I am new to employee benefits taxation for residents of Puerto Rico-any light anyone can shed would be greatly appreciated.

Are benefits under 125 on a pre-tax basis also pre-tax for Puerto Rico residents?

Other benefits?

It is my high-level understaning Peurot Rican residents don't pay US federal income taxes

Therefore I am trying to understand the tax adaantages of offering a pre-tax flex plan

My boss wants to switch our company from a fully insured plan to a self-insured plan. We are small (7 employees). Basically, he wants to take the money the company is spending on premiums each year and dump it into an account for each employee. Each employee's "pot" of health dollars can be used for claims each year until it is used up. Thereafter, the employee must fund his own health care costs.

In addition, older employees have more put into their "pot" than younger employees. If an employee doesn't use his entire amount, he can roll it over to the next year.

I have several questions:

1. In general, I know that self-funded plans are not subject to the same amount of regulation as fully-insured plans, but my boss' design seems really strange. Can this kind of plan design even be done?

2. He says he wants to self-administer claims. Would a third-party administrator be feasible for a company as small as ours? If we self-administer, what kind of HIPAA privacy implications are there?

3. Does anyone know of a good TPA in Virginia for a company of our size?

I appreciate any and all insight you can provide. Thanks.

I understand that under EPCRS there is a $250 fee for SEP/SIMPLE filings. We have been approached with a situation as follows:

Company has a SEP plan; only the owners participate and they max out

Company adopted a SIMPLE IRA plan 3-5 years ago; only the employees are in it and the company does the matching contribution approach

Owners also apparently contribute to IRAs….

Could we file this situation under EPCRS using the $250 fee?

Could this be filed anonymously?

Any suggestions as to the best way to handle this?

Plan year is cal year. E/er (medical practice) to dissolve as of Nov. 1, 2006. Appears that if circumstances approach those that would allow for a funding waiver then the final short plan year would be treated as meeting the safe harbor 401(k) rules. I know the grounds for a funding waiver are generally tied to economic hardship, etc. of the e/er, but could the argument also be made that dissolution of the e/er is similar? As an aside the e/er is dissolving as the principals (doctors) will be employed as independent contractors(? says them?) by the local hospital and the e/er to dispose of all assets. Thanks for any feedback.

I was told by Fidelity that I could email our SAR's to our employees but I would need delivery notification. With 1800 employees that could be trouble for me and our IT department. Even if I do that how could I make sure that they all receive it. Anyone have feedback on this matter.

Also, Do I need to have return receipt when I mail them out to our terminated employees. Thanks

Assumptions:

Plan year is 5/1/02 through 4/30/03. Participant terminated employment 5/24/02 with zero vesting. Plan document says that terminated participant with zero vested balance is deemed to have taken a distribution. Forfeitures are allocated in year of distribution.

Assets are in a pooled account. Balance forward recordkeeping.

Question:

Forfeitures from this participant’s account have never been allocated. Is it permissible to go back to pye 4/30/03 and allocate the forfeiture and reallocate gains for all plan years since then? Can we “self-correct” using this methodology? Or would we need to go through VCP? We would need to reissue participant statements with corrected balances.

There was one participant that received a distribution in pye 4/30/05. His vested balance would be affected…he would be due an additional distribution.

Any comments are appreciated. Thanks.

If a safe harbor plan is frozen mid year - is a safe harbor notice required to state that the matching contributions are being discontinued? Please note that since the plan is being frozen - deferrals are being discontinued too - so there is not decision for a participant to make as to whether he or she wants to continue to defer into the plan. Since IRS Notice 2000-3 does not speak to termination or a frozen plan - I don't see how a notice would be required -- thoughts?

I have searched the plan document to no avail. A former participant is rehired after incurring a ten year break in service. Is the employee eligible to enter the plan immediately, or must they satisfy the plan's eligibilty requirement? Thanks for your inut!

