Client deposited $10,000 PS contribution in Jan. 2005 for the 12/31/04 ye. Some of that contribution was necessary to provide the NHCE's with the 3% SH contrib the plan calls for.

The CPA forgot to deduct the 10,000 on the 2004 tax return. Client says that amending the 2004 tax filing is very complicated because of shareholder K-1's etc. so that is not an option.

Can the 10,000 be credited to the 2004 plan year to meet SH requirements but deducted in the 2005 plan year??? I am thinking that the 10,000 would count towards the 2005 404 limit unless there is a way to carryover a prior year contribution that was deductible but not deducted? (As opposed to carrying over an non-deductible amount.)

I would really appreciate some input on the way to handle this situation. Thanks.

Hello,

My parents opened a IRA for me when I was 18. Afer college, about 7 years ago, I converted the IRA to a Roth IRA. For the last 4 years I have not been able to contribute to the Roth IRA because I'm over the AGI limit.

My question is as follows. Can I convert my Roth IRA back to a traditional IRA so I can start contributing again?

Currently, the money is sitting in a SP500 Index Fund, and the only retirement account that I can contribute to is my 401K (maxed out each year). I figure if I can convert the Roth back to a traditional IRA then I can start contributing again to take advantage of the tax free returns and the compouding effect of having more money in the index fund. I also want to diversify the one index fund into a few more, but this only makes sense if I have more moeny to work with.

Any thoughts or suggestions are greatly appreciated. Thank you.

Is anyone familiar with the following:

Does the annual compensation limit under IRC 401(a)(17), which is currently at $210,000, trump the annual limit on elective deferrals under IRC 402(g), which for 2005 is $14,000? In other words, let's say you have an employee who on September 1 exceeded $210,000 of compensation, but as of that point had only contributed about $7,000 (because he elected to defer compensation at a low percentage (such as 2% per pay period)). Can this person keep deferring compensation since he has not yet reached the $14,000 limit imposed by 402(g) or does 401(a)(17) prevent him from making additional deferrals because he is over the annual compensation limit?

Thank you for you comments.

We operate our 401(k) plan with a 6/30 year end. We failed the ADP Test and returned excess contributions to participants for the plan year ended 6/30. Can we allow participants who have reached the 402(g) limit of $14,000 in the first half of the year and received a distribution of excess contributions to defer in the new plan year that began on 7/1 so that they are able to contribute the maximum of $14,000 for calendar year 2005? Or are the participants limited to $14,000 less the amount of excess contributions that were returned to them?

County plan has offered early retirement incentives and buyouts to eligible employees. A substantial severance payment is being offered to each participant.

Can the participant elect to defer any/all of the severance payment to the 457 plan?

The severance payment will be treated as W-2 wages and distributed on 1/6/2006, which is after those employees who elected the offer are no longer employed.

Under what circumstances can they defer it or not?

Thank you.

May a local government entity adopt two 401(a) plans, one benefitting all employees, and a second benefitting just one group of employees. Both plans provide for mandatory employee contributions.

Sorry - I didn't realize this was already on today's benefits link newsletter links.

For taxable wage base: http://www.socialsecurity.gov/pressoffice/pr/2006cola-pr.htm

For IRS limits:

IR-2005-120

October 14, 2005

IRS Announces Pension Plan Limitations for 2006

WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust these limits for cost‑of‑living increases.

Many of the pension plan limitations will change for 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2006.

For example, under EGTRRA, the limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $14,000 to $15,000. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Cost-of-Living limits for 2006

Effective Jan. 1, 2006, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $170,000 to $175,000. For participants who separated from service before Jan. 1, 2006, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2005, by 1.0383.

The limitation for defined contribution plans under section 415©(1)(A) is increased from $42,000 to $44,000.

The Internal Revenue Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)©, and 408(k)(6)(D)(ii) is increased from $210,000 to $220,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $135,000 to $140,000.

