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.

Under Reg 1.401(l)-3©(2) you have deemed uniformity with fractional accrual if you have disparity for 35 years and no more than the excess % applied to average comp for years after 35 ( 1.401(l)-3©(2)(ii)(B) ).

Question : If the plan's formula provides for the excess % for years after 35 but before 40 , is this still uniform ???

A participant directed 401(k) plan permits participants to invest in employer securities among other investment options.

At one point, following the Enron scandal, there was talk about passing regs that would limit the percentage of employer securities that a plan could hold, even if the employees made the election themselves.

I know that there is limited 404© protection if the plan follows certain criteria, but was a percentage limit ever passed?

Our software contains the following documentation for a certain Plan Level Variable.

IF THE ACCRUED LIABILITY FOR ACTIVE STATUS PARTICIPANTS IS TO BE DEFINED AS THE PRESENT VALUE OF THE BENEFITS ACCRUED UP TO AND INCLUDING THE CURRENT VALUATION DATE, ENTER PLAN-LEVEL VARIABLE #414 AS '0'. THE NORMAL COST WILL THEN BE THE PRESENT VALUE OF BENEFITS ACCRUING OVER THE ONE-YEAR PERIOD IMMEDIATELY AFTER THE CURRENT VALUATION DATE.

IF THE ACCRUED LIABILITY FOR ACTIVE STATUS PARTICIPANTS IS TO BE DEFINED AS THE PRESENT VALUE OF THE BENEFITS ACCRUED UP TO AND INCLUDING THE BEGINNING OF THE CURRENT PLAN YEAR, ENTER PLAN-LEVEL VARIABLE #414 AS '1'. THE NORMAL COST WILL THEN BE THE PRESENT VALUE OF BENEFITS ACCRUING OVER THE ONE YEAR PERIOD IMMEDIATELY AFTER THE PRIOR VALUATION DATE.

NO MATTER WHAT THE USER-ENTRY FOR PLAN-LEVEL VARIABLE #414, FOR NON-ACTIVE PLAN PARTICIPANTS THE ACCRUED LIABILITY IS DEFINED AS THE PRESENT VALUE OF THE BENEFITS ACCRUED UP TO AND INCLUDING THE CURRENT VALUATION DATE AND THE NORMAL COST WILL THEN BE ZERO.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

My questions:

Is it reasonable to have an end of year valuation normal cost with the accrued benefit funding method based upon the one-year period following the current valuation date? Shouldn’t it be based upon the one-year period that is the valuation year?

If the funding method is Unit Credit, it was my understanding that by definition the normal cost is the increase in the accrued benefit from the beginning of the Plan year to the end of the Plan year in the current valuation year. With the methodology that our software employs, we have the odd situation in some of our Plans where a participant hired during the Plan year (after the effective date), received their first allocation, terminated, and has no normal cost. If this is their first year in the Plan, how can they have no normal cost and only a past service liability?

The Working Families Tax Relief Act changed the definition of eligible dependent and added a residency and financial support test. I sure this question has been

addressed before, but con someone tell me how a health plan is to treat

a QMSCO when the child does not satisfy the WFTRA definition?

The plan in question was amended to include the updated definition of dependent. A family member of the child provided the plan with a QMSCO requiring it to extend coverage for the minor. The problem is that the child lives outside the home of the divorced parents and is wholly dependent upon a relative for support. Absent the QMSCO, this child would not be eligible for coverage under the plan.

Thanks.