It is my understanding that the following states do not conform to the IRC for HSA purposes at this time (but see posts below):

1. Alabama (doesn't use Federal definintion)

2. Arkansas (doesn't use Federal definintion) [Now Conforms, see below]

3. California (HSA legislation likely in 2005, failed 2004)

4. Kentucky (doesn't yet conform)

5. Maine (may have an add back provision)

6. Massachussetts (now conforms, see discussion below)

7. Minnesota (doesn't yet conform)

8. Mississippi (doesn't yet conform)

9. New Jersey (doesn't yet conform; but does have exemption for Archer MSA)

10. Pennsylvania (now conforms, see below)

11. Wisconsin (doesn't yet conform)

//END LIST//

Here's the situation: We recently discovered an administrative error that took place in 2003. An employee's contributions were being deducted on an after-tax basis although he had requested pre-tax. In addition to the negative tax consequences, since after-tax contributions are not matched he lost out on company match money as well. To make this more complicated, he has since withdrawn most of his after tax money so we can not reclassify his after tax contributions as pre-tax.

He has thus far been offered two solutions:

1. He pays back the after-tax money (about $13K) and the plan reclassifies it as pre-tax and he receives the company match. In this scenario he would also be issued a W2-C to correct his 2003 taxes to show less taxable income.

2. Keep things as they are and don't return the money. However, he will not get the company match.

Employee is not agreeable to either solution. He feels that he shouldn't have to take money out of his pocket to correct our error. He wants this issue to be corrected without having to make up the contributions.

Any ideas??

I was offered employment with another division of my company on 1/14/05. I accepted the offer on 1/18/05. And a conference call occurred on 1/24 to establish my start date of 3/14/05 and to confirm my salary and various other benefits. They would "get an office ready" and see me in a few weeks. I was told that their HR rep woud call me the following day to start the paperwork. On 1/28 their HR rep called me and told me that they were not offering me the job. I was stunned. I explained to her that the job was offered, accepted and confirmed. This was news to her. In order to satisfy my start date of 3/14 they knew that I had to and did begin the moving process and as such incurred costs. Do I have rights to reimbursement? Anything further? I didn't find much of anything on the internet about this type of thing. One chatboard mentioned "detrimental reliance"...?

A company maintains a 401(k)/profit sharing plan. Beginning in the '70's the plan allowed participants to purchase whole life insurance through the plan. If a participant elected to do so, 25% of his employer contributions each year were paid into a group life insurance contract through Principal, the owner of which was the plan's trust. In the late '80s, the plan stopped allowing new participants to participate in the life insurance, but participants who were already participating could continue to do so.

When a participant who is participating in the life insurance leaves employment, the cash value of his insurance is converted into paid-up insurance, meaning that he no longer pays premiums, but his death benefit is fixed. His benefit is still considered part of the group policy owned by the plan's trust, and when he dies, it is paid to his beneficiary by Principal. Currently, there are about 20 active employees paying premiums toward the life insurance, and about 100 former employees with paid-up insurance. The plan has about 1,000 total participants.

In 2001, Principal demutualized. The plan sponsor elected to receive Principal stock, but for reasons unknown to me did not allocate it. The stock has been held by the plan, and dividends have been paid on the stock, but neither the stock nor the dividends have ever been allocated under the plan. The stock has appreciated, and now the company wants to direct the plan to sell the stock and is wondering what it can do with the proceeds.

The company would like to take the proceeds of the sale of stock and use it to offset future employer contributions. Based on what I know of demutualization, I don't think this is a good idea. I believe that the stock is plan assets and should be allocated to the participants and not used to benefit the employer, which an offset would do. Further, I believe that it should be allocated only to those participants who have participated in the life insurance.

My questions are: Am I right that the proceeds should be allocated, and only to those participants who have an interest in the life insurance? If so, exactly who are those participants? Is it only the 20 or so actives, or the actives plus the 100 former employees? If the former employees should share in it, would the plan simply make a distribution to them of their share and report it as taxable income? How should the allocation be made--on a prorata basis based on cash surrender value, a per capita basis, or some other method?

Any thoughts would be appreciated. Thanks!