The dollar amount under Section 409(o)(1)©(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $850,000 to $885,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $170,000 to $175,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $95,000 to $100,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $315,000 to $325,000.

The compensation amount under Section 408(k)(2)© regarding simplified employee pensions (SEPs) remains unchanged at $450.

The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $85,000. The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $170,000 to $175,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $10,000.

Limitations specified by statute

The Code, as amended by the Economic Growth and Tax Relief Act of 2001 (EGTRRA), specifies the applicable dollar amount for a particular year for certain limitations. These applicable dollar amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $14,000 to $15,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $14,000 to $15,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $4,000 to $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $2,000 to $2,500.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

Sole prop makes a deferral election prior to the end of 2004 to defer 14,000 for 2004. Now as he is finalizing his taxes, he decides he only wants to put in $12,000.

Now I know that being a sole prop he may search his files and find the corrected election that he did last year. But assuming he doesn't, is there any legal way for him to avoid making this deferral, assuming he has at least 14,000 in income? I can't find one, but I'm probably missing something obvious. Thanks.

We have a potential 401(k) client who also has a noneligible 457(f) plan. She wants to switch brokers for both products, but the current TPA for her 457 plan won't continue working for her if she switches brokers. Therefore, we're searching for a TPA firm who will relatively inexpensively do plan document and compliance work on a one-person 457(f) plan. Any recommendations?

HCE transfers from one employer to another in a controlled group. One employer maintains a safe harbor 401(k) plan, the other does not. Safe harbor plan provides a safe harbor match of 100% up to 6% of pay. The other plan provides 100% up to 5% of pay.

The aggregation rules require aggregating HCE contributions in both plans for each plans nondiscrimination testing. In the aggregate, the rate provided to this HCE is slighly lower than everyone else in the safe harbor plan because part of his aggregate deferrals are matched up to 5%, not 6%. Does this mean the safe harbor plan is ok?

A buyer who currently maintains an ordinary 401(k) plan purchases a seller (stock deal) that maintains a SIMPLE 401(k). The buyer is not eligible to sponsor the SIMPE 401(k) (too many employees). Can (or must) the buyer termiante the SIMPLE 401(k)? The reason why I ask is because 401(k)(10) prohibits an employer from terminating a 401(k) if they maintain or adopt another 401(k) within 12 months.

I had addressed a few unrelated plan issues recently that when considered together offered a possible solution for one of our clients. I wanted some input as to whether or not this was viable -

1.) Top Heavy 401(k) plan - husband & wife own the company (only HCEs & Key EEs).

2.) They do not defer into the plan to avoid having to make a top heavy contribution.

3.) Both are over age 50.

4.) ERISA Outline Book states that catch-up contributions are not considered in calculating the highest Key EE allocation percentage.

Question - Can we amend the plan to limit HCE deferrals to 0% and then have husband & wife defer the maximum catch-up contribution for the plan year and avoid having to make a top heavy contribution?

Just a thought

Does an employer have a time limit for making the prevailing wage fringe benefit deposits? It's been brought to my attention that an employer is several months behind in making these deposits. I can't believe that this can go on without the employer getting in serious trouble. Has the DOL ever imposed a time limit?

A participant in a 401(k) plan died. She was unmarried and the death benefit is less than $5,000. She named a non profit hospital as her beneficiary. Do we need to send a distribution election form to the non profit or just send the non profit her vested benefit without first sending an election form? Since the distribution is going to a non profit there would be no withholding, since there is no taxation on the non profit, correct?

If someone has an answer, could they please provide the source of the answer.

Thank you very much

Dan

Does anyone know exactly why we all file Schedule P's? I think a common thought out there is that somehow it starts the statute of limitations for IRS audit. I know this can't be true because IRS auditors go back as many years as they want when they discover recurrent operational defects. Also, when you terminate a plan, you have to go back 6 years to show operational compliance.

