On an enrollment form:

Marital Status: "Somewhat happy".

Ah, participants....who says this is a dry business?

Because the deductibility of pass through dividends depends on the employer to sponsor a "statutory" ESOP (one primarily invested in employer securities, etc.), does this preclude them from aggregating for adp/acp tesing purposes as allowed under the final 401k/m regulations?

In other words, if the ESOP contains a 401(k)/(m) component, can the ESOP and non-ESOP parts be aggregated for adp/acp testing, without affecting the tax deductibility of the pass through dividends?

State law requires extension of eligibility for a disabled dependent reaching the attaining age of the plan as long as the dependent was confirmed as disabled before reaching the age. Self-funded plan has same provision. We are redrafting our disability extension application. We cite state law as requiring the extension. Question: Does federal law also require this? We are not suggesting any SF plan drop this extension of benefit, I'm just looking to cite a specific law.

Group health plan went self-insured 1.1.2005. Stop loss carrier is denying coverage for particular drug taken by otherwise uninsurable participant. Result is net cost to company of $400,000. Did not know this before went self-insured. Cannot return to insured marketplace. Quotes for premiums have increased by - you guessed it - $400,000.

What can employer do? Terminating plan will result in COBRA exposure for next 18 months. Alternatively, ccould purchase group health and pass costs along to employees which will be excessive. Declare bankruptcy as protective measure? I don't see what the company gains in the end.

Thoughts?

This doesn't look right, but I cannot find a flaw in the logic, see if you agree with this:

A participant has a 40k 12-months highest outstanding balance (HOB) on his loan.

His current Balance (CB) is 10k.

Under 72(p), he is allowed to borrow 10k (50 (max allowed)-(40(HOB) -10 (CB))-10(CB))=10k.

The next day, his 12-months HOB is still 40k, so he can borrow another 10k (50-(40-20)-20)=10k.

So, I can't let him take 20k today, but I can let him take 10k today and 10k tomorrow. Am I missing something?

Retiree(under age 55) with after tax contributions in company 401(K) plan.

Does pro-rata rule apply to Roth IRA conversion of the after tax contributions?

If there's a prior post addressing this fact pattern/issue, please refer me to same. Otherwise...

Have seven (7) financial consultants ("FCs") who currently operate as sole proprietors. These seven FCs are going to form an LLC ("FC-LLC"), of which each FC will be an equal member. FC-LLC will be taxed as a partnership, but will generate no income, per se. The FC-LLC will lease office space, furniture, etc. to the FCs and hire clerical staff, who will be employees of FC-LLC. None of the FCs will receive any compensation from FC-LLC. Each will continue to have his own Schedule C earned income from fees and commissions received on the sale of securities and insurance, as well as providing investment advisory services. Each FC has his own clients, although some client may be "shared". Each FC currently sponsors his own retirement program - in the form of either a qualified plan or an SEP.

The FC-LLC is going to establish a 401(k) Profit Sharing Plan for the employees of FC-LLC, which will have benefits, rights and features as good as, or better than, any of the individual FC's plans/SEPs.

Query 1: Is this an Affiliated Service Group - or something else?

Query 2: Depending on the answer to Query 1, do all eight (8) entities need to be aggregated as a single "Employer" for coverage and testing purposes? (Most of the FCs are "older", so cross-testing will work well for 401(a)(4) purposes.)

Query 3: Am I anywhere near the mark regarding this situation?

Any - and all - comments most welcome. Thanks!

I would appreciate comments regarding what I fear is a potential issue with the new HSAs / HDHPs with regards to the small group health insurance markets in most states.

