I have a client with a small business (he is the only employee) who has a self-employed 401(k) plan that provides for deferrals and a 3% employer contribution. Assume he makes $10,000 in 2004 after all deductions. He also made $3,500 in Roth IRA contributions for 2004 (he is 60 years old). He is married and his wife also puts $3,500 in a Roth IRA for 2004. She earns about $70,000 in W-2 salary in 2004.

My question: does the $3,500 Roth contribution have to be included in calculating his deferral and 3% contribution for 2004, so that his $10,000 is divided up as $706-1/2 SE deduction + $3,500 Roth + $5,625 net earned income and deferral + $169 3% employer, or can the $3,500 Roth contribution be considered a spousal IRA so that his $10,000 can be divided up as $706-1/2 SE deduction + $9,023 net earned income and deferral + $271 3% employer? Or, is a different calculation required here? He, of course, wants to shelter as much of his income from taxes as possible.

I'm not very familiar with these rules and would appreciate any help anyone has to give.

If loan payments are withheld from payroll but are not submitted to the trust, is the loan in default after six months (including the grace period)? and a taxable event to the participant? Is there any recourse for the participant.....

Is it true that you can only take a hardship w/drawl from 401k deferrals for the safeharbor reasons (medical expenses purchas prim. resid. etc), but that you can open up other money sources (match etc.) to non-safeharbor reasons as long as it suits financial need?

Or can both deferrals and match be opened up for financial need other than 4 safe-harbor reasons?

Does it matter if you are on prototype or not?

Thanks

How is everyone proceeding, are you adding an additional source to house the deposits posted after 1-1-05? Or are you setting up a new plan and freezing the old?

Either way, what are you doing with December deferrals posted in January? Which bucket or plan will you post this deposit to?

Thanks,

WHY

I'd like for some to weigh in on this issue. Thanks.

The Dorsey & Whitney Summary of new legislation purports that, although not disallowed by 409A, the deferral of stock option gains is now "impractical" because the deferral election would need to be made in the year prior to the year in which the award of the option or grant is made. It would seem to me, though, that one would "earn" the income of an option in the year in which it becomes vested, and that an election to defer could be made in the year prior to vesting. What am I missing?

Have any heard of this from other advisors? Do you differ in your interpretation?

Here's the link to the Dorsey article:

http://www.dorsey.com/publications/legal_d...pubid=172644603

Thanks,

Joe

Hi,

Does anyone know if specific rounding rules apply for 401(a)(26)? If there are 13 nonexcludable employees, 5.2 would need to be covered. We have a plan that covered 5. Could we arguably pass by rounding down? Does the IRS require us to round up to 6? If anyone can help, that would be great.

Thanks

Suppose you have the following situation:

(a) You have a DB plan (small company, say 10 employees) that was funded by employee contributions and the plan is terminated.

(b) The plan assets at termination exceed the sum of the lump sum distributions calculated from the benefit formula (all employees elect lump sum payments).

© Moreover, each employee individually has put more into the plan than his/her individual lump sum distribution payable at termination based on the benefit formula (e.g., employee X has contributed $150k and the lump sum distribution is $100k).

Question: How much should employee receive at termination? Should employee X receive $100k, $150k, or some other amount? If employee X is only entitled to $100k, what happens to the remainder?

Thanks.

I do not know much about IRAs so I have what may seem like a pretty basic question. I read that SEPs can be rolled over to a Roth IRA but can SEPs be rolled over to a traditional IRA?

Any help would be greatly appreciated. Thank you!!

If an employee switches from one group classification in mid year to another group classification at the end of the year -

i.e. Attorney - from 01-01 to 06-30 to Partner 07-01 to 12-31

what group would they be included in for purposes of allocation of the contribution.

I assume they are in the group classification they fall in based on the allocation date - i.e. 12-31. The VS document I'm reviewing is silent on this as maybe it should be.

I have a client that will be filing for a funding waiver for 2004. They are subject to 412(l) in 2004 and likely will be for several years if interest rates don't move up significantly. If they are successful in getting their waiver relief for 2004, I don't like what I see for 2005. Even though they get to amortize the deficiency over 5 years, the impact of 412(l) in 2005 means that no matter what the net fsa charges are for 2005, they will owe the DRC amount. As long as 412(l) applies, I see them having to apply for waivers every year because 412(l) acts like an AMT. Am I missing something here?

My client has a SEP Plan and the gov't subsized 1/2 of the contributions b/c they help manage low income housing. However their fees, expenses, etc. have gone up and they cannot fund the entire SEP contribution for 2003...isn't this a problem?? Since were already at the end of 2004, dont' they have to fund the 2003 contribution b/c if they didn't they would be "taking away" the benefit?

