The IRS treats an employee who has not met plan eligibility requirements, but who has rolled a balance into the plan, as a "limited participant" (IRS Rev. Rul. 96-48). This person is excluded for coverage/nondiscrimination/top heavy purposes.

Is this employee reported as a participant on lines 6 and/or 7 of the Form 5500, as appropriate?

I have searched old posts and reviewed the Form 5500 instructions carefully, but have not been able to answer this question to my satisfaction.

It seems logical to report such a person, as they maintain a 100% vested balance and are owed future benefits from the plan.

I have a client subject to GASB 45 and for a few unique reasons, wants to dump the entire liability, now, into a fund (instead of funding through a VEBA with its annual contribution restrictions). I'm looking at establishing a trust under IRC 115, and wonder if anyone else is doing the same AND if anyone has submitted any request to the IRS for a private letter ruling? If so, I'd like to pick your brain (and am always happy to reciprocate!) Thanks!

New boss has decided to completely terminate all retiree health benefits. I told him about the proposed EEOC regulations, AARP's response, the problems with medicare coordination and the equal cost/benefits rules (and offset for retirees, etc.). The Plan is insured with some assets in a master trust.

There is no CBA, it appears no one is vested (or has been told they are vested - but you never know for sure) and the plan has the proper language allowing plan sponsor to amend/term.

Boss wants to amend the plan effective January 1, 2006 (with board approval) to completely eliminate any retiree health and argue that anyone who terminates or retires will only receives COBRA.

I tried to get as much on-line as possible, but now I am plain stumped because of the EEOC Manual, ERIE case, the ADEA implications, etc.

Is this a time bomb waiting to happen (employee relations/PR aside)?

My employer would like to begin offering some sort of phased retirement package, and have asked me for ideas on how to do so.

They would like to allow executives that are in their early 60s, the option of cutting back hours to 20-30 hours per week. The difficulty is that these executives will have their categorization changed from full-time to part-time employees. This fact will eliminate the individual from eligibility for certain benefits (i.e., disability) and increase cost for other benefits (i.e., health insurance).

One option we are talking about is creating some sort of separate welfare wrap plan for these individuals. That way, they would not lose welfare benefits when they cut back. However, these are all high paid executives, so we could possibly run afoul of discrimination issues.

Another thought is to gross up the salaries of the individuals cutting back their hours. That way, they could go out and purchase certain welfare benefits on their own, but not suffer financially. The big issue here is that we are talking about employees in their early 60s. If they have to go purchase their own life insurance for a benefit of 2.5 times salary, it will cost a small fortune.

Does anyone have any other thoughts on an approach to this? What have other companies done?

Thanks.

The basic Roth 401(k) distribution rule as stated in IRC 402A(d)(2)(A) requires the following events to occur for a Roth 401(k) distribution to be classified as a qualified distribution:

1. age 59 1/2,

2. disability,

3. death, AND

4. account has been established for 5 years.

However, it appears that the distribution events are expanded in the proposed regulations "Other Rules" section because the "Roth contributions are subject to the nonforfeitability and distribution restrictions applicable to elective contributions."

So, my QUESTION, if the plan also permits distribution of elective deferrals upon termination of employment, and I terminate and take a distribution of the Roth contributions plus earnings AFTER the 5 year period that the Roth account was established, are the earnings taxable or nontaxable??

I'm brand new to NQDC (10+ years as ERISA qualified and welfare plan attorney). Firm has now asked me to take over NQDC due to attorney turn over, etc.

Any suggestions on a good place to start with the basics and then with the new 409A issues (reference materials, etc.)? Any assistance would be greatly appreciated!

I'm trying to determine the best way to prove a definition of compensation is or is not discriminatory.

Situation one: Compensation used to calculate employer contribution is pay based on what the participant was paid in the last pay period of the year times 26 pay periods.

Situation two: Compensation used to calculate employer contributions is pay minus current year bonus, plus prior year bonus.

