Company X provides a severance plan for those employees whose employment is involuntarily terminated. Upon the execution of a release which becomes final, an employee is entitled to continue his/her medical and/or dental coverage under COBRA, with the employer providing the same subsidy that it provides for its active employees for the first 6 months. In addition, if the employee was at least age 50 and had completed at least 20 years of service, the employee would become eligible to continue coverage under the employer's post-retirement welfare plan. The severance plan was recently changed to provide that if an employee is severed and is within 6 - 12 months of satisfying the age and/or service requirements needed to obtain post-retirement welfare benefits, the employee is given the additional credit needed to become eligiible for post-retirement welfare benefits.

In analyzing this under Section 409A, it would appear that the COBRA subsidy should be excepted from Section 409A since it is provided on a nondiscriminatory basis under a self-funded medical plan. With respect to the ability of the employee becoming eligible for post-retirement welfare benefits if the employee is severed after having attained age 50 and completed at least 20 years of service, as well as being provided with 6-12 months additional credit needed to satisfy the age and/or service requirements to become eligible for post-retirement welfare benefits, does anyone have any thoughts on how this should be analyzed from the standpoint of Section 409A?

When I do a mail merge to send a letter to many of my clients, I have always saved a photocopy of the letter in their file. I am taking (baby) steps toward going paperless. Does anyone know how I can end up with seperate files for each letter?

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A one participant corporation has a 401k plan.

Their fiscal and plan year end are 1/31/07.

The owner/participant took compensation of $50,000 all taken in January 2007.

The owner now wants to make a 401k deferral for the 1/31/07 plan year end that would thus be a reduction to his income for the 2007 individual income tax return for this individual.

My understanding is that the elective deferral should have been made by Feb 15, 2007 to be applied to the 1/31/07 plan year.

A pension attorney says that in this case the owner/participant can wait until the due date of his corporate return (with extensions) of 10/15/07 to make the 401k deferral to the plan since it is for the owner. As opposed to a common law employee.

Does anyone know the correct answer and know where the authority on this matter is (i.e. code, reg, etc.)?

I believe for an unincorporated self employed person (using Schedule C of 1040 for business) he would have up until the time of his tax return is due; this works nicely because we are dealing with the same one return, that being the 1040 so that makes some logical sense. But I don't know that such a liberty is allowed for a incorporated business as discussed above.

Thanks.

I hope someone can help.

Small governmental county clinic has a 401a with 414(h)(2).

2+ years ago the clinic was taken over by the hospital (501c3 but not governmental) which is part of an alliance through a leased arrangement. So ee's are technically leased by the group to work for the hospital.

At this time the former clinic ee's came into the groups 403b since they were no longer eligible under the prior plan to contribute 414(h)(2).

2 questions -

1) can the plan be terminated?

2) should they file a 5310?

the ee's just want to be able to combine their assets to eliminated multiple statements.

sincerely,

THIS IS POSTED IN THE 401(K) FORUM!!! - BLINKY

A one participant corporation has a 401k plan.

Their fiscal and plan year end are 1/31/07.

The owner/participant took compensation of $50,000 all taken in January 2007.

The owner now wants to make a 401k deferral for the 1/31/07 plan year end that would thus be a reduction to his income for the 2007 individual income tax return for this individual.

My understanding is that the elective deferral should have been made by Feb 15, 2007 to be applied to the 1/31/07 plan year.

A pension attorney says that in this case the owner/participant can wait until the due date of his corporate return (with extensions) of 10/15/07 to make the 401k deferral to the plan since it is for the owner. As opposed to a common law employee.

Does anyone know the correct answer and know where the authority on this matter is (i.e. code, reg, etc.)?

I believe for an unincorporated self employed person (using Schedule C of 1040 for business) he would have up until the time of his tax return is due; this works nicely because we are dealing with the same one return, that being the 1040 so that makes some logical sense. But I don't know that such a liberty is allowed for a incorporated business as discussed above.

Thanks.

Under the Death Benefit section of a plan document, it says:

...The following participants shall be covered by this section...Each vested participant with an hour of service after the enactment of the REA of 1984, and in the case of a participant who performed no service after the enactment of the REA of 1984, each Participant qualified to elect a qualified preretirement survivor annuity under section 303(e) of the REA of 1984.

Is it possible that a vested participant who terminated prior to the date of that enactment (not sure what date that is), would not be eligible for a death benefit?

As you probably know, there are compelling arguments to be made that the Mass cafeteria plan requirement is preempted by ERISA.

How are your clients reacting to this ambiguity? Are most taking a wait-and-see approach, hoping for preemption, or are they complying with the Mass requirements pending ERISA litigation?

Someone is telling me that PPA eliminated the need to rely on 95-1 for purposes of terminating a defined benefit plan. I've read that section of the act and the new rule is clearly limited to defined contribution plans. Has anyone heard anything suggesting that 95-1 no longer applies for terminating DBs?