Also, what would happen if this was for 2004? What if they began funding throughout the year and found out today, they can't afford to fund the rest of the year?

Any thoughts? I've never had this happen before?

Thanks

In a 401(K) Plan that elects to use the Top Paid Group for defining HCEs,

is the Rate Group Testing limited to only those 20% HCEs ? ?

I believe when terminated ESOP Participants are paid their vested balance in installment payments, interest is required to be paid on the upaid balance of the installment distribution.

How is the interest rate determined? Any help would be appreciated.

Ran into a situation today I haven't seen, and although I THINK I know the answer, I'd appreciate opinions.

This is a relatively new plan - adopted 10/03, effective date 1-1-03. Client signed an UNAPPROVED copy of a prototype sponsor's GUST document. Client has not yet signed the APPROVED document.

I believe that under the general procedures in 1.401(b)-1(d), they only had up to the extended tax filing deadline (in this case, 9-15-04) to adopt an approved GUST document. I'm not sure they have any option except to file as a nonamender under 2003-44.

Any other thoughts, or anything I'm missing? Appreciate any thoughts on this.

MY CLIENT IS WORKING WITH A NEW ACTUARY. MY CLIENT SPONSORS A DB PLAN THAT USES THE CALENDAR YEAR AS THE PLAN YEAR. FOR THE PLAN YEAR ENDING 12/31/2000, A MINIMUM REQUIRED CONTRIBUTION OF $110,000 WAS DUE. 09/15/2001 CAME AND WENT AND MY CLIENT FAILED TO MAKE ANY CONTRIBUTION. THIS RESULTED IN AN EXCISE TAX OF $11,000 (OR 10% OF $110,000). ON 10/01/2001 MY CLIENT MADE A DEPOSIT OF $50,000.

FOR THE PLAN YEAR ENDING 12/31/2001, A MINIMUM REQUIRED CONTRIBUTION OF $160,000 WAS DUE. 09/15/2002 CAME AND WENT AND MY CLIENT FAILED TO MAKE ANY ADDITIONAL CONTRIBUTIONS. THIS RESULTED IN AN EXCISE TAX OF $16,000 (OR 10% OF $160,000).

BASED ON THE WAY WE DO OUR TRUST ACCOUNTING, AS OF 09/15/2002, THE CLIENT STILL HAD A RECEIVABLE OF $60,000 FOR THE PYE 12/31/2000 PLUS A RECEIVABLE OF $160,000 FOR THE PYE 12/31/2001. AS ADDITIONAL CONTRIBUTIONS WERE MADE AFTER 09/15/2002 WE CREDITED THOSE CONTRIBUTIONS AGAINST THE RECEIVABLES BEGINNING WITH THE RECEIVABLE FOR THE PYE 12/31/2000 AND THEN THE PYE 12/31/2001.

DOES THE FACT THAT MY CLIENT HAD TO PAY AN EXCISE TAX ON THESE MISSED DEPOSITS RELIEVE HIM FROM HAVING TO MAKE THE MISSED DEPOSITS? IF THE MISSED DEPOSITS MUST STILL BE MADE, IS THE $50,000 DEPOSIT MADE ON 10/01/2001 USED TO SATISFY THE MISSED DEPOSIT FOR 2000 OR IS IT TREATED AS A DEPOSIT FOR THE PYE 12/31/2001 (WHICH WOULD THEN HAVE REDUCED THE FUNDING DEFICIENCY FOR THAT YEAR FROM $160,000 TO $110,000)?

THE NEW ACTUARY CLAIMS THAT THE CLIENT MAY SIMPLY NOT MAKE CONTRIBUTIONS FROM YEAR TO YEAR AND PAY THE 10% EXCISE TAX ON ANY ACCUMULATED FUNDING DEFICIENCY. PUT DIFFERENTLY, THE ACTUARY CLAIMS THAT OUR METHOD OF TRUST ACCOUNTING IS NOT CORRECT. ONCE A FUNDING DEFICIENCY EXISTS FOR A PLAN YEAR, THE ARGUMENT GOES, THE RECEIVABLE FOR THAT YEAR IS ESSENTIALLY REMOVED AND THE FUNDING DEFICIENCY MAY IMPACT (DEPENDING UPON TRUST EARNINGS AND DEPOSITS) THE NEXT YEAR'S FUNDING DEFICIENCY.

WE ARE SORT OF PERPLEXED, BUT NOT AT ALL PREPARED TO ARGUE THAT THE NEW ACTUARY'S VIEW IS WRONG, IT JUST DOES NOT MAKE COMPLETE SENSE TO US YET. CAN ANYONE HELP CLARIFY/EXPLAIN WHETHER THE ACTUARY'S POSITION IS CORRECT? THANKS IN ADVANCE FOR YOUR ASSISTANCE.

