I'll try to be as clear as possible. An employer sponsoring a self-funded health plan wants to basically share the risk of the plan with employees. The plan sets its "premium," based on actuarial evaluation of past claims experience and administrative costs, at the beginning of the year, and requires a 30% employee contribution to it. The employer pays the rest out of its general assets. The owner wants to do the following:

At the end of the year, look at actual claims and expenses for that year, and if the claims/expenses were lower than the expected amount, refund 30% of the excess to employees. If the claims/expenses exceeded the expected amount, charge employees 30% of the difference.

My question is, can he do this legally? My thoughts initially are that if the employees' contributions are run through a Section 125 plan, then any additional contribution/refund would have to be post-tax or it would violate the change of status rules, unless this would qualify for a "change in premium." Would there be a problem with deferred comp if the adjustment was not made until after year-end (in other words, adjustment made in January 2008 for 2007 claims experience)? Would this have to be paid/collected from the employees actually enrolled in the health plan during the year claims were incurred, or employees enrolled as of the date of the adjustment? How would COBRA rates be impacted?

I don't particularly like what this employer has proposed, but I'm not sure that it can't be done. Any input would be appreciated!

How many days are allowed to pass, after the payroll deduction is made, before the contribution must be credited to the investment account? Please give citation.

Does anyone know how a "Disregarded LLC" effects a 401(k)?...if at all? I have never heard this term until yesterday.

An employee was hired and provided with all the information to enroll in a self-insured health plan. The background check came back 3 days later, employee lied, and was terminated. Employee argues he should be offered COBRA coverage, and that he did not enroll in the Plan because he did not have internet access at the hotel (although he did have access at work). The Plan enrollment provision says that coverage is effective as of the date of hire so long as an employee elects coverage within 31 days of hire. However, the employee did not enroll in the Plan before termination. Any thoughts?

Client allowed an ineligible employee to receive a matching contribution. She was not eligible because the plan requires terminees to complete 501 hours of service to be eligible for the match. However, they contribute the match each payroll period (we know that is a problem, we have tried to get them to change). Participant received the match, terminated, took a distribution and received the match distribution. Client tried to retrieve the match from the participant, but participant refused to return.

What is the correction for this? From my reading, it appears that if the mistake had been discovered prior to distribution, the match could have been forfeited and that would have been that. Should the employer contribute the amount in question to the forfeiture account?

Thank you.

Employer X is establishing a 401(k) plan for its employees effective January 1, 2008. X intends that the plan satisfy the automatic enrollment safe harbor to the ADP/ACP tests and for top-heavy purposes. Consequently, it would be adopting a two-year cliff vesting schedule. The employer has been around for a number of years and there are certain entities technically unrelated to the employer which are involved in selling the employer's products. Under its other qualified plans, service with such other entities is taken in to account for eligibility and vesting purposes.

Assuming that eligibility is immediate, can X have its plan provide that service for vesting purposes will be credited by looking solely for those employees who are rehired during 2008 or 2009 only, so as to limit the complexity of recordkeeping for any former participant who terminated many years earlier and then returns?

Just bumping this up to the top.

See: http://www.treas.gov/press/

“” Published along with the regulations was Notice 2007-34, which includes additional guidance regarding the application of section 409A to split-dollar life insurance arrangements and provides that certain amendments of such arrangements to comply with section 409A will not be treated as a material modification.””

TCWalker

I have a plan whose normal form is J & S 50% for everyone who is married (for our sake we'll assume everyone is, in fact, married).

When I calculate the 417(e) lump sum, do I calculate it using the normal form (J&S 50%) or convert it to Life only using AE first?

397 Pages of good clean reading, plus an additional 8 on split-dollar. Happy reading!

Final Regs

http://www.ustreas.gov/press/releases/reports/td9321.pdf

Split-Dollar

http://www.irs.gov/pub/irs-drop/n-07-34.pdf

Participant has a mortage loan in plan with a 30 year amortization schedule that was written in 1999. IRS is questioning the 30 years. 72(p) gives example with 15 year mortage loan. However, the verbage does not specifically state a loan on a primary residence must be 15 years. Can anyone give me a specific code section, revenue procedure (etc.) were I can prove the 30 years was the maximum at the time it was written in 1999? Thanks for you help!

Our firm has a client with operatiions in the United States Virgin Islands and has inquired as to whether these employees can be covered under its US based 401(k) plan. Does anyone know if the laws of the USVI that govern defined contribution plans follow US law? Can anyone point me to any publication that would address this issue? I know that the Puerto Rican tax code's rules do not totally follow US rules, but cannot find anything about USVI law.