With both situations I am ending up with compensation greater than total comp for the plan year. Would both of these situations require a general nondiscrimination test or is there another way to prove nondiscrimination?

Thanks

A TPA, who will remain nameless, is setting up FSA plans with multiple enrollment periods. It is their opinion that nothing in the code or regulations prevents more than one enrollment period per 12 month year, and that employees can make elections during the "normal enrollment periods." Thus, employees don't need to have a qualifying event, they just need multiple enrollment periods.

I don't need opinions, I need a site that limits plans to one enrollment period per year.

This same TPA believes you can have an employee participating in an HSA, who is eligible for and participating in a Limited Scope FSA and that you can cover his spouse and dependents in a full scope FSA. This one is a little more problematic, because it might be possible to word your document in such a way as to sufficiently limit what can be paid and to whom. Any thoughts?

Thanks

So the 1st Circuit says that if an employer's plan document excludes (from plan participation) the employer's common law employees , who are paid and issued W-2s not by their common law employer... but by an outside payroll service entity ..... then those common law employees cannot be participants in their common law employer's retirement plan? How rude!

I'm surprised, but I'll get over it.

Would those excluded employees have to be considered in the employer's 410(b) discrimination test ?

Assume the following:

A participant in a profit sharing plan previously had a life insurance policy which was purchased from the plan at its fair market value.

In a subsequent year the same participant purchases a new life insurance policy. In order to test whether the insurance is incidental, the plan uses the percent of contribution testing method. The plan has no aged money.

In order to determine whether or not the current policy and its associtated premiums are incidental, would the premiums paid towards the former policy still be counted when determining the aggregate percetage of contributions used to purchase life insurance? Or, since the former policy is no longer part of plan assets, is no longer an ancilliary benefit of the plan, and the premiums paid towards that former policy have in effect been refunded to the plan, can the former policy and its premiums be ignored?

I have a plan where the match is calculated on a payroll period basis.

The owner of the company is self-employed, but receives draws and makes deferrals on those draws during the plan year. A match is deposited during the year based on those draws.

For any other employee, I would not true up a match made on a payroll period basis, but what about for a self employed individual? Technically, they don't receive their earned income until the last day of the plan year.

Should I be trueing up their matching contribution?

Does anyone know of anything in the IRS code, notices, plr's, etc that addresses this?

Thanks!

Client has Simple Ira in place now. They have made contributions during 2005. The company's fiscal year ends 8/31. Can they teminate the Simple now and start a Safe Harbor 401(k) for October 1st? Or do they have to wait until 1/1/06?

Thanks for any help...

We have a 401K client who decided to eliminate the individual self-directed accounts and transfer the proceeds to a single pooled account. My question addresses the blackout notice requirement. Are we required to provide the 30-day advance notice even though the participants will no longer be directing their investments after the transfer? Also, regarding plan loans & distributions, the document states that these requests are to be processed within a reasonable time. My interpretation is that processing these requests after a 2-week blackout period is reasonable.

Even though the blackout notice may not be required, I'm inclined to issue it anyway to give the participants the opportunity to change there investments prior to the transfer if they desire.

I have a situation where a participant died prior to normal retirement. The death benefit is described as 100 times the monthly retirement benefit. The lump sum of the retirement benefit actually comes out quite a bit larger than the death benefit.

The way the document reads, the death benefit is:

"Upon the death of a Participant prior to the Participant's Retirement Date, the Participant's Beneficiary shall be entitled to a death benefit in an amount equal to the Policy proceeds payable as of the Participant's date of death.

"Such death benefit shall not exceed 100 times the Participant's anticipated monthly retirement benefit determined as of the Participant's Normal Retirement Date. Any amounts in excess shall inure to the Trust Fund and be used to reduce the future contributions of the employer."

Further down, it states:

"In the event of a Terminated Participant's death subsequent to the Participant's termination of employment, the Participant's Beneficiary shall receive the Present Value of such Participant's Vested Accrued Benefit as of the Anniversary Date coinciding with or next following the date of the Participant's Death."

