Due to change in status on December 15 and lower cost we decided to move health insurance and medical reimbursement account to husband's employer as of Jan 1. Notified wife's employer on 12/29 to terminate these accounts as of Jan 1. Her employer required proof of her insurance coverage, and continued deductions until this was forwarded to them in late January. They then refunded the January insurance deductions but not the reimbursement account deductions, saying that the IRS did not allow this. So we tried to get reimbursement for January expenses but they did not allow them. Can they do this, or do they at least have to either 1) refund her January reimbursement account deductions, or 2) reimburse our January expenses?

I need the SEP/SIMPLE Answer Book!!!! I'll be ordering next week. In the meantime, maybe someone can help me with a few SEP questions, ranging from easiest to hardest:

S-Corp started in June, 2002 with 2 equal (50/50) owners. No other ee's in 2002, just them, but they take no comp. In 2003, both take a salary. They also hire 2 p/t people. In 2004, they are again taking salary and expect to make a lot of money. They 2 p/t people leave in 2004, and are replaced in July, 2004 with 4 new p/t people. Owners objective is to start a SEP in 2004 that will include them (owners only) and not the others.

1. Would the eligibility have to be set at "having performed services in 2 of the previous 5 years" to get the 2 owners in (3 out of 5 would keep them out for 2004, correct)? Would the minumum wages have to be $0 since they were not paid in 2002? Also, if 2 out of 5 is correct, would that mean the 4 new p/t people will not enter until 1/1/2006?

2. Assume all of the p/t people work less than 1000 hours. Can the employer terminate the SEP after 2005, start a PS or 401k in 2006 with a 1 Year of Service/1000 hour eligibility requirement, and have everyone excluded other than the 2 owners?

3. I believe 415 applies to SEP's so if they contribute $3,000 each to the IRA, they can receive up to a $38,000 employer allocation each in the SEP? Is this correct?

4. Employer also uses around 20 leased employees from a hospital. These employees are covered under the hospitals DB plan. I think the ER reimburses the hospital for all wages and benefits including the DB plan. Do these leased employees have to be covered in the SEP?

5. Finally, can the company borrow from the 2 owners to fund the SEP?

This is quite a laundry list so thanks for any comments. I'd rather stick to 401ks.

New deferred comp rules under American Jobs Creation Act do not apply to eligible 457(b) plans. Presumably this means an organization-wide deferred comp plan of a governmental or private tax-exempt employer, and NOT a top-hat 457(b) plan for the executive of a private non-profit; i.e., the new deferred comp rules DO apply to a top-hat 457(b) plan??

Due to the final COBRA regulations released May 26, 2004, is it necessary to amend all Cafeteria Plans, including Premium Only Plans?

I haven't seen anything that requires a plan to notify participants who are catch-up eligible. I'm trying to find some language that specifically indicates that a plan does NOT have to inform participants of this eligibility. I'm having trouble finding that in the code. Can anyone point me to something?

New deferred comp rules under American Jobs Creation Act do not apply to eligible 457(b) plans. Presumably this means an organization-wide deferred comp plan of a governmental or private tax-exempt employer, and NOT a top-hat 457(b) plan for the executive of a private non-profit; i.e., the new deferred comp rules DO apply to a top-hat 457(b) plan??

In determining the DB accrual rate for the ABPT do you divide by plan year comp or average comp ?

On pages 60 & 134 of Labombarde's 1991 book entitled " A Guide to Nondiscrimination .................." , he indicates either but the regs seems to say only average.

Does anyone have a cite that would support the use of plan year ??

I thought I had read that a SH Match has to be funded at least every 3 months? Yes or No -- If yes, can the Adoption Agreement use the Plan Year "calculation" method?

what are the requirements of the sponsor to disclose these changes? Also when a plan converts as stated, is the sponsor required to provide a new SPD to the participants? If so what is the timing?

Thanks in advance

WHY

Now that HR4520 will probably be signed, we are getting kinda worried. Can some "haircut" provisions be grandfathered? What do you think?

Do you think any of the key provisions (that have been changed) can be grandfathered in?

Employer is making a SEP contribution for 2 employees who termed. They were sent applications to complete but never returned them. Can employer complete an application on behalf of the termed employees & select a money market option? That would seem to be the most prudent course of action.

