If a local government employee's service-connected disability pension benefit is deemed to be non-taxable (ie. considered in the nature of workers' compensation), is it non-taxable for life?

The answer to this question in the Governmental Plans Answer Book (Q 11:43) basically says that it is only non-taxable until retirement eligibility. But in parentheses afterward it says that the tax treatment of disability payments subsequently changed and that this statement is not useful in describing current tax treatment of disability. I can't find anything about the current tax treatment of disability pensions in the 2005 Cumulative Supplement.

This issue involves vesting and eligibility of individuals who 1) worked for companies that subsequently merged and 2) participated in DB plans of the companies that merged and the DB plan of the merged companies (which consists of the merged DB plans of the prior companies as various titles in the DB plan of the merged companies). Please excuse the complexity.

Example:

An employee was hired by Company A in 7/91 and left that company in 8/00. He had a deferred vested benefit in Company A's DB plan. Company A was acquired by Company B in 2001. The employee went to work for Company C in 6/02 and became a participant in Company C's DB plan. Company C and Company B merged in 8/02 to form company D. The employee continues to actively participate in Company C's DB plan (which was merged 12/31/03 into the merged DB plan then consisting of the DB plans of Companies A and B).

Company C's DB plan was not amended to recognize service in Company A or Company B for eligibility or vesting at time of merger of Company B and C. As noted above Company C's DB plan merged with the other DB plans at the end of 2003.

As of 1/05, the prior companies are all part of the same controlled group, all the employees work for the same company, and all the heritage DB plans are now merged into one DB plan (with various Titles--the titles consisting of the heritage plans).

The employee had less than a 5 year break in service from termination from Company A to hire by Company C, less than a 5 year break from the date he left employment with Company A and the date Company B and C (he being an employee of C at the time) merged, and less than 5 years from the date he left the employment of Company A to the date he works for a company that contains the merged DB plan of Company A.

He thus has a deferred vested benefit in Company A's DB plan (now a title of the merged plan) but is not yet vested in the Company C's DB plan (another title in the merged plan).

Question--in this fact circumstance example, can the Titles of the merged plan disregard prior service in a different heritage company for eligibility and vesting in a merged plan? If so, what are the relevant dates? If not, from what date or dates must the prior service be recognized.

Thanks for any help/guidance/thoughts on this labyrinthine issue.

Under Regulation 1.415-2(d)(2)(i), compensation is technically that which is received for "personal services actually rendered in the course of employment with the employer maintaining the plan to the extent includible in gross income..."

If severance is paid in a separate check, either all at once or spread out, how would it be included for plan allocation/testing purposes? IMHO, technically these payments are not for services rendered during employment, and are not part of a disability or health related compensation program.

Comments?

I work for a government contractor who until recently paid for all employee life insurance benefits. We have just been told that there is mandatory participation in the life insurance plan.

Can an employer force an employee to participate and have premiums taken out of their pay?

We have a takeover plan that has life insurance. The plan document says that the administrator may purchase life insurance in a non-disciminatory manner. The death benefit payable from the plan is based on the amount of life insurance in effect. The 2003 contribution to the trust included a side fund amount and a mortality amount. The plan administrator did not purchase life insurance.

Since the plan administrator did not purchase life insurance, is the mortality amount deductible?

Can the Colorado PERA Board disburse survivor benefits to an ex-spouse pursuant to the PERA state statute without any consideration of the Colorado probate statute that revokes the designation of an ex-spouse as a beneficiary upon divorce?

Is it legal to incent employees who have other health plan coverage to waive group coverage by giving them some after tax dollar amount? This would be non-cafeteria plans. They might have a Section 125 POP plan only. Thanks

In the process of resigning from a nonresponsive client. For the last few plan years, the client was required to obtain an accountant's opinion because of the number of participants. However, they failed to do so. The DOL has sent correspondence to them relative to the missing accountant's opinion for at least one of the years, to which the client has not responded.

During the time that all this was going on, the company was sold to another company in an asset sale. The original corporation still exists but has no doubt been stripped of any value, by way of bonuses/compensation to the owner.

My question is, to what extent, if any, is the owner personally responsible for the penalties? The Plan Administrator is defined to be the employer, and the Plan Trustee is the owner. The penalty situation was known by the owner prior to the sale.

Thanks for any help!

A.W.

If a participant takes a hardship withdrawal towards the purchase of his principal residence and the purchase doesn't go through can he re-deposit the funds back into the retirement plan (document is silent)? And if yes, must it be returned within a certain time frame?

Thanks!

Client has "satisfied" top-heavy contribution for past 3 years via 3% nonelective safe harbor contrib. However, it has been using a definition of compensation that excludes OT and bonuses (not a 415 definition). What is the appropriate correction?

Plan also has a discretionary profit sharing contribution after 2 YOS--can we look to that to make up the "deficiency"? (then we would only have folks with less than 2 YOS with an improper calculation)

A defined benefit plan, subject to PBGC, was adopted on December 22, 2004 effective retroactively to January 1, 2004. The contribution is based on a full year's cost for 2004. The plan credits past service for vesting and benefit service, and has an unfunded vested current liability. Does the client pay PBGC premium based on a full year or partial year for 2004? I.e. can we prorate the premium based on a December adoption date? Or do we base the premium on a full year based on the January effective date?

