The new bankruptcy law appears to exempt participant loans from the bankruptcy process. I read the changes to state that the filing of a bankruptcy petition should not stop an employer from withholding loan payments from an employee's compensation (exempt from automatic stay). I also read it to state that a bankruptcy plan cannot alter the terms of a loan from a 401(a) plan and that compensation used to pay such a loan cannot be considered disposable income. Ultimately, it appears as though an employer should not have to do anything (with respect to a participant loan) when an employee files for bankruptcy.

An attorney recently drafted a new bankruptcy provision for a participant loan policy that says that the employer should cease withholding loan payments from an employee's compensation: (1) at the request of a participant in bankruptcy; or (2) on request by court order. Although I would not advise an employer to violate a court order, neither situation appears to warrant a stay under the new Act. Anyone care to comment?

The following question is so elementary, that it can get overlooked.

Say a client establishes a pension plan.

When setting up the pension account, clients run into difficulty, and financial institutions don't know how to handle the question "can you open a pension account for me?"

They respond with all sorts of forms (irrelevant or inapplicable) or that they can't do it, etc. Many banks, etc. think that they are being asked if they can provide the plan documents, administrative tools, etc. and thus get confused or say they don't do it.

My belief (and what I did for myself) is that all you need to do is establish an account called say The ABC Company, Inc. DBPP, give them the trust ID #, and Corp EIN if necessary and deposit and invest money.

When I told this to a very newvous client, he kept asking is that it are you a hundred %, and so on.

So my question is "Is this absolutely all that is needed to communicate to a client or should anything else be addressed?"

Thanks.

The subject company has an operating SIMPLE IRA plan established through Nopain-Nogain Mutual Funds. I haven't read the plan document, but I am assuming it designates Nopain-Nogain as the only financial institution that can accept IRA contributions. The employer would like to offer increased investment options to their employees by opening the plan up to include investments from BrandX Mutual Funds too.

Section Section 219(g) describes the types of plans which an employer cannot make contributions to during the same year they make contributions to a SIMPLE plan. The plans listed in Section 219(g) include SIMPLE plans, therefore it appears an employer cannot have two SIMPLE plans during the same year.

So, I am concluding that the only way to acheive what the employer wants is to wait until the end of the year, terminate the current SIMPLE plan with the designated financial institution, and adopt a new plan without a designated financial institution effective January 1st. (And providing at least 60 days advance notice of the change) This will open the plan up so that the employees will be able to direct their IRA's be placed anywhere, and not just limited to Nopain-Nogain and BrandX. Is there any way to limit the plan to just these two investment sources (who are competitors)?

Here's a fun one (at least fun for us benefit geeks). Is an employer responsible for computing and reporting the additional interest? Also, is an employer obligated to report and withhold the penalty amount. We have a situation where an employee will recieve an amount which will be subject to both the additional interest and penalty amount. I just don't know how to handle it. I would appreciate any feedback from anyone that has come across this situation or has a better handle on it than me. Thanks.

My eyes have glazed over reading the final regs. Three things:

Item #1------ 1.401(k)-1(a)(4)(ii) - "Treatment of Elective Contributions as Employer Contributions" - states that deferrals are treated as employer contributions under IRC 404. I thought EGTRRA changed this. How is this applied?

Item #2------ Same cite says deferrals are treated as employer contributions under IRC 411. Some comments say this means that a participant who is zero vested in Employer contributions but has made deferrals is not treated as non-vested for purposes of rule of parity for vesting. Even if this is so, does this also apply for rule of parity for eligiblity as well?

Item #3------- Taking this further to the deemed cashout provision, is this to be interpreted that in the case of an employee who has deferred, but is zero vested in Employer contributions, such employee's non-vested Employer contributions may not be forfeited immediately upon termination if the deferrals remain in the plan?

Thanks for any help in sorting this out.

Here's what should be a simple question, but the question has thrown me. Can a health care FSA be offered to retirees? I know a cafeteria plan must be for employees and cannot be created just for retirees. But the definition of "employee" includes present and former employees. So, doesn't that mean that an FSA can be offered to retirees as long as its also available to active employees? Or am I missing some other provision of the rules?

I have a situation where a new plan would like to seperate certain HCE's and allocate a different %. Is it acceptable to define the following:

Non-partner Physicians (they happen to be HCE's)

Other Highly Compensated Participants

Thanks.

I would like a plan to provide that upon the death of a participant, the spouse (or elected beneficiary) could decide at the time of benefit distribution, what form to receive the pension (the death benefit is at least equal to the QPSA and fully subsidized).

For eg. the plan allows for a lump sum payment as an alternate option.

So if a participant were to decease while actively employed and the spouse were the benny, the plan would of course allow the benny to commence pension at time participant would have been elig for early ret (as QPSA), but could the plan allow the benny to choose an option after death (at the time of ben commence), eg. receive an equiv. lump sum at any date after death? So since the plan provides a death ben equal to full PVAB, could it be paid as lump sum at any date after death. Bottom line is that these provisions are more liberal than statutory requirements.

Thanks.

