A client has called regarding their SARSEP that has been in place since 1977. In the adoption agreement, they selected an option to limit eligibility to employees who worked at least 30 hours per week. (I didn't know there was ever an eligibility option for hours of service, only a compensation threshold and the 3-of-five years provision.)

Is anyone familiar enough with the history of SEPs and SARSEPs to know when the hours-of-service provision went away?

The client would like to do what's right to bring the plan in compliance. Does any one have suggestions on how far back they have to go in order to do that?

Thanks for any help!

Client has elected to comply with the EGTRRA autorollover rules by reducing the mandatory cash-out limit from $5,000 to $1,000 or less.

What is the rule for counting rollover accounts for purposes of determining whether the $1,000 threshold is met? I know you don't count them for purposes of the $5,000 autorollover.

Some advisors are saying that you must count rollover contributions for purposes of cash-out, but I think Code Section 411(a)(11) (referenced in 401(a)(31)(B)(ii)) indicates that a plan can be drafted to exclude rollover contributions from the definition of "nonforfeitable accrued benefit" and thereby exclude rollovers from the determination of whether the cash-out threshhold is reached. Furthermore, Q/A 14 of Notice uses the word "if" which suggests to me that a plan can be drafted differently.

If I am right, what are some reasons to include rollovers in the nonforfeitable accrued benefit? (There is no vesting in this plan--all contributions are vested.)

I am on the board of a nonprofit. Can we legally reimburse a staff member for her portion of the health insurance premium paid by her spouse? We increased the staff member's hours in order to make her eligible for health benefits and PTO. However, her share of the premium for coverage under her spouse's plan is less than the premium in our small group plan. It wouldn't make sense for her to change providers. This would be a policy change so we would like to ensure it is legal and done properly. The thought would be to give staff the choice of either signing up for the group plan or reimbursing the staff for a health insurance policy obtained on their own - the maximum reimbursement being what the premium would be if the came in under the group plan.

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I recall seeing somewhere that corrective distributions (ie to comply with nondiscrimination rules) are not eligible for rollover, but as inelligble rollover distributions, they are not subject to the 20% penalty and the 10% early distribution penalty can be avoided. Is this at all correct?

The next part to my question is how this applies to top-heavy corrective distributions. A plan failed to make top heavy contributions in certain years, some former participants have distributions coming in excess of $1,000 and they may want to roll them into the same IRA or plan into which they rolled their initial distribution.

Anyone care to share a letter, to be sent to a HCE, explaining why they are getting a refund of deferrals because of a failed ADP test. Looking for something in layman's terms, but having a tough time because I'm too technical.

Plan excludes union employees. A participant has recently changed to union. The Plan provides matching contributions on a per payroll basis and a year-end profit sharing allocation with an employed on last day of Plan Year, 1000 hours condition. Plan year ends 6/30.

With respect to the non-union plan, I realize the person immediately becomes ineligible upon change to union and the plan must stop deferrals and discontinue matching contributions. However, I'm not sure whether the participant will be eligible for the 6/30/05 year-end profit sharing allocation and if so, what the compensation figure is.

The document (Corbel doc) says compensation is counted as of date person becomes ineligible. Hours of service definition counts all service. And, this person would be considered employed on the last day regardless of whether a member of the eligible class.

Hi Everyone,

I'm looking for a little assistance with the new 409A rules and the Grandfather Provision.

I understand that when you decipher when the compensation was deferred (either before or after January 1, 2005) you look at the vesting for the participant for those particular funds. The vested funds are tabbed as before 1/1/2005 and the unvested funds are tabbed as deferred after 1/1/2005. Now with the unvested portion does that maintain its vesting position as with the previous schedule?

Example: Plan's vesting schedule is 0-0-0-40-60-80-100. Participant is currently 80% vested. Thus the vested portion is earmarked as pre 1/1/2005. I know the unvested portion is post 1/1/2005. My question is that does the unvested portion remain at the point where one more vesting credit will vest the funds at 100% or does the vesting begin over again?

I'm 43 and just landed a new job making more than I ever have (little under $110k yr). I'm starting late, (never saved before) so I want to catch up as quickly as possible. 2 questions:

1. If I contribute the max ($14k) into my 401k, can I still open and contribute the max into either a traditional IRA or Roth IRA? Someone said I couldn't.

