Hi - appreciate some guidance.

Background: Company A spun off from Company B third quarter 2005 (stock sale). Company A was a wholly owned subsidiary of Company B prior to the spin off. Company A's employees participated in Company B's 401(k) plan prior to the spin off. Company A established a new 401(k) plan effective with the spin off and assets and liabilities of Company A's employees were transferred to the new plan immediately after the spin-off date. Subsequent to the spin off, Company A and Company B are no longer related employers. Company A is the same corporate entity after the spin off as before the spin off and Company A's employees before and after the spin off continued with the same employer. Company A's Plan Year in the document is defined as calendar year (same as Company B's plan year).

What period of compensation and contributions is used for:

ADP/ACP & 415 testing for 2005? Partial (effective date of plan to 12/31/2005) or full year (1/1/2005 - 12/31/2005)?

What period of compenation for the lookback year (2004) is used for determining who is an HCE for 2005 testing? Partial or full year?

What period of compensation is used for determining who is an HCE in 2005 for 2006 test?

Thanks.

When I am able to start withdrawing from my Regular IRA without penalty (in about 2 years) I am considering putting the distributions into a Roth IRA and so avoid taxes on any further growth of this money. Am I permitted to do this?

I have two scenarios to pitch.

First, my wife is in a small company where they would like to set up a SIMPLE IRA. Only her and her two brothers (the owners) would participate in the SIMPLE. They would like to set up the plan and contribute the maximum amounts for the 2005 tax year, via bonus checks backdated to DEC 31st. Is this possible? I know the IRS requires the program to be in place before OCT 1st of 2005 in order to notifying all employees of the plan. IS there a way around this, (for example, could they create a form dated earlier in the year and have each employee decline participation?) (FYI: they have maybe 15 other employees none of which would participate when asked, as many of them make so little, and may very well be illegal aliens, this issue is a constant battle for my wife, since they supply fake ssn, and the social security administration takes their payments till the end of the year, then informs her that the numbers are not valid, and do not return the money. (Whole other topic, sorry!))

Second, if they cannot create the plan in the previous year(by dubious means I know!), can they elect 100% employee deferral and each receive a bonus check of $10,828.37 which after taxes would meet their 2006 contribution limits for the year? Afterwards, would the company still match their payroll checks throughout the year by 3% since the $10,000 will work out to be much more than 3% of their overall compensation?

Finally, they are trying to use Ameritrade to be the designated financial institution. Has anyone tried to use them? They aren't set up to receive payments electronically, and I'm not sure they would even track employee vs. employer contributions. Although, I do believe they must file with the IRS the total contributions made for each person in each year, is this correct?

Thanks

My wife and I are buying our 1st home (a condo in florida) In 2000 while living in NY my wife changed

employers and rolled her 401k into an established roth IRA (one year old at the time) The money was invested in a money market account at our savings bank. In March 2004 she transfered the money into a

five year fixed annuity. We now need to liquidate the majority of this investment to buy our condo. Can we

access this money? If so, at what cost(taxes fees etc). Does the calculation of the 5 year period start when she opened the original Roth IRA at the bank or when she switched to the annuity

Hello,

About a year ago I was looking around on this site and came up with what I want to invest in for my Roth. I believe it was with the help of John G so thank you.

I opened a roth with fidelity FCNTX I believe it is called Contrafund, I put $3000 in it in February and it is at $3604 as of today. I think that is great progress. I have also a roth with franklin templeton which is divided up between 4 funds and the initial investment was $2000 and after 3 years that is worth $2756 which is great. I pay no fees for any of these.

My question is this, I will have $4000 after I get my tax check back this year again and it is perfect for me to invest in roth's because I get the total investment taken off my income for child support that I pay and this way I get to invest it and give it to kids when older. Works great. Anyway....

My question is this, should I put the 4k into the contrafund or do you have any other ideas? The money I put in will stay there for 20 more years so this is long haul. I am 38 and single.

Thank you in advance for your ideas!

The DRO states that "Alternate Payee may elect to receive from the Plan the amount in the separate account in Alternate Payee's name in any form avaialable to Participant under the Plan at any time after the separate account has been established for the Alternate Payee's share."

I read this to say that since the Participant is still employed, the alt payees options would be for whatever the plan options are for an in-service withdrawal, which in this case is none.

Do you agree? Why or Why not?

My client is very concerned regarding a terminated employee who has just recently left employment and she is aware of a pending divorce. The plan does not have J&S, therefore, no spousal consent required. The attorney's for the spouse have called inquiring about insurance benefits, but nothing regarding the plan. I told her until the actual QDRO is presented,(it in fact one will be presented) she cannot hold back payment of the benefits to the employee(he elected to roll to an IRA). She wants to know if QDRO's can be paid from IRA's. Can they be? This client is 100% by the book and does not want to do anything incorrectly that would at a later date come back to them. Thanks.

Linda Michals

Would some kind soul tell me if I am over-thinking, over-testing this:

A owns 51% of C and 49% of D

B owns 49% of C and 51% of D.

A and C participate in one multiple employer plan.... Plan 1

B and D participate in a separate multiple employer plan.

In Plan 1:

The compensations/contributions/accounts of A must be tracked separately from C.

A and C must test minimum participation separate from each other

Coverage and discrimination testing must be run for A, separately for C within the plan, and then separately for C and D.

Our pension plan has an early retirement provision at age 55, with benefit reduction of 50%. NRA is age 65. We had a former employee with a grievance and went to court in 1995. The attorney of the former employee produced an agreement where, among other things, requires the plan to pay the NRA benefit at age 55 (without reduction). This is just a brief over view of the situation and the question is "can a US Federal Court Order mandate a pension plan to make payment not available or different from that in the document?"

