Can a plan routinely give a QMAC ontribution based on payroll period instead of a match contribution or do you have to fail testing before a QMAC can be given? Also, if the QMAC is always included in the ADP test can you use prior year testing?

Do plan documents have to be amended by 12/31/05 to reflect the final 401(k) & 401(m) regs? Has the IRS given us a model amendment?

Plan has major investment bank as investment adviser. A separate investment advisor of the plan wants to use same major investment bank to trade futures. My limited understanding of these rules leads me to believe this may be a pr. tx under ERISA 406(a)(1)© for the furnishing of services b/w the plan and party-in-interest. If so, are there any class exemptions for this type of arrangement?

We currently use Relius Admin. for producing plan documents for our Self Funded Health clients. Does anybody have any other source for plan documents which is reliable, easy to use and provides for ongoing ERISA compliance?

I'm going to stay on the topic of Targeted QNEC's...

What's the easiest way to determine a plan's representative contribution rate?

Let me just use an example to make this easier. Let's say I have 24 NHCE's and 10 HCE's. They all make ED contributions and those are matched. So the ED contributions are tested in the ADP test and the matching contributions are tested in the ACP test. To make it simple - there are no other contributions.

We'll say the ADP test fails. The HCE average is 12% and the NHCE average is 4%. So in order to pass the ADP test I need a NHCE average of 9.6%. That means a 5.6% QNEC (9.6% - 4%) to 24 NHCE's which equals a 134.40% QNEC.

The new rules say I can give the greater of 5% or the plan's representative contribution rate. If I give all 24 NHCE's 5%, then I'm only at 120%. So that won't work.

Here is where I'm stuck. How do I determine what the plan's representative contribution rate will be?

I know that the plan's representative rate is equal to the greater of:

1) the lowest contribution rate of any eligible NHCE among a group of eligible NHCE's the consist of one-half of all eligible NHCE's for the plan year or

2) the lowest contribution rate among all eligible NHCE's under the arrangement who are employed on the last day of the year.

So I'll start with the #1. I'll work with the formula of:

12x + 2(12x) = 140%

12x + 24x = 140%

36x = 140%

x = 3.89

2x = 7.78

12(3.89) + 12(7.78) = 46.68 + 93.36 = 140.04

So if I give half of the group a 7.78% QNEC and the other half a 3.89% QNEC, then I should meet the requirements of #1.

I think I'm making this way more difficult then it should be though. Anyone want to help me out?

We had a company come to us. They said that their 401(k) Plan terminated in 2001 when they were bought out. They have recently discovered that there were some left over assets in the Plan (around $15,000). This money belongs to more then one participant - some HCE and some NHCE. The money as of date has not yet been paid out.

Any suggestions on how to handle this? Apparently there was a final 5500 done for year 2001.

It's a mess we are trying to determine if we should get involved in or not!

Thank you.

Could someone please confirm for me that Title II of ERISA only applies to qualified plans. For example, coverage testing is not required for a nonqualified ERISA plan. Thanks.

I know this should probably be a basic question, but I've been struggling with it a bit...client has a calendar year 401(k), but the fiscal year ends March 31st. They never utilized the profit share feature, but a discretionary profit share has always been available in the plan. (Plan doc is a standard prototype). They want to start profit share contributions, but would like to base the profit share allocation on the fiscal wages, not calendar. Document defines comp as W-2 with adjustments for all pre-tax. Is there any reason that we can't allocate the ps on fiscal comp? We get quarterly payroll, so the data is there but I'm thinking that the plan doc does not ask separately for comp used for allocations. Does this mean the plan doc would have to be changed to a non-standard or individually designed? thanks in advance for any/all replys...

Stupid question - very small client has SEP for which all employees are eligible and receive around 5% per year. Most employees (5 of 8) are part time - less than 1,000 hours per year. Employer does not want to decrease benefits for anyone but wants more for self.

I don't think there are any prohibitions against continuing SEP as is (everyone is eligible and receives 5%) and adding a 401(k) Profit Sharing with 1 year (1,000 hours), age 21, semiannual entry so that the owner and the 2 other employees could also defer salary and perhaps receive Safe Harbor contribution and discretionary contribution as long as we satisfy top heavy (5% in SEP would do it, wouldn't it?), 415 and deductibility, etc...

What am I missing?

Thanks,

Kathy

What happens if an employer reimburses a claim from a FSA and it remains unsubstantiated? Should the employer file a 1099-MISC, or must it file an amended W-2?

