We all need to get together and come up with somehting like a "Darwin" or "Stella" award for the worst proposed pension law in House or Senate. Got to thinking we should award those folks like Tom Harkin (who truly needs a hobby).

Senator Harkin proposed S.607. This bill provides that in the event of a sale of a corporation or division, liquidation, merger, consolidation, or other similar transaction, an employee who continues employment in the same trade or business with the employer that acquires the trade or business and who participated in a pension before such transaction must, solely for the purpose of determining eligibility for any subsidized early retirement benefit provided by such plan, receive credit for any periods of service with the successor employer that would have been taken into account had such transaction no occurred. This provision would apply only if the successor employer did not continue to maintain the plan in which the employee participated before such transaction.

This one is giving me hives. Can just see my department 10 or 15 years from now trying to verify that someone continued working in a Plant we sold years ago. Of course we all know facilities never change hands, and all HR folks have employee files going back to when Noah built the Arc, and of course those folks the facility we sold to will drop everything to provide us with the proper data. And lest not forget, the verification and data will have suffer the scritiny of the new SOX requirements, the internal auditors, the external auditors and of course me the department head.

Did I mention, most of our plants are in rural non unionized locations. Can just imagine plant mgr and HR person "verifing" that 99% of the county continued to work at the plant after it was sold to new owner. Then every one gets to draw pension early and subsidized.

AndyH please feel free to join me in my vent. Guess the new SSA regs weren't enough for me today.

A plan was recently referred to us that combines a 401(k) and an ESOP under the same plan document.

The 401(k) is participant directed and employer securities are an investment option. And, of course, there are the employer securities that are in the plan due to the ESOP.

Are there special rules or pitfalls that I should be aware of relating to the employer securities since the two plans are combined?

The employer would like to eliminate any distinction between the 401(k) employer securities and the ESOP employer securities. He would prefer to treat them all as ESOP shares. Is that do-able? Recommended?

Your thoughts would be greatly appreciated.

My multi-employer client consists of numerous small employers, a few of which have had their accrual rates changed in 2004. The funding method is immediate gain, and the base for this amendment is less than 0.1% of liabilities.

Must I amortize a de minimis base for 30 years as a plan amendment? Or is it okay that I 'lump' it with the gain/loss of the plan and amortize it for 15 years? Any citations will be appreciated if it is okay to lump it with my gain/loss base.

Thanks.

I am looking for an easy to use source of quotes by highly-rated insurers. Anyone have suggestions for an easy way to get several quotes - short of spending a half an hour on the phone with 3 vendors? Thanks for all help!

Company 'A' was purchased by Company 'B'. Company 'B' does not have a pension plan. Of the 90 members in Company 'A' 88 will now work for 'B'. The 2 remaining will be the owners from 'A'. They will leave the plan an roll into an IRA.

'B' would like the transition to be invisible in that they like the vendor where the plan currently presides and hopefully the TPA.

1.) Does the TPA terminate and file a final 5500 for A?

2.) Does the vendor need to open a new contract or can the new 'B' assume the the 'A' contract?

3.) Are all the employees considered 100% vested?

These 88 people will be doing the same job. If a new contract is needed does the money type of EEDEF and Matching get recharacterized as ROLLOVER with the new plan.

Any advice or points of interest would be greatly appreciated.

I am trying to determine if my client has to file a 5500. They have a Premium only Section 125 Plan. They have >100 employees eligible to participate in the health insurance coverage but less than 100 actually take advantage of the coverage.

I think this means that they have an unfunded welfare plan because the employee money via the Section 125 plan is treated as employer money.

My question is what is the definition of participant? Is it the eligible employees or the ones who actually elect coverage?

Concerning Catch Up Contributions. I have two HC's (one owner and one not) both over the age of 50. The owner would like to defer the maximum percentage allowed for the HC group even if it means the 2nd HC can defer nothing. If the 2nd HC defers nothing is he allowed to do the catchup of $4000.

I contend that the HC deferring nothing has not met any limit.

Your opinions please

My client gives their employees $350 each month to "shop" for benefits under the Section 125 Plan. A participant elected to use her money for health benefits for her family. Effective May 1st she will be covered under her spouses insurance, so she will drop her coverage through her employer. Now there is the employer money left, can she put that money towards the Medical FSA even though she did not elect that account at the beginning of the year, or does the employer money go unused?

I broker of mine had a client contribute to a Roth IRA for 2004. It has been determined that they are over the AGI allowed limits. 1) what penalties may be associated?, 2) What should next steps be to reverse this contribution?

Any help would be greatly appreciated.

RR

Are you aware of any limitation that when you have a multiple employer 401(k) plan - that would preclude one of the employer's from electing safe harbor status [when the others do not] .

President Bush says that if we don't fix social security, there will be 30% cuts in benefits because the fund is inadequate. Yet, under the Bush proposal, the cuts will be approximately 27% for the middle class and all but the very poor. The wealthy already are capped, so they probably would not be affected. So, perhaps my background as a math teacher, a CFP certificant and tax lawyer is inadequate....could someone explain why this is a FIX?

