The plan document allows forfeitures to be used to pay plan expenses. No plan expenses were assessed during the year-end valuation that we are currently working on but there was a forfeiture balance. Can we leave the forfeitures in the plan assets and report the entire account balance on 5500 for the 2005 plan year? Should we show the forfeitures as a liability for the 2005 plan year because we will be using them to pay the plan expenses in 2006 for the 2005 plan year - the 5500 is on an accrued basis. I have handled both ways but want to know legally how we should be doing this. Thanks for any thoughts on this subject.

I know that a loan in a qualified plan can be rolled over to another qualified plan, provided the receiving plan allows loans and will accept a rolled over loan. My question is this: since the promissory note is between the participant and Plan A, will a new promissory note or some other type of agreement need to be executed between the participant and Plan B in order for it to be "enforceable" and a legitimate asset/loan of Plan B? In the situation we have, the participant terminated from Company A and hired on with Company B, which are unrelated employers. The participant has a loan against his account with Company A's plan and rather than have the loan distributed to him (he cannot pay the outstanding balance all at once) would like to roll the loan with the rest of his account in Plan A to Company B's plan and continue to make payments through payroll withholding. Plan B allows loans and loan rollovers.

Thanks for your help.

We have a client who terminated their defined benfit plan in 2003. The plan was underfunded by about $1M, which the client contributed and presumably deducted on their tax return under 404a1D (they were covered by PBGC). Distributions were made through an annuity purchased from a carrier for $16M. All plan assets were distributed by 2004. Some time later, the Attorney General of the state of CT brought a complaint against the carrier for inadequate disclosure of the commission structure, as a result of which the carrier agreed to make refunds to its affected customers. Our client is due a refund of $44K under this agreement. The question is how to treat it? Is it an excess plan asset, to be returned to the trust (that no longer exists) to be reallocated to the participants as per the plan? Is it a refund that should go to the sponsor to be taxed as ordinary income? Could the refund be considered a reversion subject the 4980A excise tax?

Participant in a 401(k) plan dies with an outstanding participant loan. Beneficiaries are the two children. Is the outstanding participant loan taxable to the two beneficiaries, or to the participant's estate?

I haven't had this situation arise before, so any comments would be appreciated.

OK, this 401(k) Profit Sharing plan purchased some land in 2004, built a house and started renting it out in September of last year. The rental payments go into the plan's account, i have no problem with that part. Since it is real estate, it doesn't get assessed every year. Does the plan sponsor need to have the property appraised at the end of every plan year? I see that the plan sponsor w/d the taxes for the property ffrom the plan's account. I am ok with that part.

The client's advisors sent me a copy of the lease and what looks like info from the county property appraiser's books (which you can get online, something I learned last year when I tried to buy a home). Is the county appraiser's value ok to use? I think the answer is no?

Thanks for your help!

Participant terminated employment in 2002. Attained age 70 1/2 in 2004. Required beginning date was 4-1-05 so needed to receive a distribution as of 4-1-05 and 12-31-05. Participant did NOT receive either distribution. The participant died in 2006. The participant's non-spouse beneficiary is going to elect distribution over lifetime. What about the excise tax? Who pays? Participant's estate?

Is it possible to set up one safe harbor 401(k) under which salaried employees are eligible after 30 days of employment and hourly employees are eligible after 12 months of employment? Are there any possible complications that this could cause?

Any help would be greatly appreciated!

Thanks.

We have a 100% S-corp owner who wants to buy insurance from his company's Cafeteria Plan. We know he's ineligible to do this on a pre-tax basis. Is it permissible for him to do this as long as we treat it as an after-tax deduction?

The situation is a bad investment in an IRA, a pyramid scheme that got shut down. The investment is frozen while the authorities try to figure things out, and it is probably valued at $0, but the custodian won't formally revalue - plus no payments can be made.

My assumption is that the custodian is responsible for valuing the IRA for purposes of calculating the required minimum distributions. Is this correct? (If not the custodian, who?) I suspect that the custodian just accepted whatever value was placed upon it by the investment company, and now it just wants to avoid the situation completely.

Do the IRS reporting rules now require a custodian to report the amount of minimum distributions due? Or the amount not distributed?

Is there a way to file with the IRS to indicate that no payment can be made from the IRA? Maybe file a Form 5330 with an explanation?

I am a self employed individual with a individual 401K plan. I know I am able to contribute $20,000 (I'm over 50 yrs old) + additional amounts up to approx. 25% of net income (less the write off which makes it approx. 20%) not to exceed $45,000. Okay, here it is - my income is very low this year and my net income will probably be around $30,000 (I hope), or less - will I be able to contribute 100% of my net income? I believe I can. I just can't contribute more than my net business income. Please confirm and thank you for a response.