Business owner age 71 has 2 million in profit sharing plan. He thought the charitable giving 100k was allowed from the plan. Everything I read says it must be from a traditional or roth IRA.

Do ya suppose he could roll 100k into an IRA then make a 100k charitable distribution from the brand new IRA.

Searching for a vendor for DB plan custodian. Looking for suggestions on questions to ask? We have everyone's prices but thats not everything...what funds can we use, if you require proprietary funds, how much needs to be invested in them, do you charge a termination fee, etc...

Would appreciate anything anyone else may suggest?

This isnt for recordkeeping..that is taken care of outside. Just custody of the money and check cutting.

appreciate your help

Plan fails ADP test . Instead of refunds, employer wants to use part of new comp PS allocation as 100% vested QNEC with remainder of New Comp allocation remaining as is. Is this within the guidelines?

Suppose a business owner (age 29) has 4 years of service by 12/31/2007 and starts a new DC plan (in this year, 2007). No other qualified plan.

Suppose one employee (age 28) has just been hired (March 2007). Assume we do not go with 2 YOS for entry, so this ee would enter sometime in 2008.

I would like to run the cross-testing for 2008 using a testing age equal to the normal retirment age, and I would like to use a normal retirement age equal to the later of age 30 or 5 years of service.

What do you think? Issues?

A while back I posted a question about different ways to credit service so I could get a good sense of my limitations, because the business I'm working with doesn't utilize a cut-and-dry hourly or salary wage situation.

After much consideration, I'd determined that I wanted to use an equivalency method where the total wages earned in a Plan Year are divided by the lowest hourly wage earned, thereby giving you total hours of service for the year.

Because of the transient nature of the company, I was hoping that it would be possible to calculate hours earned on an aggregate basis. For example, if we're using a 2-year cliff and are requiring 1000 hours of service per year, then after two years you need to earn at least 2000 hours to be fully vested. On an aggregate basis, that means an employee could earn 600 hours the first year and 1400 hours the second year and become 100% vested. Also, if an employee could only earn 200 hours a year (assuming the plan has a lenient break in service rule where an employee needs to earn at least 100 hours of service to avoid a break in service), then that employee would be fully vested after 5 years. If the aggregate rule wasn't used, an employee earning only 200 hours a year would never become 100% vested.

I was recently on a conference call with a vendor and they explained that counting hours earned on an aggregate basis was not allowed by the IRS. Plans can only count hours year by year, and they can never be combined. I could be wrong (and please tell me if I am), but I thought that even if there wasn't anything in the IRC specifically saying this was okay, the fact that the plan is more in favor of the employees in this particular situation would mean it could be used.

Is this aggregate rule okay? Are there any IRC references that anyone can give me that I can show these vendors to convince them otherwise?

Unfortunately, using this aggregate rule is quite important to the overall mechanics of the plan. I would very much like to find a way to do this if possible.

Any and all help would be greatly appreciated. Thanks so much guys.

My broker was holding an IRA for me in Account A. They transferred the money to Account B (not an IRA account due to some paperwork issues). They are sending me a 1099 for Account B but, no 1099 R for the distribution that they claim I have taken by transferring money from Account A to Account B. What should I do? Should I still declare the money as distribution in my 2006 taxes? Your help is very appreciated.

Thank you

Ria

Maybe I've missed the boat here, but I thought S Corps could sponsor ESOPs. I've reread 409(p) several times today and each time I do I understand it a bit less.

Let's assume a one owner S Corp. This S Corp has 9 other employees. The S Corp wants to start a leveraged ESOP. And, the owner's compensation represents 35% of total eligible payroll. (9 employees at $45,000 each plus him at $225,000)

Is the owner excluded from the Plan? Or, should the owner be excluded from the plan?

Is there a contribution rate that would allow him to be in a plan?

Thanks

Christopher

Hypothetical:

1) A company will be spinning off a subsidiary

2) The company has outstanding options

3) The company believes it's fair market value (it is publicly traded) will go down as a result of the spin-off

4) The company's option plans permit a repricing of options after corporate activity like a spin-off

5) The company wants to re-price the options so that optionholders aren't hurt by the spin-off, so: i) the company would like to reduce the exercise price if the FMV goes down, but not raise the exercise price if it goes up.

6) Assume the spread and ratio tests of 424(a) will be met

Any potential issues with this? Is it a modification, assuming the rules of Section 424(a) are met?

My client has 2 married employees. One is highly compensated and one is not. Neither are owners or officers. They want the dependent daycare benefit. No one else has elected daycare. If the nonhighly compensated spouse elects the daycare, do you have to consider that he is married to a highly compensated employee?