We have a non-profit client with an unfunded Section 105 MERP. Because of budget issues and their grant funding being a bit unstable, they would like to convert this as a funded benefit - EmployER funding only. They do not want to establish individual accounts like an HRA. They have less than 100 employees.

As a small plan, I expect that they would need to file Form 5500 and a Schedule I (but not an accountant's opinion). Is this correct? Would they need an audit of any sorts? Would expect that a trust would be needed too.

Right now they allocate a portion of the grant monies for the plan. Can they keep the current specific benefit under the MERP (a portion of their fully insured health plan's deductible) and have the flexibility to use the fund balance for other health benefit items? For example, if over the years they have low utilization and the balance grows, could the fund dollars be used to say offset a significant premium increase in a subsequent year?

They are ok with incurring additional costs and administrative requirements to gain comfort that the funds will be available even if grant money dries up.

Of course cites would be helpful - other solutions are welcome too.

Believe it or not, a CPA is asking me the following question.

Suppose a one person S-corp has a pension plan with a required contribution of 200,000. The W-2 salary is 100,000, and there is other "pass-through" income which is reported on the owner's Schedule C.

Question was: can the entire 200,000 be deducted if it creates a loss?

Well, I don't know. I'm not a CPA, and I don't know if there is such a thing as a "loss" allowable in an S-corp. It would seem reasonable that there is, to the extent that there is any basis on the part of the shareholder.

Anybody with knowledge in this area care to venture an opinion? I searched some past threads, but the ones I looked at weren't definitive. Thanks in advance - any any cites, if appropriate, are also appreciated.

Any clearer guidance from IRS or DOL regarding whether a loan from a plan can be used for the construction (vs. acquisition) of a home? Plan participant has 50K in PSP account balance and wants to get a loan for 25K for purposes of building a house. Thanks for your help.

I have a situation where an HCE just discovered he has an excess deferral for 2003. He received two W-2's from different employers---but they were related employers. Since we are past 4-15 and evidently can not distribute, would anyone have suggestions on how to handle? Excess is about $300.00. Thank you.

Hello,

Employer has a grandfathered SARSEP and will be setting up a crosss-tested 401(k) PSP during the same year as the SARSEP in order to maximize disparity of ER contributions. They currently make a 6% SARSEP contribution on behalf of all employees.

I understand that the 402(g) and 415 limits apply to the combined plans and we are keeping that in mind when determining the max contribs to the PSP. I also think (but am not 100% sure) that the contributions to the SARSEP (both ER and EE) are not included in the General Test (i.e. the ABT) portion of the PSP. In other words, SEPS are not part of the ABR testing group.

Can anyone confirm this? Thanks so much!!

Ok, applicable dividends are paid to the ESOP and reivested in qualifying employer securities pursuant to 404(k)(2)(A)(iii). Is there any guidance on how long they have to remain invested in the stock if the ESOP has a 401(k) feature with mutual fund investments and employees want to diversify the dividends? In a 55/10 diversification situation, does anyone know how the diversification requirement and the reinvestment of applicable dividends in stock requirement coordinate?

plan sponsor does not want any new participants right now. is there any way to exclude all new hires until they exceed 30% of the workforce? i dont believe this is a valid exclusion.

Does anyone have any useful links relating to the eligibility of us citizens paid by a foreign based American subsidiary and their 401k eligibility. Given the US income tax exclusion o f $80,000 has anyone had any experience setting up an after tax source for these people.

Thanks

padmin

I read somewhere, but of course can't find the article now, that 401(k) plans require contribution deposits to be EFTs and checks are not allowed. Is this the case? Is this an administrative requirement by the 401(k) plan, or is it some type of governmental requirement?

Is there any reason that you would not be able to accept a copy or fax of a death certificate? Any administrators out there want to comment? Do you require an original?

We (a TPA firm) have been using Corbel for several years for documents and are not fully satisfied. We are now considering Accudraft. Just wondering if anyone has any comments about their experiences with either one.

If a new 401(k) plan defines its first plan year as 6/1/04 to 12/31/04, with following plan years ending each 12/31 thereafter, is it a calendar year plan in 2004? In other words, would you say it's a calendar year plan with a short plan year?

Reason for the question: determining the proper 12-month look back period for identifying HCEs.

In a case where the Treasury Regs have not been changed, but the Proposed Regs contain the rule as the way it is currently intended to be, which one trumps which?

What states that rule of priority as per above?

Same with the IRC, IRC has the rule as intended. (No age discrimination IRC 410(a)(2)), but the Regs still allow discrimination in DB and TB plans per 1.410(a)-4(a).

Proposed Regs though reinforce IRC 410(a)(2).

What resolves that conflict?

