I am 22, been at my current job for just over a year.

I enrolled in their 401k when I started because they match 3,000 a year, I currently have about $8,000 in my 401k.

My question is, since I am so young, should I simply continue contributing the 9% I do to the 401k, which comes out to me contributing just over the 3,000 they match a year (9% x 38500 = 3465) or knock it down so I just contribute 3,000 and put the difference in a Roth IRA?

I could afford to contribute more, but should it go to the 401k or an IRA?

I am also looking for a broker/bank that will allow an IRA with no minimum, so I could perhaps just do a few hundred $ a year into it, is that possible?

2005 5500ez instructions say...

"Effective for calendar plan year 2005, filers of Form 5500-EZ will not be required to file any schedules or attachments (including the Schedule B (Form 5500)). Filers, however, will be required to collect and retain completed and signed Schedules B and P, if applicable."

I also saw a reference to an Asspa asap that stated.. "Also, IRS sources have confirmed to ASPPA that filing a Form 5500-EZ without a Schedule P will nonetheless start the statute of limitation running on the plan filing."

So it seems that one does not have to file the B and P anymore. However, sometimes you guys and gals out there come up with compelling reasons why you think it should be filed anyway.

So what are you people doing with your clients? Are you having them file the B & P with the EZ? If yes, then why?

Is it mathetically impossible that an FSA would ever have to offer COBRA in a termination of employment situation if the employer makes no contributions - only salary reduction contributions go to the plan and only the amount of the salary reduction can come out? Assume all the other requirements for the FSA not offering COBRA are met. What I'm getting at is that if the COBRA premium is 102% but the most the employee can get is 100%, then it would never be possible for such an FSA to have to offer COBRA.

As I am writing this question, it now seems to me that it is a mathematical possibility - if the employee has submitted no claims for the year - but I'm confused so thought I would post it anyway. Thanks for the insights.

Revenue Ruling 2003-43 states that one way to recover an improper charge on a debit card is to offset the improper payment against a proper charge "during the same coverage period." What if the improper payment was in late 2005, and it is not discovered until 2006. (Assume no grace period.) Can the plan offset the improper payment against a properly substantiated charge in 2006? If this is done, the overall effect in the two year period seems right, but the result is that (1) the employee was able to exclude from income an improper expense in 2005, and (2) the employee was able to use money that was pre-tax in 2006 to repay an indebtedness to the plan which arose in 2005.

Section 115 trusts are being touted as the solution for GASB 43 and 45 funding by several mutual fund and insurance providers. Will these trusts be usable for reduction of accrued liabilty for GASB purposes? I have issues with these trusts, primarily since little seems to be know about them except the claims made. Any help or sources?

We would like to amend our (k) Plan to increase the population that is eligible to receive the 2005 profit sharing contribution. Revenue Procedure 2005-66 (generally deals with EGTRRA amendment timing) says a "discretionary amendment" must be adopted before the end of the plan year in which the plan amendment is effective. A discretionary amendment is defined as an amendment that is not required by EGTRRA. Rev Proc Part II, Section 5.05(3) is definition of discretionary amendment). This provision would prevent us from amending the plan in 2006 effective back to 2005.

Does anyone think Revenue Proc. 2005-66 requires all "discretionary amendments" to be adopted prior to the end of the year in which effective ? (regardless of the amendment timing provision of 401(b))

I spoke with an IRS agent on this issue and he claimed the Rev Proc "discretionary amendment" definition was only meant to apply to amendments optional under EGTRRA, not any plan amendment that was not required by law. The Rev Proc. is not clear.

Any insite is apprecitated. Thanks.

We are trying to assist a bankrupt company with the last few distributions from their terminated DC plan.

They have a few participants with balances under $1,000 that cannot be located and the custodian of their current funds does not have an auto rollover program, even for the $1000+ range and the IRS forwarding program has been tried without success.

Would it be best to forfeit the small balances and have the employer use the forfeitures to pay fees or just have the trustee hold onto the balances in case the missing participants ever show up?

If we can find an administrator that will accept rollovers of low balances could the fees be charged to the plan?

Any help or suggestions would be greatly appreciated.

For years I've thought I understood the SEP coverage rules regarding service, but now I'm not so sure.

IRS Code Section 408(k)(2)(B) says that participation requirements are satisfied for a year if the employer contributes to the SEP of each employee who "has performed service for the employer during at least 3 of the immediately preceding 5 years"

I have always assumed that the year for which the contribution is being made is one of those five years. So, for example, if Employee A performed services during 2003, 2004 and 2005, the employer would have to cover him for the year ending 12/31/2005.

However, I noticed in an outdated version of IRS Publication 590 (which covers IRA's) the coverage requirement described as "has worked for the employer during at least 3 of the 5 years immediately preceding the tax year".

The current Publication 590 doesn't discuss SEPs, and the current Publication 560 (Retirement Plans for Small Businesses) uses the phrase "has worked for you in at least 3 of the last 5 years".

So does "immediatly preceding" mean before the start of the tax year for which a contribution is being made? Has anyone found anything else that clarifies when the 5 year period falls?

John Hancock used to process distributions with our (TPA) signature, or the sponsor's signature, but without the participant's signature, for up to $5,000. Now I'm being told that we need the participant's signature if over $1,000. The (new) rep was quoting something that referenced the direct rollover rules, eff 3/28/05, and I'm not sure if she was confusing the new law with John Hancock's requirements.

Can anyone confirm that Hancock changed their policy and dropped the max paid w/o participant sig to $1,000?

Is is possible for an HCE to opt out of a DB plan (without making it a CODA) and still participant in a DC plan? If not, what is the citing/authority. Thanks in advance.

