When a plan requires less than a year of service to become a participant, it can utilize service conditions based on elapsed time of service, hours counting, or a combination of both types. In this case, one of my Plan amended the eligibility requirements on 1/1/2007 from 1 Year of Service (YOS) with at least 1,000 hours worked to 6 months of service with at least 501 hours worked. Due to this change, it is possible to violate the minimum statutory service standards.

An example of this is as follows. An employee has a DOH on 2/1/2007. He works 500 hours from 2/1/2007 – 7/31/2007 and 500 hours from 8/1/2007 – 1/31/2008. For his initial YOS, he has worked 1000+ hours. Under the minimum statutory service standards, he has met the service requirement and should be permitted to participate in the plan. However, under the service requirements of the Plan, this employee would not be permitted to participate in the plan as he did not work at least 501 hours in the six month eligibility period. (This should rarely if ever happen, but it could still cause the violation.)

While writing this example, I have come up with a question. How do we calculate the 6 months? Is it a running clock or does one period have to be compelted before another starts? Using my example above, the first period used for measuring service is 2/1/2007 -- 07/31/2007. Is the next period used for measuring service 3/1/2007 -- 08/31/2007 (and so on for future periods) or is it 8/1/2007 -- 01/31/2008. I am leaning towards the first option, but I need confirmation. Also a citation would be nice.

Second, does the amendment have to (or can the amendment) state that the service is based on CONSECUTIVE months of service? If it can and does not, does this mean that we will have to track how many hours of service were worked in each month of service by the employee until he meets the service requirement?

Any help would be greatly appreciated.

Back in 2006, New York State passed a law effective 1/1/2008 which restricts the use of Social Security Numbers by employers for many purposes. My understanding is that 6 or 7 more states, including Florida and California, have or are considering adopting similar legislation.

Does anyone know whether this affects our operations as administrators, actuaries, and TPAs? For example, many plan administration systems use the SSN as an identifier for an employee or as an initial password for a participant's web access. Many daily administration systems such as Relius use these numbers for transmission and allocation of periodic contributions by payroll as well as for distributions and other purposes. Would these features run afoul of the new laws? There appears to be some relief when encryption is used. What about the transmission of employee census data requests and information received by e mail? By regular mail?

Has anyone read or heard any commentary about these laws and whether or not they potentially affect our practice areas?

Company sponsors a 401(k) plan and has a cafeteria plan. Company funds the cafeteria plan at $300 per month for all eligible employees. Employees can choose from a menu of benefits on which to spend their $300.

The plan provides that any unspent money will be contributed to the 401(k) plan as an employee deferral. There does NOT appear to be a cash option. I am waiting to get a copy of the document.

My questions are:

Is this really a deferral if there is no cash option, or is the deferral treated as a cash option? If not a deferral, then what is it?

The document calls for the addback of all deferrals to compensation used for benefits and testing. Does this get added back also since it is on the W-2?

If the leftover 125 money gets added to compensation, does this cause ALL of the employer 125 contribution to be added back?

Please provide any cites so I can see where I missed the rules.

Thank you.

There is a non-elective safe harbor 401k plan for a small employer, effective this year. The plan is effective back to 1/1/07, but the 401(k) portion became effective 9/1/07. We just had an employee terminate employment 9/11/07. She did not make any 401(k) contributions. I know she will get the 3% s/h contribution for her compensation for the 9/1/07 - 9/11/07 period, but should she get 3% back to 1/1/07 - 9/11/07? I do not see where that is clearly addressed in the document. Is there certain language that I should look for that would answer this?

There is a good chance the plan will be top heavy and I know that as a result, she will get 3% T/H for comp from 1/1, but that has a 3 year cliff vesting schedule (she has less than 3 YOS), so in terms of what she is actually entitled too, there is a big difference in whether she gets the s/h for the whole year.

I'm new to new comp plans. Trying to figure out if one would work for my current employer.

If we do a safe-harbor 401(k) (not sure if SHMAC or SHNEC, leaning to SHNEC if we do NC), does that mean any NC component of the plan will pass top-heavy (by virtue of the safe harbor)? And is that answer the same for any type of profit share component, not just new comp?

Thanks in advance for any clarification that can be provided.

If a standardized prototype plan has inidcated in the plan that for any discrtionary non-elec contribution that will be made on a year by year basis it will be integrated with social security,

1) Can the plan choose to integrate at a 0% level for a specific year

2) Could they choose to ti integrete at a .00001% level for a specific year

The reason I ask is that the plan administrator had given us incorrect compensation numbers for a prior years valuation and we reviewed the file and the original contribution was not integrated.

Any other ideas on how to fix without making an addtional contribution?

Thanks in advance.

Does anyone have any recent experience concerning how long it takes for the IRS to acknowledge receipt of letters to be mailed to missing participants? I have a client who mailed a package to the IRS in July containing letters to 5 missing participants in a terminated plan, and the IRS has not yet acknowledged receipt. When do I start to worry?

