Do contributions to a governmental money purchase plan need to be made by the employer's tax filing date (or extension thereof), or is the deadline different for governmental entities?

I'm thinking of moving my roth + ira account to another fund because of performance issues. There is not much in the IRA account so I want to consolidate it (convert) into Roth. Should I do the conversion with the old fund first before moving it to a new fund or do the conversion with the new fund. Is there a difference? Is one way "cleaner" than the other?

tks

Does a plan that benefits only HCEs automatically fail coverage testing?

I'm very closely involved with a non-profit institute, which has charity status by the IRS (contribs to it are tax-deductible). Is there a way to get the money from a 403(b) contributed to these organizations upon my (distant future) death free of the income-taxes that normally occur when you do withdrawals?

A school district wants to set up an arrangement under which certain employees can agree to work for the remainder of the school year and then retire (prior to age 65) in exchange for a payment of 1 year's base salary. The benefit will be paid in quarterly installments over 4 years.

Is this a severance plan, in which case the benefit would be taxed as paid, or is this a deferred compensation plan under 457(f), in which case the entire benefit would be taxable on the last day of the school year?

To me, this "feels" like deferred comp, but TAM 199903032 states that "payments regarded as severance may also include payments made to employees who voluntarily terminate employment, most often before attainment of retirement age, as part of a window-type early retirement incentive program."

Any thoughts?

If a controlled group of employers offers a cafeteria plan (premium only) to several of its divisions, is it possible to offer different health insurance (fully insured) packages to the different divisions AS LONG AS the discrimination testing passes? Or is it strictly prohibited?

Can a cafeteria plan designate different health care FSA limits for different groups of employees? For instance, could the plan state that those with less than 1 year of service have a $1000 limit, those with 1 to less than 5 years of service have a $2000 limit, and those with 5+ years of service have a $5,000 limit? If not, is there any situation where different groups of employees could have different limits? Finally, if this is or is not allowed, can you point me to documentation??

Thanks!!!!!!

An employer currently has an agreement with an executive. Provided the executive doesn't compete while employed and for the 12 months following termination, he will receive substantial payments from the employer. These payments will begin 30 days after he terminates. Is this a nonqualified deferred compensation plan? I'm guessing the answer is yes. Any thoughts would be appreciated. Thanks. Ed

(Please note: I am not a pension professional. I have been trying to learn about DB plans myself from various sources. I have come across the situation described below and would appreciate any assistance. Please let me know if I need to clarify anything. Thank you.)

Suppose you have the following situation:

(1) Company X has a DB plan which it knows is going to be terminated on July 1, 2004 (company X is going to be acquired by company Y).

(2) Company X has 10 employees that participate in the DB. The plan is funded using the individual aggregate approach.

(3) As of January 1, 2004, the plan assets are $1.7 million. (Assume that there is no change in the value of the assets from 1/1/04 to plan termination).

(4) Company X knows that at plan termination all employees will the elect to take lump sum distributions and the sum of such distributions will be $2.0 million.

My question is: how should company X apply the individual aggregate funding approach for 2004? Here are a couple of options that I can think of:

(a) Calculate the normal cost for each employee assuming that the plan was not going to terminate. Suppose this came to a total of $0.5 million. Then, set the funding for each employee to equal 60% of the normal cost (total of $0.3 million). This would leave the plan with assets of $2.0 million at termination, which is equal to the amount to be distributed.

(b) Calculate for each employee the difference between the lump sum distribution and the funding for that person as of 1/1/04. Presumably, the sum of these amounts would equal $0.3 million ($2.0m less $1.7m), as long no employees had been funded as of 1/1/04 with more than the lump sum distribution.

There may be other approaches as well that result in funding of $0.3 million. One might conclude that it really doesn't matter how the funding is implemented as long as the total is equal to $0.3 million, leaving the fund in balance at termination.

Here is a situation in which the specific implementation of the individual aggregate funding approach matters. Suppose Employee Z has a compensation plan under which Employee Z receives $100k per year, where such amount includes both cash received and the contribution to the pension plan on behalf of Employee Z for the year.