I have a client that did not make the required 401(a)(9) distributions for the 2003 calendar year. The missed distribution amounts were $2,000 to NHCE’s and $6,600 to HCE’s (> 5% owner). The distributions ended up being made on January 26, 2004. To my knowledge, none of the participants reported the late distributions and paid the associated penalty tax. Also, no VCP filing was done.

The plan has received notice from the IRS that the 2004 plan year (calendar year) will be audited. I am sure the IRS will have questions about the distributions that were made in January and I am at wit’s end trying to figure what can be done, if anything.

Anybody have any suggestions on what we can be done at this point or do we just wait and see what the IRS says and go from there?

Thanks for any thoughts.

I wrote a seven-page paper, and I am planning to add a set of numerical examples, entitled "Theories of Dynamic Actuarial Optimization." It includes everything from Social Security, other entitlements, and long-term care insurance, to a specific Dynamic Programming mathematical model for optimal retirement (DB as well as DC) plan design.

I would like to submit this for the 2007 Gray Book for the 2007 EA meeting, as well as possibly get Core Credit for having done all of this. Does anyone out there know how I can go about doing this, and to whom I ought to send it for review and approval? Thanks! Carol Caruthers, MSPA, EA

Please review topic under the 401(k) board and respond - I'm trying to build a provider list.

Thanks.

401(k) Board Topic Link

Posted for a collegue:

QUESTION

"IF you have non-deductible carryovers from prior years that were the result of amounts necessary to meet 412 minimum funding (but greater than net compensation for those years), CAN you deduct these amounts in the current year IN ADDITION TO the 412 minimum funding amount for the current year (even if the total is greater than the otherwise determinable maximum under 404) AS LONG AS the current year's deduction is no greater than the current year's net compensation?"

COMMENT

We think the answer is YES, because of the language in 404(a) which says (emphasis added):

"contributions…..shall be deductible under this section, subject to the following limitations…in an amount determinated as follows:

404(a)(1)(A)(i) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior plan year), if such amount is greater than the amount determined under clause (ii) or (iii) (whichever is applicable with respect to the plan)"

Thanks for your comments.

Is a prepaid legal services plan that is funded solely by a portion of fees collected by a union, not an employer subject to ERISA?

It is intended that those union members who choose to participate will contribute a flat fee per month, a portion of which will go towards funding this plan.

If I'm not mistaken, as long as participation is voluntary, there are no employer contributions and the sponsor is the union and not an employer, it is not subject to ERISA.

Please advise if I am correct.

Thanks.

Under 1.401(a)(4)-5(a), a plan cannot be amended in a way that discriminates significantly in favor of the HCEs. THis is based on relavant facts and circumstances. Does anyone have any guidance or opinion with what the IRS would view as significant or insignificant here?

Here's the situation: the plan requires 1000 hours for a year of vesting service, they have 5 HCE doctors and 9 or 10 NHCEs. They usually have 1 to 3 NHCES leave each year and they are replaced by rehires. This year, 1 doctor left with under 1000 hours and was only 80% vested, the 20% nonvested portion is over $40,000. Two of the other 4 HCEs are still not yet 100% vested either, but they're still working. Some of the NHCEs are fully vested, some are not.

Would it be a significant favor to the HCEs if the plan is amended to only require 200 hours for vesting only for 2006? (Assuming 1 or 2 nonvested NHCEs also leave with over 200 but under 1000 hours)

Or would it be a significant favor to the HCEs if all participants' vesting was bumped up by one year (this would now increase 3 HCEs, not just one, but it would help several NHCEs).

Any other ideas?

Consider the following data for a participant (with completely made-up numbers that may not make sense):

Monthly Accrued Benefit BOY: $100.00

ABO last year: $2,000.00

PBO last year: $5,000.00

Termination date: October of year, after benefits have been earned

Vesting %: 20% BOY, 40% at termination

Monthly Accrued Benefit @ term: $150.00

ABO, PBO end of year, $2,500.00

ignoring partial vesting:

Questions

1) what benefit is used for the ABO increase for the year? $50? Or $-40? ( $150.00*.4 - $100*1) Is there any guidance in FAS 87 as to whether you can have a negative ABO increase?

2) What is the PBO and ABO as of the valuation date of December 31st (after the October termination) for this particular individual? $2,500, or 40% of $2,500? Any guidance on this?

I believe these questions are dealt with under FASB 88 - correct?? Somehow, the prior ABO/PBO numbers are adjusted so that at the end of the current year (when the vested accrued benefit is only 60.00).

Any takers on the proper method of calculating the decrease?

Have a health care reimbursement account for 2006. Terminated employment with employer on Jan31st of 2006. By that time I had "deposited" $ in my HCRA. In mid Feb, made claims exceeding the amount in the HCRA which fell into 3 categories:

1. Expenses incurred 1/30 or prior

2. Expense incurred 1/31 (my last day)

3. Expense incurred 2/8

HCRA administrating company paid:

1. All

2. Denied saying "incurred following account cancelation"

3. Denied, same as #2

I called them, they agreed #2 was an error but were unclear as to why #3 would be denied saying something about "termination" but unable to point to law or prior supplied information that would support that view.

Neither the company information packet nor the administrator's web site speaks to any restrictions other than the well known "use it or lose it" restrictions. And I had though that, while my termination might stop any contributions, any expenses incurred during the plan year would be eligable to be reimbursed from what had already been "deposited" into the HCRA account.

Insights anyone?

Do these forms need a signature or was this requirement suspended in 2005?

If my plan document has me eligible for my pension at 10 years credit service, what good does it have me vesting at 10 continuous years under my welfare plan