A government agency wants to amend its VEBA to provide for reversion of assets to the employer. It will then terminate the plan and credit the assets to an "integral part" (or grantor) trust that's not taxable under section 115 of the Code.

I think this will work, because the assets will be used to provide the same benefits provided under the VEBA. There's no excise tax on the reversion, because the governmental employer didn't deduct its VEBA contributions.

As Walter Sobcek says, "Am I wrong?"

(If you don't know who Walter Sobcek is, you haven't seen "The Big Lebowski," and shame on you!)

A buddy of mine is insisting that the combined employee and employer contribution cannot exceed $15,500 for 2007. I have told him he is ignoring the section 415 limits and when these limits are included the combined contribution limit is $45,000. Please tell us that my buddy is wrong.

Thanks,

Joel L. Frank

In what situation would it be advantageous to start a SEP instead of a 401K?

I am wondering what others think about the potential 409A implications of the following situation.

Company has a number of in-the-money stock options in various stages of vesting that for share preservation and other purposes it desires to convert / exchange / swap for restricted stock which will be subject to further vesting.

I have seen companies do this in cases where the options are underwater but not with restricted shares. In addition to a concern that the swap of the options might essentially be considered an exercise or cancellation of the option and thus taxable to the optionees at the time of the swap based on the value of the (albeit unvested) restricted stock, I am concerned that the exchange might create an extension or modification of a stock right under 409A. Although restricted shares are generally exempt from regulation under 409A, it seems to me the exchange might nonetheless be considered an additional deferral feature or otherwise deemed to constitute an extension of the existing stock option thus raising 409A concerns. Anybody have any thoughts on these issues?

We are looking to switch from a SIMPLE IRA to a 401K plan for the upcoming year. We have several highly paid employees (upwards of 200K or more). I am hoping to benefit the lower paid employees while limiting the employer's match to the highly paid employees so they aren't anymore than they are now which is a dollar for dollar match up to 3% of salary. So an employee who currently earns 75K a year who maxes out their SIMPLE contributions only gets an employer match of $2250 while the employee earning 200K who does the same gets a match of $6000.

Could we design the plan to offer a 5% match up to $5000 and then a 2% match thereafter? So an employee who now earns 75K would get a match of $3750 (5% of 75K) and the employee earning 200K would get: $5000 plus $2000 for a total of $7000 in matching funds. This benefits both employees as the one earning less than 100K gets a 5% match instead of the former 3% under the Simple plan and the 200K employee is actually now getting a 3.5% match.

Is this doable or what is a better suggestion to acheive this goal?

Lisa

The issue is whether the different vesting schedules present a discrimination problem with the Plan's "benefits, rights and features" (BRFs). The Cash Balance Plan is aggregated with the Profit Sharing Plan to pass (a)(4) nondiscrimination. The HCEs primarily benefit under the Cash Balance Plan and the NHCEs benefit primarily under the Profit Sharing Plan. The Cash Balance Plan has 3-year cliff vesting; the Profit Sharing Plan has 6-year graded. Therefore, the concern is that the manner in which employees vest discriminates in favor of HCEs.

I think this is the position the IRS is taking. I have seen nothing "formal'; just informal commentary from IRS officials.

However, under Treas. Reg. Section 1.401(a)(4)-11©(2), 3-year cliff and 6-year graded vesting are deemed to be equivalent vesting schedules to one another. Therefore, I think one could argue that the manner in which employees vest under the Cash Balance Plan and the Profit Sharing Plan does not discriminate in favor of HCEs because the 3-year cliff and 6-year graded schedules are treated as equivalent to one another.

Any thoughts? Thanks.

Here's the situation:

Retirement Plan owns investments in tangible property. A trustee of the Plan is a director of a 501c3 that operates a museum. Clearly, the trustee / director is a fiduciary of the plan and is a disqualified person. But, is the 501c3 a disqualified person with respect to the Retirement Plan for purposes of 4975 so that a prohibited transaction would occur if the museum displayed the Retirement Plan's tangible property?

Looking at the definition of a disqualified person in 4975(e)(2), the only way I could see the 501c3 being a disqualified person is if it's considered to be providing services to the plan under (e)(2)(B) (which I think is a stretch), or a corporation / partnership / trust / estate with the trustee / director fiduciary "controlling" 50% or more of the entity (paraphrased roughly) under (e)(2)(G) (again, something that seems like a stretch to me since a foundation is not a corporation / partnership / trust / estate).

Any thoughts would be greatly appreciated......

Health plan wishes to tell third party (for other than TPO purposes) that individuals X, Y, and Z are not and never were enrolled in the plan. Health plan has no connection whatsoever with the individuals. I know that information that an individual is enrolled in a plan is PHI, but is information that a person was never enrolled also PHI, subject to HIPAA? For example, if the health plan discloses to a third party that Donald Trump is not and never was a participant in the Plan, has the plan violated HIPAA?