I was wondering if anyone has ever looked at the issue as to whether or not a Canadian citizen can serve as a trustee of a pension plan established and maintained in the United States? This is a pension plan covering husband and wife. I'm guessing that maybe a US financial institution might haver some rules on this subject, but I was unable to find any authority on this issue. Thanks in advance for your assistence. Ed

IBM has announced that it will freeze accruals to its DB plan beginning 2008. Last year IBM closed participation in the plan to new employees. IBM had added 6B in assets in the last 4 yrs to fully fund the plan and has an exposure of up to 1.4B arising from a judgment involving its cash balance plan. IBM's pension plan with 48B in assets is the third largest in the US after GM and GEs plans. The DB plan will be replaced with a 401k plan which will provided fixed contributions to participants in addition to matching contributions. IBMs stated reasons for freezing the plan is that the low rate of return on long term interest rates added 100M to the cost of the US plan in 2005 and increases in life expectency created unexpected future costs.

IBM's trasurer said "These plans were never designed to cover obligations that run as long as people are now living. Its important for companies to take actions to deal with this before these plans drag them into trouble. "

Here is something I thought was interesting. A plan that uses prior year testing fails to correct by the end of the following year. Normally you can't use QNECs to correct for a plan that uses prior year testing. The EPCRS says you can use QNECs to correct the failure to correct the ADP failure. Am I missing anything?

If a 401k plan that uses the 3% NEC safe harbor terminates during the first month or two of the plan year, is it OK to base the 3% contribution on compensation for that short period, or are there a minimum number of months of compensation that must be used?

In general, what form of benefit is offered to participants who are starting to receive MRD's? Does the Plan Administrator choose, or is the participant given a choice? Is spousal consent required no matter what the form of benefit? Previously a plan was automatically giving participants the joint & survivor form, if married, as MRD, but it has been decided to now give Single Life to new MRD's. Also, if a participant decides to take the MRD, must the participant make that election? Or rather is the election required to defer benefits and none necessary to receive?

After 22 years of doing ADP tests I stumbled on a new twist!

Another TPA firm is using Statutory Exclusions in the year in which a previously eligible employee terminates. That is, an employee has been in the plan for several years, but since they worked under 500 hours in the year in which they terminate they are treated as statutory excludibles.

The TPA refers to the statutory excludible regs.

Now I know you can do this BEFORE an employee is required to be in (21/1 etc), but AFTER satisfying the rules?

Willing to learn.

I'm having a contradiction with my manager regarding this issue, maybe you can help

Profit sharing plan, 1000 hours requirement to receive PS allocation. One participant became disabled during 2005 and had worked only 600hours. The plan adminsitrator really wants to give this guy a PS by waiving the 1000hours requirement just for the disabled employee. Isn't this discriminatory?? I say yes, my manager says no, the plan adminsitrator can do that if they want to.

Thanks.

I have been hearing of some "new" eligible FSA expenses such as cough syrup, bandaids, otc Clariten, etc.

Is this correct? Even if true, mustn't it be prescribed by a doctor? Is there a new IRS bulletin to this effect for 2006? Didn't see anything like this in Publication 502 for 2005 returns.

Thanks!

We have two employers, let's call them Employer 1 and Employer 2, sponsoring plans under the same multiple employer 401(k) plan.

The employees of Employer 1 are being transferred to employment with Employer 2. Employer 1 is merging its 401(k) plan with Employer 2's plan at the same time as the employment transfer. All of the employees -- except for a couple -- are working in the same place, doing the same thing, but their official employer is changing, and their plan accounts are merging with Employer 2's plan accounts.

The question is - what do we do with the accounts of the couple of employees that are staying with Employer 1? The Employer 1 plan doesn't exist any more! These employees can't be participants in the multiple employer plan anymore, because Employer 1 isn't related to Employer 2; these employees didn't sever from service though - their plan left them. They're still with the same employer. The plan didn't even terminate - it merged. Can they be paid out? The plan provisions don't really provide any guidance for this situation. In the meantime, their accounts have been merged into Employer 2's plan.

Thanks!!

We have a full-flex plan that allows for employer nonelective contributions as well as a FSA account (one full plan w/ IRC and ERISA benefits). Employer nonelective contributions may only be applied toward insured benefits under the plan (health, dental, ltd, etc.) and employee salary reduction amounts are used for the FSA. Right now we offer eligibility to employees after 30 days of employment (they receive the employer nonelective contribution). Also, if an employee elects not to participate, we pay them the amount of flex credits (employer nonelective dollars) as taxable compensation spread throughout each pay period.

Could we modify this so that if an employee elects not to participate, he/she is not provided (and taxed) on the nonelective flex dollars (i.e., if you choose not to participate then no extra amont is paid to the employee and therefore no taxable amount to the employee).

Also, for employees that do not use all of the flex credits (nonelective contributions), could we provide in the plan that the employee does not receive the non-used flex credits as taxable compensation (i.e., if the employee is given 500 flex credits/nonelective employer contributions - and only uses 300 of them - can we say that the employee has rejected the 200 unsued flex credits/nonelective contributions and that they are not paid out to the employee in cash and are therefore not taxable income to the employee).

Or is this wishful thinking?

I'm looking at 1.125-1 (Q/As 5, 6 and 9) and 1.125-2 (Q/As 2 and 4) that seem to say (in my novice interpretation) that once the employee is given the choice of participating or not participating that it may be a taxable event?

I have a client that was a C-corporation from July 1, 2003 through June 30, 2005 with a June 30 tax year end. They converted to an S-corporation effective July 1, 2005 so they have a short tax year ending December 31, 2005. They would like to establish a SEP plan to cover all of 2005 wages. Can the contribution be calculated on calendar year 2005 wages which encompasses two tax years? If so, can they deduct the entire contribution on the short-tax year 2005 S-corporation return?