Group elects 2.5 month extension (calendar year plan) but the person trying to file 2006 service dates (medical reimbursement category) against their 2005 plan did not actually re-enroll in that category (they are only doing pre-tax premiums) for the 2006 plan year. The SMM does not give specifics about enrollment for the new plan year but it seems logical that they have to be participants in the new year in order to accept the claims and then give them the option to claim it against old plan year or new. Any thoughts?

Can a non-Erisa 403(b) be switched over to a PS/401(k) plan if the company in question is a non-profit?

Thanks,

James

Target maturity funds are the "new thing" in the mutual fund industry. Since many folks just getting started scan this message board for advice, I want to post something about these kinds of mutual funds.

The concept behind these funds is simplicity for the customer. Just pick a fund that matches the year you expect to retire.... 2055, 2045, etc. The maturity year fund will start with shift the balance between stocks and bonds. In the early years the portfolio will include a higher percent of equity (stock) holdings, perhaps as high as 80%. As you get older, the fund will automatically shift towards a greater percent in bonds, even as high as 80% for some of these funds. Its all automatic, its simple, its easy.

What could be wrong with this approach? Well, I am not a big fan, and here are my concerns:

1. Do you really want 100% of your retirement assets in just one fund?

2. Anytime someone says "easy" or "simple", keep you hand firmly on your wallet. Some of these maturity funds are funds of funds with high imbedded fees. You best hope would be with the Vanguard version. What is even more rediculous is that many of these new packages are being sold via commissioned agents - aka LOADED funds.

3. You just can't "set it and forget it" with investing. The implication in the way these funds are marketed is that your on autopilot. It is foolish to think that you can have hundreds of thousands of dollars in a mutual fund that does not need to be monitored. That you don't need to periodically evaluate the performance of your fund.

4. While notching back on risk as you get older is a widely accepted concept, you better look very carefully at the percents used. Going with 80% bonds when you are 65 seems way to conservative since you could readily live three decades. And some of these funds start you at 60% equities, which is probably too conservative if you are in your 20s. Automatic percents vary by fund family and are based upon your assumed retirement age - no one asks you if you got started late, your retirement needs may be higher/lower than average, or how well you tolerate risk. And, these "lifecycle" or "lifestyle" (other industry names for this catagory) have no knowledge of how any other retirement assets (401k, 403b, pension, etc.) are invested.

My conclusion: think twice about the alure of the marketing hype about these funds. Am you getting dinged for higher fees and expenses? Does the rigid formulation match your needs? How does this fund match up with my other investments?

I think that most people would do very well choosing a few NO LOAD and low expense funds - perhaps a combination of index, growth, value and bond funds and handling their own "mix". Remember, these funds only address on issue - the balance between fixed income (bonds) and equities (stocks) which is called asset allocation. When you are just getting started and know next to nothing about investments, perhaps these funds put you at ease. But, please don't buy into the "simple" part. Successful investors never give up on the thinking part!

I invite folks who have choosen these funds to post.

The deadline for making corrective distributions of excess deferrals is April 15. April 15 in 2006 falls on a Saturday. Since April 15 falls on a Saturday, is the deadline extended to Monday, April 17?

The final Roth 401(k) regs make it clear that a 401(k) plan that wishes to add the Roth option must allow participants to make both pre-tax 401(k) contributions and Roth 401(k) contributions, but this requirement could mean two different things:

1. At any point in time, a participant may make either pre-tax 401(k) contributions or Roth 401(k) contributions (but not both); or

2. At any point in time, a participant may make some pre-tax 401(k) contributions and some Roth 401(k) contributions.

The first interpretation works if the requirement is that over the course of the plan year a participant must be allowed to make both pre-tax 401(k) contributions and Roth 401(k) contributions. The second interpretation works if the requirement is that as of any given deferral a participant must be allowed to make both pre-tax 401(k) contributions and Roth 401(k) contributions. I don't know which interpretation is correct, but a need has arisen to resolve this issue.

One of my clients has been told by their lawyer that it is OK to implement the Roth 401(k) rules so that at any point in time, a participant has the option to either make a 100% pre-tax 401(k) contribution or a 100% Roth contribution, but that the plan does not have to give the participant the option of designating, for example, 40% of their deferral as pre-tax and the remainder as Roth. The lawyer obviously thinks that the first interpretation is correct. Has anyone else thought about whether the requirement in the regs supports the lawyer's position? Does anyone think the lawyer's position is unreasonable?

Thanks in advance for any help!

We have a self-funded health plan that has premium only under the cafeteria plan. There is not a FSA only a health plan. The company is changing from a corporation to a Limited Liability Corporation. Does this cause the partners to be ineligible to participate in the self-funded health plan or are they just excluded from the pre-tax cafeteria plan? Does it also exclude their spouses and other dependents from the health plan?

I was hoping to be able to put some Roth IRA funds in I Bonds. I checked the Treasury Direct website but there was no mention of putting Roth IRA funds there so I guess I can't. Can anyone recommend a similar investment -- safe, easy, no fees, good return. I'm guessing maybe I could look at CDs. Thanks.

If a Plan Sponsor fails to provide SARs to Plan participants for many years, is this violation of ERISA § 104(b)(3) only subject to penalties by the Secretary of Labor, or can participants also bring an action for civil damages?

Section 502©(1) of ERISA seems not to provide participants with this remedy, just only for documents requests and sections 101(e)(1)[notice of transfer of excess pension assets to health benefits accounts] and 101(f)[multiempoyer DB plan funding notices]. Am I missing something?

