OK, we've got Oct 6th amendments and a new Conference Report for HR 4520 published on Oct. 7th. A few surprises, like a performance based deferred comp 6 month grace period on the deferral election...., but generally, includes most the restrictive provisions of 4520 & 1637. Effective for taxable years after 12/31/04, but deferrals are subject to a retroactive application if there is are certain material modifications after Oct 3, 2004.

See: http://waysandmeans.house.gov/Links.asp?section=1559

To quote the site again: The next step is for both the House and Senate to hold an up or down vote on the Conference Report, H.R. 4520, the American Jobs Creation Act of 2004. Once approved by both chambers, President Bush can sign the measure into law.

Does anyone know of a service that would provide to a subscriber up to date information relative to state tax withholding requirements for qualified and nonqualified plans? I would expect that such a service exists. This particular facet of retirment plan administration is not my expertise, although I can do a nice job with a DB valuation. I am hopeful that such experts do access these message boards and could point me in the right direction.

A U.S. company has employees who are Canadian citizens who work in Canada. I am told they are paid in American dollars, which they then take to their bank and convert to Canadian currency. I believe they have no "income from U.S. sources", and are therefore excluded from coverage testing, etc. But, would they be allowed to participate in a U.S. qualified plan if the Employer wants (or more specifically, if the Employer's broker wants them to participate in order to benefit from larger investment commissions)? If it is permitted to exclude them, is it also permitted to include them? I have searched and haven't found anything that addresses this.

Specifically I am looking for an IRS response in a general session to Q&A- 30 from 1997.

Under the hardship regulation 1.401(k)-1(d)(2)(iv) for deemed hardship distributions, it states four primary reasons a participant could take a distribution from the plan. The 5th item under the deemed regulations says, "The Commissioner may expand standards. The Commissioner may expand the list of deemed immediate and heavy financial needs and may prescribe additional methods for distributions to be deemed necessary to satisfy an immediate and heavy financial need only in revenue rulings, notices, and other documents of general applicability, and not on an individual basis."

We have been receiving many questions from individuals about taking a hardship distribution because of the hurricane disasters in Florida. Would the President's declaration of an area as a major disater area constitute a "deemed" reason to issue a harship distribution? Could the declaration by the President be the "other document" or would the declaration actually have to be from the commissioner?

A participant is entitled to an accrued benefit based on top heavy rules. They have 2 years of top heavy.

The participant now changes jobs and becomes an inactive participant but continues to work for the employer. It appears that under the top heavy regulations M-2 that they must receive additional top heavy years of credit as long as they get credit for a year of vesting. This is based on the reading in (b) that refers to 411(a)(4), (5) and (6).

Am I reading too much into this? (other than the fact they have not been updated for umpteen years). I do not see a way to not grant the additional years of top heavy credit.

Thanks in advance.

A safe harbor 401(k) plan excludes bonuses from the definition of compensation. The compensation ratio test was performed and the inclusion percentage for the NHCEs is 5% less than the inclusion percentage for the HCEs. According to most this does not pass the "deminimus rule". I know that if the compensation ratio is not passed you can use the general test under 401(a)(4) to show that compensation is not discriminatory. Is this general test available for safe harbor 401(k) plans since safe harbor 401(k) plans must use a definition of compensation that satisfies 414(s)? In other words, if the plan satisfies the nondiscrimination test under 401(a)(4), does it also satisfy 414(s)?

Thank you.

Employer has an HRA in which participants' HRA Accounts are credited with $2000 on the first day of each plan year. Suppose a participant terminates employment and elects COBRA. On the first day of the next plan year, is the Employer obligated to credit the account with $2,000, as it does all other participants? Is there a legal basis to argue that the employer instead is only obligated to credit the account each month with the monthly COBRA premium paid by the employee for coverage under the HRA (i.e., $166, which equals 1/12th of $2,000)?

We have the following problem:

Discretionary 2003 profit sharing plan contributions were made in early 4Q 2003 and were allocated to all employees eligible to share in contributions as of that date. However, some of these employees left employment before the end of the year and the plan requires employees to be employed on 12/31 in order to share in contributions. Some of these employees took a distribution when they left which would have included their portion of the excess contributions.

Since these employees were not employed at the end of the year, they were not eligible for the quarterly contributions that had been credited to their accounts. Therefore, a negative contribution was entered in their statement. These negative contributions were supposed to reduce the employer's contribution to the other participants. However, the TPA's software could not accommodate these negative contributions, so they chose to enter $0s in place of the negative contributions. This had the effect of giving contributions to participants that were not eligible, and causing the employer to contribute more than was necessary for them to contribute. Many of these participants were not vested, so the amounts will go to forfeitures. Many were partially or fully vested, and will receive contributions for which they are not eligible. Since some of these employees have now left the company and taken a distribution and the employer does not think it can go back to the former employees and ask for the money back.

What problems are here vis-a-vis DOL and IRS? How are these excess contributions to be treated? All of these excess contributions were to non-highly rank and file and no HCE's benefited. The aggregate excess contributions were about $20,000.

Does the 10% excise tax apply to these excess contributions? Since there was no discrimination here (i.e. it benefited the rank and file) is there no real DOL problem?

Any help would be most appreciated.

I have a plan that will be considered a large plan this year. The CPA who will be performing the audit told me that he is using a "guide" which refers to comparative financials. He is asking if he has to prepare comparative financials this year since it's the first year that the plan is considered to be a large plan.

If you know where I can obtain an answer to his question, please let me know!

