What happens if an employee who has elected to contribute $5000 to the FSA.... in March the employee terminates employment therefore they have only contributed $1200, but has used $5000 from their account. Can one ask the employee to pay back to the company the amount that they used in excess of what they contributed. I read my summary plan documents but am not positive what to do. I read in the plan description that the employer reserves the right to use any forfeited money by the employee to offset loses, but that is if the employee has excess money in the account.

In addition, now this employee has received funds from us in excess do they have to report that as additional income?

Thanks for your help!

A small DBPP has the following:

Minimum funding under aggregate method = 13,000

Erisa FFL = 27,000

OBRA FFL = 176,000

RPA FFL = 46,000

Unfunded RPA CL = 60,000

It seems that the minimum funding is 13,000.

The FFL = 46,000

The deductible limit can be up to 60,000 under 404(a)(1)(D), thus resulting in a potentially large FSA credit balance.

It's a relatively new plan that provided past service credit.

Am I missing something or is this interpretation correct? As I haven't had much need to this point to apply the unfunded RPA CL limit.

Thanks.

Is it possible to implement automatic enrollment in a 401(k) Plan for employees in California. I know that California does not support automatic enrollment.

Does anyone know how other employers are circumventing California's harsh stance on this issue?

I think that if we try to have every employee sign a sheet of paper acknowledging that they consent to being enrolled, then we would be OK. This goes against the theory of "automatic" enrollment, but I think that it's necessary in California. Any thoughts? Any ideas as to what this acknowledgement should say?

Thanks.

Client had a defined benefit plan in past and currently maintains a 401(k) plan. The employee deferrals are invested in self-directed accounts under a mutual fund platform.

At the time of distribution from the defined benefit plan, all but 3 participants took their monies either directly or rolled to an IRA. 3 participants rolled their funds to the 401(k) plan. These assets are held in a pooled brokerage account and earnings and investments are allocated annually. 2 of the participants are HCEs, 1 is an NHCE.

The 3 are now contemplating breaking up the pooled account so they can self-direct (1 HCE is in his 40s, the other is close to retirement so they obviously have diverging investment strategies). The NHCE will take her amount and roll it to an IRA. The 2 HCEs are both doctors and understandably want to keep their funds under a qualified plan umbrella and aren't interested in rolling to an IRA.

The question is they want to establish self-directed brokerage accounts SOLELY for the rollover balances. No other participants have rollover balances in the 401(k) plan except for these 3 at present. I'm concerned about Benefits Rights and Features issues here since the only 2 participants with self-directed brokerage accounts would be HCEs (although presumably the amendment would be written to provide that future rollovers would also be eligible for the same investment option). Any comments on this issue?

I had to let an administrator go a few weeks ago, and I was wondering if there is a statute of limitations on how long I need to wait to repost the job and hire someone else.

Does the transition relief provided by Rev Proc 2004-22 allow a health FSA, which otherwise meets the limited purpose FSA requirements, to reimburse for prescription drug expenses during 2006?

Client is restructuring itself into two entities, they will still be in the same controlled group. My reaction is that they can still maintain and test their PS Plan as a single plan, they'll just need to amend the definition of employer and administrator, etc. to clarify who has what responsibility. Any thoughts?

I have a Safe Harbor 401k Plan with the Basic SH Match. The document says the match is calculated on a pay period basis with the true-up being made quarterly.

If a participant starts his 401k on 9/1/04, when I calculate the true-up, do I use the entire quarter's compensation, or compensation from when the 401k started on 9/1/04?

I've thought so long about this that I have myself confused. Thanks.

Many practitioners/commentators have categorically suggested that amending a plan to eliminate involuntary cashouts is a "solution" to the default rollover IRA requirements. Am I missing something? The proposed solution would "work" for a plan that allows participants to elect to receive a distribution after termination of employment in any form available under the plan. These plan sponsors will simply have to weigh the "hassle" associated with maintaining small accounts vs. the "hassle" of the default rollover IRA requirements.

What about a plan that permits distributions to terminated employees prior to ERA or NRA only if the account is valued at less than $5,000? Admittedly, most 401(k) plans do not hold accounts to ERA/NRA, but I still have a number of profit sharing and defined benefit plans that are "true retirement plans". I thought the timing of the benefit payment (i.e. at termination of employment) was an optional form of benefit protected under 411(d)(6) and, accordingly, plan can't "take away" employee's right to receive payment at termination of employment (and plan sponsor doesn't want to amend plan to permit all terminated participants to receive immediate distributions or plan would already contain an immediate distribution provision). I guess plan could be amended to give terminated participants with small accounts the right to elect to receive a distribution. However, wouldn't this create separate benefit structures under 401(a)(4)?

Similarly, what about a plan that permits distributions in the form of a LSD only if account balance/accrued benefit is less than $5000? I thought LSD was a protected form of benefit. Again, I guess plan could be amended to give participants with small accounts the right to elect to receive a distribution in a LSD (and plan sponsor doesn't want to amend plan to permit all terminated participants to receive a LSD or the plan would already permit LSD for all participants). However, wouldn't this create separate benefit structures under 401(a)(4).

Can an HCE still make the 3,000 catchup deferral, when the actual deferral is less than 13,000 due to percentage limitations with the ADP? For example, HCE can only defer 3% of pay, which is about 6,000. Can HCE still also defer an additional 3,000? Or is the catchup only once you've been able to max out at the 13,000 dollar amount (which we can't because of the adp testing.)