There would not be any issue with this compensation structure with a DC plan. For example, employee Z might be paid $90k in cash and have $10k contributed to the DC plan. That $10k contributed to the DC plan would belong to employee Z. Alternatively, employee Z might be paid $95k in cash and have $5k contributed to the DC. In either case, employee Z has $100k (ignore the differences in tax treatment of cash vs. DC contributions).

However, it is not so simple with a DB plan. Suppose that as of 1/1/04 funding for employee Z's DB plan was $120k and that employee Z's lump sum distribution at closing is $130k. Further, assume that the normal cost for employee Z in 2004 (assuming the DB is continuing indefinitely) is $50k.

With approach A above, employee Z would receive $70k in cash in 2004, with $30k contributed to the DB plan (60% of $50k normal cost), for a total of $100k. Employee Z would then receive a $130k lump sum. This would result in employee Z receiving a total of $200k ($70k cash plus $130k lump sum).

With approach B, employee Z would receive $90k in cash in 2004, with $10k contributed to the DB plan ($130k less $120k funding at 1/1/04). Then, with the $130k lump sum distribution, employee Z would receive a total of $220k.

Thus, employee Z would be better off under approach B and approach A ($220k vs. $200k).

I would appreciate it if anyone has any thoughts on the above and/or anyone can point me to anything that deals with the above (code sections, regulations, text books, etc.).

Bob_DB

I've talked to the benefits department of my employer several times about HSA's. However, nothing seems to be happening. Right now, my employer provides the typical low-deductible health insurance coverage (which isn't really even insurance, but pre-paid healthcare).

Can I obtain an Health Savings Account and the special high-deductible insurance plan separate from my employer?

Or does the fact that my employer provides insurance prevent me from doing this? If so, do I have any legal options to ask them not to pay for this, so that I can open an HSA? I really think that -- even if I had to pay for a high-deductible health-insurance policy -- the savings account option from a Health Savings Account would ultimately be greatly to my benefit, both in terms of saving money and accumulating money. Particularly so since I am young and in good health.

Situation: Participant terminates employment and elects to leave his money invested. He has >$5000 cash. He also has an outstanding loan that will not be repaid. The outstanding loan balance would be a taxable distribution to the participant in 2004. What are the consequences if the employer elects to not report the defaulted loan as a distribution?

Brief history: I entered my safe harbor tiered matching contribution plan on July 1st. As the company president, various notices and the Plan Summary Document said match was based on calendar year gross, I set my contributions at 11% to catch up for the half year without contributions. After finally reviewing the actual Plan Document I was set straight when it stated that the compensation calculation amount was pay after entering the plan -- my pay since July 1.

Due to the confusion/obfuscation I have already contributed well over 5% of the eligible compensation I will recieve by the end of the plan year. I now want to discontinue my payroll deferrals and continue to recieve employer matching contributions. I was told that if I do so, matching contributions will stop because the plan-specified "payroll basis" for matching contributions will match only the zero dollars contributed per two weeks regardless of my previous deferrals since July 1.

When I read the Plan Document this claim appears bogus, but I am no expert.

I would like to know who has it right, me or my employer. If I am right, I'd like to know how to explain why I'm right. For example if there's a line from the tax code I can quote, or an explanation of ADP/ACP that would be relevant.

I appreciate any help I can get.

-Ian

I am directing my Roth Ira to invest in real estate and have been hit with my first major tax stumper. I am buying a investment property through my Roth for 45K. I plan to give 35K from Roth funds and they will hold a non recourse promissory note for the 10K which debt will be in the name of my IRA. The note simply states i have 1 year in which to pay back the debt and there is no interest involved. I have someone who will purchase this home from me for 65K in 90days giving me a capital gain of 20K. I need to know if there will be any UBIT (unrelated buisness income tax) involved in this transaction. At no time will i use any money other than that which is in my IRA account. The 10k prommisory note will be paid with funds from a future sale of a current asset before i sale this one. Unfortunatley my Custodian will not give me any information and the CPAs and Attorneys in my area are not equiped to anwser my question. Can anyone enlighten me??

