I have a call into the carrier for an answer but am curious if anyone has a take on this.

I have a client that is considering sending some employees to Kuwait and possibly Iraq to help service their military related products. Given the situation over there, I need feedback on how a group life & LTD carrier would pay based on the following scenarios.

1. Employee is working with the military and in effort to avoid an act of terrorism or war trips on his/her own feet while running to safety and -

A. Breaks his/her neck and is permanently disabled.

B. Breaks his/her neck and dies as a result of the injury.

2. Employee is riding in a caravan of contract workers when their car runs over a land mind and explodes into flames and -

A. Employee is kidnapped by insurgents and is eventually killed.

B. Employee is severely burned and permanently disabled.

C. Employee survives explosion but while running to safety is accidentally hit by a car and killed.

3. Employee is traveling through a hostile area with the military and is attacked by insurgents. Employee is forced to use a gun to defend himself and -

A. Is shot and killed by insurgents.

B. Is shot and killed by friendly fire.

C. Is shot and is permanently disabled as a result of the injury.

I apologize for the graphic examples, but you never know unless you ask.

I converted a traditional IRA to a Roth IRA in 1998, paid federal income taxes (over 4 years, 98-01). Since I'm under 59 and 1/2, what income tax (if any) will I face if I withdraw funds in 2005?

With California passing various bills requiring employers to offer health coverage to domestic partners, will partially self funded plans be requried to follow suit or will they pre-empt state law?

In addition, is anyone aware of any recent legislation requiring employers to make health insurance available to parents? If so, your comments and reference to the actual bill would be greatly appreciated.

Help! I've fallen and I can't get up.

A VEBA provides some nonexcludable, taxable health and medical benefits -- coverage for domestic partners and other nondependents.

It's very clear how to handle this situation for active employees. The benefits are Form W-2 compensation, fully subject to all payroll taxes and income tax witholding, and the FICA and FUTA wage bases are coordinated with the regular compensation paid by the common law employer.

But, what about retired beneficiaries? What happens when a VEBA pays taxable benefits to someone who's retired? Even though the individual is treated as an "employee" for the purpose of excluding eligible health care benefits, the employer-employee relationship no longer exists. Do the benefits constitute wages? Does the VEBA report the taxable benefits reported on Form W-2 or on Form 1099? If the VEBA uses Form 1099, which version should it use (1099-R? 1099-MISC?)?

I'm pretty much just looking for opinions because I don't think there is a clear cut answer to this question (or maybe there is). I have a client that is a group of doctors. There are 10 partners, 3 other highly compensated employees, and approximately 30 non highly compensated employees.

The issue is on the 3 non-partner highly compensated employees. Two of them are basically regular employees, the office manager and the CFO. They make approximately 90,000-95,000 each. The third is a physician that makes $300,000+ per year in salary.

This physician is fairly young so it is messing up all of the discrimination numbers. The company is considering excluding her from benefitting all together. The thought process was to create a group that is non-partner physicians (there are others that will fall into this group in subsequent years, they just aren't eligible yet).

Excluding her allows the plan to pass all applicable discrimination testing.

My concern though is that she is the only women physician. If the other non-partner physicians do not stay at the company they may never become eligible. Do you think the client could be opening themselves up to a sexual discrimination lawsuit?

County Agency administers publicly funded health care plans serving County residents. It is a creature of state law and its board is chosen by County Board of Supervisors.

The Agency devises a health insurance product directed at a sub-class of employees of another, unrelated County Agency. The Agency is also considering offering the health insurance coverage to other County employees, to School Board employees, to its own employees, and to members of the public.

Is it safe to assume:

1) that offering the health insurance to employees of the sponsoring Agency would be an employee welfare benefit plan that is exempt from ERISA Title I as a governmental plan?

2) that offering the health insurance to members of the public would not implicate ERISA but would instead fall within the state's insurance laws, under ERISA's savings clause?