Have a plan that is sponsored by a member of a CG

Senorio:

Part A works for a subsidary of the the CG and is a 10% owner of this subisary.

Part A has no ownership in Employer that Sponsors plan (parent corp) Parent Corp owns 90% of sub that Part A works for

For MRD rules - would Part A be considered a > 5% owner, whereby requiring MRDs?

My gut says yes!

Is income from royalties deemed to be earned income and can said income be used to fund a retirement plan?

The maximum tax-deductible contibution for 2003 was $95,000. The client contributed and deducted $100,000 (return filed).

We told the client that $5,000 was not deductible and the matter should be discussed with his tax advisor.

Is there anything else we should do?

A church plan has Medicare as the primary payor for active employees age 65 and over. Apparentley, Medicare had a special rule allowing Medicare to be the primary payor for Diocese/Religeous organizations with active employees 65 or older.

My question is: Was there legislation last year or this year that changed this rule? If yes, could you please let me know which Act changed it. Also, were employees using Medicare as the primary payor gandfathered under the old rule?

I have tried to find information on this issue from various sources and have come up blank.

Thanks.

We're working on a subrogation case and the personal injury attorney who is representing the participant has asked for:

"certification from the US Secretary of Labor that our self-funded plan is

an approved ERISA plan".

I'm new to this process but can't find any reference in the ERISA regs that a certification is actually given by the DOL, just requirements for the plan to submit information and filings.

Can anyone shed light on this?

Thanks!

Are you required to file a schedule R for a profit sharing plan with no in-kind distributions?

Health plan currently provides opt out payment (under cafeteria plan) to employees who do not choose coverage under employer's plan (a common provision).

For 2005 plan year, employer wishes to offer high-deductible health plan with health savings account and employer contribution thereto as but one option under its health plan. Employees who have previously opted out of employer coverage have now expressed an interest in opting back in, and the employer portion of the HDHP premium plus the employer contribution to the HSA is greater than the opt-out payment. In short, the new HDHP/HSA option could result in the employer spending more for health coverage than before!

Anyone else faced this design hurdle and developed a suitable solution? All I can see is that the employer must establish an appropriate breakpoint - that is, a point at which neither the opt out nor the HDHP/HSA option is more attractive than the other. For instance, if the opt out payment is $50 per pay period while the total cost of the employer contribution to the HDHP/HSA is $40, the opt out still remain attractive. Alternatively, I suppose employer could just make health care coverage prohibitively expensive (e.g., no employer contribution to the premium or the HSA) such that coverage was selected only by the truly needy!

Any thoughts?

Situation:

C (LLC, taxed as a partnership) participates in a multiple employer plan. Plan sponsor (A), C, and one other employer (B) participate in the plan. One of C's partners owns 100% of A and 100% of B. A and B are a controlled group, but C is not in the A/B controlled group (confirmed by an ERISA attorney). When I'm setting up the plan document for C, is the document prepared as if the C plan is a new plan?

Also, if A's plan is amended to spin off C's assets, do they come into C's plan as rollovers, transfers, or what? Subject to vesting??

I have about 50 other questions and am hoping someone who has worked through a similar situation would be willing to converse via email or private message.

Thanks.

1.401(a)-20 Q&A 10© addresses annuity starting date for disability benefits:

1. Annuity starting date occurs when payment of disability benefit begins, unless disability benefit is an auxiliary benefit.

2. Disability benefit is auxiliary benefit if upon early or normal retirement age participant receives benefit that satisfies accrual and vesting rules of 411 without taking into account prior payment of disability benefit.

Reg gives two examples based on age 45 participant who is entiled to a vested accrued benefit of $100 per month commencing at age 65 in the form of a qjsa and receives a disability benefit before age 65:

1. If disability benefit does not reduce participant's $100 retirement benefit beginning at age 65, disability benefit benefit is auxiliary benefit, and annuity starting date occurs at age 65.

2. If participant's benefit at age 65 is reduced to $99 at age 65, disability benefit would not be an auxiliary benefit because the $99 benefit at age 65 would not satisfy 411 accrual and vesting rules without taking disability benefit payments before age 65. Thus, annuity starting date occurs when disability benefit is paid.

I recently took over a db plan that provides a disability benefit that is equal to the accrued benefit unreduced for payment before age 65. The plan provides a qjsa election at disability using disability actuarial factors (that results in a more severe reduction than the normal qjsa factors).

A question has been rasied whether this db plan is required to provide the J&S election at age 65 under the above reg. The plan prefers to give the qjsa election at disability.

I am not sure of the answer. You would think I could figure this out some 16 years after the issuance of the IRS regs.

As I see it, I could avoid the whole question by simply having the plan apply a small reduction for early payment upon disability. However, before doing so, I was wondering if anyone had any thoughts on whether:

1. if payment of an auxiliary disability benefit must be disregarded under the regs in determining the annuity starting date; and

2. if offering a qjsa election at disability and imposing a disability qjsa reduction by itself would take the disability benefit out of auxiliary disability benefit status.

A labor group is negotiating concessions with a company in bankruptcy. One proposal is to accept wage reductions and freezes in upcoming increases (the wage rates and scheduled increases are set out in the existing contract).

However, the hope is to maintain the existing accrual rate under the DB plan by using the present (unreduced) wage rate and scheduled increases for determining FAE in the benefit formula.

Can this be done? Can a plan define FAE as it wishes or must the earnings component accurately reflect reality and wages actually earned for any period?

Is this required under ERISA? Are there any bankruptcy concerns? PBGC limitations? Is preservation of benefit accrual an "improvement"?

Thanks for your thoughts.