture such that a specified employee would not have to wait six months for payment under the ST deferral exception?

The final regs state that "if a service provider's entitlement to the amount is conditioned on the occurrence of the service provider's involuntary separation WITHOUT CAUSE, the right is subject to a substantial risk of forfeiture if the possibility of forfeiture is substantial" (emphasis added).

Does this language necessarily mean that it follows that payments made upon ANY involuntary separation are NOT subject to a SRF?

If there is no SRF and therefore the ST deferral rule is inapplicable, am I right in concluding that the two-times exception still applies (because the payments are made under a plan "that provides for separation pay only upon an involuntary termination from service"? (There is no mention of "without cause.)

Thanks.

Upon hiring the leader of our organization we agreed to a full salary and to cover him and his family of 4 with full health benefits. The coverage for his family of 4 was more than we had hoped to spend, however we wanted to hire him.

Now his wife is employed and will receive full health benefits. He has asked that instead of receiving the agreed upon health benefits, that we increase his salary by that much instead. In addition he would like us to retroactive it starting at the beginning of September.

What is the correct and most ethical thing to do?

It doesn't feel right to us, however we just aren't sure. People have advised us to keep our apples and oranges separate, but I can't really see the direct reason to do so.

Thanks for your advice.

We are possibly going to become the TPA for a 403(b) plan for a church, and have been doing some research. We know most church plans choose to be nonelecting to avoid Title I of ERISA. Can anyone provide any reasons (other than to provide participants with the enforcement provisions of ERISA) why one would choose to be an electing plan?

Thanks!

J

We have a client that went through a DOL investigation last year (a participant called the DOL and "turned them in" for not depositing deferrals timely). The result of the investigation was for the client to deposit lost earnings on the late deferrals and pay excise taxes on the amounts involved.

Are these "lost earnings" deposits deductible on the company's tax return? If so, any thoughts as to where?

What about the excise taxes the company paid? Are they deductible?

Any thoughts on this would be greatly appreciated.

Thanks!

I am taking over a 401(k) plan which contains Money Purchase Assets that were merged into the 401(k) plan. I cannot support the QJSA benefit, so I am trying to find a way to eliminate the QJSA option upon plan restatement.

Does anybody know if this can be done?

We have a public sector employer that is considering the establishment of a health reimbursement arrangement. Under the terms of the Plan, each employee will receive $10.00 per month, with a carryover of a maximum of $240.00. One area of concern for the employer is the application of COBRA to HRAs.

It is our understanding that COBRA is applied to HRAs in the following manner –

For 2008, Employee A receives a $10.00 a month contribution and does not file any claims for reimbursements. In March 2009, Employee A has the $120.00 from 2008, plus an additional $30.00 for January, February and March of 2009. On March 22, 2009, a COBRA qualifying event occurs and Employee A and his spouse and two dependent children elect continuation coverage under COBRA.

It is our understanding that each qualified beneficiary will be entitled to $150.00 with such amount increasing each month by $10.00 during the continuation period for each qualified beneficiary (ie., Employee A = $150.00, Spouse = $150.00, Dependent 1 = $150.00 and Dependent 2 = $150.00). Of course, the total amount would be reduced by any reimbursed claims. By way of contrast, with a health FSA, each qualified beneficiary is entitled to a separate account that is equal to the amount in the account immediately prior to the qualifying event which is then reduced for expenses. The health FSA could be spent down during the COBRA period, whereas, the HRA continues to receive contributions until the end of the COBRA continuation period.

Please confirm that our understanding is correct. If this is not correct, please explain how COBRA for an HRA should be administered.

Assuming the above is correct, unlike a group health plan, the spouse or dependent of an employee participating in an HRA would not have to be “enrolled” in the plan – the eligible expenses of the spouse and dependents would be reimbursable from the HRA because these individuals are tax dependents of the employee. Is it possible that an HRA be structured to reimburse eligible expenses of the employee only?

Lastly, would the HRA premiums be the $10.00 plus up to 2% to be paid by each qualified beneficiary?

Any published guidance and/or citations would be appreciated. Thank you in advance for your assistance.

I may be living a sheltered life, but I just heard this one.

Mahatma Gandhi, as you know, walked barefoot most of the time, which produced as impressive set of calluses on his feet. he also ate very little, which made him rather frail, and with his odd diet, he suffered from bad breath.

What did this make him.

A super callused fragile mystic hexed by halitosis!

McKay_Hochman___Commentary.htm

This example was provided today by McKay Hochman in their E-mail Alert FAQ. Do you agree with their conclusion? Under the statutory rules does an employee lose their service (if initially employed less than 12 months) when they incur a break-in-service? This seems like a different interpretation of the regulations than I've been taught. Following is the information from the e-mail:

How does the statutory eligibility rule (one year and 1,000 hours of service) apply when an employee works 1,000 hours, leaves before completing 12 months of service, and is then rehired? 09/12/07 E-mail Alert 2007-12

The answer depends directly on when the individual is rehired.

The following fact set and examples will clarify the rules.

Plan design fact set for the examples:

Calendar year 401(k) plan

Plan eligibility: 1 year: 1,000 hours

Plan entry date: monthly

This plan counts all employee service.