As you know, only a profit-sharing plan, a stock bonus plan, a pre-ERISA money purchase pension plan, or a rural cooperative plan can include a 401(k) feature (CODA). Are any of you aware of any pre-ERISA money purchase pension plans that include such a feature?

Although not indicate in the IRC, Announcement 93-105 indicates that the plan had to include a CODA when ERISA was enacted. Do you know of any that have been amended to other types of plans to provide increased flexibility to the employer (and in some ways to the employee) and thus are dwindling in numbers?

Thanks!

I am looking around comparing HRA's (Health Reimbursement Arrangements). In the past I had looked at HSA's, but in this case there is difficulty in finding a qualified plan (State of Maine) and looking to minimize premiums / maximize benefits. I seem to be getting some conflicting information that I wondered if anyone here could clarify.

1)In a 1 person corporation can the HRA be established to cover premiums and a certain amount of out of pocket costs?

2)Does the amount covered have to be set at the beginning of the year or can it just cover all expenses?

3)I see that the account values can roll year to year and that employers may allow access after the employee leaves. Does that mean in an owner employee only arrangement that the account could be maintained for allowable health expense withdrawals until it was liquidated?

4) Does anyone know of any decent economical providers for a 1 person plan? or know of someone who offers a self admin setup?

Thank you!

Stephanie

I did find a thread on this, but after reading through it, I'm not sure it answers my particular question. I have a small amount of PS forfeitures ($2653). My Corbel doc says forfeitures are allocated with Employer contributions. Plan is cross tested with only 2 rate groups, one for owner & one for all others. Plan is large, has other HCEs (not owners) and has no trouble passing any of the 401(a) tests. The client has given me a dollar amount to allocate. If my staff group has an overall allocation rate of 3.67% which includes forfeitures, then I can give my owner up to 11.0% (3.67*3), correct? Now Relius allocated the forfeitures comp to comp, is that a problem? Or do I have to figure those forfeitures out with the cross testing and allocate by individual meaning hand keying all forfeiture transactions? If I don't then my %tages are ok and all tests pass. Thanks in advance

Sub-S corp has a 401k plan. The company will be paying bonuses but probably not until after the end of the year. Can the employer pay the bonus in 2005 and still have it count as 2004 income? If so, how late into 2005 can this take place? Furthermore, if this allowable, can 401(k) contributions be made out of this bonus and count as 2004 401(k) contributions?

Thanks

I am looking at a beneficiary designation form and it indicates for contigent beneficiary "Children per stirpes". Is this a latin word? Does anyone know what it means and how it affects their contigent beneficary designation?

Companies A and B are part of an Affiliated Service Group. A sponsors a plan and B is an adopting employer.

Effective 2005, the ASG status will end by virtue of change of ownership and business relationship. B will start its own plan, and assets for the employees of B will be spun off from A's plan to B's plan.

If B has non-owner employees who earned more than $90,000 in 2004, will they be HCEs in 2005?

(I think not but that's more of a guess than anything.)

We are directed trustee for a Safe Harbor plan that was recently audited. The employer admitted to the IRS that the Safe Harbor notice was not consistently given each year. Consequently, the plan is subject to testing for those years in which notice was not given, and its ADP test failures are pretty egregious.

The employer did consistently give the 3% nonelective contribution, even in those years for which notice was not given.

Apparently, the Service did not impart any information about possible corrective measures. Would it be possible for the employer to recharacterize the nonelective contribution as a QNEC?

Is there anywhere to look to see the amount of documentation that the DOL may request during an investigation? I ask because they are asking for the owners tax returns and other items that seem beyond Title I of ERISA (plan documents, SPDs, 5500s, etc.). Is there anywhere to start looking at this issue?

Husband participated in a qualified retirement plan. He was not a 5% owner and continue working until his death at 76. His spouse took a total distribution and rolled it into an IRA in 2004, which is also the year of death. An RMD was not withheld at the time of rollover.

The spouse is also over 70 1/2.

When does the spouse have to begin to receive distributions? If you are over 70 1/2 when you open the account, do you have to commence distributions right away, or the year following?

Thanks!

Facts:

Two companies participate in a single 401k plan. One is a corporation ("INC") and one is an LLC. Mr. A and Mr. B (unrelated people) own more than 90% of both INC and LLC. INC and LLC both have NHCE employees. The LLC is taxed as a partnership.

Question #1:

Based on my research, the compensation used for ADP testing (and other) purposes should generally be the gross INC W-2 compensation + the net earnings from self employment figure from form K-1 for the LLC owners. For any non-LLC owners, I'd simply add together W-2's, in a situation where an employee is paid by both INC and LLC. Am I correct?

Question #2:

Add another wrinkle - the LLC owners wish to have their net earnings from SE excluded from considered compensation. Assume that LLC owners are all HCE's. Assuming the plan document is properly drafted, can we specifically exclude net earnings from self employment, for LLC owners, from the plan's definition of compensation? The LLC owners, who also take W-2's from INC, are trying to eliminate the hassle of waiting for their K-1's in order to determine testing compensation. The HCE's derive "psychologically" all of their compensation from the INC. Were the other entity not an LLC, the HCE's would not have any compensation at all from the LLC (eg they would not take a W-2 out of the other entitity, were the LLC also and INC).

***

Thanks for any thoughts.