In Florida we have a guaranteed-issue small group health insurance market while insurance sold directly to individuals is underwritten…I believe this is the situation in most states. In a guaranteed-issue vs. medically underwritten situation there is an inherent vulnerability on the guaranteed issue side with regards to anti-selection and typically legislation is written in an attempt to mitigate this. The anti-selection I’m referring to is the economic tendency to seek the lowest cost and in this situation the lowest cost, if you are healthy enough to pass medical underwriting is usually with individual insurance but if you’re sick you will seek a guaranteed issue small group policy. In Florida the price disparity between comparable small group and individual products has grown to the point where even with a 50% employer contribution it is becoming common for employees to find less expensive insurance on their own, that is if they are healthy. This situation is the norm for employee dependents as dependent contribution is rare in Florida’s small group market. The potential practice I describe below could significantly exacerbate this unhealthy situation.

The mitigating legislation I mentioned above seeks to prohibit small employers from following a strategy of purchasing individual insurance for their employees who are healthy and purchasing a guaranteed-issue small group policy for the remainder. This strategy, if allowed, would provide significant savings to the employer and would be very popular with the agent community, at least until the small group market imploded. The law prohibits this practice in the following way. It states that if a small employer makes a contribution towards the purchase of any health benefit policy, or even facilitates in the administration (i.e., uses payroll deduction) then the policy is subject to all of the small group reform legislation including guaranteed issue, state filing requirements, and a plethora of other requirements which, if the policy was an individual policy, creates a raft of compliance violations and everyone’s in a heap of trouble.

OK, are you still with me? If not let’s just get to the point and hopefully you’ll catch on. It would seem there is now a loophole in the law that could work as follows. A small business offers their employees $200 a month towards health insurance. To qualify an employee must obtain an individual HDHP and set up a HSA. If these two requirements are met, the employer will deposit $200 a month into the employee’s HSA. For the employees who can’t pass medical underwriting for the individual HDHP, well they’re out of luck or if necessary, the employer purchases a guaranteed-issue small group policy for them with the same contribution. Either way, I think I hear a giant sucking sound of all of the healthy risk going out of the small group market.

The breakthrough here is that the small employer is not making a contribution to or facilitating the purchase of a health benefit policy, they are simply donating to a savings account and this effectively skirts the law.

While this situation is most concerning for the small group market I think there are implications for larger businesses as well. I’m wondering is anyone has heard of this practice or has any comments?

Employer sponsors two plans: a 401(k) and a 403(b) plan (it also sponsors a cash balance plan, which is in the process of terminating). Assets in the 403(b) plan are held in insurance company annuity contracts (investment vehicles, rather than individual contracts) and in mutual funds. Following an asset sale, over 90% of the participants in the two DC plans no longer work for Employer, but remain participants in the plans.

Employer’s stated goal is to spin off and terminate those portions of the DC plans covering inactive participants (i.e., those no longer employed by Employer). Employer wants to keep both plans for its remaining employees. Is there any way to get there?

I haven’t been able to track down anything that sounds like a “spin-off” termination of those portions of the plans Employer would like to get rid of. As I understand it, under current law, plan termination is a distributable event for purposes of the 401(k), but not the 403(b). Under the new proposed 403(b) Regs, the 403(b) plan could terminate and distribute its assets, but Employer could not maintain another 403(b) plan for 12 months. None of that really speaks to terminating only a portion of the plans--though it might be worth considering whether the remaining "stumps" of the plans would be considered "successor" plans.

But, as I see it, even if Employer could distribute the 403(b) account balances on plan termination, it couldn’t force participants to take their money out of either plan (unless a spin-off termination is possible).

If Employer’s first choice is impossible (which seems likely), it would like to flush as many inactive participant accounts out of the plans as possible. One proposed method of doing that is to give participants the option of rolling their plan accounts into Individual Retirement Annuities with the same distribution options as the plans. The insurance company that issued the annuity contracts under the 403(b) plan is willing to forgive surrender penalties on the annuity contracts if Employer makes its IRAs the default option for the transferred assets. Is this the best that they can do (assuming even this much is possible)?

Sorry this sounds like a law-school exam question (or an example from the Regs). Maybe I should have started with “Once upon a time . . .”

Thanks for any ideas.

I have searched the boards and come up empty handed.

Has anyone had the scenario where a participant did not receive their RMD timely, so they submitted a letter to the IRS and a Form 5329 asking for a waiver of the 50% excise tax, but did NOT sent a check with the request for waiver?

