Section 223(2) of the Code refers to a monthly limitation for HSA contributions (1/12 of the annual limit) -- However, Notice 2004-2 Q&A 21 states that contributions to an HSA may be made in one or more payments (providing for a lump sum). If an employer has a biweekly payroll and for 2 months out of the year the employer will have 3 pay periods in a month (thus exceeding the 1/12th limit for those two months) has the individual violated the HSA rules or is he in compliance if his annual limit has not been exceeded.

For participants that are receiving required minimum distributions, we send an election form to the participant to elect if they would like taxes withheld from the distribution and if so how much.

If the participant fails to return the form, how should the taxes be handled? Is it 10%, nothing or is it to be handled as if a periodic payment subject to the standard income tax tables?

Thank you.

Situation is as follows:

401(k) Plan, top heavy - no match

6 HCE

8 NHCE 3 Terminated during plan year

Compensation only counted from date of participation (calendar year plan , 1/1 7/1 entry)

Plan fails ADP

QNEC given to all nhce (hces do NOT get qnec) - no conditions to receive allocation

3% min given to all participants except 3 nhce not there on last day of plan year

am I correct that I have automatic pass for 410(b) but must now test for nondiscrim because I have two benefit formulas with different allocation conditions?

this fails (a)4 b/c 3 terminated nches only getting tiny QNEC and because one HCE who got in middle of year is getting top heavy min on all comp but 414(s) comp is half year

what can I do here to make it work - bring in one term nhce - do I have to do this by amendment?

Help

Attorney has asked me for recommendation(s) for an EA to assist in a QDRO. Attorney represents the employee. In addition to more than one qualified plan, there may be multiple non-qualified plans for which a PV is desired. (Employee/participant is an executive in a large co.) Attorney indicates high likelihood that the EA may also be needed in court testimony. Hence, I suggested that the attorney should engage someone with substantial experience in this area.

I don't want to touch this, but am willing to provide attorney with 2-3 referrals. However, I don't know any such specialists, or how to search for them. Any suggestions? Attorney is in NC (not sure where the employee resides).

Participant takes a lump sum distribution and therefore 20% taxes are w/h.

When are those taxes due to be deposited and filed by? The end of the month the distribution occurred, the end of the plan year, tax year? Are there any specifics?

Thanks

I have seen where you can have classifications based on age and years of service. Is it permissible to have the following?

Group 1 - Owner (HCEs)

Group 2 - Employees making more than $50,000 and with more than 5 years of service (this could be a problem because some in this class may be considered HCEs as well)

Group 3 - Employees making less than $50,000 with less than 5 years of service

Thanks

Client adopted prototype document in late 80's. Client recently made changes to plan by adopting a volume submitter document with special language changes. Client is submitting plan to IRS via Form 5307. Anyone see a problem with submitting what client has in hand now plan document-wise and then supplementing the information with the IRS once it is received from prior TPA? IRS will request to see original adoption agreement, etc.... anyway which TPA has but has yet to forward. Client wants to get the process started and due to the amount of time in which the 5307 will be assigned to an agent I don't see a problem with submitting what client has and then forwarding additional info. to IRS agent once it's assigned. Any comments? Thanks.

Our ERISA attorney insists that this rule applies to employer money for all in service withdrawals, including hardship, regardless of any other requirements. So, every plan we have says that hardship and age 59 1/2 withdrawals are subject to this rule. We need to get him convinced before the EGTRRA restatement that this is only required when you don't have an age or hardship requirement.

I think when we add this to plans that have never had this requirement before it is a protected benefit issue. He says no because it's required so that is how the plan has had to operate.

I found some published guidance a few weeks ago that literally said that this rule only applies when there are no other requirements such as 59 1/2 or hardship. Now I can't find it (no snide remarks please, I'm already kicking myself for not making a note, copying it etc). Can anyone give me a cite? He won't accept the "interpretations" in the Pension Answer Book or The ERISA Outline Book. I need to quote him chapter and verse.

TIA!!!

Client has EE that left in late 2001 and was rehired in early 2003. Only one break in service occurred. Plan has 1 yr. hold out rule for rehires. The EE never worked 1000 hours in 2003, 2004, 2005 but will probably work their 1000 in 2006. Now, the plan was amended from a profit sharing to a 401(k) effective 1/1/06. If EE works 1000 hours in 2006 they should be re-entered retroactively on 1/1/06 but its a 401(k) at that point. I don't want to tell them that the EE is a participant eff. 1/1/06 and then find out that they didn't work 1000 hours. Any suggestions as to how to handle the re-entry date?

Thanks!

If an employer offers both an HMO option and a PPO option to one group of employees, does the employer than have to offer the HMO option to all other employees?

Is the defined contribution dollar limit for spouses $84,000 in 2005 (i.e., $42,000 x 2) or are they limited to $42,000? Thanks.