2. My compensation pkg is: $85k yrly, $15k yr end bonus and $3k "profit sharing" employer contrb to my 401k. They do not match my contributions. So what is the best way to maximize my investing? Put the max in 401k ($14k - i.e. most of my yr end bonus) plus max ($4k) in Roth IRA and whatever else I can into taxable funds? Or because long term capital gains tax is only 15% would it be better to contribute more into taxable funds rather than max in 401k?

Thanks!

I understand that elective deferrals are not made from severance pay that is paid to an employee after the date of termination. My question is related to the 3% nonelective SH contribution. The Plan defines compensation as W-2 wages. The severance pay is included in W-2. Does the severance pay that is paid after the employee terminates count when determining the 3% SH contribution?

Want to General Test a window that provides 3 years added to age and service for those eligible for the window and not receiving Minimum Distributions but only a flat $10,000 for a couple of non-highs who are eligible for the window and receiving Minimum Distributions.

Have a couple of questions :

(1) Are the accrual rates and corresponding rate groups to be tested created by looking at the entire plan's participants or just those eligible for the window ?

(2) If testing on a benefits basis would you simply convert the $10,000 amounts to an annuity at current age - both participants are older than the testing age of 65- and then for say the annual method would the change in accrued benefit simply be the converted benefit plus the otherwise accrued minus the beginning of year accrued ?

For those eligibles not getting the $10,000 and again using the annual method I'm assuming the accrual rates would be determined by taking the accrued benefit reflective of the 3/3 and subtracting the beginning of period accrued which naturally doesn't reflect any enhancement ?

Does anyone require active employees with ESRD (End-stage Renal Disease) to enroll in Medicare as a condition of continued participation in your active employee health plan? If so, would you be willing to share your plan language? Many thanks.

I have a KSOP that recently paid a stock dividend. I'm unable to find any language in the document which addresses what to do with the stock dividend on shares in suspense. The document does state that a cash dividend on suspense shares can be used to pay the loan or purchase additional stock. We have employees who are waiting to buy stock with their deferrals. Would it be reasonable to do this? Any suggestions?

Are there any COBRA administrators who have premium payments sent directly to a lockbox? How do you deal with payments that are made (postmarked) after the grace period has ended? Since the payment has already been deposited into the bank account, do you simply issue the participant a check?

Background:

1) plan participant divorced

2) a QDRO was drafted

3) plan participant died

4) the QDRO was then submitted to the plan administrator

5) the decedent-participant's estate claims the funds as does the alternate payee

The qualified DC plan has instituted an interpleader action. It intends to pay the account balance to a U.S. District Court, which will then decide who gets the money.

A few questions come up:

1) Normally a 1099-R would have to be issued, but does it in this situation, and if so to whom? (I see on the instructions to the 1099-R that if the payment would be exempt from tax no 1099-R need be issued.)

2) Is interpleader even permitted under these circumstances, and if so would the plan have to specifically provide for such an ability?

Thanks for any help.

When implementing a new cash balance plan for a professional organization (medical practice or really any organization) with 7 owners/HCE's... is it possible to exclude one or two owners if they do not wish to participate and contribute? Can this be done while drafting the plan? Does the number of owners or owner demographics play a role in the ability to do so or not? Does the company structure play a role? Most seem to be LLC's or partnerships. Thanks in advance for any help.

If an existing calendar year 401(k) plan wants to establish a safe harbor plan effective 1/1/05 using the safe harbor matching formula and timely provides the employee notices by 12/1/04 and operationally applies the safe harbor matching formula effective for the first payroll in 2005, when is the deadline for restating the plan document? Would it still be prior to the beginning of the 2005 plan year?

is a participant in a closely held esop entitled to receive a copy of the independent stock valueation reports used to annually establish esop stock value?

What happens to the 2% shareholders in a self-funded group health plan? I believe they are taxed as income on the fully insured equivilents and the claims paid out are not taxable as income. How does this impact non-discrimination testing if more claims are paid out to HCE's as opposed to non-HCE's? Are the HCE's then taxed as income on the claims?

Under a split dollar arrangement, if the cash value of the policy is paid to an employee (who at the time has terminated employment), is it reported on a 1099 or W-2? I'd appreciate any thoughs.