Thanks

Can assets from a profit sharing plan be merged into a defined benefit plan? It appears that based on Reg. 1.414(l), this is a possibility. It states the following:

"In the case of a merger of a defined benefit plan with a defined contribution plan, one of the plans before the merger should be converted into the other type of plan (i.e., the defined benefit converted into a defined contribution or the defined contribution converted into a defined benefit)..."

How should this conversion be done?

In addition, what reporting is required? Would the plan still be eligible for the exceptions for the Form 5310-A under the merging two or more defined benefit plans?

If a terminated participant receives a distribution and there is a small balance remaining in the account afterwards, do you process a second distribution? What if the balance is under $10.00? Under $1.00?

I was reading under EPCRS that there is a de minimus amount of $50 whereby the employer need not made a corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant would exceed the amount of the distribution. Would this apply in this case? Could the small balances be transferred to the forfeiture account instead?

Our company has a group life insurance policy for its employees with a $50,000 cap. During our renewal, we went below 10 employees. The insurance company is denying coverage to one employee, they want complete medical histories for a couple more and one employee wants to waive but the insurance company won't let him. Can we do individual policies with the Employer paying the premiums and still have the first $50,000 tax free?

Thanks!

MY DAUGHTER JUST GRADUATED FROM NURSING SCHOOL. SHE IS 21 YEARS OLD AND I AM TRYING TO TEACH HER HOW IMPORTANT IT IS TO START SAVING NOW AND WHAT AN ADVANTAGE SHE WILL HAVE OVER IF SHE WAITS TO START. SHE WILL HAVE 400.00 A MONTH TO INVEST AFTER ALL HER BILLS AND EVERYTHING. SHE HOPES TO PURCHASE A HOUSE IN A FEW YEARS. HER JOB IS OFFERING A 401K BUT WITH NO MATCH AND THEY MENTIONED A PENSION AFTER A YEAR. IF SHE PUTS ALL $400.00 A MONTH IN THE 401K-SHE CANNOT HAVE HOUSE MONEY OR EMERGENCY MONEY IT IS ONLY FOR RETIREMENT. I WAS GOING TO SUGGEST PUTTING 200.00 IN THE 401K AND 200.00 IN A VANGUARD ROTH INDEX FUND. WOULD THIS BE BETTER THAN EVERYTHING IN A ROTH OR NOT? ALSO IF SHE DOES A ROTH, DO THEY OFFER AN AUTOMATIC DEDUCTION OUT OF YOUR CHECKING ACCOUNT EACH MONTH? THANK YOU SO MUCH FOR ANY HELP-WE COME FROM A FAMILY WHO HAS NEVER SAVED-HER GRANDPARENTS DO NOT HAVE A DIME-I HAVE SAVED AND SEE THE BENEFITS-I DID NOT WANT TO BE LIKE MY PARENTS AND MY DAUGHTER SEES THEM STRUGGLING AND I THINK SHE IS LEARNING AND UNDERSTANDS THE IMPORTANCE. IT IS ALL SO CONFUSING AT TIMES, THOUGH AND I JYST WANT TO SEE IF WE ARE ON THE RIGHT TRACK FOR HER.

It seems to be a serious problem that banks are not accepting forgery claims. They make it almost impossible to have the pension funds returned to us. Here is one example. We had one monthly annuity participant that had her checks cashed by the estate after her date of death (for over a year). (Side note: We were never informed of her death. )We filed a claim with the bank and they informed us we had to have an affidavit signed by the estate to continue the forgery claim process. We are attempting to have this document signed, but we know there is a 99% chance they will not return the form. Who knows, the estate could have been cashing the checks. If your company or client was in a similar situation, what advice would you give them? Are we just going to be out of the funds or do we have any other options to get the funds returned to the trust? It is hard enough just trying to keep the plans fully funded with the market and now we have to deal with banks not returning funds.

I've posted this issue on the nonqualified plan board as well, but since it concerns discrimination testing, I wanted to see if anyone here has any input.

Question: Can an employee elect to defer into a nonqualified plan amounts that would otherwise be returned to him as a result of a failed 401(k) ADP/ACP test? The participant would make an election in the current year to defer any amounts that would otherwise be returned to him in the following year due to a failed test.

The IRS has sanctioned arrangements whereby deferrals are initially contributed to the nonqualified plan, then moved to the qualified plan once it is determined how much can be contributed to the qualified plan under the nondiscrimination rules, but would the approach that I mentioned be acceptable as well?

Thanks for any thoughts on this!

I have a two employee c corporation (Sep to Aug fiscal year) and since the tax laws allow contribution for the previous calendar year, the corp has contributed in August this year for calendar year 2003 earnings (25% of earnings). Can the corp also contribute in August this year itself for 2004 earnings so far?

I am hoping to make this contribution since the corp has cash available which will be taxed otherwise at the end of the year (Aug 31). Also, we are considering closing the corp by Aug 31.

If contribution can be made for year 2004 earnings would the limit of 41000 hold?

Thanks