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

Just entertained a question from a large church organization about the effects of the new California law AB2208 (insurers and HMOs must offer coverage to registered domestic partners on non-discriminatory terms if they offer any spousal coverage at all). The church is trying to determine whether AB2208 will require its self-funded health plan to offer benefits to domestic partners.

As a self-funded plan, you might intially think that ERISA's "deemer" clause (i.e., self-funded plans are not deemed to be insurance for purposes of state regulation) would preclude the application of AB2208. However, unless the plan at issue is an electing church plan, ERISA doesn't apply, so no deemer clause. This means that you get dumped back into the state insurance regulatory system. Further, the Church Plan Parity and Entanglement Prevention Act of 1999 indicates that state insurance laws are applied to church welfare plans as if they were insurers licensed by the state.

A literal application of these rules means that church plans, whether insured or self-funded, are now required to offer coverage to registered domestic partners if they offer spousal coverage.

Without debating the merits of the position, many churches have strong objections to this sort of thing. Then again, the California Supreme Court ruled last year that a non-profit entity affiliated with the Catholic Church had to provide contraceptive benefits through its health plan.

Anyone have any thoughts about this? Have you fought any battles on this topic yet?

Thanks!

Participant A's plan terminates in 12-04. Participant A fills out distributions forms indicating he wants to roll money into Company B's plan - provides address and account number and everything required to roll over money except Participant A does not sign the form. Participant A's distribution is processed by investment company and money is rolled into Company B's plan.

Participant A provides rollover ceertification form to company B indicating this is valid rollover. Company B accepts and deposits funds into it's plan. Participant A now decides he did not want to roll money over - he wants cash - however, Company B's plan only allows for inservice withdrawals for those reaching 59 1/2 and no available options exist in prototype document to allow immediate withdrawal of rollover funds.

Is the initial rollover done by prior investment company invalid becuase the participant did properly execute the form? Rollover amount is approx. $3000.

Could company B distribute the funds without violating the plan document under the assumption that it was an ineligible rollover as Employee A never signed the forms.

We have a 401(k) plan that is being sold 4/30/05. It is is stock purchase. The new owner is purchasing 100% of the stock. On April 20, 2005 the plan will be terminated. On April 30th, the two trustees will be fired. (One bank is buying another and terminating the President and CEO.)

Questions: 1.) There are about 5 participants who have been terminated for years but will not elect to take their distributions. Their balances are all well over $10,000. Any way to force them out without an election? 2.) I assume there has to be a sponsor until the plan zeros out. Would one of the current Trustees need to sign a corp resolution appointing the new bank as sponsor or can it be assumed the new bank will act??

I appreciate any help on this.

Pat

PS: The buying bank has a 401(k) plan and they will allow continuing employees to roll their balances in.

Several sole proprietors/service corporations-FSOs- (some of which have their own employees) own interests (greater than 10%) in single LLC which acts as a phone service for the FSOs. Appear to have affiliated service group between each FSO and the management company, but no cross ownership between the FSOs, so based on preamble to proposed regs "Two or more affiliated service groups will not be aggregated simply because an organization is an A Organization or a B Organization with respect to each affiliated service group." Each FSO has its own SEP and makes contributions. Management company has one employee who is a leased employee and participates in a 401k plan through the leasing organization (but plan doesn't appear to satisfy the requirements for employee not to be covered by lessee organization). Since apparently each FSO-group should technically cover the leased employee, how can this be done?

Amounts that are "deemed 125 compensation" are not included in the definition of compensation. What is "deemed" referring to?

Speaking / writing about 125 compensation, if a sponsor elects "W-2 Wages" to define compensation, are Section 125 contribution amounts included or excluded for determining employee deferral and employer matching allocations?

Is there an annual choice between testing by bargaining agreement or testing all agreements together? Or does one have to test the same way each year?

__

Typically when a plan deposits on a payroll basis (the document calls for it) we do not true up or even review the calculations/deposits as we do not have access to the "per payroll" info. I think the only exception is when deposits have been made in excess of what is allowed due to the Annual Compensation Limit. The match formula I'm looking at is 100% up to the first 3% plus 50% on the next 2%. For 2004, I've determined that the maximum match should be $8,200 (205000*.03 = 6150 + 205000*.02*.50=2050)

A couple of participants had in excess of $8200 deposited. There are some other differences when comparing the annual vs payroll calculations. I am only suggesting making the the adjustments for participants who had more than $8200 deposited.

Does this seem reasonable?

We are trying to install a SSL certificate on our Relius Web server with no success at all. Has anyone had any problems with this?