3) that offering the health insurance to other governmental employees (e.g., employees of the School Board and the County) would not implicate ERISA but would instead fall under the state's government code provisions governing benefits for civil servants?

Or is it also possible that the Agency sponsoring the health insurance could be deemed to be an "employer" of non-Agency governmental employees, either under by acting "indirectly in the interests of an employer" under ERISA Sec. 3(5), or under common control/controlled group principles under the "good faith" standard set forth in IRS Notice 95-48?

Any advice/commentary welcomed.

Greetings from Massachusetts, where we have received our first inquiry regarding benefit enrollment for a family with a same sex marriage. We are busily trying to figure out how to set up our payroll system to handle the pre/post tax issues of employee contributions and the gross income issue of employer contribution.

Would greatly appreciate any guidance!

The employer has a 403(b) Retirement Plan and allows catch-up contributions. We have a few employees that will turn age 50 in 2005, some turning 50 as late as December 2005. Am I correct to inform all participants turning age 50 in 2005 that he/she may contribute $18,000 beginning January 1, 2005? Am I correct that the regulations state "the additional pretax catch-up amount for employees who will be age 50 by the end of the taxable year may contribute the maximum dollar limits? Or does the regulations only allow the catch-up to begin in the month in which age 50 is attained? Many thanks to all for your feedback!

Now that we have an OK to pass the costs of a QDRO along to a participant, what sort of notifications should we have in place?

A client of mine just had their first since this new attititude, and it's been a doozy; probably several thousand dollars of time when it's all added up. The document says that the plan can pay expenses from the trust. The SPD doesn't say anything about this, though it does mention that if a court finds that an action of a particular participant is detrimental to the plan as a whole (which I would say could potentially include trying to have the whole plan pay the costs of one participant's QDRO drafting/review), the plan can be ordered to offset your benefit by a court.

Not exactly what I was looking for. But does the plan have enough justification to say that the plan document allows it, so we can do it?

If the participants should be notified upfront, does that mean we have to re-write the SPD's of all our plans?

We have a plan where a participant past his required 70.5 start date died. Since this was a small plan designed around him, the plan terminated. The surviving spouse (who was also a participant in the plan and not yet 70.5), received his distribution and rolled it and her benefit into an IRA when the plan terminated.

It's my understanding (and I'm relatively new to the business, so please correct me if I'm wrong), that at this point, she has received a full distribution of his benefit, so she will not be required to take a 70.5 based on his benefit in the plan. She will only be required to start receiving 70.5s when she becomes eligible and the amount will be determined using the IRA rules.

The client's CPA says that he went to a conference and was told that she still had to take 70.5s based on his age on the amount she received from him??? Is there something new in effect, or a special provision in the 70.5 rules for deceased participants that I don't know about?

When do they occur?

I don't mean when does the law take effect, but what triggers them?

Is it simply that an ee quits with a balance/PVAB less than $5000 you have to do it 'immediately' , or the famous 'when administratively feasable' - e.g. the administrator doesn't even know who quits until the annual census info comes in.

After an unfruitful search, participant (formerly located) cannot be turned up. How are the 1099-Rs issued? I'm favoring company address for Payee's address.

We have a professional corporation with a terminating DB plan. Assets are appoximatley 60% of accrued liabilities on a termination basis (assets are approximately 70.5% of Vested Accrued Benefits, this is important to the question).

The plan has been around for 4 years, so most participants are 60% vested, with a couple at 40%. The owner is 100% vested due to reaching the Normal Retirement Date.

The owner does not wish to make further contributions or waive benefits in order to pay participants 100% of their accrued benefits. Using RR 80-229, we are proposing to terminate and pay benefits at 60% of the accrued benefit amount (vesting ignored).

The owner asked whether or not it is possible to pay benefits prorata based on the percentage of Vested Accrued Benefit that is funded.