This comes from Corbel's volume submitter DB document.

I understand that death benefits are incidental in a retirement plan, but it sounds like this would tend to provide a more valuable death benefit to a young person (who would have a smaller PVAB and be more likely to get more from the insurance), than to an older person (who would be more likely to have a larger PVAB, which could be larger than the death benefit..especially with low GATT rates in effect).

Does that seem odd to anyone else?

Also, in the event of a terminee becoming deceased, do they get the larger of the PVAB or the policy proceeds? It seems that the conditions of the insurance policy proceeds simply say death prior to retirement date, and the conditions for the PVAB simply say death after termination date....both of which apply to this participant???

Anyone else come across anything like this?

Thanks all!

Participant has a normal retirement age of 69 as of 12/31/04, the valuation date I am working on. He is a sole proprietor and had a previous DB plan that was terminated, when he was 65. Full benefits were paid out as a lump sum. He is subject to the 100% comp 415 limit.

Last year his maximum benefit was calculated by updating the prior plan benefit of $6,887 from age 65 to age 69, using the plan rates and mortality in effect at the time the new plan was started. Then this updated amount was subtracted from the 100% comp limit, to determine the benefit he could have under the new plan. When the new plan was started, the plan was a 412(i) plan, so the interest rate used was 3%. The plan is no longer a 412(i) plan and the actuarial equivalent interest rate is 7.5%.

My first question is, since the plan interest and mortality rates were changed after the efrective date of this new plan, shouldn't the update in the prior benefit be using the current plan rates for the year of valuatiohn, or was the offset in effect set at the time the new plan was started.

My second question is, under the proposed regulations, to be effective in 2007, I believe that I will have to update the old benefit to the greater of the amount using 5% 1995 GAR or the current plan rates - according to the multiple annuity start date rules of 1.415(b)-2, regardless of the answer to the above. Agree?

A client wants to pay his contribution in "Kind"... wants to transfer stock to the plan to cover his 2004 employer contribution receivable. Is this fine? If so, what documentation needs to be in place to a future audit?

Thanks!

HELP!!!!! I just started work as the HR Manager of a museum that has a 401k plan (they piggybacked onto the parent companies plan). We have to get out of that plan by 12/31 and I need to decide which is better, a 401k or a 403b. I always thought 403b's were for non profits, 401k's for profits. Heck, I didn't even think non-profits could have 401k's. So, I need to know what the differences are, what the employer contributions can be like for both, and basically what do I present to my board. HELP!!!!!! I need to pick brains here!

I started working this week as the HR Manager for a museum (a non profit organization) that offers a 401k because they piggy-backed onto a parent (profit company) plan existing plan. However, the jig is up and we have to start a new plan, either a 401k or 403b as of 1/06. I need to determine if as a non profit, we can even have a 401k (I always thought non profits had to have 403b's). Basically I need to know the differences between 401k's vs. 403b's, pros and cons and if we opt for a 403b can there be an employer match, if the employee does, or does not contribute into the plan. HELP!!!!!!!!

We would like to eliminate all QJSA options but one in defined contribution plans that require the QJSA option. 1.411(d)-4 Q&A 2(e) was effective January 25, 2005 and seems to indicate that all optional forms of benefit can be eliminated as long as a lump sum option is retained (our plans are otherwise required to keep at least one QJSA option). However, 1.411(d)-4 Q&A 2(b)(2)(ii) is specific to QJSAs and states that a plan with 3 or more QJSA options may be amended to eliminate any of them, as long as the smallest and largest are retained. Any thoughts regarding if we have to keep the smallest and the largest, or does the new 2(e) allow us to eliminate all but one QJSA option?

Would it be permissible to have different eligibility rules for different classes of employees as long as it did not discriminate in favor of HCEs? Based on the fact that you can completely exclude a particular class of employees from participating, it seems like you should be able to do this.