I suspect filing Schedule P protects trustees (not plan sponsors) from something, I'm just not sure what. Since most of our plans are trusteed by the business owner who is also the Plan Administrator and Plan Sponsor, is it necessary to file Schedule P and what is the benefit?

Has anyone had a CPA request "ESOP Transaction Documentation" for a non-leveraged ESOP plan contribution?

If yes, what did you provide?

I am posting this here as well as on the health plans board although I realize this board is intended for multiemployer pension plan issues but I am hoping that folks on this board might have particular expertise with MEWA issues as well.

I understand that the small employer exception which allows small employers to have Medicare pay primary rather than secondary for working aged employed by the small employer is generally extended to small employer groups participating in multiple employer group health plans (a category which I assume includes MEWAs) but only if the MEWA formally elects to have Medicare provide primary coverage. If the MEWA properly elects the small employer exception and complies with some basic reporting and disclosure obligations established by CMS, the exception basically permits the small employer threshold to be applied on a group-by-group basis in the context of a MEWA, even if the MEWA has some very large employer groups and a large number of total "plan" participants overall. In the absence of such an election, small employer groups participating in a MEWA with a range of large employer groups presumably are not entitled to the small employer exception.

My question is what happens if the MEWA has been acting as if this mandatory small employer election had been made years ago but, in fact, an election was never made. I assume the MEWA is on the hook for having to repay all amounts to Medicare on which Medicare paid as primary rather than secodnary and possibly pay interest and penalties as well. However, I have heard refernce to possibly being able to negotiate or work out a compromise with CMS on the issue if the MEWA voluntarily corrects the problem. I am curious if anybody out there has negotiated a compromise with CMS on similar grounds and, if so, exactly what is realistic to expect. (For example, is the compromise just that you have to pay Medicare back for all amounts they paid as primary but you get interest and penalties waived or is there a possiblity you can get Medicare to agree not to require return of all the amounts on which they paid primary if you can show that, but for the filing of the election, Medicare would have generally paid the amounts as primary. Thanks in advance for any assistance.

I understand that the small employer exception which allows small employers to have Medicare pay primary rather than secondary for working aged employed by a small employer can generally be extended to small employer groups participating in multiple employer group health plans (which I assume includes MEWAs) but only if the MEWA formally elects to have Medicare provide primary coverage. If the MEWA properly elects the small employer exception and complies with some basic reporting and disclosure obligations established by CMS, it is my understanding that the small employer threshold to be applied on a group-by-group basis in the context of a MEWA, even if the MEWA has some very large employer groups and a large number of total "plan" participants overall. In the absence of such an election, small employer groups participating in a MEWA with a range of large employer groups presumably are not entitled to the small employer exception.

My question is what happens if the MEWA has been acting as if this mandatory small employer election had been made years ago but, in fact, an election was never made. I assume the MEWA is on the hook for having to repay all amounts to Medicare for which Medicare paid as primary rather than secodnary and possibly pay interest and penalties as well. However, I have heard refernce to possibly being able to negotiate or work out a compromise with CMS as to back amounts if the MEWA voluntarily corrects the problem. I am curious if anybody out there has negotiated a compromise with CMS on similar grounds and, if so, exactly what is realistic to expect. (For example, is the compromise just that you have to pay Medicare back for all amounts they paid as primary but you get interest and penalties waived or is there a possiblity you can get Medicare to agree not to require return of all the amounts on which they paid primary if you can show that, but for the filing of the election, Medicare would have generally paid the amounts as primary. Thanks in advance for any assistance.

A plan has forfeited some ineligible deferrals. Normally the interest earned would be reallocated to all participants. Due to an administrative burden this really isn't an option. Is it appropriate to put these earnings to the forfeiture account?

Our test is 1/1/04 to 12/31/04 and there is a HCE who is due an ACP refund.

They were 50% vested on 12/31/04 and they are 75% vested now.

Anyone know what vesting % to use to determine how much of the refund has to be forfeited?

Thanks!