We have an employee who enrolled in the Dependent Care FSA with a plan year beginning June 1, 2006 and they are now coming to us stating they enrolled in error and that his spouse stays home with his kids. Can we refund him his contributions to this plan given the fact that he enrolled in error. If so, how do we handle contributions from 6/1/06 - 12/31/06 that were reported on his W2?

I can't find anything that says a plan administrator must coordinate participation in an HSA and a general- purpose health FSA. Is it permissable to design the plan to only allow participation in either-or for ease of administration?

Can a safe harbor 401k plan switch from a basic to an enhanced match in mid-year?

We have an HSA plan that is funded by the ER making two contributions (Jan and June). For some participants, though, they quickly reach entire deductible limit before the June contribution. For them, the ER makes the "June contribution" before June.

If someone quits before the June contribution, is she entitled to that June contribution amount since other EE are getting it before June when they quickly meet the deductible limits?

My reading of 4980G seems to indicate that the terminating EE would be entitled to the June contribution even if she quits before it is required to be deposited.

Generally, our HSA is funded twice a year. However, some EE reach their entire deductible amount before the second (2nd) funding. For those EE, their accounts are fully funded before the 2nd contribution is made available to others.

What happens if an EE leaves before the 2nd funding contribution is made to her account (and she isn't one of those EE that wracks up enough bills to be entitled to the pre-2nd funding contribution)? Is she entitled to have her HSA fully funded, even though she is leaving before the 2nd contribution?

Section 4980G seems to answer yes to that question. Is there any other section I should be looking at? Thanks in advance to anyone who can help.

Client has a cash balance and a dc plan. For allocation purposes, the compensation definition is total year to provide the top heavy minimum. Can we use entry date compensation for (a)(4) testing?

A new employee negotiated a deferred comp plan that defers $X per year of employment. If the employee stays at the University until he becomes vested in the state teachers retirement system, the deferred comp plan benefits evaporate and he forfeits the $X earned per year. If he leaves for any reason before vesting in the TRS, he receives the deferred comp. I don't think the deferred comp is subject to a substantial risk of forfeiture. Agree or disagree?

Thanks,

Ken Davis

Univ. of South Alabama

S-Corp ESOP currently provides for cash-only distributions (i.e., employer stock is in all cases liquidated within the plan). Employer would like to amend the plan to allow participants to elect a distribution in stock, subject to a requirement that the stock immediately be sold back to the ESOP (the idea being to allow participants to get capital gains treatment, rather than ordinary income treatment, on part of the distribution). Is there any problem with the "immediate put" requirement?

The relevant Code Section--§ 409(h)(2)(B)--isn't clear on this point (or any other--boy, what lousy drafting), and nothing the IRS has said seems to directly answer the question. There's some close-but-no-cigar guidance in Rev. Rul. 2003-27 (NUA for shares distributed from an S-Corp ESOP) and Rev. Proc. 2004-14 (permitting rollover of S-Corp shares to IRA if plan requires immediate repurchase).

Thanks.

Can key employees make only 50+ catchup contributions without triggering the need for either TH minimum or safe harbor contributions for non-key?

Is there any difference in how minimum distributions are calculated between an IRA and a profi sharing plan? I just talking about the amount of the required diistribution.

We only administer 401(k), PSP, DB plans and are not familiar with 403(b) plans. We really dont want to get involved with 403(b)'s but have a small local non-profit that is concerned about a 403(b) they have had for many years. The plan had salary deferral and match but was discontinued in favor of a 401(k) plan about 4 years ago. No contributions have been made to it for 4 years. They have been filing a 5500 all along.

Do they need a restated document for GUST and EGTRRA?

They have two insurance companies that provide annuity investments for participants. The non-profit contacted the insurance company that provided the original document and asked about a restated document. The insurance company mentioned that they no longer provide documents. Is there a document provider that is not associated with investments? Are they a candidate for a voluntary compliance program?

Thanks much.

There have been many postings on this type of error, but I am wondering what experiences folks have had under Revenue Procedure 2006-27.

401(k) plan does not exclude bonuses from the definition of compensation. The plan also does not have a separate deferral election on bonuses (deferrals from bonus is the same as for salary). The plan did not take deferrals from the bonus payments in January of 2007.

There is no safe harbor correction in EPCRS for this problem. Do you use the general correction principles and the employer will make a QNEC on the bonus based on the participant's deferral election at the time of the error? Or do they make a QNEC based on the missed opportunity safe harbor under Section 2.02 of Appendix B? They cannot use the partial year correction because the error did not surface until April (calendar plan year).

The employer matches on a payroll basis, so they will need to definitley give a contribution for the missed match based on the match formula when the error occurred. But since this is at the beginning of the plan year, do they need to do a QNEC for the missed match or can they just make a regular match subject to the vesting schedule?

Thanks!

A search using "virgin islands" was unsuccessful. Bummer.

I did find that USVI plans are subject to Title I of ERISA as are all plans of possessions and territories.

I know that plans in Puerto Rico have different rules than mainland plans. What I have not been able to locate is anything that tells me if USVI plans are subject to the same IRS rules as mainland plans.

Does anyone have any information or cites they can share?

Thank you.

401(k) Plan A is merging into 401(k) Plan B. Plan B does not allow for loans, but Plan A does and has 1 outstanding loan currently. Can Plan B be amended to allow for rollover loans only even if it does not allow for new loans? Does it matter if the outstanding loan being brought over is for an HCE or NHCE?

