1) To be used with the split funding method, what requirements must a life insurance policy meet?

2) Policy illustrations generally show guaranteed and non-guaranteed projected values at the end of each policy year. Is there a requirement to use one or the other projected values or can one use either?

Here is the situation I am dealing with:

A "participating" life insurance policy has the following features:

a) To avoid the policy becoming a MEC (Modified Endowment Contract), no premium payments will be permitted from year 8. So basically it is a high cash value 7-premium insurance policy.

b) The policy has 4-tier expense load: Tier 1 for year 1 thru 5, Tier 2 for year 6-10 and so on. Tier 2 is substantially higher than Tier 1 (ranging from 2 times Tier 1 to 5 or 6 times Tier 1), Tier 3 is lower than Tier 2 but higher than Tier 1 and Tier 4 is lower than Tier 3 but is still higher than Tier 1.

The guaranteed values are projected using the 4-tier expense load and as a result the projected guaranteed values go down from year 6 thru 10 and then start going up again slowly.

c) In reality, the insurance company stops applying the expense load after year 5.

d) Non-guaranteed values are projected assuming zero expense load after year 5 and yearly policy bonuses of x%.

The projected non-guaranteed values are much higher than the guaranteed values even after year 7 (when the premium payments stop) and continue to remain substantially higher in later years.

For someone with more than 7 years to NRA, can this policy be used for split funding method ? And if yes, which projected values should one use for split funding – guaranteed or non-guaranteed? .

My understanding was that for split funding, the policy premiums must continue to at least the NRA of the participant. Otherwise, what is to stop someone using split funding in conjunction with a single premium policy – and in an extreme case completely fund the plan in a single plan year?

Hi! I'm a FT pension admin for a small company (<100), 4 years of experience, in the process of finishing QKA designation and was wondering what other companies are paying? Thanks for your response.

A client's employee (the Partipant) will soon retire (and become eligible to commence receving pension benefits). A dozen years ago, a QDRO was entered that awarded his now former spouse 50% of his pension benefits, accrued through a date in 2000.

Now, the Participant is remarried. He wants to make a QJSA election with respect to his new spouse.

The client informed him that the plan is obligated to split payments with the former spouse.

Participant is angry.

I'm out of my depth here. Anyone have any thoughts.

Since the Alternate Payee has a right to only 50% of the pension as accrued through [specific month and day], 2000, would it still be possible for the plan to pay the Alternate payee her portion, but ALSO to allow a QJSA election on behalf of the participant and new spouse, only with respect to HIS 50% accrued benefit through the 2000 date PLUS all accruals after that date?

Thanks for any reality check anyone can provide.

I preface this by saying a FASB expert I am not. Now that we are clear on that, the plan has the following:

Unrecognized net loss: 1,000,000

Transition asset: 50,000

Reduction in PBO due to curtailment: 200,000

My focus is specifically on the transition asset as it affects the net periodic pension cost. I understand when determining if there is a curtailment gain that the transition asset is first netted against the unrecognized loss. Then the reduction in PBO is compared to the net to see if there is a gain. (1,000,000 - 50,000 = 950,000 > 200,000 - therefore no gain)

But for the NPPC is the net unrecognized net loss (i.e. 950,000) used to determine the amortization of the loss or does the transition obligation remain separate?

Thanks.

I'm having a discussion with our new HR director and we have a difference of opinion on the amount to which a participant in a Section 125 Plan FSA is entitled to if and when the participant terminates employment. Don't worry about COBRA for these purposes.

Assume Participant ("P") elects $2,400 of coverage on day one (January 1) of the plan year and will have $200 of compensation withheld from his paycheck on the last day of each month. As of March 31, P has had $600 of compensation withheld, and incurred no claims. On April 17, P got very ill because he owed so much in taxes, and incurred the full $2,400 of medical claims. Assume the claims will not be submitted until May.

Now, here is where I'm having a dispute or difference of opinion. My HR director agrees that if P continues to work for the employer and submits the claims for the April 17 services in May, the employer must reimburse the full $2,400 even though at the time of the claims submission in May, only $800 has been withheld. However, the HR director says that if P terminates employment on April 20 and then submits the claim in May, the employer "must" only reimburse the sum total of the year to date withholding ($600 - 3 months @ $200). Her position is that you can treat a terminated participant different than an active participant with respect to a claim that was clearly incurred while P was an active participant, if the claim is submitted after the termination of employment. Her position draws a distinction as to when the claim is presented (i.e., while employed or after termination), even though the claim was incurred while P was an active participant in the plan.

This evidently is the position of a national section 125 administrator. To me, it guts out the concept of a risk shift if the employer's potential liability is mitigated in this manner when the employee terminates. To me, it seems that all that matters is when the claim was incurred, and it does not matter if P was an active participant or terminated participant when the claim is submitted.

Is a 403(b) Plan the same thing as a 401(k) plan, just that its sponsored by a non-profit?

Do they have the same rules, limits, testing, etc?

Must a Code 4 (death) be used on Form 1099-R to report periodic annuity benefits to a surviving spouse? Or is Code 7 (Normal) more appropriate? The guide to the codes in the 1099-R instructions indicate the following for 4: use it regardless of the age of the employee/taxpayer to indicate payment to a decedent's beneficiary, including an estate or trust. But it also says to use Code 7 when no other code applies.

I think I have read somewhere that in J&S situations, the surviving spouse is to be treated the same as if he/she was the participant, meaning 7 might be more appropriate and I know of a number of plans that use this method.

It seems to me that either way, the IRS isn't going to care that much as neither code suggests the payments aren't taxable. I'm just wondering what's most appropriate.

