A DB plan provides that if the present value of a participant's vested accrued benefit does not exceed $5,000, then his/her benefit shall be paid as a lump sum distribution; otherwise the participant's benefit is paid as an annuity (the DB plan does not permit lump sum payments other than cash-outs). Even though this is not a distribution option (i.e., the participant cannot elect this form of distribution from a menu of distribution options), can the DB plan remove the cash-out provision without violating the 411(d)(6) anti-cutback rules?

If eligibility is more liberal for 401k contributions than (X-tested)profit sharing contributions, and a participant is eligible for 401k but not for PS, does that participant need to be included in the rate group (midpoint) testing for the profit sharing portion?? I know the participant must be included in the avg. bfts percent test. Thanks.

Without notice or warning, I received a forceout distribution (<$1,000) from a 401(k) plan from a former employer's plan. The check was dated 1/3/05. Today is approximately day 66 (since the date of the check, not since received).

The check was rendered uncashable due to the actions of a pet. I intend to request a replacement check from the issuing trustee.

Will I be able to roll the funds into an IRA within 60 days of the reissue, or am I out of luck due to the passage of time since the original distribution.

My gut feeling is the IRS will have no way of knowing as the successor custodian of the funds will only see the new check date and the prior custodian will only report the year of the distribution. But what is the official rule here?

Also, I have not yet contacted the check issuer. Should I expect any kind of resistance to a request to recut a check? I can provide the remnants of the initial distribution check if asked.

Thank you for your thoughts,

Jonathan

I have a calendar year plan with one participant where Normal Retirement is age 68.5.

As of 1/1/2005, he has more than 10-years of plan participation and is age 67. His high 3-year compensation average is $200,000.

Plan assumptions are:

Mortality: 83GAM Post-retirement only

Interest: 5% (pre and post interest)

I am preparing the 1/1/2005 valuation and I have the following questions:

1) Do I use $170,000 as the 415 dollar limit (which will need to be adjusted for payment past age 65)?

2) To calculate his accrued benefit at 1/1/2005, do I compare the accrued benefit calculated without limit using the plan's benefit formula to the 415 dollar maximum adjusted to 1/1/2005? Or do I compare it to the 415 dollar maximum adjusted to age 68.5?

Thanks!

Plan year closes 03/31/2005. Our company has employees in several states, including CA and the DPRRA that went into effect 01/01/05 has raised many questions. The first is, (1) can we require an employee to supply a copy of his/her CA State registration, if he/she did not complete an affidavit as required under the former guidelines? If a DP does not obtain registration, advise the ER that registration had been filed and the Employer does not request an affidavit is the Employer in violation? Many of our DP sign-up for life insurance for their DP, however, we do not have validation on file for all dP stating he/she is eligible...who is ultimately responsible 0 EE/ER? Lastly, should we track CFRA and FMLA separate or is a registered or unregistered DP not entitled to the State provisions of FMLA?

Many thanks

If you stop the SH match I believe you need to give 30 days notice. But if you are stopping both the match and the deferrals (effectively terminating the plan) is there any reason you can't stop the deferrals immediately, effectively end-running the match notice requirement?

Plan year end is March 31, 2004. There are ADP/ACP returns.

Client chose to wait till after the 2 1/2 month deadline to have the refunds processed, and they will absorb the 10% excise tax.

Refunds were processed August 1, 2004.

When do you report the excise tax? When is it required to be paid?

Should it have been filed with their March 31, 2004 5500 filing, or with the March 31, 2005 filing?

Thanks.

I am trying to get my new employer to purchase the 5500 filing guide that I have used in the past, especially for help with the Schedule H. I can't remember the actual name of the book or the author. The book was in the paperback style like the ERISA Outline books, but not 4 volumes (!) and was green with yellow print on the cover.

Anyone out there know the name and/or author? I have found this book to be better than the one that they offer here in the bookstore (by Corbel, I think).

Thanks for your help!

Can the adoption of a volume submitter plan to replace a prototype plan ever be considered an amendment? I say no (duh), my boss disagrees. Can someone settle this one for us?

I am reading that when you calculate an employer contribution for a profit sharing plan with a 401K feature you reduce the total comp each participant earns by the amount deferred to come up with the 415 comp. That 415 limits are based on "taxable" income and when someone defers compensation his "taxable" income for the year is reduced by the amount deferred. ie. EE makes $30K, defers $5K, max ER cont = 25% of $25K or $6,250. Right so far?

