I used to be up to speed on cash balance plans, but as I have not done any work on them for a couple years, I am rusty.

If an employer is considering establishing a new defined benefit plan, what are some of the most likely reasons why a cash balance plan might be the preferred type of plan over a traditional db plan?

The big one to me is that employees, and sometimes employers themselves, understand the account balance concept better than they do accrued benefits. Another I have read about is that some employers like to have the newer, "trendy" types of plans.

What are some others?

I have seen several plans that allow participants to terminate deferrals during the year, on the condition that deferrals cannot be resumed until a future calendar year (sometimes the next year; other times requiring suspension for the following plan year as well).

Would this be allowed under §409A or, for that matter, under existing law? §409A speaks to the timing of elections and distributions, but does not state that elections to defer must be irrevocable for the period to which they relate.

On the other hand, revocation could be an end-around that would allow participants to fine-tune their deferral amounts, by electing a high deferral percentage at the start and terminating deferrals once they reach a deferral amount that they decided fit their needs after the year started.

Thanks in advance for any thoughts on this!

I am familiar with the "Bona Fide Wellness Program" proposed regulation Section 54.9802-1. Under this program, a "reward" (with a value of up to 20% of the cost of single employee health coverage) can be offered if a participant meets the standard of a bona fide wellness program.

So far, so good.

BUT - I have a client who wants to give all employees a Health Risk Assessment test (HRA). If an employee refuses to take the HRA, the employer wants to charge the employee the full cost of their health insurance premium, whereas those employees who take the HRA would pay only about 1/4 of that amount.

Assuming, for example, that the full cost of the premium is $1000, and that the discounted premium for employees taking the HRA is $250, the "reward" for taking the HRA exceeds the 20% differential allowed by the proposed reg.

Accordingly, I advised that the program doesn't meet the requirements of a bona fide wellness program, and therefore violates HIPAA.

My client assures me, however, that this is done as standard practice in the market.

The client's argument is that, since the discount is based NOT ON A HEALTH FACTOR, but merely on TAKING THE TEST, this program cannot violate HIPAA.

Any insights from you pros out there is welcome. Do you think that the client could be right - that HIPAA, and the Bona Fide Wellness Program Reg. are not applicable under these circumstances?

Thanks!

I'm passing this question along. Confirmation (or disagreement) would be appreciated.

Situation:

Doing 1/1/2004 valuation.

The plan year is 1/1/2004 - 12/31/2004. Plan benefits were frozen as of 10/20/2003.

In accordance with Rev Proc 2000-40, the funding method was switched to Unit Credit (was Aggregate). The base determined for the change in funding method was determined in accordance with Rev Proc 2000-40, 5.01(2), as follows. All numbers were determined as of 1/1/2004:

AL new method = $328,076

AVA (FMV) = $371,365

Net outstanding balance of prior bases = $0 (because plan was Aggregate)

Funding Deficiency = $136,200

Change in method base = $328,076 - $371,365 - [$0 - ($136,200)] = ($179,489)

Rev Proc 2000-40 allows a negative base if the method is Unit Credit.

Q1: Is this correct?

Now, the next problem comes with calculating the full funding limitation. It comes out to $0 as follows. All results are determined as of 1/1/2004

UCAL = $328,076

UCNC = $0 (frozen plan)

AVA = $371,365

FMV = $371,365

FFL = $328,076 - $371,365 = $0. (Note, FD does not get added into assets.

So now we believe that there is no contribution for 2004 due to the FFL

Q2: Is this correct?

Now let's look at the calculation of the minimum funding deficiency as of 12/31/2004. Is it just the $136,200 * 1.07? (assuming 7% interest rate). But how does the FFL of $0 fit in? Does it eliminate the FD? Yes.

Q3: Is this correct?

Thanks for any help.

We have three clients who have recently received form letters from the IRS asking for "an explanation to support" how and when a funding deficiency was corrected or why it was not corrected. The entry on line 9p indicating the plan had a funding deficiency triggered the inquiry.

In all three cases, the form 5330 has already been filed and the excise tax paid. Evidently, the IRS is asking the clinet to confirm what the IRS already knows somewhere else in its bowels. In essence, the form 5500 schedule B people cannot communicate with the form 5330 people.

Is anyone else experiencing this? It appears to us this is more of an annoyance than a real problem, but I want to make sure I am not missing something.

A 401k Matching Safe Habor Plan has a three month wait for 401k deferrals and a 1 year wait for the safe harbor match.

If the plan is deemed top heavy, must a top heavy minimum be provided for all employees eligible to make 401k contributions?

Is anybody aware of a specific article or publication concerning New York State Fiduciary Obligations and Governmental Plans?

Non-qualified deferred comp. plans are to be converted to synthetic equity by using their "present value" and the current S Corp stock price. Does anyone have a clue what interest rates are to be used to determine present value? Here is one example. HCE has an arrangement whereby the company is to deposit $6250/quarter into the plan. This continues to age 60. At that point HCE can take 60 monthly w/drawals until the account is gone. The money is going into an annuity product w/ multiple investment options that the HCE can switch between. Of course it is possible that the present value is simply the current accumulated value of the account, but I don't see anything helpful in the regs. If that is the case, how would a different plan that promises $50,000/yr for 10 years starting at age 60 be valued if nothing has been set aside for it?