Example 3

Employee DOH: March 26, 2006

Employee DOT: January 9, 2007, with 1,600 hours of service

Employee DOR: March 29, 2009

Although the employee satisfied the 1,000-hour requirement, the employee left without completing 12 months of service necessary to satisfy the one-year portion of the statutory rule and then incurred a break-in-service. Therefore, upon rehire after the break-in-service, the employee starts over as a new employee and would not get credit for the previous service.

The answer would be different if 1,000 hours AND 12 months of service had been completed and then the employee had terminated before the plan's entry entry date. In such a case, though there was a break-in-service, because the employee satisfied the statutory eligibility requirements before severing service, upon rehire the employee would become a participant.

What do you think?

I have a situation where the client's advisor changed the lifestyle portfolios (as agreed by Plan fiduciaries); they sent the change to recordkeeper who applied the changes to all participants, across the board, even participants who had separate allocations for account balances at transition and future deposits. In short, the account balances at transition were transferred from a money market (all of it) to the new portfolio mix (within the last few months; July, Aug and Sept). Needless to say that participant experienced a significant loss and the recordkeeper is taking the position that the advisor used their pre-designed fund change request form that said to change all participants (in fact it says all parts in modeled accounts and this person had both).

Noone is putting up the funds yet and I am wondering who should?

I am sitting on the sidelines but would appreciate any information that might be helpful.

Thank you

I am puzzled by the guidance in the Sept. 10 release, IRS Notice 2007-78. The release identifies an issue I had been worried about, but then gives what I think is logically circular guidance.

The issue relates to an arrangement that would constitute a substantial risk of forfeiture under 409A (and so would be excluded) but for the fact that it has a "good reason" provision which does not comply with the safe harbor and otherwise may or may not qualify as good reason under the non-safe harbor rules of TR 1.409A-1(n). The question is whether we can amend the good reason definition to ensure that it meets 1.409A-1, so we are then sure that the arrangement is excluded from being a 409A deferral. The subtle issue is that, in theory, an amendment to "good reason" could be changing an arrangement that under current terms is not subject to a substantial risk of forfeiture into one that is, and the IRS guys have been extremely hostile to the idea that SRF can be reimposed or extended by agreement of company and executive (viewing that as so economically non-sensical as to be a sham).

Here is what Notice 2007-78 says:

"The Treasury Department and the IRS understand that taxpayers may desire to conform existing good reason conditions to the requirements of the definition of an involuntary separation from service under the regulations. Accordingly, to the extent that a right to a payment subject to an existing good reason condition is subject to a substantial risk of forfeiture, the modification of the good reason condition on or before December 31, 2007 to conform to some or all of the conditions set forth in § 1.409A-1(n)(2) will not be treated as an extension of the substantial risk of forfeiture. However, if the right to a payment subject to existing good reason conditions is not subject to a substantial risk of forfeiture, the modification of such condition to include one or more of the conditions set forth in § 1.409A-1(n)(2)(ii), or to remove one or more of the existing good reason conditions, will not cause the amount to be treated as subject to a substantial risk of forfeiture."

This seems to me to say "if your arrangement, including the good reason definition, does not constitute an SRF already, you can't change good reason so as to fix it, but if it does constitute good reason already, then you can change good reason in ways that move the definition closer to 1.409A-1(n)." If so, this is worthless. If I was so sure my good reason definition was OK, I would have little need to amend it. It is the good reason definitions that are out of compliance that I need to fix the most.

I can read this slightly differently, I suppose. This reading depends on what the meaning of "is" is, to quote Bill Clinton. Say I have a good reason definition that says that, after a Change in Control of the company (as defined), the executive will have a walk-away right for one year. That definitely is not a good conforming definition of "good reason." However, no CiC has yet occurred, so at the moment the arrangement is subject to a substantial risk of forfeiture (assuming that the CiC condition by itself is a "condition related to a purpose" of the business). Does the new guidance mean I can fix this one, but could not have fixed it if the CiC had already occured so that the walk away right was currently exercisable? This approach still leaves me hanging for fixing a pre-CiC good reason definition, such as one that has no cure provision, unlimited time to pull the trigger if good reason is created, or any of the other things that we see to fix in good reason definitions.

Is there some other way of looking at this to conclude that good reason provisions can be fixed so as to confirm the righteousness of a substantial risk of forfeiture?

We have a plan that had excess annual additions for 2006 plan year. We need to refund deferrals and forfeit associated match. Do we calculate earnings on the deferral refund and forfeited match from date he started deferring to the date refund is made or from date he started deferring to 12/31/06?

I was told that the owners of a S Corp can have the corporation pay their out of pocket expenses under Section 105(h) after having their board minutes indicate this is for "officers or owners, etc." but not use specific names. The owners of a S Corp are not eligible for the HRA that they are setting up for their employees. I cannot find much on this concept under 105(h). Is this correct?

In completing PBGC Form 500, several questions relate to the remaining participants affected by the plan termination and how they will be treated. If there are no remaining participants in the plan--all retired and had benefits purchased through the normal operation of the plan, should answers related to participants be left blank? For example- no NOIT or NOPB were issued to plan participants.

Thanks

May a governmental plan qualified under Section 401(a) accept rollovers by employee/participants from another qualified plan or IRA in which they participated?