Lets make the plan a SH plan with a 3% SHNEC.... 3% of 415 comp? or using the above example, 3% of $25K or $750? or is the SH contribution 3% of total comp?

Finally, plan is TH... 3% TH minimum of total comp or 3% of $30K or $900

There are also 457b,f and otters... where do I go to look for the differences

Is there a good site or book?

Good Morning.

Can an employer (plan) pick and choose what expenses will be reimbursed under a flexible spending account? I know that to be eligible they have to qualify under Section 213, but what if the plan doesn't want to cover something that is eligible under this Code Section? Is it enough to just specify it is not eligible in the Flex plan SPD?

The situation is that a 401(k) plan was installed in 1999 and the attorney wrote the Plan with a mandatory match (50% of 4%). He did this because the client's accountant told him to although that was not the client's intent (a misunderstanding all tha way around). Failing to read or understand the wording in the document, the consultant thought the match was discretionary. Every year, the consultant asked the client if they wanted to contribute a match....and the answer was aleays "no". The client never intended to match and has no intention to do so in the future. Now, while doing the 2004 plan year valuation, the consultant realized the true wording in the document. Any suggestions on how to handle this?

I am testing plans that are members of a controlled group. All plans are tested separately. I know if an HCE was eligible for 2 plans during the year the total contributions he made during the year must be used in both tests, but I am still confused:

1. Is it correct that total compensation is used in both plans, even though the document specifies while eligible compensation?

2. For NHCEs only compensation and contributions made under each plan are used in that plans test. Correct?

3. One HCE terminated a company in the controlled group in 2003 and moved to another company in the controlled group. In 2004 he received a bonus from the company he terminated from in 2003. The document states that in determining contributions only compensation paid to a participant while employed is taken into account. It seems to me that even though he had compensation from two companies he only needs to be included in one test. Is this correct?

Thanks!

Cafe plan with FSA for medical reimbursements (out of pocket deductibles, etc) and dependent care costs.

Does the general rule of Officers, owners, etc. received < or less 25% of benefits test apply to each component or to the total of all benefits?

For example, if non-hce's, etc. did $10,000 in medical FSA transactions/salary reductions and $20,000 of dependent care costs/salary reductions would the available amount for HCE's officers, etc be segregated for each "plan" or aggregated in total? I think its both???

So if the company had 4 officers, all owing 25% of the stock, then the most the four could do in medical transactions in the plan would be $2,500 split among the four owners. As opposed to it being $30,000 x 25% = $7,500 regardless of which type of benefit, medical or dependent care.

THANKS !

The Retirement Savers Credit can be claimed using form 8880. Depending on one's marital situation and income (no-more than $50k), one may be able to obtain the savers credit. This credit can reduce the taxes the IRS will expropriate from you to $0, but it cannot get you a subsidy (State-payout). It can be used whether or not you itemize your 1040 or 1040A, but cannot be used with a 1040EZ. However, there are a few snags to think about when planning ahead. Before explaining them, let me briefly over-view what is required to be able to claim the credit:

• Adjusted Gross Income must be less than:
  
  • $25k if single, widow(er), or married filing separately
    
  • $50k if married, filing jointly
    
  • $37.5k if head of household
    

  [*]Must have made contributions to a qualified retirement plan, such as a Traditional IRA, Roth IRA, 401(k), 403(b), etc.

  [*]Cannot be claimed as a dependant on someone elses' tax-returns.

  [*]Cannot be younger than 18.

  [*]Cannot be a full-time student.

The way the tax-credit works is that you get a credit for a fraction of the lower of either your contributions to retirements savings plans or $2,000. What fraction is multiplied by $2,000 or your retirement-contributions (whichever is lower) is determined by your income and filing-status. Here's a table summarizing it:

• <Because I cannot figure out how to make a table on these message-boards, I provide

Many of you probably already see what I'm about to talk about. If you're single and your Adjusted Gross Income is $15,000.49, you can get a maximum of an $1,000 credit; this is because you're allowed to round on your 1040 or 1040A, so it rounds down to $15,000 (the choice to round or not round has to be for all fields). However, if you're single and your Adjusted Gross Income is $15,000.50, your maximum credit is $400: A 600 dollar difference for one extra cent! (This is something I find extremely idiotic). It is highly unlikely that many will be that close to the margin; however, it is entirely within the realm of probability that there will be many $10, $20, $50 away from the difference between a $1,000 credit and a $400 credit.