Any thoughts would be appreciated.

One of my clients was aquired by a new (unrelated) employer and the old corporation terminated. The plan was terminated prior to the merger date. We are in the process of terminating the plan, but there are a number of participants over 70.5 who have account balances. Normally, if the participants are still active and not 5% owners, they are not required to receive the RMD. However, in this case, they are still active with the successor employer. They are currently being paid from the new employer under their EIN.

1) Are they still considered active employees for 401a(9) purposes?

2) IF they are still considered active employees for 401a(9) purposes, my assumption is that they do not need to receive the RMD. Please confirm.

3) Does the fact that the plan is terminated affect this in any way (other than vesting)?

What do other TPA firms do to ensure that a participant requesting an in-service distribution or a loan is not being taken after the administrative "hears" that a participant is going through a divorce?

Although most administrators will recognize the issue and a flag will go off, it's possible that the flag won't go off.

Any recommendations? Or do you just process the distributions so long as the Plan Administrator doesn't mention anything...

We have determined that an employer failed to include one eligible participant in the profit sharing allocation for 2001, 2002 and 2003. We have calculated the amount the employer owes to this participant plus lost earnings on those contributions. The employer will deposit the total amount this week.

Can anyone tell me if these contributions are deductible contributions in 2004?

Thank you.

I need some help before I speak with this client.

If a sole proprietor forgot to deposit his deferrals until November and filed his tax return in April can he still take the deduction for the deferrals or does he have to amend his tax return.

Any insight would be appreciated.

So how about that C-3 exam yesterday? Apparently, there was some kind of server problem in the morning....

A friend of mine has a credit-card problem. I'd like to help him out with what to do. Here's his problem:

My friend's father took out $225K in his name and convinced the credit companies that he was 30 years older than he actually is, and that he was a professor at the University of California. Now, he can't get any student loans. I'd imagine his credit-rating is shot, and I'd also venture that he'll be turned down for any credit-cards or loans he applies for, or if is accepted, will only get them accepted at very high APRs.

So, my question is, what can he do?

Surely, there has to be some way that he can insure that this kind of fraud is corrected, and doesn't reflect him. My suggestion was to contact the 3 major credit unions and try to get it straightened out, and to also submit a written request in writing explaining what happened and demanding that his credit-reports be fixed.

Any other suggestions? What can be done to correct this false information that is out there about him as quickly as possible?

Hi,

I have a Traditional IRA with a few hundred thousand dollars in it. I'm trying to decide whether to roll it to a Roth IRA, and would appreciate any advice.

It would seem that if I were to roll it, I would only want to roll part of it to keep myself from going into too high a tax bracket. I won't have any significant income this year, so the amount of the rollover would pretty much dictate my bracket. I'm thinking I would probably want to only roll $100,000 - $120,000 to keep myself in the 28% bracket. In addition, I live in CA, so I'm stuck with 9.3% state taxes (I assume I have to pay state taxes on the rollover, but I'm not positive about that).

I found this on fairmark.com: "If your time frame is very long — say, 10 years or more before you begin taking withdrawals — tax rates are not much of a factor, partly because the long-term benefit of the Roth IRA will outweigh the added tax cost and partly because no one can predict what tax rates will be like that far in advance."

I'm not sure I understand that advice. I'm 35 years old now, so the money will sit in the IRA for at least another 25 years. But, as I try running the numbers and using different potential future tax rates, it seems that the future tax rate does make a big difference, and that I might be better off leaving the money in the Traditional IRA. I'm very confused by the assertion that "If your time frame is very long ... tax rates are not much of a factor".

To roll $100,000 this year, I think I'll have to pay about $36,000 in taxes (between Federal and CA). That $36,000 could grow a lot in 25 years, and even though I'll have to pay taxes on it and the Traditional IRA in the future, it looks like I could still end up with more money if I'm in a low enough bracket in the future (relative to the 28% bracket I'd be putting myself in by doing the rollover).

Many thanks in advance for any help, advice, or thoughts.

Jeff

During the plan year, a check was cut from the trust, then returned to the trust. Another check, which was paid the previous year was also returned. So the net distributions would be negative.

1. On Schedule I, would this returned amount go under 2e as a negative number, to offset the previous year's reported benefits paid, or under Contributions as Other?

2. Is Schedule R required?

Thanks

If a simple IRA is rolled over to a safe-harbor 401K Plan is the two year minimum participation rule waived?

Plan document defines compenation as W-2 comp less reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits.

Er agreed to make settlement payments to employees for off duty meals not provided from 1999-2002. Er has been told to report the settlement payments on a 2004 W-2. Seems to me that this would then be treated as plan income.

Does anyone have any thoughts on this? Experience? Any help is greatly appreicated. Thanks

If a small company is starting up a 401(k) Plan 1/1/05 (Never had a retirement plan before). Would they receive the tax credit on installation & document expenses that are paid in 2004 for their Tax Year 2004?

If yes, I would assume that would count as year 1 of 3 to take advantage of the credit?

Thank you

I beginning to look into contributing to a Roth this year. I did not contribute last year. Where should I look....a bank, an investment organization? I'm not sure. I would appreciate any help as where to get started.