I have a client who has been approached to purchase a franchise, to fund the purchase they want him to open a C Corp and then open a 401(k) for it, then transfer his IRA into the 401(k) and use those funds to fund the business (via a stock sale to the 401(k)).

There are three companies that he is looking at:

www.benetrends.com

www.franchisefund.com

www.guidantfinancial.com

If you could comment on this or refer me to someone who can give me an expert opinion.

ScottyD

Received a call today about a union and governmental employer that want to limit eligibility to participate in the Cafeteria plan to only those employees who have not waived employer provided health coverage. (Why? I have no idea) I am not comfortable with Section 125 plans and am starting to do some research. The plan covers only collectively bargained employees, none of whom are highly compensated.

This doesn't "smell" right to me. Aren't there numerous welfare decisions and regulations which hold that plans must have a rational basis for differentiating among similarly situated groups of participants?

A push in the right direction would be appreciated.

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A client has a VEBA.

The plan year-end and the cient's corporate tax year-end are both 8/31/07.

When must they make their employer contribution to the trust in order for it to be deductible for the 8/31/07 fiscal year?

By 8/31/07? Within 2 1/2 months of 8/31? Due date of tax return with extensions?

I believe a 419 welfare plan must make their contribution by 8/31/07 (assuming tax year end is 8/31/07) to be deductible, unless they use accrual employer accunting and then they have unti 2 1/2 months after tax year-end to make contribution.

Thanks.

A client has a VEBA.

The plan year-end and the cient's corporate tax year-end are both 8/31/07.

When must they make their employer contribution to the trust in order for it to be deductible for the 8/31/07 fiscal year?

By 8/31/07? Within 2 1/2 months of 8/31? Due date of tax return with extensions?

I believe a 419 welfare plan must make their contribution by 8/31/07 (assuming tax year end is 8/31/07) to be deductible, unless they use accrual employer accunting and then they have unti 2 1/2 months after tax year-end to make contribution.

Thanks.

I have been asked to create an amortization schedule for a 401k loan. Do I just follow the loan terms the the Plan description? Are there also statutory requirements, involved with the creation of this document?

Frankly; I was taken aback by this request, but I don't want to over-simplify things if the Gov't has already over-complicated them.

Thanks

Fender

Family owned business - 5 individuals all of whom are more than 5% owners. No other employees. Sub-S corp. and from what I've been told they receive W-2 income. Any issues with establishing a 401(k) for this employer? Would it be considered an employee benefit plan with no common law employees?

A non-profit client asked about funding the plan on a plan termination basis rather than on an ongoing basis using long term assumptions. I thought there was a reg or rev rul or rev proc about not allowing funding on a termination basis, but i can't find it. Does anyone have a cite??? Thanks.

I have a plan where the HCEs cannot receive a lump sum because the plan does not meet the 110% "Solvency" Test. An HCE has terminated and has elected to receive a lump sum but due to the restrictions he is receiving an annual installment equal to his actuarially equivalent life annuity. At such time as the plan meets the 110% rule (for purposes of this question, ignore the PPA lump sum restriction soon to go into effect), he will take a lump sum of the "actuarial" balance of his lump sum.

I believe that the annual installment can be rolled over into an IRA. Admittedly this is a gray area. My logic is that he has not elected an annuity or a 10+ year installment payout. He has elected a lump sum and is settling for the greatest allowable annual installment until he can take the balance of his lump sum. Therefore, this is a periodic payment that qualifies for rollover.

Does anyone agree with this position or, if not, why? Has anyone heard of this issue being addressed by IRS in meetings or other forums?

I have tried other usual resources and contacts and have been unsuccessful in locating this full GRIST report from Mercer:

GRIST Report: PPA's effect on 2008 DB pension plan lump sums

Do any of you have access to this publication and be willing to e-mail the article? Thanks.

I have a owner who owns 100% of two completely separate companies, Clinic A and recently purchased Hair salon B... he currently has a plan that covers only Clinic A... Am I correct in telling him that we have to test the eligible employees for both companies for coverage testing?

Can I get the reg #s that show yes or no?

Have a two companies with identical owners. Both owners own 100% of each company. The second company therefore adopted the first companies plan. They fund separately but to the same institution. Is it one 5500 filing for the group or two 5500's, one for each company?

We represent the plan and review DROs for compliance. A participant applied for benefit commencement and the file revealed a DRO submitted for review in 1993. The DRO was not approved and the details of the noncompliance and suggested solutions were communicated to the participant, alternate payee and their counsels. Then, nothing. The 1993 letter was the last correspondence. What should we do now? Thanks for any thoughts.