I am a licensed Health and Life producer in AZ. I was working for a TPA that went out of business. I have been asked by a client to continue processing their HRA and FSA claims until the plan year end as I am familiar with the procedures. I am having trouble determining the legalities and requirements of doing this job on an independent contractor basis. The state insurance board claims that there are no requirements for a self funded plan as stated under AZ statute 20-485. Can someone confirm?

Thank you.

BACKGROUND

We have a pension client (deferral & profit sharing), who is with a major group pension financial institution. They are using Sungard Corbel non-standardized volume submitter documents.

SITUATION

Participant died. He enrolled in the plan in March 2002, using the standard enrollment form provided by the financial institution. The back of this form has a place to write down beneficiary information, where you can fill out a primary(s) and contingent(s) beneficiaries, and sign and date the form.

In March 2002 he listed his two sons equally as primaries. He is not married.

In 2003 he filled out another beneficiary/enrollment form, and listed one of his two sons as primary.

In 2004 he filled out the form yet again, and listed his live-in girlfriend (long relationship) as primary.

In August 2004 he died.

I told the trustee he should follow the last, latest form received. Trustee is uneasy about this. One of the sons has worked for him in the recent past. The trustee called the corporate attorney. Attorney says that the beneficiary form election (the enrollment) form) should have had a statement on it saying "...a more recent election of beneficiaries cancels all prior elections...", or something to that effect. Of course, it does not have any such statement. It is a simple form. Then the attorney said turn to the SPD, and the Plan Document. They should specify how this situation should be handled. Otherwise, either the trustee can petition Probate Court to decide who gets the money (legal fees - not desired), or the trustee can just make a decision and defend it in court if someone (one of the sons) object. Obviously the trustee does not like this uncertainty, and has referred the matter back to us, the TPA. Only about $1,400 is at stake.

My own opinion is that the last, most recent expression of the participant's desires is the one that is in effect and binding, and replaces all prior unless specifically stated in writing otherwise. The attorney says this is not technically correct. We are all in the State of Ohio.

I called and e-mailed SunGard Corbel (Robert Richter). He responded that neither the SPD nor the Adoption Agreement, nor the Plan Document had any direction in it, or statement that a more recent beneficiary designation revokes an older designation. He also said that their SunGard beneficiary forms in the forms package do not have any language addressing this either. So, this question apparently cannot be answered from the plan’s documents. Mr. Richter suggested filing an Interpleader in Probate Court.

My question to the forum: has anyone experienced this before, or know of any written direction (DOL, Treasury, IRS, other)?

I have a medical practice with a 3% Safe Harbor PS 401k plan with a 12/31 year end. Currently it has a 1 year/age 21 eligibility with entry on 1/1 and 7/1. Plan is top heavy. They always give a match, plus an additional employer contribution.

There are two shareholder physicians. Their financial advisor told them that they need to pay the wives $14,000 in December and defer the entire amount for 2004. My only problem is that both wives work less than 500 hours a year.

The doctors thought we could open up the 401k to immediate eligibility, but that means all the early entrants would get a 3% Top Heavy contribution if they are still employed at the end of the year.

The plan document says the Safe Harbor contribution will be given to all participants eligible to make elective deferrals and who meet the maximum eligibility requirements under IRC 410(a). I understand this to mean that the early entrants could get the 3% Top Heavy, but not the 3% Safe Harbor since they haven't met the eligibility for the employer contribution or match.

This is also a cross-tested plan, so would the early entrants have to receive the additional Gateway contribution if they haven't met the eligibility for the employer contribution?

Could the plan be amended effective November 1, 2004 to a 3-month eligiblity for the 401k portion with a monthly entry date? Wouldn't this allow anyone who has met the eligibility to enter the 401k portion of the plan on 12/1/04?

My head's spinning! Thanks.

I have a money purchase plan with a 414(h)(2) "pick-up" arrangement. The employer "pick-up" amount is 2.8%. The client has requested that the plan be amended to provide for a "pick-up" amount based on years of service (i.e. 3% for years 1-4, 4% for years 5-9, 5% thereafter. Can a plan be amended to change the amount of the 414(h)(2) "pick-up" amount?

They are contemplating a new plan design (OCPP) by Mand Marblestone and Danzinger. The issue is the plan will need to use conventional method for HCE determination going forward.

Question: Can a plan amend mid year to change HCE designation parameters? What if they elect to change plan year-end?

Thanks