After reading Sections 4050, 4022, and 4044 of the PBGC Regulations and the March 17, 2000 amendents to these Regulatioons, I think I am now thoroughly confused. When calculating the amount to remit to the PBGC for benefits for which there is an elective lump sum, it appears that the 1983 GAM Table with a 6 year setback for females should be used. However, I have no idea what interest rate should be used. Can someone please verify the mortality table and tell me how to determine the proper interest rate(s)?

What general tax rules apply to flexible spending accounts (FSAs) that incorporate credits? For example, Smithco provides its eligible employees with credits based on service. For 2005, Jerry, an eligible employee, has 1,000 credits. His employer-sponsored health coverage for the year is valued (by Smithco) at 800 credits, his dental coverage for the year is valued at 300 credits. Jerry uses 800 of his 1,000 credits to cover his health coverage and uses the remaining 200 credits to partially cover his dental coverage. Excess credits, had there been any, are forfeited. He pays for the remainder of his dental coverage through Smithco's medical reimbursement plan using pre-tax dollars. Smithco's FSA is not part of a Code Sec. 125 cafeteria plan. It seems to me that so long as Smithco's FSA satisfies Code Sec. 105, the value of the credits Jerry has been given is not includible in Jerry's income. Is that conclusion correct and, if not, why not? Thanks so much for your help.

What general tax rules apply to flexible spending accounts (FSAs) that incorporate credits? For example, Smithco provides its eligible employees with credits based on service. For 2005, Jerry, an eligible employee, has 1,000 credits. His employer-sponsored health coverage for the year is valued (by Smithco) at 800 credits, his dental coverage for the year is valued at 300 credits. Jerry uses 800 of his 1,000 credits to cover his health coverage and uses the remaining 200 credits to partially cover his dental coverage. Excess credits, had there been any, are forfeited. He pays for the remainder of his dental coverage through Smithco's medical reimbursement plan using pre-tax dollars. Smithco's FSA is not part of a Code Sec. 125 cafeteria plan. It seems to me that so long as Smithco's FSA satisfies Code Sec. 105, the value of the credits Jerry has been given is not includible in Jerry's income. Is that conclusion correct and, if not, why not? Thanks so much for your help.

:angry: OUr office had a client that refused to deposit 2001 and 2002 QNECs (also top heavy minimum contribution).

Based on lack of compliance and communication, we fired them and now they have landed back on my desk.

The Employer's bookkeeper simply did not deposit 01 and 02 contributions. Irecently found out that she also did not deposit deferrals.

They also did not get a new TPA so 03 and 04 must also be tested.

This is regular 401k plan that is top heavy, (no safe harbor)

I think the lack of depositing for 4 years consitutes eggregious failure.

Can this client self correct, go into VCP or are they doomed?

Another q - can and should they deposit contributions immediately before the method of calculating earnings is decided?

Thanks

Have an employee who has been informed that job will be eliminated next year. We are in the middle of open enrollment right now and employee plans on electing full deferral of $6,000. We realize that the full amount will be available 01/01/06 and from what she has said, she plans on using the entire amount.

Is there anyway she could be excluded from participating in the plan as long as not discriminatory?

Thanks.

If a 401(k) plan is 100% self directed, and all monies go into individual brokerage accounts for each participant, is a fidelity bond still required? I think the answer is yes, since the bond is needed to insure against mishandling by the person(s) who is responsible for getting the money to the brokerage accounts. However, I noticed on my 5500/SAR software that when I indicate that all money is 100% self-directed and participants receive statements directly from the investments, that I am not prompted for bond information. This leads me to wonder if the bond requirement is N/A for such accounts. Does anyone have a comment or 2 regarding this?

Thanks

A plan sponsor is in the business of issuing mortgages – they loan money to real estate purchasers in need at above market rates. The retirement plan is also heavily invested in similar mortgages (they are heavily secured, low loan-to-value ratios, well documented investments that have performed very well with a minimum of risk). The plan does not participate in any loans with the plan sponsor. However, it was recently noted that the family trust of one of the Trustees is a co-investor in a few of the mortgages. The family trust did not purchase the mortgages from the plan. The mortgages were issued with the plan and the family trust both participating (at the same terms) in the investments – essentially as if 2 acres of real estate are for sale by a third-party and the plan buys one acre and the Trustee’s family trust buys the other. Do you believe this to be a prohibited transaction despite the absence of a transaction between the plan and the party-in-interest? Do you see any arguments against P/T status if audited?

A self employed dentist shut down his practice in July '05 and is in the process of terminating his profit sharing plan. There are no other participants in the plan besides him.

He has already funded the plan for 2005 and he will exceed the 404 deduction limit by $6,000. Since he will not have any future income he has no way of using up the excess contribution. Do you think this excess contribution could be returned to the employer based on a 'mistake of fact'?

Thanks in advance for any responses.

Is there any issue with an employer depositing $3,000 to the suspense account in 2004, planning to allocate the monies for the 12/31/06 plan year?

I presume this is acceptable but he/she can not take the deduction until 2006, and is counted as a liability on the form 5500 until allocated, correct?

Thank you