Can an employer who maintains a P/Sharing Plan terminate the P/S plan and transfer funds to a SEP established for each participant at xx financial institution with e/r continuing to make future contributions to their SEP accounts, or do the rules require the P/Sharing plan participants to receive a distribution from the terminated plan, giving them the option to open a SEP (or simply move to an IRA) wherever they wish?

Related question re future contributions of employer to new SEP:

For future contributions to the SEP that the employer may establish at xx institution, can the SEP arrangement be limited to that institution, or does the employee always have the freedom to establish their own SEP wherever they wish and require the employer to send the contribution to the institution they have selected to hold their SEP?

Thank you.

Under the new diversification rules (ignore the transition rules please) an employer can limit the times when divestment and reinvestment in employer securities occur, as long as reasonable opportunities occur at least quarterly. The catch is that employers can’t impose restrictions on employer securities that are not imposed on other investments “unless circumstances require different treatment.”

What kind of circumstances do you suppose they're talking about? I don't think we'll know for sure until additional guidance is issued, but I'd like to here comments. Thanks.

We have a 401(k) plan being audited by the IRS, where one of the owners defaulted on his loan. We issued a 1099-R in 2003 in accordance with 72(p), but kept the loan on the books as there was no distributable event (the participant is still employed and is under age 59 1/2). IRS agents are telling me that they treat participant loans lose the P/T exemption under 4975(d)(1) once they go into default. However, I can't find anything to support this in the regs--4975(d)(1)(E) says the loan must be "made in accordance with the plan's terms" which it was - the participant just didn't comply with the loan terms. Our agent directed me to 1.72(p) Q&A 16 stating that taxation of a defaulted loan that is a P/T doesn't correct the P/T, but that doesn't state that the default status creates a P/T.

The agent is requiring that the loan principal and accrued interest be repaid in order to fix the P/T. What happens when a participant refuses to make payments - would the employer be subject to P/T excise taxes each year forever? This case is different, because the participant is an owner and will be partly responsible for P/T taxes, but there's no distinction in 4975(d)(1) between owner and non-owner participants.

Does anyone have experience dealing with the IRS on this issue?

Thanks

[Additional clarification]

Payments were originally made in accordance with the loan's terms, then stopped due to financial difficulty. Additionally, the loan fully complied with the plan's loan program and was bonafide when issued.

Does anyone have an opinion on whether a Trust composed of several non-affiliated union employees will be considered a VEBA? All participants are covered by a collectively bargaining agreement.

If the trust is currently a VEBA, what steps should the Trust take to confirm that such a change has not effected its VEBA status.

Does anyone have an opinion on whether such a Trust would be considered a MEWA where all participants are covered by a collective bargaining agreement (even though unaffiliated unions)?

These contributions are considered in determining the maximum employee deferrals. Is there any reason to track them separately?

This question has come up twice for us in the past week and we thought we knew the answer but are now questioning it again...

If your plan has semi-annual entry dates for salary deferrals (including making modifications to current salary deferrals), when do you implement the change? Is it based on payroll period or paydate? For example, salary deferrals are to begin on July 1st. The first pay date is 7/3 but the pay period end date is June 30th. We thought the salary deferral agreement would go into effect with the 7/3 paydate, but two clients have come back and said that because the pay period ended June 30th, they waited until the 7/17 pay date.

Any thoughts or support you could refer me to?

I have a non-profit home health 501©3 organization that currently has a 401(k) plan and wants to terminate their 401(k) plan and establish a 403(b) plan. The reasoning behind the change is mainly because a salesperson told them they never should have been set up with a 401(k) plan and they could save o money by switching to a 403(b) plan.

It is my understanding the 403(b) plan would not be considered a successor plan so this could be accomplished in the same year. The plan has no HCE and is a deferral only plan which is currently invested in Nationwide product.

My knowledge about 403(b) plans is limited and more limited with regard to the differences of an ERSIA versus a Non-ERSIA 403(b) plan.

In light of the new final 403(b) regulations, could someone help explain to me why or why not this organization would be better off with either a Non-ERISA or an ERSIA 403(b) plan.

Any help would be very much appreciated.

In 2006, Client completed forms directing the 401(k) plan trustee to do a direct rollover to her IRA. The rollover was received by the custodian of her IRA and recredited to her IRA account. The client just found out that her IRA was a Roth IRA and not a tranditional IRA.

The client did not intend to convert this distribution to a Roth IRA, and would have told the IRA custodian to open a separate traditional IRA if she had been advised at the time of the rollover.

According to the IRS Notice on Distribtuions, the direct rollover should not have been made to a Roth IRA.

So, besides telling the IRA Custodian to transfer the distribution plus earnign to a tradtional IRA, what else has to be done to correct this error?