I have a client who made some voluntary contributions, non-deductible, way back in the '70s and '70s.

He's still in the plan, but now receiving minimum distributions.

I think that if he takes systematic withdrawals, he recovers the basis pro-rata, and if he took it all in a lump sum he would recover the basis all at once.

So the question is (if I have that right), are the RMDs systematic and subject to a pro-rata basis recovery? I'm thinking yes...

Thanks.

We have a 12/31/04 plan year using prior year testing. Can we still adopt an amendment to use top paid group for testing? I wasn't sure if the IRS had given specific rules regarding the timing of the amendment.

On the new form 5330, who do you put down as the disqualified person on line #27, if the employer remitted late deferrals? I assume you put down the name and address of the business entity, e.g. the corporation? Not the CFO, CEO, etc.?

I have a client who is 45 years old and has 4% of a company's stock in his IRA. He also owns another 20% outright (so a total of 24%). I am concerned that the prohibited transaction/disqualified peson rules may apply. I seem to recall that under 20% was fine; 20-25% was a problem; and over 25% triggered the penalties. But after review of the statute and a helpful listing in the Benefits Link, I note that a person is not a disqualified person if he owns less than 50% of the entity under 4975(e)(2).

Is there a prohibited tranaction or disqualified person problem?

Can this client purchase other stock as long as he is under 50%?

I have a scenario I need some advice on:

A Dependent Care FSA participant elects $5,000 for the Plan year. He contributes $5,000 via payroll deduction. Due to the timing issues with status changes, he has a qualified family status change that reduces his FSA to $4,500. He receives a payroll refund for the $500, but the FSA administrator had already paid out the full $5,000 in claims.

The FSA administrator attempts to collect the $500 overpayment, by March 31 of the following calendar year, but the employee does not repay.

Does the $500 become taxable income to the employee in the following calendar year, or does the employer just write this off as uncollected debt?

Thanks.

Hi, all,

I have some 4204 questions to which I'm not finding answers in the boards:

I am involved in represenation of a multiemployer seller who is selling some assets to a buyer. The assets being sold DO NOT constitute 70% of the seller's total assets, and therefore the sale does not constitute a partial cessation. Therefore, assuming we've calculated correctly, there is no current withdrawal liability.

ERISA Section 4204 allows seller to become secondary for withdrawal liability for five years following the sale, while the buyer is primarily liable.

Question 1: If the buyer goes insolvent within the five years (bringing sellers secondary liability into play) HOW DO YOU CALCULATE THE LIABILITY.

According to 4204 and case law, the 4204 transaction transfers the five-year period of contribution history prior to the sale TO the Buyer. So if there was no withdrawal liability at the time of sale, wouldn't Seller owe nothing, in this scenario?

Question 2: Since we think that the withdrawal liability is zero, how do we meet the bond requirement of a 4204 transaction? Document the fact that the amount is zero, and therefore we can't get a bond?

OR - Question 3: - should we think about not doing 4204 at all in this situation?

Thanks to anyone out there with any knowledge of this issue.

We have a client who is worried that their cross tested pension plan is in danger of being disqualified after a consultant to the firm gave them a copy of Carol Gold's October 22, 2004 memorandum.

The plan received an IRS determination letter based on the cross tested formula. We believe that Ms. Gold was not referring to cross tested plans in general, but was addressing other types of employer abuses.

Unfortunately, due to the usual year end hoopla, I haven't noticed if there had been any follow-up by the Treasury Dept. to put the minds of employers at rest. Has anything further been said about this issue?

Are Optional AD&D & Life excluded from federal tax wages?

Company establishes non qualifed deferred compensation plan for independent contractors which company refers to as a "retirement plan". Company "markets" the plan to contractors by touting its tax benefits and mistakenly represents that post-retirement distributions from the plan are reportable on 1099R and therefore exempt from SEPA taxation. Contractor participates in plan for several years and retires with expectations of using plan assets to fund retirement. Subsequent to contractor's retirement but before beginning distributions, the company's accountants/auditors review plan's features and determine that distributions should be reported on 1099 misc, and therefore are subject to SEPA taxation upon distribution. Contractor is harmed to the extent that contractor paid maximum SEPA taxes in the years in which income was deferred - and is therefore being subjected to payment of additional SEPA taxes which would have been avoided had the contractor opted not to participate in the plan. Company admits mistake but denies contractor's claim for compensation.

