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?

I have a Plan that is part of a control group with 4 adopting employers. Each adopting employer signed a supplemental participation agreement to "join" the Plan.

Each of these adopting employers has now cuanged their legal name. I've amended the Plan to change the legal name of the Plan and the sponsoring "Employer", but I'm not sure of the best way to change the name of the adopting employers. Should I do new supplemental participation agreements in the new names or just some short amendment type document for each? I don't see this as a Plan amendment, per se. Right now I'm thinking of just doing an "amendment to supplemental participation agreement" for each of the 4 adopting employers.

I am little confused about how and when the 402(g) limit applies to NQDC plans linked to 401(k)s. I believe that the 402(g) limit will apply to NQDC contributions only if there is this mid-year type of election (for example, NQDC contributions kick in mid-year once the 401(k) plan fills up). I also believe that the 402(g) limit would not apply to the NQDC plan where the NQDC plan fills up first and is then reduced by the maximum allowable contribution to the 401(k) (as explained in example 12 of the proposed regulations). Does anyone agree with this or have any comments?

A small plan purchased an annuity for a participant.

How should this transaction be disclosed on the 5500? Distribution on item 2e of Schedule I in the amount of the annuity purchase?

Should a 1099-R be prepared for the participant?

Thank you.

Is there any reason why you could not use a non-whole number (ie. 1.5 years) as the eligibility requirement for the SEP?

The company is two years old and some of the non-key employees do not have 1.5 full yrs of service, and the employer would like to exclude them in this first year.

Thanks,

New client

Partnership - Profit Sharing Plan (no 401k) with 2 Partners and the rest are NHCE.

Comparibility formula - Group A Partners Group B all others

One partner wants to "elect out" or not receive his allocation of contribution.

Issues - deemed CODA? Failure to follow plan document; failure to satisfy 401k

What are the IRS ramificiations of this situation?

I'm new to the not-for-profit world and the ORMDD Health Initative is a little confusing. While we have come up with a plan and identified our employees, we are going to fund the HRA periodically, most likely monthly. We are funding monthly to account for changes in employee eligibility and so we do not have to fund the HRA up front. This poses an administration challenge, plus notification to our HRA administrator regarding changes, on a timely basis, may also be challenging.

Out of 1500+/- employees we have about 1100+/- eligible for these funds.

What are others doing regarding this?

I recently took out two loans on my 403(b) plans, one for $8000 and another for $4000. Well I started to make payments back and came up on the short end. My loans are now in default for $7,290.94 which is reportable and $3,262.53. What will happen to me now? What am I looking at for the penalties? is it bad or somewhat bad. I want to get an idea of how much this will affect me short-term long-term? Please help me so I can budget properly

A SIMPLE plan which uses the 5k earning in year as eligibility; hired a new employee in Oct of 2005. This employee will earn at least 5k in 2005. When is this employee eligible? The 60 day notices for current employees goes on August 31. So is she eligibile in Jan of 2006 or Nov 2006? Thanks

We have a client who had a loan in a 401(k) pension plan. Before terminating her employment she took a partial distribution of 50% of the loan. She was 1099 for that amount in the year she took the distribution.

The record keeper retained the entire 100% amount of the loan on the books as a liability of the plan. Upon final distribution/rollover of the account, the record keeper charged interest on entire loan liability even tho 50% of the loan had been previously 1099'd. Is this accurate? The employee feels that the accrued interest should have only been on 50% of the loan rather than 100%. Thanks for your help

I've installed the 2005 5500 software we received from Relius but when I get into Government Forms, there is not an option in the right hand corner of the first box for 2005. I believe I would need to carry forward the information from 2004, but there is no indication if I can do this with 2004 to 2005 information. I don't want to lose any information which is why I'm being extremely cautious (plus this is my first go-around with anything 5500 related).

If you were going to calculate a lump sum distribution payable today, based on the 415 max. would you use 5.5% (assuming they will retroactively change it back) or the current 417(e) rate (recognize that the PFEA provisions have expired).

This is more of a pole. I'm pretty sure the current law allows me to use the 417(e) limit, but does anyone see any potential problems using it?

I guess I am worried about the potential of a future, retro-active change.

Hope this doesn't sound like a stupid question!

Does the recenlty released Roth 401(k) regulations pertain to the 403(b) as well? I was under the impression that the Roth was going to be avilable as both a 401(k) and 403(b)????

Thank You!

for anyone familiar with relius record keeping can you tell me if there is a method for charging terminees the participant fee for keeping their accounts in the plan? the record keeping people in my office are telling me they dont know of an a method for doing this, however, i find that hard to believe in light of the fact that the law allows you to do this.

The following two plans are offered to the employee: 401k and 457 (governmental). What is the maximum that can be deferred for 2006? The employee can catch up the full three year amount on the 457 plan. I think it is 15,000+15,000 for 457 and another 15,000 for 401k for a total of $45,000. Does this sound right?

Thanks