For a new Plan effective 1/1/06, since there is no lookback year, only the determination year, who is an HCE for the first year other than the 5% Owner, if any?

We have a client that is considering a plan, but they have a lot of seasonal employes. Any ideas on how to handle those contributions?

For a first year 401(k) Plan, are there regs that allow a Plan to switch from ADP/ACP testing to a Safe Harbor during the Plan Year?

I have a participant who went out on Disability in 1/2006 and is expected to return in 7/2006. She has now called the Plan Sponsor and asked about taking a loan from the 401(k) Plan. If the Sponsor and Trustee believe that she can make repayments to the loan, can she take a loan?

Furthermore, if the Sponsor and Trustee do not believe that she can make repayments to the loan, can they stop her from taking a loan? If so, what documentation should I request from the Sponsor/Trustee?

Any thoughts would be greatly appreciated.

Regarding the same plan under audit in my last post - the employer still owes some 2001 matching contributions. The IRS agent wants it to fund the missing contributions, then put the plan through Audit CAP to avoid disqualification for "failure to operate in accordance with the document." I can't think of any statutory authority to support this, as long as the contributions are eventually made (or does the fact that the audit has been initiated create an artificial "deadline" that the employer has passed?). I don't believe there are any statutory deadlines for employer contributions, other than for the purposes of deduction and 415.

Also, the IRS agent wants to accrue interest on the matching contributions - again, I don't believe there is any requirement for this on employer contributions, only required by the DOL on employee contributions.

We have a plan under IRS audit - previously, the employer owed some unfunded required matching contributions, and the DOL instructed us to "forfeit" the trustees' accounts to fund those contributions. It did not instruct us to treat those amounts as taxable to the trustees.

The IRS says 1099-Rs should be issued, as the funds are considered "distributed" and then deposited to the plan from the trustees' personal finances. I disagree, as the benefits were treated as forfeitures and transferred within the trust, not actually distributed. In addition, though the trustees made pre-tax deferrals to their accounts, they will realize no personal tax benefits as they have forfeited those contributions.

I do realize that there may be problems with the corporate contribution deductions, if it took deductions for the trustees' 401(k) contributions, and again for matching contributions funded by those same 401(k) contributions... but that's not a plan issue.

Has anyone else encounted this issue with the IRS?

Thanks

Employer maintains SH plan with basic SH match, as well as fixed and discretionary matches that satisfy ACP safe harbor.

ER wants to discontinue fixed match. If plan is amended and timely notice provided to eliminate fixed match mid-year, e.g., 7/1/06, and fixed match is provided on deferrals from 1/1/06 – 6/30/06, will the fixed match be subject to ACP testing?

In the past, I've always been able to print out a listing of the required reading sections of the ERISA outline book....but I'm not able to locate the topic outlines with the required reading sections at asppa.org for the Spring 2006 DC-3 exam. Is there anyone who knows where I can find this info or has a copy of the prior reading listings from a past exam to help me study? I'd be extremely grateful!!!!

Thanks,

Vicki

What is the industry standard percentage withheld for automatic enrollment?

Do we have to write a new Plan Document every year?? Why or why not?

I posted this question on the Distributions Message Board, but no one seems to know the answer (or will respond). Since this is an annuity issue potentially involving the Norris case, perhaps I should have posted my question on this Message Board to begin with. Thanks, in advance, for any guidance.

A DC plan offers a single life annuity as a payment option. A participant has selected the single life annuity. Her vested account balance is about $17,500. If the DC plan elected to make the annuity payments itself, I believe, in order to comply with the Norris decision, it would have to compute the payments using sex-neutral mortality assumptions. Instead, the DC plan wants to purchase an individual annuity contract from an insurance company it selects (which is essentially what happened in the Norris case).

The largest monthly quote that we obtained from an insurance company provides the participant with a monthly payment of about $120 for life. However, the quote is based on a female-specific mortality table. A female-specific mortality table generally assumes higher mortality (higher when compared to a male specific mortality table) which means that a female recipient is presumed to live longer than a male and, as a result, to receive a smaller monthly payment than an identically-situated male would receive.

Is the DC plan required to purchase an annuity based on a sex-neutral mortality table? I don't know whether the Norris decision applies to the purchase of an annuity contract? Although, if the DC plan would have to make the annuity payments using a sex-neutral mortality table, it seems to me an annuity contract purchased from an insurance company would also have to use a sex-neutral mortality table (otherwise, the purchase of an annuity would be an easy end-run around the Norris decision). Can anyone help me here? How are other TPAs handling this issue?

A lawyer I spoke with says Norris doesn't apply--he didn't/wouldn't tell me why. An enrolled actuary I spoke with told me that Norris applied, but that virtually no insurance companies provide individual annuity contracts using unisex mortality assumptions.

ok, here is another use at your risk

this report should list anyone with deferrals, match or profit sharing.

it will indicate 415 comp and allocation comp, and show % of pay based on allocation comp. it will inicate ees who have different comp with **. e.g. ees enter midyear.

will also inicate hours if < 1000 and status if terminated. thus some ees may show with deferrals but 0 profit sharing due to last day or hours requirement.

DOH is also indicated if 1 year before plan year begin.

for example plan may have immediate eligibility for deferrals but 1 year wait for profit sharing. these ees will show with 0 profit sharing if they deferred.

sort by division, so if you run cross tested at least people are in groups.

well I'm sure it can't catch everything, but worked well on the last plan I ran.

I have a participant who has a loan and is currently out on their second leave of absence. Their one year was up in March and their current leave of absence began in April. Both leaves are medically approved.

Has anyone ever had this and how did you handle it?

I have looked at 72(p), but I do not see specific language addressing back to back Leave of Absences and whether or not you can grant another year of not making loan payments.