Question: Does contractor have a case against company for misrepresenting the ultimate tax benefits of the "retirement plan"? Perhaps on grounds of "injurious reliance"?

What is the timing of contributions for 457 plans? Can employer contributions be made after the end of the plan year similar to qualified plans?

Participant took out a 5 year loan back in March of last year. The employer forgot to set up withholding. Since it's the employer's fault, the employer is instructing us to not deem the loan. They are just going to start up loan repayments now.

The question I have is if we follow the client's instructions, is this just a taxation issue for the participant, or is there a plan disqualification issue as well?

Thanks

I need help quick! I have a meeting with a potential client who is considering starting a 401(k) plan strictly for the "professionals". There are two companies (a controlled group) where they currently have a SEP that covers their union (non-professionals) as well as the non-union (professionals). They also have an old Keogh. I know there has been much debate over whether they can contribute to the SEP and the 401(k) during the same year.

My question is, unless there is a distributable event, they cannot roll the assets for the "professionals" from the SEP to the 401(k) plan, correct?

Also, let's say that the SEP is not a model SEP, is there a conflict due to the fact that the professionals (non-union) are getting it from both sides and the union ee's are not?

My suggestion would be to terminate the Keogh, and roll those assets to the 401(k), but how do we handle the SEP situation?

I realize this is probably not an option, but let's say they could terminate the SEP, I would assume those assets could be rolled into the 401(k) providing we set the plan up to accept IRAs, correct?

Thank you so much for all your help!

I have a takeover plan (PBGC Covered) with assets less than adequate to pay benefits at termination. Everyone has been paid out except 3 key employees. The company sold all of its assets at the end of 2004 and deposited all of the money from the sale into the pension plan. The company still exists, but really only until the pension plan is terminated. The 3 key employees (also trustees of the plan) agreed to take whatever was left in the plan after everyone else was paid out.

Is it possible for the keys to waive in this situation, or is there another solution that would have the same effect?

Background: My position was eliminated and I was fired 2 years ago from a company with an ESOP. It is my understanding that a terminated employee cannot receive any payment from his or her ESOP account until 5 years after that employee's date of termination. Prior to my termination date the company purchased certificates of deposit for departing employees. These CDs were for the full amount of the departing employee's acrued ESOP account. For example: If a terminated employee had an acrued total of $25,000.00 in his or her ESOP account the company would purchase a certificate of deposit in that person's name for $25,000.00 shortly after the employee's departure. After the required 5 year waiting period the terminated employee could cash in the CD and have control of the full $25,000.00 plus any earned interest. The company discontinued this practice shortly before I was fired. At present the fate and amount of the total in my ESOP account depends entirely on the performance of the company. If the company does well, my ESOP account is safe. If it fails, my ESOP account becomes a fond memory. Since my departure the company has fired 3 very high level people (a president, a vice president and the highest level manager) who are supposedly subject to the same ESOP laws and rules as all employees. The amount of money acrued in their ESOP accounts and owed to these 3 former employees is undoubtedly very substantial.

Here are my questions: 1.) Is there a law that would prevent the company from purchasing CDs for the 3 high level ex-employees, thus securing the full amounts in their ESOP accounts, while denying the same privilege and opportunity to me and other lower level terminated employees? 2.) Is there a law that would enable me to determine whether or not this has occurred?

I am somewhat familiar with insurance policies within a retirement plan. I don't like insurance in retirement plans but it is something I am forced to deal with.

PS58 costs for the year are reported on a 1099. A question came up today regarding a participant who is receiving Minimum Required Distributions each year and also has a policy in the plan. The question is...Does the PS 58 Cost satisfy all or a portion of the MRD requirement for the year?

I want to say "no" but I don't have any backup for that conclusion and I am not sure where to start looking.

Any help from all you insurance and tax guru's would be much appreciated.

We started a tuition reimbursement plan in 2004 funded from our general assets. Are we required to file Form 5500? If so, are any Schedules required?