A number of employers engaged in the same line of business in the same geographic area that are not part of a controlled group (although they have some common ownership) want to establish a multiple employer 401(k) plan. They have existing 401(k) plans. Will the creation of and the joining in the multiple employer plan be a merger of plans and/or transfer of plan assets requiring a Form 5310 filing? Same answer true for later employers joining the multiple employer plan? Thank you.

How do you fix a plan which has exceeded the incidental insurance benefits percentages (i.e. more than 49% of the amount of employer contributions for a participant have been used to pay premiums on an ordinary life insurance policy for that participant)?

Hi all - I have found an investment plan that appeals to me, but I want to make sure I am doing this right, any help is appreciated.

I have a Roth IRA through Vanguard that is 100% invested in the Vanguard International Growth Fund. I was wondering if there are any consequences to changing the fund to a GNMA Bond Fund or other similar Vanguard funds during periods I wish to have more security with my money.

My chief concerns are: are there any tax consequences to changing the fund, and do I have to report these changes as sales to the IRS, even though my account still would always remain a Roth IRA with the Vanguard company, regardless of the fund it's invested in.

PS - I understand Vanguard doesn't like these kinds of changes to occur too frequently, and there are penalties associated with the VIGF being redeemed too early, but I'm cognizant of these.

Thanks!

I'm afraid this is a stupid question, but I will ask, anyway.

When calculating a required minimum distribution, is the cash value of a life insurance policy which is part of the participant's account added to the investment balance for the calculation?

Thank you.

In a DC plan, the participant was divorced in 1991. He has no contact with his ex-wife. The ex-wife appeared in the divorce action pro se. Neither the judgment of divorce nor the Findings of Fact and Conclusions of law make any reference whatsoever to the participant's pension nor do they make an reference to any other property issues.

The participant wishes to receive his pension in a lump sum pursuant to the plan's terms. The member states in an affidavit that he cannot find his wife and does not know where she is and has not seen or spoken to her since November 1991. He further states that the last time he saw her he asked how she was doing and where she was living. She gave him her address and said she was thinking of going to Puerto Rico becuase her health wasn't good and because she had family there.

He has since gone to the last address where she lived and a few tenants said that the last time they saw her she said was moving to Puerto Rico. He has since provided the fund with an affidavit from a newspaper in Puerto Rico stating that he put a an ad in the newspaper which ran for two days asking his ex wife to contact him and stating that it was urgent. There has been no response to this ad.

Can the fund pay the participant his lump sum or does he need to do more to find his ex wife?

Is the failure of a plan administrator to provide a notice of early termination of COBRA coverage subject to penalties under ERISA 502©?

New start-up plan. Employer employs a number of seasonal employees. Generally hires them in March and then lets them go in October. They complete 1000 hours of service during that period. The employer then re-hires most of those same individuals back the next March.

Those employees hired back will have completed a year of service so a year of service for eligibility won't keep them out.

Have thought about reducing the eligibility service requirement from 1 year to 6 months and just one entry date (January 1) which would keep employees out since they wouldn't be employed on the entry date (1-1) BUT for those have completed a year of service (which is most) and are re-hired the next March, they will become eligible as of their date of re-employment regardless of the plan's entry date.

Plan won't pass coverage using ratio percentage test but haven't reviewed for ABT.

Any suggestions on how you may have dealt with these seasonal situations? Thanks

In a DC plan, the participant was divorced in 1991. He has no contact with his ex-wife. The ex-wife appeared in the divorce action pro se. Neither the judgment of divorce nor the Findings of Fact and Conclusions of law make any reference whatsoever to the participant's pension nor do they make an reference to any other property issues.

The participant wishes to receive his pension in a lump sum pursuant to the plan's terms. The member states in an affidavit that he cannot find his wife and does not know where she is and has not seen or spoken to her since November 1991. He further states that the last time he saw her he asked how she was doing and where she was living. She gave him her address and said she was thinking of going to Puerto Rico becuase her health wasn't good and because she had family there.