Company is a partnership. Currently offers Section 125 plan for medical premiums to be paid pre-tax. Company also offers a stand alone Section 129 DCAP plan. Previously only NHCE's participated in the plan. However, recently an HCE had a child HCE does not own 5% of company and is not considered a Key employee but is considered an HCE. Given that no current NHCE's are participating, I would imagine that it's impossible for the HCE to utilize this benefit....am I correct? If that's the case is the only real solution to gross up said HCE's compensation to account for the tax implications?

An alternate payee for a QDRO is going to take her payment in cash - I can't remember - is this a code 2, waiving the 10% penalty? Thanks.

Quite often our loan administration group has situations where the final payment owed on a participant loan is a very small amount, e.g. less than $5.

This occurs for various reasons, such as additional accrued interest on delinquent loans, extra payments being made at some point, or payments being made off schedule during the course of the loan for one reason or another.

Can it be justifiable to have a policy under which these final loan payment amounts owed are simply written off? The thinking is that the extra administrative cost of processing the final payment of such de minimus amounts outweighs the benefit of collecting the final payment.

I know this would be contrary to the letter of the law but I was wondering if perhaps you could analogize it to the same principle the IRS has relied on in the EPCRS revenue procedures where the cost of doing something exactly right is weighed against the minimal benefit you obtain by being precise.

Also, from a real world perspective what is the likelihood of this being a significant issue in the eyes of the IRS or DOL? I am not sure if they look for these types of things or not in an audit.

Comments?

We have a situation with a deceased participant where the beneficiary is her estate. Does federal and state withholding still apply? Thanks

Hi - We have a plan which gave a loan out to an employee who promptly did not make one payment. So the loan is now in default. When do the earnings stop accruing? At the end of the cure period or do we continue to accrue intil we deem the distribution?

I have another question about defaulted loans. We have a plan which had a loan that defaulted. The 1099R was never issued since the trustee did not wish to have one issued. It has been a couple of years now. How long can we keep advising him about the loan in default & that a 1099R needs to be issued before there is a problem? Is there a program we can refer him to to take care of this issue?

Thanks for any insight or direction!

Would be interested in others' thoughts on this under 409A.

University leader has employment agreement that provides the individual the ability to select, at the time of termination, between the following "severance" benefits if involuntarily terminated:

1. traditional severance benefits of 12 months current salary paid out on a fixed schedule, or

2. ability to retreat to her tenured faculty position in separate department (with guaranteed research leave) at a fixed salary rate

I know the traditional severance benefits are potentially subject to 409A although they may qualify for the separation pay exception. My bigger question is how to think of the retreat to the tenured position and the research leave and, in partiuclar, the fact that the severance benefits are not set at the time the employment agreement was executed but instead gives the employee the ability to make that election at a later date.

Seems the discretion and lack of fixed benefits could be a problem. Any argument that deciding between true severance benefits and the ability for continued employment (albeit with a different department / employer) may be distinguishable? Thanks.

Hi - We took on a couple of plans that are a controlled group. Can anyone steer me towards where I can find information on controlled group issues? I am not as familiar as I would like to be on this subject. Thanks!

A plan was frozen to further investments in company stock and now is in the process of removing all company stock from the plan. Is a post-effective amendment to the S-8 required? It seems to me it is required based on the undertakings under Rule 415 and Item 512, correct?

Rev. Proc. 93-42 allows plans to perform coverage test once every three years (as long as there has been no big change). However, the instructions for the 5500 now say the following: "The instructions to the Schedule T provided that the Schedule T need not be filed every year if the employer was using the three-year testing cycle of Rev. Proc. 93-42. That exception does not apply to Part IV of the Schedule R."

My question is - does this mean you can no longer use the three-year testing cycle? I have not found anything that says Rev. Proc. 93-42 has been modified.

Thanks!

I'm pretty sure that the cost of a lactation consultant for a healthy newborn is not reimbursable under a health care FSA. However, we're being challenged by a member and I can't locate anything in writing from the IRS. Publication 502 doesn't address it. Can anyone help point to something to help? Thanks!

Would a 401k plan satisfy the ACP safe harbor requirements if the following matching contributions were made to the plan for the same plan year?

1. Basic Safe harbor match

2. Additional discretionary match of 100% up to 4% in elective deferrals

I understand the limits for an additional match is that it cannot exceed 4% of comp and cannot match deferral contributions in excess of 6% of comp in order to still satisfy the ACP safe harbor requirements. Does the 4% & 6% limits apply to the additional match only or are they the aggregated limits when considering the basic safe harbor match?

Hi- I have another question about defaulted loans. We have a plan which had a loan that defaulted. The 1099R was never issued since the trustee did not wish to have one issued. It has been a couple of years now. How long can we keep advising him about the loan in default & that a 1099R needs to be issued before there is a problem? Is there a program we can refer him to to take care of this issue?