One of my clients was aquired by a new (unrelated) employer and the old corporation terminated. The plan was terminated prior to the merger date. We are in the process of terminating the plan, but there are a number of participants over 70.5 who have account balances. Normally, if the participants are still active and not 5% owners, they are not required to receive the RMD. However, in this case, they are still active with the successor employer. They are currently being paid from the new employer under their EIN.

1) Are they still considered active employees for 401a(9) purposes?

2) IF they are still considered active employees for 401a(9) purposes, my assumption is that they do not need to receive the RMD. Please confirm.

3) Does the fact that the plan is terminated affect this in any way (other than vesting)?

What do other TPA firms do to ensure that a participant requesting an in-service distribution or a loan is not being taken after the administrative "hears" that a participant is going through a divorce?

Although most administrators will recognize the issue and a flag will go off, it's possible that the flag won't go off.

Any recommendations? Or do you just process the distributions so long as the Plan Administrator doesn't mention anything...

We have determined that an employer failed to include one eligible participant in the profit sharing allocation for 2001, 2002 and 2003. We have calculated the amount the employer owes to this participant plus lost earnings on those contributions. The employer will deposit the total amount this week.

Can anyone tell me if these contributions are deductible contributions in 2004?

Thank you.

I need some help before I speak with this client.

If a sole proprietor forgot to deposit his deferrals until November and filed his tax return in April can he still take the deduction for the deferrals or does he have to amend his tax return.

Any insight would be appreciated.

So how about that C-3 exam yesterday? Apparently, there was some kind of server problem in the morning....

A friend of mine has a credit-card problem. I'd like to help him out with what to do. Here's his problem:

My friend's father took out $225K in his name and convinced the credit companies that he was 30 years older than he actually is, and that he was a professor at the University of California. Now, he can't get any student loans. I'd imagine his credit-rating is shot, and I'd also venture that he'll be turned down for any credit-cards or loans he applies for, or if is accepted, will only get them accepted at very high APRs.

So, my question is, what can he do?

Surely, there has to be some way that he can insure that this kind of fraud is corrected, and doesn't reflect him. My suggestion was to contact the 3 major credit unions and try to get it straightened out, and to also submit a written request in writing explaining what happened and demanding that his credit-reports be fixed.

Any other suggestions? What can be done to correct this false information that is out there about him as quickly as possible?

Hi,

I have a Traditional IRA with a few hundred thousand dollars in it. I'm trying to decide whether to roll it to a Roth IRA, and would appreciate any advice.

It would seem that if I were to roll it, I would only want to roll part of it to keep myself from going into too high a tax bracket. I won't have any significant income this year, so the amount of the rollover would pretty much dictate my bracket. I'm thinking I would probably want to only roll $100,000 - $120,000 to keep myself in the 28% bracket. In addition, I live in CA, so I'm stuck with 9.3% state taxes (I assume I have to pay state taxes on the rollover, but I'm not positive about that).

I found this on fairmark.com: "If your time frame is very long — say, 10 years or more before you begin taking withdrawals — tax rates are not much of a factor, partly because the long-term benefit of the Roth IRA will outweigh the added tax cost and partly because no one can predict what tax rates will be like that far in advance."

I'm not sure I understand that advice. I'm 35 years old now, so the money will sit in the IRA for at least another 25 years. But, as I try running the numbers and using different potential future tax rates, it seems that the future tax rate does make a big difference, and that I might be better off leaving the money in the Traditional IRA. I'm very confused by the assertion that "If your time frame is very long ... tax rates are not much of a factor".

To roll $100,000 this year, I think I'll have to pay about $36,000 in taxes (between Federal and CA). That $36,000 could grow a lot in 25 years, and even though I'll have to pay taxes on it and the Traditional IRA in the future, it looks like I could still end up with more money if I'm in a low enough bracket in the future (relative to the 28% bracket I'd be putting myself in by doing the rollover).

Many thanks in advance for any help, advice, or thoughts.

Jeff

During the plan year, a check was cut from the trust, then returned to the trust. Another check, which was paid the previous year was also returned. So the net distributions would be negative.

1. On Schedule I, would this returned amount go under 2e as a negative number, to offset the previous year's reported benefits paid, or under Contributions as Other?

2. Is Schedule R required?

Thanks

If a simple IRA is rolled over to a safe-harbor 401K Plan is the two year minimum participation rule waived?

Plan document defines compenation as W-2 comp less reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits.

Er agreed to make settlement payments to employees for off duty meals not provided from 1999-2002. Er has been told to report the settlement payments on a 2004 W-2. Seems to me that this would then be treated as plan income.

Does anyone have any thoughts on this? Experience? Any help is greatly appreicated. Thanks

If a small company is starting up a 401(k) Plan 1/1/05 (Never had a retirement plan before). Would they receive the tax credit on installation & document expenses that are paid in 2004 for their Tax Year 2004?