I still don't understand HOW this could happen, but apparently it did. For all of 2005 the employer NEVER actually reduced anyone's compensation by the amount of their elective deferrals. The employer, did, however, made a deposit to the mutual fund company of an amount equal to the employee's deferral election as it applied to each pay period (for example 10% of comp). So, the employees get W2 at end of the year, with no reduction in taxable amount for the elective deferrals. The deposits were made to the mutual fund as employee deferrals and are being treated as such by the mutual fund company.

My question is how do we correct this? My first thought is that the amount that was deposited should be allocated as a discretionary profit sharing contribution. The document has a comp to comp allocation formula so this means that some accounts at the mutual fund company will be reduced while others will be increased. I'm worried about the ramifications of doing this.

My other concern is what about the error the employer made of NOT reducing compensation by deferral amounts? Is this a qualification issue that must be corrected somehow.

Any thoughts or suggestions?

Can I get some input as to the range of fees that are being charged by attorneys for drafting a basic QDRO after having already been supplied a sample? QDRO involves a relatively simple 50-50 split of contributions made between period A and period B. Obvious from supplied divorce decree that they divorced without counsel and are attempting to split the assets in the manner. I'd like to tell them that they would save money by retaining counsel rather than submitting it to me over and over until it's correct, but really have no clue as to the time and expense involved in a manner such as this.

If a church makes a 410(d) election for one of its plans, must it make the election for it's other plans as well?

I have a 3 partner LLC with all other employees leased through a PEO. The PEO has a 401(k) for which the LLC signs as Co-Employer. All leased employee comp is paid through the PEO. The PEO 401(k) plan is not what is defined as a "safe harbor" 10% pension.

It is my understanding that if the LLC starts a qualified retirement plan, the PEO employees will be included in coverage and compliance testing since they do not benefit from a 10% money purchase plan. Have I misinterpreted Derrin Watson's instructions? Could the LLC start a 401(k) and forget about the employees leased through the PEO?

This client is receiving various advice from vendors seeking their business, including "forget about the leased employees." I need to clarify.

One Hundred Years Ago 1906!!

I received this in an e-mail today.

Show this to your children and grandchildren

?? THE YEAR 1906??

This will boggle your mind, I know it did mine!

The year is 1906.

One hundred years ago.

What a difference a century makes!

Here are some of the U.S. statistics for the Year 1906 :

************************************

The average life expectancy in the U.S. was 47 years.

Only 14 percent of the homes in the U.S. had a bathtub.

Only 8 percent of the homes had a telephone.

A three-minute call from Denver to New York City

cost eleven dollars.

There were only 8,000 cars in the U.S., and only 144 miles

of paved roads.

The maximum speed limit in most cities was 10 mph.

Alabama, Mississippi, Iowa, and Tennessee were each more

heavily populated than California.

With a mere 1.4 million people, California was only the 21st

most populous state in the Union.

The tallest structure in the world was the Eiffel Tower!

The average wage in the U.S. was 22 cents per hour.

The average U.S. worker made between $200 and $400 per year .

A competent accountant could expect to earn $2000 per year,

a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.

More than 95 percent of all births in the U.S. took place at HOME .

Ninety percent of all U.S. doctors had NO COLLEGE EDUCATION!

Instead, they attended so-called medical schools, many of which

were condemned in the press AND the government as "substandard."

Sugar cost four cents a pound.

Eggs were fourteen cents a dozen.

Coffee was fifteen cents a pound.

Most women only washed their hair once a month, and used

borax or egg yolks for shampoo.

Canada passed a law that prohibited poor people from

entering into their country for any reason.

Five leading causes of death in the U.S. were:

1. Pneumonia and influenza

2. Tuberculosis

3. Diarrhea

4. Heart disease

5. Stroke

The American flag had 45 stars.

Arizona, Oklahoma, New Mexico, Hawaii, and

Alaska hadn't been admitted to the Union yet.

The population of Las Vegas, Nevada, was only 30!!!!

Crossword puzzles, canned beer, and ice tea

hadn't been invented yet.

There was no Mother's Day or Father's Day.

Two out of every 10 U.S. adults couldn't read or write.

Only 6 percent of all Americans had graduated from high school.

Eighteen percent of households in the U.S. had at least

one full-time servant or domestic help.

There were about 230 reported murders in the ENTIRE ! U.S.A. !

Now I forwarded this from someone else without typing

it myself, and sent it to you and others all over the United States,

possibly the world, in a matter of seconds!

Try to imagine what it may be like in another 100 years.

I'm the TPA for a 401(k) plan that is considering changing their investments. They have about 25 participants, all with individual brokerage accounts (it's not as bad as it sounds, but obviously there's room for improvement).

One of the things they're considering is using a fee-based advisor (hourly) to advise the participants and assist them with investments offered under a mutual fund platform.