My husband was recently murdered in the city of Philadelphia, number 106 as the city calls him. We both work for the same company. We were separated before his murder and he was living with another woman. I am getting the run around from my company because my husband filed to have his beneficiary changed around 2 weeks before he was murdered. We both were previously imformed that we could not change the beneficiary of our pensions or life insurance without a divorce decree or the other spouse waiving their rights. We began divorce proceedings but decided not to go through with them because we were working on reconciling. I was responsible for identifing his body at the ME's office, funeral and burial arrangements. The company is telling me that the other woman has made a claim on the benefits and they are trying to figure out who is entitled. Because we did not file the final divorce papers and we had on written agreement on the benefit distribution who is entitled?

Does anyone else dislike the new page layout? I gues the theory may have been put the most popular item towards the bottom to get more traffic on the "less trafficed" areas, but what a drag!

Hey benefitslink, can you have in the user profile to default you to a favorite board (i.e., 401k plans)?

Facts: On 1/1/2006, a sole proprietor with 3 employees and a calendar year x-test k plan incorporates, and amendment is made to plan for the corporation to succeed the sole proprietor as the sole sponsoring employer. However, after 12/31/2006, the plan's advisors learn that the sole proprietor only took a small chunk of his earnings as W-2 wages from the corporation, running the rest 'outside' of the corporation, in essence as a sole proprietor. (All the compensation for 2006 for the other 3 employees was W-2'd from the corporation.)

Contributions were made to a suspense account held in the plan's name, throughout the year. Totaling about $50,000--about the same amount that had been contributed for 2005.

Giving the other 3 employees their 5% gateway (about $5,500), the owner snags about $18,000 through x-testing. That leaves about another $26,500 having been contributed, and as yet unallocated.

Under 404 and given the total corporate payroll, only $34,800 is deductible.

I was thinking first to have the $15,200 ($50,000-$34,800 deductible limit), and proportionate share of earnings while in the plan, returned to the corporation as a mistake of fact under IRC sec 403©.

We can boost the allocation for 2 of the 3 NHCEs (two separate groupings of them) so that the NHCEs, in the aggregate, would receive about $7,000, and the owner (based just on the W-2 earnings) receiving $27,800.

That looks like the cleanest thing to do from my perspective.

I was wondering if anyone thought we could do an 11g amendment to add the owner's sole proprietorship earnings for 2006 into consideration. It looks to me like we'd at least have to give the NHCE's a second, duplicate gateway if we tried that--even if it were otherwise doable.

Any thoughts or other suggested approaches to correct the situation?

Under the Tax Relief and Health Care Act of 2006, someone who becomes eligible to contribute to an HSA anytime during the year can contribute up to the full-year HSA limit. That is, proration of the limit isn't required. However under the 2006 tax law there is a penalty if the individual does not remain *eligible* for the HSA until 12/31 of the year following the year of the mid-year enrollment. Said penalty results in any excess amounts contributed (that is amounts that otherwise would have not been allowed under the old proration approach) being taxable - plus a 10% excise tax as well.

On the surface, this all sounds like an individual taxation issue that employers need not worry too much about administering (although they may have to communicate it!) Furthermore, and perhaps more importantly, what about the impact on employers who run all contributions through a cafeteria plan? So if an employee does not stay in the employer's HDHP until 12/31 of the year following the year of the mid-year enrollment, does the employer have to adjust the prior year tax record of the employee to reflect that the certain excess amount run through the cafeteria plan actually was taxable? What if the employee immediately changes employers and picks up HDHP coverage seamlessly. How would the prior employer ever know such?

In short, how is this next-year-end HDHP enrollment requirement monitored and any "failures" reported? Or is this just another "honor system" aspect of HSAs?

Thanks in advance for any help,

Cole

I have an issue with a 2004 1099R issued. Code 4, Death Benefits.

The American Postal Workers Union filed a grievance back in 1981, concluded in 1986. 18,000 Survivors were issued funds, labeled under a "delayed roll-over" of COLA, including life insurance. The decedants paid taxes on the delayed prior to his death, under an Annuity Protection.

The arbitrator stated in the settlement 11 times "so no one will be hurt" or "no hurt" or "when the hurt began".

The Eagan accounting section states they do not define or interpret the income. They only report on a 1099R according to IRS rules and regulations. They also state that they have a fiduciary relationship to the Postal Service and only a "conmitant" to the survivors.

In the Post Offices haste, they caused a Mis-characterization by reporting to the IRS. That the "Legal Settlement" was fully taxable.

Does anyone know how this can be resolved? If the Post OFfice can be held liable for the additional taxes owed by the default of "The Offer In Compromise" The previous Federal Tax Lien has been reinstated and are about to take action.

New client for 2007 wants DB plan and reveals fact that he has an old MP and PS plan still in existence but currently terminating through other advisor (legal) but he has never filed 5500's on these plans. He's wondering if 1099-R filing and 945 filing on those plans by investment company as part of plan term will trigger 5500 tracking/red flags. I've suggested the voluntary correction approach of course on late 5500 filings, but since it's his decision, does anyone think the IRS receipt of 1099-R/945 would trigger an inquiry into 5500s ? I kind of think not especially given 5500s are now filed through PWBA (DOL) but would appreciate other opinions.

As best I can tell it seems to be limited to 5500/Disclosure issues as plan doc has been consistently updated by national investment company, CPA apppears to have handled the easy contribution calcs correctly, small office hasn't had any distributions previously.