An IRA owner had systematic distribution on a monthly basis from his IRA. he died in September 2004, but the distributions continued.

The Bank was never notified of his death until Last week (February 2005). Now the beneficiary wants us to change the reporting and issue the 1099-R for the September, October, November and December distributions in the name and TIN of the beneficiary (and the name of the deceased- like an inherited IRA).

The Bank is saying they cannot do that, because the beneficiary did not request a the distributions, and that the beneficiary should have their tax person handling any correction on the tax returns.

Is the Bank required to fix the reporting?

Thanks very much for your help.

Jane

Newborn baby dies 10 days after it is born. Parents have not enrolled baby to date but they are still within the 30 day special enrollment period. Can they enroll the child to cover child during the 10 days child was living. They also want to increase health FSA election to cover expenses during the 10 day period.

HIPAA gives 30 days to enroll with retroactive coverage back to date of birth. I can't find anything that won't allow them to enroll to cover child for 10 days and then revoke the coverage due to a status change (death of the child). Any thoughts?

Have a client who previous to 9/1/2004 sponsors a stand-alone 401(k) profit sharing plan via a standardized prototype. On 9/1/2004, employer stopped sponsorship of the stand-alone plan, merged the assets and adopted a PEO 401(k) plan sponsored through Mass Mutual & ADP Payroll. We are attempting to run a 2004 ADP/ACP test on the old plan. Is the old plan required to aggregate compensation; deferrals & match from the PEO plan to perform a combined 2004 ADP/ACP test? Can separate ADP/ACP tests be done as long as coverage under 410(b) is met separately? Does the PEO plan need to aggregate the old plan data as well? Did the employer sponsor two 401(k) plans in 2004? The HCE’s actually deferred their 402(g) limit to the old plan, and did not contribute at all to the PEO plan in the second part of 2004.

Plan sponsor made true-up contributions to a 401(k) plan when the plan document did not provide for true-ups. We plan to correct under VCP with a retroactive plan amendment that permits true-ups. Are there any problems with the fact that the plan sponsor took a tax deduction for the true-ups? It seems to me that submitting under VCP would correct any qualification issues and thus preserve the deductability of the contributions. Any comments?

I understand that for an employer who sponsors 2 401k plans, you test under 410(b) to determine if the plans pass 410(b) separately. If not, they are combined, and then it follows that other non-discrimination tests are tested on a combined basis.

But when testing under 410(b), these 401(k) plans have at least 3 components - non-elective contributions, elective deferrals, and employer match contributions. So, to see if the Plan #1 passes separately, you would test all 3 of these components separately. You would then do the same for Plan #2. What if the elective deferral component of each plan passes 410(b) separately but the other 2 components do not pass separately? Would you still be able to perform the 401(k) test separately for each plan? Or is it the case that all components must pass separately in order for the plans to test other non-discrimination tests separately?

Thanks for your comments.

I recently noticed that Form 5309, application for determination of employee stock ownership plan, was revised as of December 2004. The revisions are quite substantial in the portion of the form applicable to 4975(e)(7) ESOPs. Has anyone spoken to the IRS regarding whether the answer to all of the 4975(e)(7) questions must be yes in order to obtain a favorable determination letter? The plans I deal with do not contain provisions regarding the terms of the exempt loan and all have obtained favorable determination letters in the past. I am concerned that I will need to amend all of those plans in order to pass the form 5309 questions. Any thoughts?

Thank you!

A 412(i) defined benefit plan has a benefit formula of 100% of compensation reduced 1/25 for years of participation less than 25 years. The participant will have 30 years of participation at normal retirement date, and benefits accrue pro rata over years of participation. The participant's compensation is $50,000. Therefore a deferred annuity is set up for $50,000/year beginning at normal retirement date. Level annual premiums are paid from now until the year of normal retirement. Compensation is 3 year average compensation for years of participation. Next year the compensation is $45,000. I assume I am now funding for a benefit of ($45,000 + $50,000 /2). How is the adjustment made to decrease the benefit at retirement?

Can a deferred annuity be set up assuming a salary scale?

Or is a deferred annuity purchased each year for only the amount of the benefit accrued that year? - and if so, how does that tie in to the requirement for level annual premiums for funding?

Susan Eissler

Or does the business have to be incorporated? I'm unsure of the IRS ruling on this, so need some help. Thanks!

1. If a new business (first year of operations) wants to make a SEP contribution for its employees, does it need to put special eligibility requirements in its Form 5305-SEP (or adoption agreement or plan document)? The 3-years-out-of-5-years rule is simple enough to understand. So, if a new business would like to make a SEP contribution for Year 1, doesn't it have to adopt less restrictive eligibility requirements (i.e. 0-years-out-of-5-years).

2. If I'm correct in #1, is there any problem with the business amending its eligibility requirement each year, until it hits the 3-years-out-of-5-years standard? The employer's goal is to provide a benefit to its start-up workers, not to give special treatment to everyone hired in subsequent years.

I seldomly run across SEPs and don't have much of a background working with them. Thank you, in advance, for your insights.

In '98 I converted a Traditional IRA to a Roth IRA. Taxes were paid on a conversion of $17K. I have made no contributions since and it is now valued at $10K. Can I withdraw since it has been over 5 years, transfer the Roth to another broker and write off the loss?

Does anybody know of any site, other than here at BenefitsLink, that posts jobs in the benefits industry?

Company X maintains a 401(k) plan for its employees. Assume the following scenarios.