Hello!

A large company sponsors a self-insured medical plan. Company has promised (through various agreements) to provide certain retired employees and their dependents with medical insurance. The Company pays 50% of the premium the retirees pay 50% of the premium. For 2008, the Company is redesigning its medical plan to move post-age 65 retirees to a company-sponsored fully-insured plan. The benefits are similar (only minute differences) and the premium cost is lower.

My question is whether the company can wrap the fully-insured plan with the self-insured plan so that the health plan is one plan? So there is only one SPD, one Form 5500, etc.

Any help would be greatly appreciated. Thank you!!

Rec'd an e-mail recently asking if this user group is still alive and well. It'd been so long since there was any activity that I'd forgotten I was the leader so Dave Baker had to help me get back in the loop with a new password, etc. So, this site is now once again active for anyone using the Blaze system(s) who has questions or comments, etc.

Please comment on what you think about the following scenario. Employer has a 125 plan. Employer employs seasonal employees and employees are laid off for 3 months of the 12 month plan year (employees work 1st 6 months of plan year, are laid off for the next 3 months and work the last 3 months of the plan year). Employer wants to withhold, pre-tax, 150% of ee share of health insurance premiums for the first 6 months of the plan year while ees are working. Employees would then be laid off for 3 months and their portion of premium would already be prepaid. Employer will pay employer share of premium during lay off. When employees return for the last 3 months of the plan year, ees would pay 100% of their share of the premium. Questions/issues:

1) Is it okay to pre pay for an anticipated layoff?

2) If so, is it okay to not collect the prepayment pro rata over the entire plan year?

3) If an employee terminates during the first 6 months, can employer refund the extra 50% back to employee? (If so, refund would be taxable and employment taxes would be owed, right?)

4) Because of the front-loading, it seems that any deferred comp issue could be avoided. Do you see any issue?

5) Since this is health insurance premiums and not FSA contributions, is the use or lose rule avoided?

I apologize if this post is duplicative of prior posts, but I couldn't find anything directly on point when doing a search. Feel free to provide links to relevant info.

I currently have a traditional IRA, which is invested in equity mutual funds with one of the big mutual fund companies. A friend of mine is a real estate investor; his company creates separate LLCs for each new real estate investment.

I'm looking for guidance on the steps to get to making this investment. My guess is that I need to do the following and questions on these steps:

1. Have the mutual funds sold (still within the IRA).

2. Convert to a self-directed IRA.

Question: How do I do this? Can I just tell the mutual fund to send me a checkbook and I write a check off the IRA?

3. Have the IRA now purchase interests in the LLC

Question: Any tax issues I need to be concerned about?

If there's anything else I need to know, please feel free to mention it! For purposes of this post, assume that the investment is legitimate (so you don't need to warn me about investing in real estate partnerships).

Thanks!

Does 2000-14 cover the situation where the plan's actuarial cost method is changed to the PUC method (in particular, for frozen plans) under Approval 3.01 if (Assets - CB) exceed AL at time of change? Of course, I believe we would establish a charge base equal to the CB so the balance equation balanced (i.e., we would force UAL to $0) because ya can't have a negative unfunded.

It looks like you can but I added the $0 UAL part.

If a company, as part of a divestiture, is terminating employees who are just shy of vesting in their pension and/or 401(k) plans, can the buyer make a one-time contribution to the new employee's 401(k) accounts in the buyer's plan to make up for the present value of the forfeited benefits? What issues need to be considered?

I'm trying to assist a person who quit her company, Worrell Newspapers, Lynchberg, TN, back in 1986 on disability but the newspaper was either sold or closed in 1995. She's never received her vested balance from the plan and I'm trying to help her track down information on the termination of the plan.

I don't think Freeerisa probably has 5500 info going back that far. Does anyone know where there might be a database of information on old plan sponsors? The DOL wasn't much help to this lady but that may be her only resource.

Thanks

Our client is a utility district that maintains a 401k plan as well as a 457 plan. We don't do anything for the 457 plan so I'm really not familiar w/ all of the rules but I have read that rollovers can be made from a 457 plan into a 401k plan. The client would like to terminate the 457 plan and roll/merge those assets into the 401k plan. I'm reading the Regulations and see the requiremetns for plan-to-plan transfers but I'm not sure this will help me. The regs keep referring to transfers among eligible governmental plans. If i go to the 457 definitions i see that an eligible plan is another 457 plan, is this correct? My bottom line question is can the 457 terminate and have the assets merged into the 401k plan w/out offering participants a chance to take distributions? If so, is there a regulation that I'm missing that permits this?

