Am I correct that the 20% additional tax does not apply to amounts included in income as long as the deferred comp plan meets the 409A requirements of distribution, acceleration of benefits and elections and operates in accordance with them?

Thanks,

Ken Davis

We have been contacted by a participant to see if sun-protective clothing is reimbursable under a health fsa; this individual has developed an allergy to the sun and needs special clothing.

The only thing we are able to find is the eligible expense under FSAFEDS and it states the following -

Sun Protective Clothing

Clothing that offers at least 30+ UVA and UVB sun protection for individuals with melanoma, or other skin cancer, systemic lupus erythematosus (SLE) or other significant dermatologic condition may be eligible with a letter of medical necessity from your doctor. The clothing is reimbursed for the difference between "normal" apparel and this specially constructed clothing up to 33% of the total cost. The receipt must show the purchase was from an accredited sun protective company such as Solumbra or Coolibar.

There is nothing in the plan document that would prevent this type of reimbursement.

We already looked at Pub. 502 and did not see a reference.

Has anyone had any experience with this - if you have some ideas, please let us know - citations would be appreciated.

Thanks.

I have a client that is (last year and this year) being put through the ringer about tighter auditing standards, including SAS 112, as applied to DB 5500 audits. But this is my first 2006 audit.

The context is a limited scope audit. The auditor (for the first time) wants the sponsor to draft the footnotes and schedules that will comprise the 5500 auditor's report. They are implying that there may be control weakneses that may need to be reported as "deficiencies" otherwise.

The auditor (last year) insisted upon reviewing many retiree calculations done many years ago. They are insisting there can be no hand corrections to benefit calc worksheets-records must be perfect and retyped if necessary.

This is a meticulous client with near perfect records. This seems like complete nonsense to me. Is there anything to this? Is anybody else experiencing this increase in zealousness? Or is this all about higher fees or profit margins?

I can understand the applicability to corporate financial statements. Does SAS 112 revolutionize pension 5500 audits?

I hope this is isolated and not a wave of the future. Comments?

We have a client with a new plan eff 1-1-2007 that has SH Match. They were bought by another company and told to keep the current 401(k) plan in place until the end of 2007. They were told to stop the SH Match immediately. I know we must give 30 days notice to employees, so they need to fund match through that date but I wasn't sure if we could stop SH Match and use current year testing for ADP/ACP for 2007. They will rollover new plan's assets to buyer's plan at the end of 2007/beginning of 2008. Thanks for any insight.

Employer is a non-profit entity. It sponsors a 403(b) plan under which employee pre-tax elective deferrals are made. Employer also sponsors a 401(k) profit sharing plan under which only employer profit sharing contributions are made. No pre-tax elective deferrals are made to 401(k) plan. Broker is asking if the 401(k) plan may be amended to include Roth contributions (still no employee pre-tax elective deferrals). My inclination is to say that if Roth contributions are going to be allowed they should amend the 403(b) plan.

Any thoughts?

If a plan is effective 1/1/2002 and freezes benefit accruals as of 12/31/2006 (but is NOT terminated) and terminates as of 12/31/2007, what is the fractional reduction in the 415 dollar limit?

Is it 5/10 or 6/10?

A SEP has a plan year end of 4/30/07. When are contributions due.

We have been asked to design a 401(k) plan for this group and they want to make their final SEP contribution.

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.