Thanks for your help!!!!

Final 401(k) regs., generally effective for plan years beginiing on and after 1-1-06, change the way targeted QNECs are determined. But when is this change effective?

For example - plan year is calendar 2005 and the employer will make a QNEC to correct a failed 2005 ADP. Can they do a targeted QNEC under old rules since it is for a failed 2005 plan year test? Or since the QNEC will be made in the 2006 plan year for the 2005 failure, they must follow the new QNEC rules?

Does anyone have a better feel of the IRS position of swithing testing methods from current to prior / prior to current either

1. before the plan year begins

2. before the end of the plan year

3. after the plan year within 12 month correction period.

I was just wondering what is being done in practice - I try to avoid amending after year is over because I've heard IRS say it should not be done. Just wondering.

ASPPA 2005 edition ERISA Outline book states following -

"Timing of amendment: Once the plan document reflects the testing method, what will be the deadline for making an amendment to change that method?

The IRS has not established a time frame for making such an amendment. There is a reasonable argument that the employer could adopt an amendment at any time before the deadline for correcting a violation of the ADP test (i.e., 12 months after the close of the plan year). In other words, the IRS should treat the choice of testing method as one of the corrective techniques in the administrator’s "arsenal," that should be available to help the test pass or to reduce the margin of failure. This is supportable by the restrictive rules for switching between methods after the GUST remedial amendment period ends.

2004 regulations do not address issue/IRS comments indicate narrow rule is contemplated.

The 401(k) regulations issued on December 29, 2004, do not address the issue of whether amendments changing the plan year must be adopted. It should be noted that, at the ASPPA Summer Conference in Irvine, California (July 29, 2003), representatives from the IRS and the Treasury were not enamored with the idea of making plan amendments to change the testing method after the close of the plan year. In fact, they indicated that the internal debate at the government is whether the amendment should be adopted by the first day of the plan year for which the amendment is effective or by the last day of such year. However, they seemed open to comments arguing a more liberal amendment rule. In the absence of guidance, plan sponsors (or their advisors) will have to decide for themselves what they believe is a reasonable interpretation of the law."

I feel silly for even asking this, but what do the numbers mean on Revenue rulings? For example, IRS 2002-45. Does this mean that this is the 45th revenue ruling issued by the IRS in 2002?

We recordkeep an ESOP where there has been a significant decline in the stock value, and hence employee balances.

Some employees who qualify for a partial distribution under the terms of the plan now have total account balances that are less than their December 31, 1986 account balances - even with the allocation of additional shares since 12/31/1986.

Should I adjust the 12/31/1986 shares for the current stock price, or do these employees not receive any distribution amount until they qualify for the remainder of the ESOP (12/31/1986 balance) upon attainment of age 65?

Thanks.

Does anyone know if canned language is available (or will be) for the new grace period that offers some relief from the use it or lose it rule? We'd rather not reinvent the wheel if we don't have to.

I am tired of key punching huge batch of separated participants in Scheule SSA. Does anyone know any method of importing data in Sch SSA from spreadsheet or adobe file or any other method. Please suggest.

Thanks

Amit Nagpal

Need help with the following example

X made $100,000 in 2004, $110,000 in 2005 and retired on 12/31/2005.

For the 2005 determination year, X is an HCE and is ranked 22 for the restricted HCE rule using $100.000. There are no ties in the top 25 group. If X had not retired, his $110,000 would have ranked 23 for the 2006 determination year.

For the 2006, determination year, X is now a former HCE. What is the right pay to use to rank X in 2006?

The regulations are not clear. I would like to argue that $100.000 is the proper pay amount. It is the pay used for his HCE determination in the last year he was an HCE. When he became an FHCE, the lookback concept for HCE determination does not apply. Therefore you look to the highest compensation used when he was an active employee.

Any comments or cites are much appreciated.

Does anyone have a good summary of ligitation history on retiree medical plans?

spouse (age 48) inherited trad. ira. must take mandatory distribution this year from father's acct. I am considering converting my own trad. ira to a roth. Have read, beginning this year, that mandatory distributions do not count against $100k income limit for eligibility for conversion. Primary question is whether exclusion only applies to persons age 70 1/2 or older, or does it apply to an inherited mandatory distribution as well.

Can anyone provide me with a link to the BNA 80 page summary of the bill?

Thanks,

Tony