Question: I'm working with an employer that is part of a multiemployer fund. The fund is composed of multiple separate plans - I'll call them Plan A and Plan B. The employer contributes to the fund through both plans. If the employer closes the only location for which it contributes under Plan A, will the employer incur withdrawal liability even though it continues to contribute to the fund through Plan B? Basically, the question is whether a withdrawal occurs as to the specific plan under which contributions are made, or whether it occurs as to the fund as a whole.

Relevant ERISA provisions are cast in terms of "plan" rather than "fund":

A complete withdrawal occurs when an employer either (1) permanently ceases to have an obligation to contribute under the plan; or (2) permanently ceases all covered operations under the plan. 29 USC 1383(a).

Any insight is much appreciated!

A Mass. ER who is required pursuant to state law to cover its temporary EEs under a 125 cafeteria plan is considering offering these EEs group health coverage. The question is whether there are any exceptions under COBRA for temporary EEs.

Thanks.

I have a question pertaining to the pay used to calculate Retirement Plan benefits if an employee moved from a management classification to a bargaining unit classification within the same company. This company states that the provisions of the Internal Revenue Code and regulations dealing with pension plans require pension plan's to preserve an employee's earned pension benefit(Treas Reg. 1.411(d)). As such, this company's Retirement Plan ("Plan") provisions require that an employee's accrued pension benefit be preserved at the time he/she leaves a classification and be based on Plan provisions in effect at the time. They state this includes pension formula, service, and pay.

Essentially, the aforementioned regulation requires the Plan to provide at least a pension benefit that is equal to the pension amount produced under a blended formula (the sum of a two part calculation based on service time spent as a management employee and service time spent as a bargaining unit employee).

I could understand the theory of using the formula from the time of each segment, but it does not seem right that you would use a salary from that time also. I could understand using the current salary in the various formulas, but not the previous salary.

This blended pension results in a pension that is less than either the bargaining unit or management pension. The employee does however have an option to take the pension benefit under their current classification, be it management or union.

Any experience with this that anyone can share?

I am a CPA and have a client that needs a loan doc to borrow money from his solo 401(k) plan. The third party adminstrator does not have a loan doc to provide my client, so in order to document the loan in writing, we need a loan doc. Any attorneys out there ready and willing to provide a plain vinilla loan doc that complies with Sec. 72(p)(2)? The terms of the $35,000 loan include a 60 month payback at 6% per year with payments made monthly. We need to do this ASAP.

An employee who is eligible for Medicare wants to opt out of an employer's health plan. This really was the employee and an insurance broker's idea. Of course, the individual will sign up for some other insurance product offered by the broker. Is there ever a situation when the employer can reimburse the employee for the cost of this alternative coverage? Does it matter if the group health plan in insured or self-funded?

What if the employee was given a raise equal to the first year's cost of the alternative coverage and that increase was not increases in future years top track the increase in the cost of the alternative coverage? I recall that I read once that an employer could not offer any type of financial inducement, but is this really a financial inducement if the opt out agreement indicats that the employer is not obligated to provide remuneration?

I suspect that employers do this all the time, but there are certainly riskes associated with this. I'm a ERISA atty who, like most, does more qualified plan/non-qualified plan work. Thanks in advance for your comments.

Ed

I understand that under section 4204 multiemployer plan has rules specific to treating a sale of substantially all assets. However, how is a sale of assets treated under a multiple-employer plan? Does that constitute withdrawal of the employer and trigger withdrawal liability?

Second, multi-employer plans have provisions so that a withdrawing employer will not be subject to withdrawal liability if he is indemnified by a purchaser employer. Is there any such allowance in multiple employer plans or does that require the authorization of PBGC?

If a plan Trustee paid a terminated participant too much, can they recover that oveage from the participant? Is the participant legally obligated to return the overage amount? Is there a code section that can be cited?

Thank you for your help.

I have a couple of issues related to catch-up contributions Below are a couple of examples and the associated questions:

Example 1: Due to the failure of the 04/05 ADP testing, Participant D (age 50+ on 12/31/05) must reduce his 04/05 deferrals by $1,900. To avoid a refund, the plan recharacterized $1,900 of his 05 contributions as CUC. The question is how does this recharacterization affect the 05/06 testing and refund requirements.

Participant D made the following deferrals:

1st Q 05 --- $3,400

2-4th Q 05 ---$14,600

1st Q 06 ---$ 3,500

The following applies to this example:

• Out of the $3,400 for 1st Q 05, $1,900 is CUC , the remaining $1,500 (3,400-1,900) is regular deferral

• For the last 3 quarters of 05, $2,100 (4,000 – 1,900) is CUC and $12,500 (14,600-2,100) is regular deferral

• For the 05/06 ADP testing, the amount of deferral is $16,000 (12,500+3,500)

• If the 05/06 ADP fails and D is due a refund, up to $3,500 of that refund could be avoided by recharacterizing as 06 CUC.

• No refund is required for D unless the 05/06 failure requires a refund larger than $3,500

1) Is this correct? (I think this is.)