My question concerns the taxability of grandfathered 457 plans (i.e., pre-1986 plans for tax-exempt entities). How are amounts under a grandfathered 457 plan taxed? Is the taxability governed by the substantial risk of forfeiture requirement or are the amounts taxable when distributed/received (i.e, assume an installment payment schedule).

Thanks.

Facts: Parent sponsors Domestic Plan. Sub sponsors 1165(e) Puerto Rican Plan. Participants in the Puerto Rican Plan used to participate in the Domestic Plan, and they still maintain account balances in the Domestic Plan. Some of those account balances are in readily tradeable employer securities, and participants under the Domestic Plan may elect in-kind distributions. Parent would like to merge these account balances into the Puerto Rican Plan, but Parent does not want to transfer the employer securities. Instead, Parent would like to transfer the cash equivalent.

Question: Can Parent accomplish this without violating anti-cutback rules?

Explanation: I know that in-kind distributions of readily tradeable employer securities are protected benefits. I know, from PLRs 200317042 and 200352016, that Parent can merge the Domestic Plan into the Puerto Rican Plan. But there is no mention of 411(d)(6) in those PLRs. It appears as long as (i) the Puerto Rican Plan is an 1165(e) plan that covers only Puerto Rican employees (ii) the transferred account balances will not be "made available" to the participants prior to the allowed distribution dates under the Puerto Rican plan, and (iii) the transferred account balances provide at least as much benefit in the Puerto Rican plan as in the Domestic Plan - Then the merger is OK. Thoughts?

My boss is telling me that a standardized m&p may have a last-day requirement for allocations. He says to look in the 416 regs, and I have, but I don't see anything there to support his argument.

Rev. Proc. 2000-20 says, in Section 6.12.1, "A standardized plan generally may not deny an accrual or allocation to an employee eligible to participate merely because the employee is not an active employee on the last day of the plan year or has failed to complete a specified number of hours of service during the year."

Q 3:6 in the 2004 401(k) Answer Book says, unequivocally, "Also, a standardized document MUST provide a terminated participant who works more than 500 hours of service in a plan year an allocation of the employer's contributions." (emphasis added)

My boss is hanging his hat on the word "generally" in the passage from Rev. Proc. 2000-20. He discounts the 401(k) Answer Book, and tells me to keep researching. Should I?

One company acquired another company. Each company has its own 401(k) Plan. The client wants to perform ADP testing on each plan separately. The Plan of the acquired company fails the ratio percentage test (performed on a controll group basis). The average benefit test does pass. However, as required, all plans of the employer are taken into account.

That being the case, can the ADP test be performed separately for each plan?

Thank you!

According to the EBIA (Employee Benefits Institute of America) "A more than 2% shareholder in a Subchapter S corporation cannot participate in a cafeteria plan." This rule applies to Premium Only Plans as well... correct?

I have a new group who had a previous administrator that said it wasn't the case for a POP because it's not a Cafeteria Plan. I say, same rule applies - but it would be nice to get some confirmation!

I would like to know what others do for the following situation:

A company with hundreds of employees is late on depositing deferrals for many payrolls. We would calculate the lost earnings based on the highest return of the given mutual fund selections in the plan.

Now, how do you normally allocate the earnings out to the participants after you have come up with the total? For small plans it would be easy to allocate this for a few participants. However, this is such a large plan that it doesn't seem administratively feasible to allocate (say 8%) to each participant for 20 payrolls. The software does not do the calculation.

Are there any other suitable allocations that would be deemed reasonable? I can't find any support on the DOL website or via their VFCP.

Has anyone seen a recent IRS field directive or memorandum that was issued to IRS agents reviewing plan documents? It gives guidence to agents reviewing plans for letters regarding short service employees and other issues.

Thanks