I always thought that this arrangement would make the advisor a fiduciary and that no one in their right mind would want that. But I thought I'd throw it out there for discussion - is this common/uncommon, problematic or not? I guess the new pension bill, if it ever gets passed, may have some relief in it, but I'm sure that this particular advisor is not even aware of the issue.

Any comments welcome.

from the Western Benefits Conference:

in response to the question

What if a plan uses comp from date of entry, and only offers a SHNEC?

The IRS response was that the plan needs to make a top heavy contribution. I think Craig Hoffman's jaw hit the floor. He respectfully disagrees.

(This is the opposite of the response at the 2005 ASPPA Fall conference)

The IRS agent then agreed that clarification would be coming sometime in the future.

I'll have to look through my notes and see what else I've got to share, but after being gone a week I have one or two or three or...things sitting on my desk to do.

I would appreciate any comments that anyone might have regarding the following:

If an employer has or had at least 20 employees on each of 20 or more calendar weeks in the preceding or current calendar year (42 CFR 411.170(a)(2)(i)), the a group health plan of that employer must offer the same health coverage to active employees that are 65 or older and eligible for Medicare that is offered to other active employees. 42 CFR 411.102(b). Such an employer's group health plan must provide the "same benefits under the same conditions as it provides to employees and spouses under age 65."

42 CFR 411.172© provides that an employee or spouse that is age 65 or older "may refuse the health plan offered by the employer. If the employee or spouse refuses the plan (1) Medicare is primary payer for that individual; and (2) the plan may not offer that individual coverage complementary to Medicare."

Not only must such an employer not offer 'individual coverage complementary to Medicare', no one may offer "financial or other benefits as incentives" to a Medicare eligible individual to forego coverage in that employer's health plan. 42 CFR 411.103(a).

An HRA may be designed under IRC sec 105(h) to permit the employee to choose to have his or her HRA benefits applied either to pay health insurance premiums or reimburse out-of-pocket medical expenses. If the HRA permits benefits be applied to payment of supplemental health insurance premiums as well as major medical insurance premiums, would permitting employees such a choice be 'offering' individual coverage complementary to Medicare for those age 65 or older given such an employee could have his or her HRA benefits applied to premiums for Medicare supplement insurance rather than the employer's major medical coverage?

If an IRC sec 125 cafeteria plan gives the employee the option of payment of premiums for Medicare supplement insurance rather than taking employer-paid coverage in the group health plan, is that offering individual coverage complementary to Medicare?

Would the ability of the employee to not have his or her HRA benefits applied to the payment of premiums for major medical insurance (but applied to any other health insurance premium or to accumulate and be available for later reimbursement of out-of-pocket medical expenses) be a 'financial or other benefit' incenting an employee over age 65 to refuse coverage under the employer's major medical policy?

If an IRC sec 125 cafeteria plan gives the employee the option of cash rather than taking employer-paid coverage in the group health plan, is that a 'financial or other benefit' incenting an employee over age 65 to refuse coverage under the employer's major medical policy?

Restricting from such options just those who are age 65 or older would likely violate the Age Discrimination in Employment Act (ADEA).

It would seem that since the purpose of the Medicare coordination regs are to prevent employers from inducing those employees age 65 or older into refusing the employer-provided coverage and thus making Medicare primary coverage, rules that applied to all employees regardless of age and regardless of Medicare eligibility would be alright. Extra pay instead group health plan coverage under a cafeteria, or the ability to have HRA benefits applied to AFLAC insurance rather than major medical, ought be no problem for employees of all ages, even those age 65 or older.

However, since Medicare supplement insurance is only for those age 65 or older and those for whom Medicare is primary (i.e., those that don't have major medical through the employer's group health plan), it seems that allowing employees to pay the premiums for Medicare supplement insurance as a cafeteria or HRA option would be problematic.

Any info or thoughts on this would be greatly appreciated.

I met with a new 401(k) client and in wrapping up the meeting, the HR person asked if I thought they needed a separate ID number for their "OBRA trust", distinct from the EIN. Their accountant said yes, their OBRA trust expert said no. My initial response of "what exactly is an OBRA trust" did not hinder them from still asking my opinion.

It sounds like their employees contribute (after-tax) money into an account, and pretty much use it any way they want, similar to a savings account. Thats about all I got out of it. My initial thought is that if this account has money in it and is attached to an EIN, well if the employer goes bankrupt I would assume that any place with money and the Employer's ID is ripe pickings for creditors, so they would want a separate number.

Any help out there from someone who might know what to make of this?

My question is two-fold. First, does the Interal Revenue Code allow custodians to withhold between 0% and 10% on IRA distributions? If no, what is the authority?

The Form WP-4 allows a shareholder to elect 10%, 0%, or greater than 10%....is this the only authority? IRC Section 3405 does not address this issue.