One way to get around this grave annoyance would be to see if you can lower your AGI. Tax-deferred contributions to a Traditional IRA, 401(k), 403(b), etc would be one way to do that. A common strategy for the forward-oriented is to max-out contributions to a 401(k)/403(b) and max out contributions to a Roth IRA (the contributions of which are not tax-deductible, but grow tax-free not tax-deferred). Currently, the maximum that one can contribute to a Roth and Traditional IRA together is $4,000. This means that money contributed to a Roth IRA reduces the possible money one can contribute to a Traditional IRA. Thus, for someone on the margins of a percentage-break in this tax-credit, it may be adviseable to consider diverting the minimum amount of Roth IRA contributions to a Traditional IRA so as to set one up (see this thread on BenefitsLink for a discussion of the minimum required startup amounts for IRAs). Thereafter, you can contribute solely to your Roth IRA; if you foresaw falling on the margins of a break-point again, you could divert the minimum amount from you Roth IRA (which does not lower AGI) to your Traditional IRA (which does lower AGI) so as to make the breakpoint.

This obviously makes tax-deferred retirement contributions more valuable, ceteris paribus; thus, you may have to re-evaluate the desireability of Roth IRAs vs. Traditional IRAs, if you are at the margins of the saver's credit breakpoints, or within $4,000 dollars of being at a breakpoint. Consider, for example, if you're single and your income is $33,000. Maxing out 401(k) or 403(b) contributions would provide a downward adjustment of $14,000 (AGI would thus be $19,000). You now have $4,000 dollars to contribute to a Roth IRA or Traditional IRA. An $4,000 contribution to a Traditional IRA would reduce your AGI to $15,000, while a $4,000 contribution to a Roth IRA would not change your AGI. You now have to decide if the benefits of the Roth IRA's tax-free growth are worth (to you) the costs of a $4,000 tax-deduction (which lowers your taxes by a fraction of $4,000, depending on your tax-rate) and a $1,000 tax-credit. I say to you, because the subjective costs may be different to two different people in the exact same situation, because of differing time-preferences. The more you value that $1,000 tax-credit and $4,000 deducitlbe now, the less the subjective benefits of tax-free growth (which will be reaped in retirement) will be. The shorter your time-horizon on your retirement funds, the more attractive the benefits of this course of action, as well. How well you expect your investments to perform, and whether you expect taxes to go up or down (the safe bet's on the former) also play into the decision, along with your current effective tax-rate and your expected future effective tax-rate.

Moving away from that example, the other thing you have to decide is if figuring out all of this stuff is worth it to you ex-ante: That is, do your expected subjective costs of doing such exceed your expected subjective benefits. Put another way, the work of all this may be worth it to many people to save $1,000; but it probably won't be worth it to anybody -- except someone with an extreme neurosis -- to save $1.

Recharacterization: Up until Apri 15th, you can still recharacterize Roth IRA contributions for the prior year (the year for which you're paying taxes) to Traditional IRA contributions. If doing this and opening up a new Traditional IRA with that company, you'll have to recharacterize the minimum to open up a Traditional IRA (varies from company to company, but again see my prior ref to a BenefitsLink thread). Thereafter, to engage in this kind of strategy, you'll only have to recharacterize the precise amount that you need (or the nearest rounded up amount thereof that your financial institution will allow you to recharacterize) in order to get your AGI down to a Retirement Savers Credit breakpoint. It is probably most wise to figure out what you need to recharacterize (if anything) after the year for which you're paying taxes ends, so that you don't recharacterize anything more than you need to in order to get the credit.

We have been telling terminated employees in the COBRA notification letter that they can continue making contributions to their medical and or dependent flex plan(s) on an after tax basis by sending a check for the remaining contributions for the year. We also tell them that they have 90 days after termination to use the pre-tax amounts they have already contributed in to the flex plan(s).

Are we doing everything that is required?

Is it necessay to generate separate COBRA notices to spouses & children covered under the plan. We have been generating COBRA letters to all covered persons but it is costly with paper, envelopes and postage. Is it sufficient just to send a COBRA notice to the former employee?

When former employee finish the 18 months of COBRA are employers required to send them (employee & spouse) a letter informing them that the 18 months of coverage is over such and such a date?

Louis Gray

An hce is leaving employment. He wants to defer 100% of his pay. The trustee knows a 100% deferral rate in 2005 would create massive refunds for all other HCE's. Can the trustee impose a maximum deferral amount on this HCE?

Can the trustee set limits for all hce's to prevent these issues, like capping deferrals at 10% for all HCE's?

What is required to do these things?

Thank you