A participant dies following his divorce. Prior to the divorce, the participant had designated his spouse as the primary beneficiary of 50% of his vested account balance and another person as the primary beneficiary of the remaining 50%, but he did not get his spouse's written consent to that desigation. (The plan is not subject to the annuity rules.) The participant does not change his beneficiary designation after the divorce, he does not remarry, and the plan does not automatically invalidate the designation due to the divorce. Does the lack of spousal consent to the beneficiary designation invalidate the entire beneficiary designation? Or does it only invalidate the portion that related to the non-spouse beneficiary?

Client is looking to buy a condo using IRA funds. From what I've read on topic the benefit is only there for ST or flipping opportunities as the laws preclude any sweat equity gains from occurring. And also understood that associated costs (property manager, appraisals every 2-3 years, and trust expenses) make this a difficult asset to own....UNLESS renter is known commodity (ie propertys best interests are maintained). Does the fact that a property manager and outside agents are hired for other positions allow the client to rent to someone who would otherwise be a prohibited party? ie his daughter.

Whole thing makes no sense to me but he's more concerned about diversifying his portfolio, while at same time getting into rental property without having to deal with unacceptable tenants, then he is at making money.

What other things must he consider? Would it be different if it were a 401k investment rather than an IRA? Seems to me rules remain the same, but as trustee he would be able to avoid trust expenses but appraisals and property management expenses are still there.

Anyone else doing this?

We have an employee who took a hardship in 2005 but was not suspended from contributing. I understand that the IRS has indicated that their preferred method of correction is to forfeit the deferrals and then make the employee whole outside of the plan in an upcoming paycheck, thereby avoiding any distribution from the plan. How would this work in practice? Would the W2 be amended for 2005? I am just trying to think through the logistics of this whole thing.

does anyone have a SIMPLE IRA calculation worksheet, or link to one, that will help show accountants how to correctly calculate the maximum contribution for self employed (sched C) individuals? I've been using an old SEP-Qualified Plan worksheet and keep modifying it.... there must be something quicker/easier.

please advise.

May Individual Insurance Premiums be reimbursed thru a FSA?? HELP!

OK, If no changes to the proposed 415 regs (hopefully there will be), we know the proposed regs "clarify" that the high-3 415 comp limit is based upon "participation" for those plans adopted after the effective date of the proposed regs (May 2005). Anyone have any thoughts on a situation where a new plan adopted in Dec. 2005, but which has an offset to the 415 limit for a prior DB plan sponsored by same employer, can continue to use the old previously established 415 high-3 comp limit even though the new plan not adopted until Dec. 2005. For what it's worth under old plan the distribution was far below the 415 limit. I plan on using the 2005 proposed regs offset approach to the 415 limit.

The sponsor does not contemplate drawing as high of salary under the new plan as under the prior DB plan so he'd prefer to use the previously established high-3 average. I don't see where the proposed regs address this combination of events for the new DB plan's 415 high-3 limit, but if anyone knows differently, please let me know.

Employer runs a SEP on a calendar year and funds the SEP in 2006 for the calendar year 2005 .For which year is a person considered an active participant for IRA deductibility purposes, 2005 or 2006?

Interesting question came across my desk from one of our advisors . . .

His client, a Non-Profit with only 2 employees (Exec Director & P/T Assistant), established a Non-ERISA 403(b) 2 years ago, nearly to the day. Only the Exec participates in this and is eligible for benefits.

Our advisor told the Non-Profit to gross up Exec's salary so that Exec could make the full deferral. Instead, the Non-Profit did not gross up the exec, and made all contributions employer contributions.

My questions is, what is the best way to fix, or is it even a problem?

Would restating the plan as something besides a Non-ERISA 403(b) (like 401(k) Profit Sharing) prevent damage to the Exec and/or Non-Profit?

Any advice on this would be great as this is a tough one.

Thanks,

James CFP

Is it permissible to set up groups based on age?

For example :

Group A : HCEs

Group B : NHCE < age 40

Group C: NHCE > age 40?

Can we do this for HCEs as well?

We have a plan which did not correct excess contributions within 12 months after the close of the plan year.

An acceptable correction method under EPCRS is to return deferrals to the affected HCEs and contribute a QNEC for the same amount to the NHCE group, this is known as the one-to-one correction method. Cite is EPCRS, Rev. Proc. 2003-44 Appendix B, Section 2.01(b) (page 53-54).

EPCRS further states:

The QNEC contribution is allocated to the account balances of those individuals who were either (I) the eligible employees for the year of the failure who were not highly compensated employees for that year or (II) the eligible employees for the year of the failure who were not highly compensated employees for that year and who also are not highly compensated employees for the year of correction.

Alternatively, the contribution is allocated to account balances of eligible employees described in (I) or (II) of the preceding sentence, except that the allocation is made only to the account balances of those employees who are employees on a date during the year of the correction that is no later than the date of correction.

Regardless of which option the employer selects, the contribution is allocated to each such employee either as the same percentage of the employee's compensation for the year of the failure or as the same dollar amount for each employee.

Does this mean the QNEC is given only to NHCE with account balances or to any NHCE who is eligible?

So far, we've learned that Charles Schwab includes the 401(k) or employer sponsored retirement plan investments against unauthorized transactions with limitations and conditions (of course) for protection of login ID and PIN# security by the participant/investor.

Wells Fargo does not cover brokerage and investment accounts in their "Online Security Policy."

We're asking Fidelity, and several others, but I thought this would be a timely and appropriate topic for discussion.

Have any of your clients asked for a guarantee against un-authroized transactions and distributions?

Thanks.

Plan processed a lump sum cash distribution (eligible for a rollover) but did not withhold 20% mandatory taxes. 1099-R reflects no taxes withheld. How should plan correct?