If yes, I would assume that would count as year 1 of 3 to take advantage of the credit?

Thank you

I beginning to look into contributing to a Roth this year. I did not contribute last year. Where should I look....a bank, an investment organization? I'm not sure. I would appreciate any help as where to get started.

A client who is well over the age of 70 1/2 and retired has not been taking distributions from the Kodak 401(k) Plan -- otherwise known as the Kodak SIP. Does anyone know if the Kodak plan is exempt from the RMD rules?

I have a problem. In my firm there seems to be some differing opionions on this matter. We have a 401k plan (9-30pye) that amemded on 7-1 to exclude hourly employees and HCE's. Some administrators are now saying that previously eligible ee's (who have not deferred into the plan) are now ineligible. I say no way. Once you meet eligibility you are in, whether you participate or not and all new hires going forward can be excluded if the they meet the exclusion requirements. I haven't been able to find anything concrete one way or the other. Who do you think is right?

We have a prospect who did not timely amend his (one-man) money purchase plan for GUST/EGTRRA. He had been using a prototype sponsored by his financial institution and was sent the documentation to amend the plan, but never completed the paperwork.

We understand that he will need to submit under VCP and pay the applicable user fee. However, we are debating as to whether the submission of Form 5307 is also required in conjunction with the VCP submission. He will adopt a prototype plan that would otherwise not require submission to the IRS.

We are looking at the language in Revenue Procedure 2003-44, section 10.06 and are stumbling on the language referring to the "adoption of a prototype or volume submitter plan for which the Plan Sponsor has reliance . . . ."

I feel the additional submission of the 5307 is required, but I (and the client ) would be happy to be proven wrong. Thanks.

We are administering a KSOP for a closely held company. The employer profit sharing and matching is made in employer securities. The securities are leveraged and as the loan is repaid the securities are released. The salary deferral side of the KSOP has a menu of mutual funds plus the employer stock. Can the plan buy the stock from participants in their salary deferral account and use the proceeds to purchase the mutual funds? This would be done at the participant's direction.

A client has called and said they want to establish a plan with a normal form of J&100. The benefit formula is flat at $1,000/ month.

They wish to provide that if any participant terminates (married or not) that their lump sum is calculated as $1,000 times a life annuity and then discounted to attained age.

This seems to be minimizing the lump sum but it sure smells funny?? Is there anything wrong legally with this??

I would think that the single participant in this case 'must' get an actuarial equivalent increase (let's say $1,200). Then the lump sums would be equal in value.

A similar issue arises where a plan specifies that the benefit is paid as a 10C&L if single but J&100 if married. Doesn't this create a problem because lump sums are totally different based on marital status??

Is this the same situation??

Most of the cases I have seen have the life annuity as the normal form and all other settlement options are actuarial equivalent.

Thanks for any and all responses.

Company's tax year and plan year ran from May 1, 2003 - April 30, 2004 They are changing both to a calendar year. So they will have a short Plan year for 2004.

1. The $13,000 (+$3,000 Catch up) Runs on the Calendar year regardless of Plan year or short plan year - correct?

2. But...the $43,000 maximum limit - is that Pro rata from May - Dec? Using a Pro rata comp? Or can they defer the entire $43,000 for the short plan year?

Thanks!

Company wants to do away with their defined benefit plan due to the expensive nature of maintaining/funding the plan. They will establish a 403(b) plan for their employees, as a new option.

Any advice on the best way to achieve this while keeping the employees happy is greatly appreciated. Also, any comments/concerns with the options that I have come up with is also greatly appreciated.

1. Terminate the DB plan and move everyone to the 403(b) plan - no choice. (not the best choice because ees will likely not be thrilled)

2. Give every ee a choice between remaining in the DB plan or switching to the 403(b) plan (not the best because it may not help company achieve its goals).

3. Provide all ees based on age participation in the DB plan (a sort of grandfathering) and move the rest (and new ees) to the 403(b) plan.

4. All vested ees (with certain age or service amount) could choose - the rest go to 403(b) plan. Must determine the vesting rules.

Of course, my main concern is that the latter two options create some age discrimination issues under ADEA, etc. Any other options that anyone has would be greatly appreciated.

Thanks!

First please forgive me if i seem a little ignorant regarding Nqdc's.

My main question is regarding this point:

Any provision that permits acceleration of the timing or form of benefit will result in immediate taxation of the entire account balance. This would include, for example, a provision that permits a participant to elect to switch from installment payments to lump sum. (i'm summarizing from a bulletin I received.)

Now I have an employer funded plan who has a nqdc plan set up as follows:

say a participant has a 5 year average salary of 100,000 at time of termination. They then project it 5 years at lets 6% interest and the employee receives a cash amount equal to what they would had they worked for the next five years.

Now according to my understanding of the new law, an employer can't give a lump sum like that.

Any answers or do i need to clarify?

Thanks,

Andrew