What happens if you don't submit the check?

Here is an unusual fact situation:

Participant in 401(k) Plan is a 5% owner through 12/31/03, when he is bought out and his ownership goes to 0%. The participant turns age 70 1/2 in November of 2004, and continues to be employed.

Question is whether the participant is required to receive a 2004 MRD by 4/1/05, due to his being a 5% owner on 12/31/03, which is the determination date as to whether an employee is considered a "key employee" for 2004, or can he defer his distribution until he actually terminates employment. In addition, if he does take a 2004 MRD by 4/1/05, does he need a 2005 MRD by 12/31/05, or can he start to defer it due to the fact that he is no longer a 5% owner?

Any replies would be helpful. Thanks.

In 2003, the Texas Legislature passed HB897 to permit small employers (2 - 50) to join together to form larger groups "coalitions" (2 - 50 total employees) specifically to purchase group health insurance.

Is anyone aware of this? Setting up these coalitions?

Thanks.

I have plan that has a 3 month wait for eligibility. The client has several employees that are paid and receive a 1099 form rather than a W-2. The plan includes all employees except: Union Employees, Nonresident Aliens, and Leased Employees.

Do I need to include the employees who are paid and receive a 1099 form? Are these employees considered Leased Employees?

In your opinion, could a deferred compensation participant make an election to defer 1 year's deferrals into multiple "buckets" (say, over 5 consecutive years beginning 2 years from now), and then re-defer the first year's distribution an additional 5 years while leaving the other 4 "buckets" intact?

The question turns on whether the service would consider the original distribution election as 5 individual lump sum payments, or as installments. We would intend it to be viewed as 5 individual lump sum payments.

409A(2)(A)(iv) says "a specified time (or pusuant to a fixed schedule) specified under the plan at the date of the deferral...."

Any thoughts?

Joe

A church that sponsors a poorly-funded non-ERISA DB plan is considering several options, including initiating mandatory employee contributions in the current plan.

I assume that for current employees, continued participation in the plan would require employee contributions, and that for new employees, contributions would be a condition of employment.

Although this seems a backward-looking notion, a contributory church DB plan doesn't appear to be prohibited. Converting a noncontributory plan to a contributory plan seems to involve certain risks, such as possible coverage and nondiscrimination violations and the risk of triggering a partial termination if significant numbers of employees decline to make contributions and are thus excluded. Presence of employee contributions in the plan would require some operational changes, but they seem to be minor.

Are there other issues here, or does anyone have additional thoughts?

What does the "SC" stand for?

Company has a health plan covering its employees. Company is 50% owner of LLC with 2 employees (one of whom owns the other 50%).

May the 2 LLC employees participate in Company's health plan? May one participate, but not the owner/employee?

I don't see explicit application of the controlled group rules to ERISA welfare plans, and so am unsure how to proceed. Many thanks for any input.

I have a plan that I've been cross-testing for a couple of years by using the division field to allocate different %s. Now the client wants us to sort reports by REAL divisions - like Nashville Employees, Franklin Employees, etc. My division fields are already being used for the cross-test groups. Any ideas?

Thanks for your replies - I just know someone has an easy solution!

Notice 98-52 provides that in a safe-harbor 401(k) plan that hardship distributions are not a distributable event for contributions other than elective contributions. Presumably this means that the plan cannot permit safe harbor employer or matching contributons on account of hardship.

I tried to trace this restriction in the final regs but could not find it? Can anyone else? I realize this is an interpretation of Code 1.401(k)(12)(E), but I would not read it this way without the interpretation.

I am compiling a list of consultants who really know the large plan DC & DB recordkeeping marketplace. I'd appreciate hearing of past experiences or just suggested names to explore.

For now I just have WatsonWyatt and Towers Perrin. We're trying to steer away from consultants who have a recordkeeping arm within their organizations. I'd also prefer well-known firms with a national presence.

Many thanks,

Cole