He has since gone to the last address where she lived and a few tenants said that the last time they saw her she said was moving to Puerto Rico. He has since provided the fund with an affidavit from a newspaper in Puerto Rico stating that he put a an ad in the newspaper which ran for two days asking his ex wife to contact him and stating that it was urgent. There has been no response to this ad.

Can the fund pay the participant his lump sum or does he need to do more to find his ex wife?

Any help would be appreciated.

Thanks.

JOEL L. FRANK

Retirement Analyst

PO Box 148

Marlboro, New Jersey 07746-0148

(732) 536-9472

New Jersey’s public employEEs are under the mistaken belief that their mandatory 5 percent contribution to their Annuity Savings accounts provides only a fraction of their lifetime pensions. On the contrary, a simple analysis reveals that the employEE may very well fund much more of his or her Defined Benefit pension than led to believe.

EXAMPLE 1: Assumptions: 62 year old member of Public Employees Retirement System (PERS); 35 years of service; starting salary of $8,000 with 6 percent annual increases; final average salary (FAS) of $54,720. The member is entitled to a Maximum pension benefit of $34,822 calculated as follows: 35/55 X $54,720. The Division of Pensions and Benefits establishes a Pension Reserve of $320,361 (9.2 X $34,822) to guarantee this member, beginning at age 62, $34,822 annually for life.

The employEE’s Annuity Savings account balance goes towards the funding of the actuarially required $320,361 Pension Reserve with the State making up the difference. The employEE, however, doesn’t know the balance of his/her Annuity Savings account because the account is never credited with the investment return generated by the multi-billion dollar investment portfolio that his or her Annuity Savings account is co-mingled with. If we assume an average annual rate of return of 9 percent over the past 35 years, at age 62, the Annuity Savings account balance is $177,841 which represents 55.5 percent of the required Pension Reserve of $320,361. The State guarantees the balance of $142,250.

Recognizing this deception public employEEs should, at the very least, have the option of rolling over their Pension Reserves to an Individual Retirement Account (IRA). It is a moral outrage to compel an employEE to accept lifetime annuitization ($34,822 annually for life) of a Pension Reserve predominantly funded by the employEE.

OF NOTE: In the event an in-service member severs employment before attaining 3 years of credited service a refund of his or her Annuity Savings contributions is made with no interest. Should an in-service member sever employment after attaining 3 years of credited service he or she is entitled to a return of his or her Annuity Savings contributions with 2 percent interest. Should an in-service member die after having attained at least 3 years of credited service the employee’s beneficiary(ies) is entitled to a return of the employee’s Annuity Savings contributions with 4 percent interest.

EXAMPLE 2: Assumptions are the same as Example 1 except the 62 year-old employee is a

member of the Alternate Benefit Program (APB). The APB is the primary (401(k) type) Defined Contribution plan for the staff at the State institutions of higher education. The APB requires the employER to contribute 8 percent of salary with the employEE contributing 5 percent. The employEE’s individually owned Annuity Savings account balance, at age 62, is $462,469 which is 44 percent more than the Pension Reserve requirement in example 1 ($462,469 divided by $320,361).

Bob

Sue

Is this a controlled group?

It seems that if Sue is in the tests then it is a controlled group, but if Sue is not in the tests because she owns 0% of A, it seems that it does not meet the effective control test.

Thanks for any input.

An employer maintains two plans; one for union employees and one for non-union employees. I can't find anything regarding coverage for maintaining two separate plans - only information if one plan covers both employee classes. I'm assumming that each plan would be tested separately for all annual testing - is that correct?

How come nobody is talking about whipsaw being eliminated with the enactment of PPA'06 (immediately). I have not had to do any cash balance distributions recently, but someone has......what is being done? What if, for arguement sake, a plan had a 3% interest crediting rate, would you just pay out that cash balance amount, forget about 417(e)? Are distributions being held up until guidance is issued and we are told what "reasonable rate of interest" means? How can you do that? Help!