Example:

Total Assets 240,000

Total Accrued Liabilities 400,000

Owner Accrued Liability 250,000

Non-Owners Combined AL 150,000

Total Vested AL 340,000

Owner Vested AL 250,000

Non-Owners Combined VAL 90,000

All benefits are in PCs 5 and 6.

Based on RR 80-229, I think the nondiscriminatory allocation should be $150,000 to the owner and $90,000 to the non-Owners (prorata based on Accrued Benefit).

Using the funded Vested Accrued benefits as an allocation basis would produce, $176,470 to the owner and $63,529 to the non-owners (prorata based on Vested Accrued Benefit).

Is there any basis for allocating the assets based on the Vested Accrued benefits rather than the total accrued benefits? When paying benefit amounts that are less than 100% of the Accrued Benefit, is it prudent to file a 5310?

I have a situation where the client established his unincorporated business on 9/1/2004. He will have Schedule C income of about $200,000 this year. To simplify, assume his net compensation after the social security tax deduction and defined benefit plan contribution is $150,000.

We know that for 401(a)(17) purposes, we must pro-rate the $205,000 limit for the short plan year. But what about comp for 415 purposes? Does the whole $150,000 count as part of his three-year average for 415 purposes?

Are there any survey out there which shows what other multi-employer funds are doing as far as benefit accrual rate reductions? I am interested in the magnitude of the reductions that other funds are adopting.

If not, do you know of any funds that had adopted a benefit accrual rate reduction, and what's the magnitude of the reduction?

Just wanted to alert the SEP forum about this topic's current discussion over on the 401(k) plans forum and invite input from those who watch for such a topic here.

Thanks and I wish you all a Merry Christmas (or a Gratifying Solstice Event as the case may be).

[CLICK HERE: Link to 401(k) forum response

I am curious if others out there are running into issues where clients are asking what are permissible investments because the underlying prototype document does not really give good guidance in terms of entity type of investments.

When it comes to investments in various entities I am getting confused about these DOL rules governing when a plan invests in an entity and whether or not those investments are considered plan assets....

Can anyone shed some light on this for me? I am rather confused and surely am mixing things up a little. Where can I go for more information on permissible qualified plan investments as pertains to these entity type investments?

Partnership set up SIMPLE IRA a few years ago. An employee became a partner in June of 2004. Are salary deferral contributons made for 2004 before he was a partner OK? Also, can he contribute to the SIMPLE IRA after he became a partner? If so, would the contributions after June be based on his "earned income " while a partner? And, should all contributions be aggregated to ensure the limits were not exceeded?

Consider a controlled group of companies A, B, C, D, E and F.

Each company has a separate 401(k) plan (no HCE in any plan) and separate investment providers for each plan.

If an employee of company A transfers to company B, can the employee's loan in Plan A be transferred to Plan B (trustee to trustee transfer not a rollover or distribution) if the employee's remaining balance remains in Plan A?

Clearly the plan documents, loan programs, and promissory notes would have to contain appropriate language and plan sponsors or trustees would have to accept the tranfers, but is this possible under regulations and code?

Mr. T is an employee of a large corporation and participates in their 401(k) plan. He is under age 50 and maxes out with the 401(k) contributions ($13,000 for 2004). Mr. T has also owned a small business for himself with 1 other employee. Financial Guy wanted to set up a retirement plan for Mr. T's small business, and accidently set up a SIMPLE rather than the intended SEP. Mr. T has had his first Elective Deferral withheld from his pay for the SIMPLE, when it was realized he had no room to put any elective deferral money into this plan (maxed out in the big company's 401k). Although withheld, the money has not yet been deposited anywhere. The other employee has not contributed anything.

What are his options in this situation. For starters, can he keep the SIMPLE and not make elective deferrals, just use the ER contribution portion of it? What to do with his withheld money since it is not deposited yet. Is it OK to simply "reverse" that last paycheck of his to get the money back to him? Any other ideas?

Thanks