Can an employer force an employee to pay for premiums on a pre-tax basis? For example, an employee may want to pay for all premiums on an after-tax basis so that his Social Security benefits are not reduced. Another example, an employee may want to pay for disability premiums on an after-tax basis so that the benefits received would not be subject to tax.

I've got an outsourcer saying that all benefits must be paid on a pre-tax basis.

The statute under §125 is pretty sparse, and the proposed regulations Q&A-6 isn't really clear.

Any thoughts?

Hi folks, I've been reading some articles recently about why it's prudent to convert your IRA's, 401k's, etc to an annuity for when you're wanting to retire and establish systematic monthly retirement income. I was wondering if those that are experts in this arena could provide the pros/cons to this approach. If this is the wrong forum, I apologize. Thx.

Is there something in PPA or other recent regulations that allows for roth ira balances to be rolled over into a qualified plan? I have an ASPPA supplement comparing plan types with an May/June 06 date on it that indicates roth iras are only eligible for rollover to another roth ira, but someone mentioned to me she thought there had been a change in the recent regs. I can't find anything.

An old client brought in a Social Security Administration letter sent to a participant letting them know about an account balance that they may be due from the plan. SS letter was generated from the 1999 SSA filing. Unfortunately, the SSA filing was incorrect. For some reason the recordkeeper at the time reinstated forfeitures, made all participants 100% vested, and showed about a dozen people on the SSA as being owed account balances. Life goes on and participants show 100% vested account balances but nothing was done on them. 3 years later the plan terminates. During termination process this was caught and account balances were forfeited and allocated. However, those participants were not reported on the 2002 final filing. Hence the letter generation.

Certainly I can create a form letter for each participant showing them that do not have a vested account balance, but it would be much easier to stop that letter from generating. Should I file an amended 2002 return with a new schedule SSA at this point? Or is it simply too late?

Fortunately none of the above actions were mine as I started in June of 02 and final filing had already been completed. But, still my job to clean up the mess....

Simple question? If you have an over 50 sole propreitor that has a small net schedule C that is trying to contribute as much as possible to a 410(k) profit sharing plan, do the catch up contributions count towards the 100% of pay limit?

$30,000 net schedule C

25% of pay profit sharing allocation

This leads to $2,119.43 half SE taxes, a $5,576.11 profit sharing allocation, and what must be the schedule C after pension contributions of $22,304.46. (22,304.46 + 2,119.43 + 5,576.11 = 30,000)

Now if we add some deferrals to the profit sharing contribution we could go with $5,576.11 + $15,000 + $5,000. But this ends up with a total contribution of $25,576.11. That is over 100% of the $22,304.46 schedule C.

I visited two websites yesterday that calculate the maximum for a 1 person plan, and they both came up with the $25,576.11 number.

I thought the maximum would be somewhere between the $22,304.46 and the $25,576.11 because if you lower the profit sharing allocation down from the 25% of pay then the schedule C after pension will increase. So who is wrong here? Me or the websites?

I know the catchup contributions have to count towards the 100% of pay limit because then someone that is paid $1 could contribute $5,000 to the plan and that makes no sense.

Can you contribute to both a SARSEP and Simple IRA plan? If so, what is the maximum contribution limit?

I met with a Financial Advisor the other day who posed a question to me regarding Pre and Post tax money in an IRA. Here's the scenario:

A person rolled ALL of his monies into an IRA. This money consists of 20% after-tax money, 50% pre-tax IRA money and 30% pre-tax money from a qualified plan. When this person takes his distribution, how is the tax calculated?

Your input is greatly appreciated!

Thanks!

Frozen plan purchases irrevocable commitments from an insurance company to provide for all benefits under the plan. They never formally terminated the plan with the PBGC or the IRS. No notices were sent out.

Since the PBGC guarantee obligation has ended, do you still have to go through the termination process?

I suspect that you would still have to and notify the employees. Thus, what would be the penalties for doing the paperwork after the fact.

I have a client who has income from his law practice. He also has director income from somewhere else - not in any way related. Is he allowed to receive an allocation of $44,000 from both incomes?

I presume the new default investment rule, i.e., QDIA, will be available for missing participants under an ongoing DC plan? Correct?

Is there any authority out there for doing a top heavy determination on an accrual basis rather than a cash basis? For example, assume that a 401(k) plan is top heavy in 2004 but the employer did not make the top heavy contribution until 2006. Could the employer take this contribution made in 2006 into account in determining whether the plan is top heavy for 2006?

A question has come up with regard to severance pay and whether or not you can defer on it. Most of our plans are written with the definition of compensation being 3401(a) wages. After looking at the regs, this would seem to include severance pay. However, when looking at the ERISA Outline Book, it appears that deferrals are not permitted on severance pay because you are not an eligible employee (which makes sense to me) (Treas. Reg. 1.401(k)-1(e)(8) and Prop. Treas. Reg. 1.415©-(2)(e)). One thing that causes a question in my mind, though, is that 5.a. (Chapter 11 of the 2006 edition - page 11.47) says ". . .it has been the IRS' informal position that a former employee should not be treated as an eligible employee for any year in which post-termination compensation is paid but the individual is not employed for any part of the year. . . . " That makes sense when the severance pay is paid in a year other than the year in which the participant terminated, but what about when the termination date and the severance pay are in the same year? For example, an employee terminated 9/23/05 and received his final "paycheck" on the 9/30/05 payroll (this included compensation for all hours worked through his date of termination). However, he continued receiving severance pay through 12/31/05 (the "severance pay" was not on account of prior hours worked, overtime, unused vacation/sick days, etc.). He deferred on ALL of his wages, and the company matched. Was this correct? Logically, I would say no, but the regulations are not always logical . . .