I don't follow the logic.

Thanks!

Theresa Lynn

Single Employer sponsors 2 plans, a 401(k) and an ESOP. Each has distributions with withholdings for the 2004 Plan Year.

1) When preparing 1096's for the 1099's should one or two 1096's be prepared (ie., one for the taxpayer/employer as a whole, or one for each Plan).

2) Same question for the 945.

3) So in summary is all of this reporting (1099, 1096, 945) performed at the Plan Level or the employer level?

Any thoughts are greatly appreciated.

Taking over a DB case with term insurance. Plan had no contribution as developed under prior actuary, so plan has been paying insurance premiums from trust. Since the valuation was performed @ EOY, with EOY asset value reflecting payment of these premiums during the year, I think it would be consistent to modify the EOY asset value by adding back the amount of premiums paid during the year for the year in question.

No, I haven't gone to the dark side, but I do have a curiousity question on how to fund terminated participants to comply with the level annual premium payment rules of a 412(i) plan.

Let's say a person enters the plan, works 1,000 hours and then quits all in the same year. How would you fund his benefit in a 412(i) plan considering I can think of 3 possibilities?

1. His premium is based on his PVAB of the CSV at retirement and only one payment is made on the basis that he is no longer "participating" in the plan after the one year (i.e., funding the entire benefit in one year).

Ex: CSV at NRA = 10,000; assume 3% guaranteed rate and 20 years to retirement so the PVAB = 5,537, so funding is 5,537

2. Project his benefit to NRA as if he is an active participant and fund the level premium for that year based on ILP method. No funding the next year since he's not active.

Ex: Proj benefit CSV is 200,000 / Annuity factor of 27.6765 = 7,226 funding needed this one year.

3. His projected benefit is his accrued benefit. His projected CSV at NRA is funded for until NRA in level payments.

Ex: Proj CSV = 10,000 / 27.6765 = 361 funding each year until retirement.

So which would you choose and why?

Fee, taxes, etc. for being nabbed in audit CAP are assessed based on "open" tax years.

My understanding is an "open" year is generally the past 3 years but - When is a year considered "open" ? What starts the clock ticking to "close" a particular year ? A few cites would be most appreciated.

I never had to pin it down before. Thanks all.

If an exempt organization maintains a SERP for an executive and taxes him on his accrual for each year under Section 457(f), is the SERP subject to 409A? Is the SERP exempt from 409A as "short term deferral?" Q&A 4 of Notice 2005-1 defines a "short term deferral" as follows:

© Short-term deferrals. Until additional guidance is issued, a deferral of compensation does not occur if, absent an election to otherwise defer the payment to a later period, at all times the terms of the plan require payment by, and an amount is actually or constructively received by the service provider by, the later of (i) the date that is 2 1/2 months from the end of the service provider's first taxable year in which the amount is no longer subject to a substantial risk of forfeiture (as defined in Q&A 10) or (ii) the date that is 2 1/2 months from the end of the service recipient's first taxable year in which the amount is no longer subject to a substantial risk of forfeiture (as defined in Q&A 10).

The problem I am wrestling with stems from the words "at all times the terms of the plan require payment by,..." SERPs such as the one I describe typically link the distribution of the executive's SERP benefit to his/her distribution under the organization's qualified plan. Is it enough to constitute a "short term deferral" to tax the executive on his accrual for each year, or must the SERP actually pay out the benefit within 2 and 1/2 months after the end of the year in which it is accrued and not subject to a substantial risk of forfeiture?

Is there some other basis for advocating that such a SERP is not subject to 409A? The possibility of having the taxes owing each year on the accrual increased by 20% under 409A is not attractive, and it makes the gross up number completely unacceptable. Thanks for any input.

Wondering if someone has researched or opined on this.... Participant Loan agreements (NOT Application) are essentially a long check stub which participant accepts by endorsing the check. Under new Check21 processing, the physical check is not returned to the issuer -- just a digital image of the check.

Is there any ERISA rule or precedent that makes relying on the digital image of the endorsement (as opposed to having the "original" signature) a problem?? I believe our state law has already been modified to generally make digital images acceptable proof of execution.

Thanks for any thoughts or cites.

I need to learn more about ESOPs and administering ESOPs. Can anyone recommend some course material and/or reference books?

A company sponsors a SIMPLE IRA. For 2004, the owner wrote a check at the end of the year for his own deferrals and sent it to the investment company for deposit into his account. He has indicated salary reductions are being made properly for all his employees. His 2004 W-2 showed no pre-tax SIMPLE contributions, so he's basically made an after-tax contribution to his SIMPLE account.

What should be done to correct this, and is there any way he can have this recharacterized properly?

Can someone please point me to where I can find the historical rates that must be applied to mandatory employee contributions in DB plans?

I'm looking for the mandatory interest rate on employee contributions that was in effect in 1988. I’m pretty sure it went to the current rule of 120% mid-term AFR in 1990, and I think it was 5% early on, but I also think there was another iteration of the regs between the 5% rule and the 120% rule.

I apologize if I should be able to find this information elsewhere on this site.

Thanks.