The plan has elected the 5 year rule. Notice 2007-7 contradicts itself or isn't all that clear on this subject. In Q-17 (b) it states that if the 5 year rule applies then the non-spouse bene can roll the amount to an IRA within the first 4 years. After end of 4th year it would need to be distributed in full by end of 5th year. In item (2) within the same Q-17 it states there is a special rule wherein the non-spouse can elect the life expectancy rule if they elect the rollover by the end of the year following the year of death, and the IRA also must use the same beneficiary for life expectancy calculation.

Then in Q-19 it states that if a non-spouse bene rolls the proceeds, and if the 5 year rule was in effect under the Plan, then the the minimum distributions in the IRA are determined using the same 5 year method. So, following that language, the non-spouse would have to distribute the full amount from the IRA within 5 years, correct? And is that 5 years from death? Or 5 years from the rollover?

Looking at both of these Q & A sections it seems like if the 5 year rule is in effect then it is always in effect regardless if the non-spouse does the rollover in year 2 or year 4? Or am I missing something? Bottom line can the non-spouse elect the life expectancy method as long as they do the rollover by the end of the year following the year of death?

I have a calendar year DB plan. The assets were incorrectly reported from 2002 onward. This creates a funding deficiency in 2003 only. The statute of limitations is up 9/15/2007, correct? And, if this is correct, would I simply revise the schedule Bs beginning in 2002 and going forward, but not have the client pay the 10% excise tax?

There was a prior actuary until 2004, but since there was a deficiency as of 1/1/2004, I believe that I must revise the prior returns.

Any thoughts?

Plan year and fiscal year are calendar year. Client has not made required top heavy minimum contribution for 2006. His corporate taxes are due (on extension) on 9/17/2007 (since 9/15/07 is a Saturday). If the client does not make the contribution by 9/17/2007, our understanding is that the client has 30 additional days after the IRC 404(a)(6) period to make the contribution and the deduction will be taken on the 2007 return, but the contribution will still be attributable to 2006 (for 415 annual addition purposes). Furthermore, if he makes the contribution after the additional 30 days, he can still take the deduction for 2007, but the contribution will count as an annual addition in 2007.

Questions:

If a person terminated in early 2007 (January 2nd), earned $100 in 2007, and was to receive a 2006 T-H min contribution of $900, does he have a 2007 415 violation? If so, how is it resolved? Does it matter if he is a HCE or NHCE?

When does the required T-H minimum need to be made if it is after the 30 additional days? Is it by the filing date of the 2007 taxes? If not, when?

If possible, please provide a citation. Thank you in advance.

We have a case that is about to be bounced from Audit CAP on account of a position taken by the Service that is draconian. Please read over this fact summary and email us if you have ever negotiated a more favorable settlement in a case like this in either Audit CAP or VCP. We are trying to get a handle on whether cases like this can ever be processed reasonably. No names needed of course, but if you have a similar case that was settled more reasonably, please provide as much details as possible including the Service Rep who worked the case. Please email as soon as possible - we need ammunition.

Facts: Mid size company with 200 blue collar employees maintains a 401(k) plan with a match. Almost 20 years ago, the Company began providing small cash bonuses to NHCEs ($50 every two weeks) for meeting target goals. This "beer and pizza money" was of course not subject to deferrals. The problem is that the plan was a prototype plan and the definition of compensation did not exclude these bonuses. The compensation definition also inadvertently included some car allowances for several of the HCEs. The IRS audits the plan and determines that there should be deferrals on the bonus and car allowance money and wants the company to go back 20 years to make a qualified nonelective contribution in the amount that should have been deferred, plus the match, plus earnings for all years. Even though the bonus amounts are relatively small, when you go back that far and make the deferral, match and interest payment, the sum is over $100,000.

We have offered to either make the match (and interest) only, or to permit the employees to make the back deferrals and provide the match and interest to those who choose to defer. We do not want to make the back deferrals because it gives a windfall to the employees which doesn't seem right and will at a minimum cause the company to terminate the plan and at could cause them to go into bankruptcy. We can provide affidavits that none of the employees intended to defer on their bonuses, but the IRS is stuck on this correction method.

Assume Corp. X buys a long-term disability contract for its 401(k) plan, P, to provide disability benefits payable to the plan accounts of those participants becoming disabled, equal to the contributions that were made when the employees were actively employed. According to the new proposed regulations, the employer's payment of the premium would be treated as a plan distribution to the participant taxable under Code Section 402(a). If the benefits under the contract are payable to the plan and allocable to the participant's account, the proposed regs provide that the amounts are excludable from the participant's gross income under Code Section 104(a)(3) which is recontributed by the participant to the plan as an employee after-tax contribution. My question is, how is the distribution of the disability benefit portion of the participant's account balance treated for tax purposes: (1) is the portion excludable under Code Section 104(a)(3)? or (2) is the amount of the distribution subject to tax under Code Sections 72 and 402, with the amount of the deemed employee after-tax contributions treated as a nontaxable return of basis?