Thanks for your help!

Form 5500 for a 401(k) won't be ready by Monday (audit and valuation not finished). Should we send what we have and then amend ASAP or wait and file DFVC?

Any suggestions?

What remedies are avaialble if the independent qualified public accountant's report is not attached to the 5500? Is the DFVC an option?

Thanks

Just wondering which group(s) of employees can an automatic enrollment feature be applied to -

1. As far as the qualified automatic enrollment feature described under PPA, the feature is applied to all eligible employees. Eligible employees mean all employees eligible to participate in the arrangement, other than employees eligible to participate in the arrangement immediately before the date on which the arrangement became a qualified automatic contribution arrangement with an election in effect (either to participate at a certain percentage or not to participate).

Suppose an existing 401(k) wants to begin the the qualified automatic enrollment arrangement effective 1-1-08. They are going to start at 3%. What about employees who have an existing election at 2%, or those who have made an election NOT to contribute? They are not eligible employees for purposes of the qualified automatic enrollment arrangement and therefore they cannot automatically enrolled and no employer contributions are required on their behalf?

So an existing 401(k) plan that has always required all eligible employees execute a SRA indicating yes/no re- their intent to contribute, can utilize the new qualified automatic enrollment arrangement, get a pass on the ADP/ACP/T-H and yet only start newly eligibles (those on and after 1-1-08) at the 3%, and all others remain at their current SRA elections until modified?

2. The group to which automatic enrollment can be applied seems different under the PPA's qualified automatic enrollment arrangement than what is currently available. Do you agree that if an existing plan wants to include the automatic enrollment and start it at say 4%, that all eligible employees as of the date the new feature comes into being who have made an election to contribute less than 4% (or not contribute), can be automatically enrolled and have their deferrals increased to the 4% - subject to the automatic enrollment notice being distributed timely? Thereby applying this feature to newly eligible and existing participants alike.

We have a multiple employer plan and one of the adopting employers is revoking their participation in the MEP as of 10/31/06 (under the MEP the plan is a 3% safe harbor 401(k) with comparability profit sharing) (has last day rule for the profit sharing portion). This employer is going to set up an individual plan with us; plan will be effective 1/1/06 with the salary deferral provisions effective 11/1/06. Of course, the individual plan will not be safe harbor. The document that we will be using for the individual plan does not have specific language stating that if the same employer has 2 plans that the contributions in one plan can or will be used in the second plan to meet the minimum gateway requirements. The language is:

". . . However, the amount of the Gateway Contribution allocated to each Non-Highly Compensated Participant (as described in subsection (i) above) shall be reduced by the amount of any Non-Elective Contribution or Qualified Non-Elective Contribution (other than a Qualified Non-Elective Contribution which is used to satisfy the "Actual Deferral Percentage" test or the "Actual Contribution Percentage" test) or Forfeiture allocated for the same Plan Year to such Participant. For purposes of subsection (ii), "415 Compensation" shall be recognized for the Plan Year.

We would like to read this section as allowing us to use the 3% safe harbor made in the MEP to count toward satisfying the minimum allocation gateway in the individual plan since it doesn't specifically say only contributions in THIS plan can be used for the gateway. Any opinions would be appreciated!

We are coming up on the January renewal time... The brokers/producers within our office feel that it is okay for plans to start late, mid to late January due to decisions about medical benefits not being made until late December. How can we convince them that this would make the FSA Plans non-compliant?

Good Morning -

I have newly-sold group, which is a Trust, which offers FSAs as part of the benefits package to the employers in the Trust. When we sold the case, we recommended the Trust set up one policy, rather than 20+ for each separate employer in the trust as they had been doing. This morning, we learned that there is a VEBA attached to the FSA (although it is not clear as to how the VEBA is funded at this time), and the Trust's outside legal counsel has advised that because of the VEBA, the Trust cannot set up one master policy, although FSA funds (all EE funded) from each employer can be comingled for purposes of claims payment.

Can anyone make sense of this for me? Naturally, we need an answer ASAP since we have a call with the group this morning. We still trying to track down internal legal counsel who has knowledge of both 125 and VEBA regs.

My ex and I were separated 1999 and Divorce Decree effective 1/2003. After almost 4 years of back and forth between myself, my attorney, the court and the plan administrator I finally have a qualified order. We tried to follow the model given to us but it seemed there was always something wrong with the order. I was lead to believe that my order was written to give my ex 50%, + losses and earnings, of the value of my 401K at the date of our seperation. Iwas told that placing a valuation date of 1999 would split the amount in the 401K as of that date and distribute 50% to my ex. I received the QDRO yesterday in the mail and I went to my benefits website this evening to find that 50% of todays value of my 401K has been disbursed to my ex. Was I misled about the meaning of the "valuation date" or is it possible the plan made a mistake?

Three guys start a new company in June. They don't hire any employees until July. They want to set up the plan to have effective date 6/1 w/ immediate entry if employed by 6/1. They will then amend the plan to require 1 year of service for entry. The amendment will be effective after 6/1 but before 7/1. What would prevent this from being ok? It just doesn't "feel" right.