Employer is a Sole Proprietor, with a Schedule C needed to calculate the annual SEP contribution. He would like to also have a 401(k) Safe Harbor Profit Sharing Plan....is that possible to have both plans active???

2 HCE's

2 NHCE's..

Help!!!!

What is the time frame which particpants must be notified when terminating a 401a plan. When terminating a plan what are the things to be careful about.

Terminating plan has small amount invested in limited partnership and gold coins. Trustee wants to offer all participants a chance to take part of their distribution "in kind". In other words he wants all participants to have a chance to receive some of the lp and coins and not look like they were distributed to HCE only. Does anyone have a letter to participants that gives this option?

Facts: U.S. company has Puerto Rican subsidiary. In the past, employees of P.R. sub participated in the U.S. DC plan. Recently, the P.R. sub established its own P.R. DC plan, and its employees no longer participate in the U.S. plan - but they still have account balances in the U.S. plan. The parent company would like to spin-off P.R. assets/liabilities that are in the U.S. plan and merge them into the P.R. plan.

Question: Are the issues here the same as if the merger were between two U.S. plans? If not, what are the differences?

If an employer is part of a contolled group, must ADP testing include employees of the contolled group?

We're doing an estimated Average Benefit Test for 2004 and will use a "snapshot" date of 12/31/2004. There is 1 DB and 2 DCs in the testing group.

In Section 3.04 of Rev. Proc. 93-42 there is mention of a needed adjustment to the ratio percentage and nondiscriminatory classification percentage to compensate for relative differences in the turnover rates among eligible HCEs and NHCEs.

The Rev. Proc. doesn't seem to mention a similar adjustment to the Average Benefit Percentage ?

Could this be correct ??

I am looking at the 1.401(a)(4)-12 definition of Plan Year Compensation under Section 5 "Special rule for new employees".

Calendar Year Plan

Effective Date = 1/1/04

Comp = Plan Year

Testing Comp = 3 Yr Ave based on Service (rather than Participation)

Testing Date 12/31/04

An participant was hired 7/1/02, 1000 hrs each yr, so there is actually 2.5 years of comp history.

Question: To determine ave comp for testing, can I add the entire comp history and divide by 3 (as long as the method is applied uniformly)?

In calculating the reduction in the 100% of compensation limit for a DB plan under IRC 415, what are the requirements for a year of service. The plan requires 1000 hours of service for a year of vesting service but only 500 for a year of accrual service. The owners daughter worked 700 hours.

How long after termination of a defined contribution plan are you entitled benefits. I know someone who never received notice of termination due to moving to another city. Apparently this happened a few years ago, and she wants to track down her funds.

can someone explain how loans in DB plans operate? my main question is how do you account for it if there is no account balance?

We have a client that has been purchasing life insurance in it's DB plan. The client has been purchasing up to a face amount of 100 times the projected accrued benefit.

The client has decided that the principal has enough life insurance and wants to stop purchasing. What are the clients options? Obvisously the plan must be amended to eliminate the use of life insurance, but what can be done with the life insurance in the plan now? Any suggestions?

Plan is a PSP with annual valuation date (12/31). Distribution section re terminated participants states that upon particpant's election account balance will be payable upon the Anniversary Date that coincides with/ or is on/after the date of participant's termination of employment. SPD says the benefit will be distributed as described "as soon as administratively feasible". Given that the annual valuation takes some time to get together it is not unusual for a number of months to go by after year end before a participant's account balance can be determined. Regardless, participants want their $$$$ now and some even demand interest to be paid from 12/31. Plan typically denies such a request. Are there any recent rulings, cases, etc.... which address specifically the payment of interest issue? My gut is that the "administratively feasible" threshhold is determinable on a plan by plan basis and is probably like trying to define "reasonable"..... Thanks for any help.

Does anyone see a problem with a Plan Sponsor who amended his plan last year to remove loans (to allow one participant to take a hardship distribution) amending the plan this year to allow loans (because he wants one)?

The October Special Edition employee plan news talks about extension for tax filing and contributing to SEPs and SIMPLEs. http://www.irs.gov/pub/irs-tege/se_1004.pdf. But I can’t find anything that states whether the deadlines for establishing the plans were also extended. Are you aware of any such provisions?

the Consumer Price Index numbers for the last quarter are:

189.4 189.5 189.9 (Sept was released today)

so according to my notes next year's comp limit should be 210,000, 415 allocation is 42,000, db limit 170,000, key ee 135,000 and hce at 95,000.

of course, I could have something built into my spreadsheet which is wrong and things will stay as is.

I imagine they will announce the numbers at the ASPA conference next week.

If a plan has terminated, all participants have been paid out, and a very small balance (<$10) remains in the forfeiture account, can this be returned to the plan sponsor/employer instead of reallocating to participants?

It is my understanding that if a DC plan has QJSA as a distribution option, then the participant's spouse must consent to the distribution. The only exceptions to this that I've been told is if the participant's vested account balance is less than $5000, or if the spouse cannot be located. What if we had a situation where the spouse was incarcerated, and the participant states that they cannot obtain consent for the distribution? The participant knows where the spouse is located - would consent still be required? Thanks for your help!

I think I am going blind. Would someone please point out to me where the following calculation is OK??

A participant has an accrued benefit of X which is coincidentally equal to their high 3 average compensation (which is not remotely close to the dollar limit).

Can't the plan pay the lump sum value of this benefit as long as it does not exceed the lump sum of the dollar limit (using the applicable rate and mortality)??

In other words, the lump sum limit is NOT computed on the smaller of the 100% of compensation limit and the dollar limit. It is strictly computed on the dollar limit.

Thanks in advance.

Tax Cuts Explained

from David R. Kamerschen, Ph.D. Professor of Economics 536 Brooks Hall University of Georgia

Let's put tax cuts in terms that everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

€ The first four men (the poorest) would pay nothing.

€ The fifth would pay $1.

€ The sixth would pay $3.

€ The seventh $7.

€ The eighth $12.

€ The ninth $18.

€ The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

Now, the dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal. So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

€ The fifth man, like the first four, now paid nothing (100% savings).

€ The sixth now paid $2 instead of $3 (33% savings).

€ The seventh now paid $5 instead of $7 (29% savings).

€ The eighth now paid $9 instead of $12 (25% savings).

€ The ninth now paid $14 instead of $18 (22% savings)

€ The tenth now paid $50 instead of $59 (15% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $9!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got nine times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $9 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are other places offshore with nice restaurants and good business opportunities.

DEFEAT SOCIALISM – VOTE ACCORDINGLY

We're finalizing our COBRA election notices and processes.

The initial election notice that we send outlines the due dates for premiums for the first 3 months. If the participant elects COBRA, they are then provided with a coupon book that shows the amounts due, and each due date.

I'm looking for advice as to if this satisfies the notification requirement for premium due dates?

Thanks