Assume employee A is a commissioned salesperson and sells a product to a customer for which s/he would be entitled to a commission. Customer has 30-day period in which to cancel sale. Assume customer cancels sale. A has had 401(k) and matching contributions allocated to account based on commission based on sale of product which was later cancelled by customer. Can the plan forfeit the match and 401(k) contribution based on the cancelled sale?

Assume Employee B is a commissioned salesperson and sells a product for fraudulent reasons. B earns a commission for which X allocates a 401(k) contributions and matching contribution to B's account under its 401(k) plan. Internal investigation reveals B's fraud. Can the plan forfeit the match and 401(k) contribution based on the fraudulent circumstances of the sale?

Assume Employee C is a salaried employee and elects to make a 401(k) contribution of 6% of compensation. Due to an administrative error, the plan erroneously credits contribution of 8% of compensation even though only 6% contribution reduced from C's pay. Can the plan forfeit the excess 401(k) contribution?

Assume Employee D is a commissioned employee and sells a product to a corporation. D earns a commission for which X allocates a 401(k) and matching contribution to D's account under X's 401(k) plan. An internal investigation later reveals that the circumstances of the sale suggest that the buyer of the product intended to use it for purposes of money laundering. A further investigation reveals that one of the directors of the corporation is an al-Quaeda operative identified by Homeland Security as a major terrorist. Can the plan forfeit D's 401(k) contribution and matching contribution based on the improper sale?

In each of the above circumstances, is it implied that compensation means that which was properly earned? If an error occurs can the error be corrected by a payroll reversal? Or is a plan amendment necessary to take such corrective action? EPCRS talks about overpayments which are payments in excess of the amount the participant is entitled to. But can a plan take a preeptive approach to prevent overpayments on or after the time when contributions are allocated?

We have a plan that changed trustees several years ago. At that time, money was transferred from the clearing/holding account of the prior trustee to the new trustee, where it has sat unnoticed, until recently.

Under the prior trustee these assets sat in an account that would temporarily hold assets until they were allocated. For example, the sponsor would wire their payroll contributions into this account and then the trustee would pull the money out of this account and put it into the Trust.

When distributions were processed, the funds would come out of the trust into the holding account and then the trustee would wire the money to the checking account that paid the distributions.

When the change in trustee occured, these assets were transferred to the new trustee, where they were kept separate, but never used.

It would seem that the balance in this account should be very small, but it is not. The theory (not yet confirmed) is that at one point the sponsor may have had to make an estimated contribution because they were not going to be able to post contributions within the DOL's required 15 business day rule. This has been known to happen. Then, when the actual contributions were posted, the sponsor again wired the full amount.

The question is what can we do with these assets? Can they be withdrawn or must they remain in the plan and used to pay plan expenses/future contributions?

Can an employee who terminates employee submit claims for services after the date of termination? Or can they only use the runout period for claims incurred while an employee? In effect does the coverage period end at termination of employment?

Is it too late to amend a Plan for the 2004 Plan Year (Plan Year ended 12/31/2004) to change the employer allocation from Age - Weighted to New Comparability. The change would result in a higher percentage allocation for NHCEs as well as HCEs.

2 large 401k plans are permissively aggregated for 401k testing. Both are calendar year plans, both have eligiblity requirements that are more lenient than 21 & 1. Plan A allows for entry on the first of the month following employment. Plan B has a 6 month wait and allows entry on 1/1 and 7/1.

For the combined 401k test, do I apply the eligibility for each plan separately to determine who is in the test, or do I use the most lenient eligibility (Plan A's) and apply it to all employees, including Plan B. I think the former is right, but would appreciate and comments.

I have a physician (MD) client who has submitted for reimbursement the following expenses:

Fees for a beginning Tai Chi class

Subscription to Dr. Andrew Weil's "Self Healing" medical newsletter

Tufts Unicersity's "Health & Nutrition Letter"

These do not appear to me to be 213(d) medical expenses. However, as a physician, the client can easily provide a letter of medical necessity.

Any experience with such claims?

I have a 401(k) plan that had a match formula for the first half of the year, then they removed the match formula mid-year and added a non-elective formula.

When doing the ACP test, do I use compensation just for the first half of the year, or the entire year?

When doing the 401a4 test, do I use compensation for the second half of the year, or the entire year?

When doing 410(b) for each component, do I use the employees who were non-excludable for the entire year...or do I use the ones who were non-excludable for the first half towards the matching, and the ones who were non-excludable for the second half towards the non-elective component?

Any cites?

We have a takeover plan that uses the Frozen Initial Liability Cost Method. The initial FIL base is considered amortized due to the ERISA FFL in past years. The plan was amended to freeze benefit accruals. This amendment reduced the unfunded accrued liability.

Do you set up a base for the reduction in the accrued liability?

We adminstrate the tax withholding checks for our plans in the following manner.

1) Send tax checks to client to deposit under their TIN or plan trust TIN.

Drawback: Clients get the check and don't deposit the check timely, don't know what do do with the check, put the check in a drawer, you get the drift. (If a separate trust TIN was not set up and they are supposed to be remitting checks via EFTPA and semiweekly, then you can see the impending disaster here). Because we prepare the 1099Rs, I have to confirm with each company that they made the deposits and address any outstanding tax deposits and that can be very time consuming in January.

2) Make the deposit for them under the plan Trust EIN and charge for this service, and prepare the 945.

I spoke with an IRS agent a few years back who audits plans etc and, to paraphrase the gentlemen.."We don't really care what TIN is used so long as the 945s match the 1099Rs for tax withholding." So I thought about this and was wondering if we could just use our own company TIN to make all the deposits and issue the 1099Rs under. Other than adminstrative penalty exposure, what downside would there be for doing this? I see it as simplying the adminstration of the 1099Rs/945s etc.