Company has a plan begun in 2004 that they have decided will not be grandfathered. Q19© of 2005-1 seems to say that, if elected before 12/31/05, a participant can change his payment election from installments to lump sum before 12/31/05 without triggering a violation under 409A. Am I reading that correct?

Joe

IRS published a model amendment for d/c and d/b plans in Rev. Proc. 2002-29. The final 401(a)(9) regs. as applicable to d/b plans were issued in June, 2004. I haven't found anything regarding whether that model amendment, which was published before the final regs., is still appropriate for use. Individually designed d/b plans must be amended (generally) this year for the final 401(a)(9) regs.....Anyone have any information on the status of the model amendment? Thanks.

Does anyone know if it is legal for an ERISA governed, tax-qualified, multiemployer, fully insured health plan to go ahead and send the monthly premium to the insurance company even though self-pay amounts for retirees and other self-payors are not due until a later date? Would such a practice be considered a prohibited transaction? Our plan is switching from self-insured to fully-insured. Under the self-insured plan, in order to get coverage for January 2005, a retiree or other self-payor (unemployed participants for example) are not required to pay the self-pay amount until 2/15/05. Therefore, coverage is actually given even though the contribution for that month of coverage is not collected until the next month.

Now that we are going fully insured, the insurance company requires the monthly premium to be paid by the first day of the month in which coverage is provided. In other words, the self-payors would have to pay their contribution by Jan. 1 (instead of 2/15) in order to get coverage. The plan has enough money to go ahead and pay the premium for everyone. Can it do this based on the assumption that they will receive the self-pay amount from the self-payors at later date?

This would only be necessary for the first few months because the plan is going to be amended to require payment at the same time the premium is due.

I read some old posts... am I reading this correct?...

There can be an immediate entry date for participants to defer but to receive the 3% SH NEC there can be a 1 year 1000 hour requirement... and still pass ADP?

Soooo... basically everyone can defer, sponsor can max out... and the 3% given to eligibles who pass the 1 year 1000 hr... and ADP is passed.

did I say the same thing twice?

Client has "satisfied" top-heavy contribution for past 3 years via 3% nonelective safe harbor contrib. However, it has been using a definition of compensation that excludes OT and bonuses (not a 415 definition). What is the appropriate correction?

Plan also has a discretionary profit sharing contribution after 2 YOS--can we look to that to make up the "deficiency"? (then we would only have folks with less than 2 YOS with an improper calculation)

New DB plan effective 1/1/04. I have been advised that the proprietor owns 98% of the business and a trust for daughter 1 owns 1% and a trust for daughter 2 owns 1%. I have also been advised the the business is a Limited Liability Company (LLC) elected to be taxed as a sole proprietorship (the 98% owner files a Schedule C).

Can I file a 5500-EZ in this situation? Does it depend on whether the daughters are minors in which case I think he would be deemed to own their shares? If he is not deemed to own their shares I think a full 5500 is needed.

Any help/experience/opinions are appreciated.

Any reason why I can not amend a MP into a SH 401k midyear? (The current plan year is an October year) I dont want to establish a whole new plan and have 2 plans for the current year. I have more than 60 days till the end of the year so giving notice is easy.

If fine then .... will I be required to calculate a contribution for the short year based on income earned till the time the plan is amended... say November -> January 31? And, if it is less expensive for the sponsor to amend the existing MP to a 0% contribution... can I do that at this point in the year?

Thanks!

Participant of 403(b) annuity had already begun taking minimum distributions. Her date of death was 6/2004. No RMD was taken by decedent in 2004. Should her beneficiaries have taken an RMD in 2004? It is my understanding that the benes can wait to take in calendar year following dod. Insurance company said that there should have been an RMD in 2004 and that penalties will apply since one was not taken. Is this correct? If so, can someone provide citation? Thank you.

I have a plan with two active participants. They are both non-owners and one participant is HCE and the other is NHCE.

Essentially the plan provides a benefit of 100% of compensation at normal retirement and the accrued benefit is based on the projected normal retirement benefit multiplied by the ratio of credited service at determination over credited service at normal retirement.

Since it does not require at least 25 years to be fully accrued, it does not meet the safe harbor.

And since the HCE has only 23 years of CS at NRD and the NHCE has 45 years of CS at normal retirement, the rate of accrual (and the accrued benefit as a percentage of pay after 3 years of participation) for the NHCE is less than 70% of that for the HCE.

At the end of the 3rd year of plan participation for each participant the NHCE terminates.

At first blush, it seems a remedy of this would include providing a pension that is (as a percentage of average compensation) 70% of percentage provided to the HCE to avoid being discriminatory in favor of HCEs. That is, an increase in benefits to the NHCE to avoid discrimination in operation.

Any observations?