2) Can a plan recharacterize catch-up contributions which have not been contributed yet? Take the example above except the only change is in the fourth and fifth bullet. It would be that that the plan requires a refund of $5,000 for the failure of the test for PYE 03/31/2006. Can the plan recharacterize the whole $5000 from the 2006 plan catch-up level? (Based on the idea that the participant would make additional 401(k) contributions during 2006.) I believe that this is not allowed because the only contributions made for the 1st quarter of the 2006 calendar year were $3,500 and you cannot reclassify more than was made in the portion of the calendar year that was contained in the plan year.

Now I am taking the example above and changing a few items. Below I have stated the revised example:

Example 2: Due to the failure of the 04/05 ADP testing, Participant D (age 50+ on 12/31/05) must reduce his 04/05 deferrals by $1,900. To avoid a refund, the plan recharacterized $1,900 of his 05 contributions as CUC. The question is how does this recharacterization affect the 05/06 testing and refund requirements.

Participant D made the following deferrals:

1st Q 05 --- $3,400

2-4th Q 05 ---$12,600

1st Q 06 ---$ 3,500

The following applies to this example:

• Out of the $3,400 for 1st Q 05, $1,900 is CUC , the remaining $1,500 (3,400-1,900) is regular deferral

• For the last 3 quarters of 05, $100 (4,000 – 2,000) is CUC and $12,500 (12,600-100) is regular deferral

• For the 05/06 ADP testing, the amount of deferral is $16,000 (12,500+3,500)

• The 05/06 ADP fails and D is due a refund of $4,000.

• Based on my assumptions above, $3,500 is recharacterized as 2006 CUC because that is all that was contributed in 2006 calendar.

• Based on my assumptions above, since we still have CUC available from 2005 ($2,000), I can recharacterize the remaining $1,500 as CUC for 2005 so the participant does not have to receive a refund.

3) Is this correct? Can I use the remaining 2005 CUC as a recharacterization of a refund for the 3/31/2006 PYE ADP/ACP test once I have exhausted the 2006?

Any citations would be greatly appreciated. Also, multiple opinions would also be appreciated.

We have a client who has not filed income taxes since 2001. We are in the process of correcting this.

While reviewing his records, we found that the person over-contributed to his SEP in 2002. All future years contributions were correct - the full maximum contribution was made.

How do we correct the 2002 SEP contribution. Is this correct??? -

*the 2002 excess amount will carryover and be used to fund the 2007 SEP contribution;

*no additional tax penalty is assessed because a deduction for the over contribution was not claimed.

Any help on this is greatly appreciated!

Interested in any feedback on Gary's calculators added at http://benefitslink.com/boards/index.php?s...mp;#entry153309

Has anyone ever filed a 5500 which discloses a funding deficiency without filing the 5330 and the 10% first tier tax at the same time (albeit to a different address)? If you have, what was the reponse of the IRS, and what was the timing of that response - that is:

- did the IRS ask for a 5330 and the 10% tax, or did they go right to the 100% tax?

- how quickly did the IRS respond after receiving the 5500?

- how much time did the IRS allow for you to respond?

- how long after the filing of a 5330 with the 10% tax before the IRS requested the second tier tax of 100% or proof that the funding deficiency was corrected?

I'm asking these questions because I have a client who works from project to project, and gets paid at the end of each project. This year he got caught short. I'm trying to buy him some time when he gets paid at the end of this year. Currently, my thinking is:

- file the 5500 on 10/15 without the 5330

- wait for the IRS to request the 5330 and the 10% tax (my concern is whether the IRS can skip the 10% tax and go straight to the 100% tax in this situation)

- file the 5330 with the 10% tax

- wait for the IRS to repsond with the next letter and hope that it arrives after 12/1/07 because the client will fund the plan by 12/31/07

Any thoughts or input would be most welcome.

Thank you.

There is a participant in a plan I am working on who has two separate allocation elections (one for a rollover balance and one for current deposits). The investment company directed the recordkeeper to change the lifestyle portfolios in all their plans. When the portfolios were changed, the recordkeeper re-balanced both the rollover account and the current account for the participant mentioned above. This was a problem because the participant had the rollover account invested entirely in cash. The transaction occurred during July and August leaving the participant with losses of close to $8,000 (at this point).

If the Investment Company or the recordkeeper restores the account, is there a problem with the $8,000 being deposited to the Plan.

Is there any Plan level reporting to be done regarding this (other than questions on annual reporting forms).

This is really scary stuff as far as I am concerned and I want to be sure we review all of the issues with the client.

Finally, I was curious about who might have the responsiblity for restoration; the RK or the investment company but when I asked this question under the recordkeeping topics, NOONE responded (although 84 members reviewed); I felt shunned. Was it intentional? Should I have not asked that question?

Well if anyone knows if the $8,000 deposit is a problem and whether other corective actions are necesary I really appreciate the help. If anyone knows who might be liable, the rk or the investment company, I appreciate the help but do not want to find myself in trouble for asking the wrong questions.