We have a plan with a plan year that begins 10/1/2003 and ends 9/30/2004. I know when testing them that I use the compensation for this period, but when telling them what the max. deferral amount, catch-up and compensation can be am I right in using the figures for 2003 since it is technically a 2003 plan year?

Please help me settle an ongoing disagreement that I have with some of my partners. This isn't a critical issue, but it would be nice to have some other opinions.

The Form 5500 instructions say to use a business code that best describes the plan sponsor . This is a certainly a simple decision for any organization that sponsors a single-employer plan for its own employees. Also, the guidelines are clear for a multiple-employer plan: choose a code that best describes the main activity of the participating employers.

A multiemployer plan, however, is sponsored by a joint board of trustees. Neither the labor organization nor the contracting employers sponsors the plan. I believe that the appropriate business code is 525100 (Employee benefit funds).

Example. There's a collectively-bargained plan for electricians. The multiemployer plan should use code 525100. The employers, who contribute to the fund pursuant to collective-bargaining agreements, use code 238210 (Electrical contractors) for plans that they sponsor for their non-union employees. When the union sponsors a plan for its own staff members, the code is 813930 (Labor unions and similar labor organizations).

Obviously, the fate of the free world isn't hinging on the answer to this question. I'm just curious about other people's thoughts.

If a DB plan has a COLA tied to CPI and terminates does the calculation of a lump sum distribution have to reflect the COLA?

My understanding of the definition of leased employee under 414(n) dictates

1. recipient must pay fee for services of indivdual.

2. the individual must provide service on a substantially full time basis for one year

3. receipient must have primary direction over ind. services

4. the leasing org. must be the common law employee

Under #2 above an employee must complete 1500 hours in a 12 month period.

Employee A meets all of these requirments and is classified as a leased employee for the receipient company XYZ.

XYZ does not exclude leased employees from its 401(k) plan.

XYZ has eligibility requirements to enter its plan of age 21 and 6 months of service with monthly entry dates.

When does employee A (who is over age 21) become eligible to be in the XYZ 401(k) plan? Doesn't he have to wait the full 12 month period and work the 1500 hours in that 12 month period before he can be classified as a leased employee thus even allowing him to be an eligible employee for XYZ's plan? Does

How can there be retroactive entry into a 401(k) plan?

Any thoughts would be appreciated.

Would there be any testing issues if a plan has different eligibiltiy for 401k and SH match? In this case, immediate eligibility for 401k and 6 mos for SH match.

(Plan allows for dual eligibility for SH).

A client has asked the following question regarding methodology.

An employer has a plan that is a life only benefit at 65 with actuarial equivalent of 5% and UP1984 (for the sake of argument).

The calculation of the normal accrual EBAR is the increase in the accrued benefit (one method) divided by compensation. This does not recognize the AE assumptions versus testing assumptions (ignore the most valuable issue for the moment).

Is this fair to NOT recognize (through normalizing the life benefit from plan to testing assumptions) the difference in assumptions??

Now, let's say the same employer establishes both DB and DC plans as 'carve' out groups.

The DC EBARs are calculated using 8.5% testing assumptions AND the DB EBARs ignore the assumptions for normal accrual purposes (using the method above).

Is this fair or even legal???

My answer was that the regulations do NOT REQUIRE the normalization when the benefit is a life annuity. The issue of the AE versus testing assumptions will be dealt with in the most valuable EBAR. There is no issue of 'fair' but what the regulations outline as the proper procedures.

Any disagreements??

Does the hurricane relief apply to the failure to correct a June 30, 2004 ADP test by 9/15/04?

Plan sponsor of a Safe Harbor 401(k) failed to remit the Safe Harbor contributions for PYE 12/31/02. They will ultimately deposit the contributions adjusted for earnings. The auditor insists that a schedule G should be included with the 5500 to report prohibited transactions on the use of plan assets.

I arguing that unlike participant deferrals, which become plan assets as soon as the sponsor can segregate them, employer contributions do not become plan assets until actually contributed to the trust and therefore there is no PT for use of plan assets.

Does anyone think we have PTs to report?

If a Plan under contributes their 3% nonelective contributions, can they self correct under SCP? If so, are they within the correction time period if they correct within two years of the plan year in question?

Since the Safe Harbor is an ADP issue, is it a stretch to say that the correction period is the two year period beginning after the 12 month correction period provided for section 401(k)?

Thanks for any insight.