For audit purposes, would Lincoln Life be considered a party in interest if they are the fund entity sponsor and the fund is called LL Balanced fund? (other example – John Hancock entity sponsor and John Hancock Conservative Portfolio).

A 401(k) plan was filed with the IRS for a determination letter application in October of last year. The IRS reviewing agent recently asked for a copy of the 401(a)(9) amendment. That amendment was never prepared. The document filed indicated that the plan would follow the proposed regulations under Code section 401(a)(9). Any thoughts on available options.

BTW, this oversight occurred prior to my joining the firm.

Thanks in advance.

Ed

Party in Interest question- For audit purposes, would Lincoln Life be considered a party in interest if they are the fund entity sponsor and the fund is called Lincoln Life Balanced fund? (other example – John Hancock entity sponsor and John Hancock Conservative Portfolio). Thanks.

Has anyone had any experience with VCP, or audit CAP (please specify which) in a situation like this:

Client (small employer Doctor practice) has a money purchase plan that provides for the maximum 415 contribution for the owner and amount necessary to satisfy integration for other employees (unusual but not my issue). Client adopts a DB plan. The Client is now subject to the 25% deduction limit. Advisor tells Client to reduce MPP contributions to the 25% limit (this happens for several years). The problem is that the plan does not provide for a reduction in contributions. Under the MPP, the Client was required to make the contributions as provided under the formula. The MPP did provide, however, that any contributions that were not deductible would be returned to the employer.

My take is that the IRS may require payment of the excise taxes, but should permit the employer to get a refund of the contributions (at least for the owner). Any ideas?

A question we're debating in the office here: is there any requirement to have the participants update their elections annually (or some other frequency, I suppose)? We're considering things like an election to not purchase life insurance, 401(k) deferral percentage, investment election, beneficiary designation, etc. Most of us believe that such things are in force until changed by the participant. I can't find anything on it for or against, so I'm willing to take the silence as a "no"...

Has anyone heard anything about when the IRS is expected to issue proposed Roth 403(b) regulations? When the proposed Roth 401(k) regs were issued, it was announced that the 403 regs would follow "shortly".....That was nearly six months ago, and the provision goes "live" on 1/1/06. Also, if anyone knows the status of the "Proposed 403(b) Regulations" (regarding such things as requiring a plan sponsor to adopt a formal plan doc), that info would be helpful as well.

Any insight would be appreciated.

Thanks!

We are looking at software to prepare benefits adminstration forms and to assist with the applicable filing requirements. What are your thoughts on Accudraft?

How does it compare with other administration/filing software?

If I have a retiree who has not paid their premiums in almost a year, do we have to offer them COBRA coverage back to the date of loss of coverage due to non-payment?

We have a small defined benefit plan (about 30 employees) that has been frozen since 1993. Because of the poor market since 2000 the assets have decreased substantially and the plan is severly underfunded. The liability on a termination basis is about $1,700,000 and the assets about $700,000. The owner, who is 4 years beyond his normal retirement age, accounts for slightly under half of the accrued liability.

Another actuary is proposing two changes to the plan which I believe are in violation of 411(d)(6). First, he wants to amend the plan to eliminate the post-retirement actuarial increase for highly compensated employees (i.e. the owner) retroactive to his normal retirement date.

Second, he wants the employer to begin contributing to his profit sharing plan and change the DB plan into a floor offset arrangement. He would be using profit sharing contributions made in 2005 and later to offset the benefits accrued in the DB plan prior to 1993.

Does anyone else think these changes are not allowed or are the okay and I am being to narrow minded?

If a 403(b) that has emp. deferral & makes employer contibutions did not forward funds to investment firm, can they just follow the VFC rules and get current?

An adopting employer of a multiple employer plan went bankrupt without funding the 3% top heavy contribution they owed. Can the Administrator of the plan use the account balance of the owner/key to redistribute to the other participants? Does it make a difference if the key agrees to the redistribution?

The Employer participates in a state retirement plan, which is a governmental plan under Code Section 414(d) (the "Plan"). The Plan has Participant mandatory contributions equal to 5% of Compensation. "Compensation" is defined under the Plan to include salary continuance amounts funded by an employer whose emplyees participate in the Plan.

The employer has elected to designate employee contributions as employer contributions under the pick-up provisions of Code Section 414(h)(2).

A Participant in the Plan is absent from work and receives salary continuance amounts from an employer-sponsored insured plan, the premiums of which are paid solely by the Employer. All salary continuance amounts, net of F.I.C.A. withholding, are sent directly from the insurance company to the Participant. Historically, the Participant has sent 5% of the gross salary continuance amounts to the Employer for the Employer's remittance to the Plan.

Questions:

1. Assuming that the Participant and insurance company are both willing to do so, may the contributions of 5% of the salary continuance amounts be withheld by the insurance company and remitted to the Employer? May they be withheld and remitted directly to the Plan or trustee of the Plan?

2. Is there any type of arrangement which may be set up so that the 5% contributions on salary continuance amounts may be designated as employer contributions under Section 414(h)(2) or must they be designated as participant after-tax contributions?

Thanks in advance for your input.