A participant requests a loan and indicates she is single on application, and it goes thru.

Now we find out that she really is married (but separated).

What kind of correction needs to be made?

Is the loan void? Do we just get consent after the fact?

Any thoughts would be appreciated.

We have a client that uses revenue sharing to pay administrative fees for the plan. Due to reduced fees the revenue sharing exceeds the fees. How can the excess be handled? (1) returned to the plan as investment income and allocated to participants based on account balance? (2) returned to the plan and put in forfeitures? if so does it matter how forfeitures are handled?

Anyone aware of any guidance as to the mening of this term as used in 4.08 of 2003-44? The examples in the Rev Proc both involve practices that are discriminatory as well as "bad". Do you think that an element of discrimination is necessary to characterization as egregious? Stated differently, is a "bad" failure (e.g., failure to make required contributions) egregious if the parties affected include ALL participants?

I have a 401(k) plan that allows participants to change their elective deferral percentage each pay period. Is this OK? Many plans I have seen allow a participant to go to zero at any time, but then the participant cannot elect to defer again until the next open enrollment (usually quarterly). But I can't find any statutory or regulatory restriction on the frequency of changing the amount of deferral. Does anyone know?

I have a few plans in which the employer contributes a set dollar amount (which is higher than a single health plan) and then employees can elect family health insurance OR single health insurance and with the dollars left over select life insurance, FSA or DCSA or the cash option. With the job market such as it is - there have been alot of changes regarding spouses becoming eligible/ no longer eligible for another employers plan. Which then results in the employee wanting to change their own health plan. In the case that they drop from family to single coverage and would then have additional employer dollars available - could they elect to throw those dollars into the FSA or DCSA? I have always said this change could not be made as it is not a "Qualifying Event" but recent things I have read lead me to believe that if it is the employer's contribution that I may be incorrect. If they can't make the change - are they just out the employer dollars? That seems harsh! and really not in keeping with the DOL/ IRS and their typical quest to protect the employee's interests. Any input would be greatly appreciated!

If a 401(k) safe harbor plan excludes the highly compensated employees from the safe harbor contributions, and the plan only makes safe harbor contributions and no other contributions, is this still considered a plan making solely safe harbor contributions, and therefore gets the pass on top heavy?

We have a former employee who had to resign due to health reasons. He is age 67. He is trying to obtain the necessary documentation to receive the extended time under COBRA that is allowed for someone who is disabled. The catch seems to be that the COBRA requirements state you must have a letter from Social Security Adminsitration declaring you to be disabled. Social Security Admin. has told him that since he is over age 65 they will not review his claim of disability because he is already receiving full social security benefits. Therefore, he can not get the letter he needs in order to receive this extention of time under COBRA.

He has asked our COBRA administrator if a letter from his doctor would be sufficient, but they are sticking to the point that the regs state it is a letter from SSA that is needed.

Has anyone ever run into this before? Is anyone aware of any case law or interpretations out there about this issue? I really appreciate any information that anyone can provide.

I have a very small Profit Sharing plan (7 participants) where everyone has their own self-directed account set up with various brokers. The plan has operated in this fashion for many years without a problem.

The Plan Trustee would like us to create a letter for the participants to sign yearly saying "he (the participant) has reviewed the investments in his self-directed account and is satisfied with his investment choices". Also he wants a statement added to the letter saying that the participant is reponsible for his investment gains/losses.

Has anyone else prepared a letter to this effect? Or can anyone offer any advice?

Thanks.

I have an employee who asked if Hypnotherapy is reimbursable expense. She says she is not sleeping to the point of causing physical issues, and said she can get a Drs note to back it up. It is not covered by her insurance and I am not finding a whole lot to go on. Thanks

Our previous FSA vendor provided the appeals review process as a standard part of their administration service.

Our new vendor does not provide the service, and the SPD directs all first level appeals directly to the employer to review.

Is this typical practice for the employer to review the FSA appeals? If so, what steps do you take to do this?

Thanks.

I have not been able to find any firm documentation anywhere to explain how to do this. Supposedly, a block of business is available which requires this to be done.

Let's take the simple case. Normally, a DB plan will test on the change in accrued benefits from year to year (at least that is one of the testing options). However, a 412i has an accrued benefit equal to the value of the contracts used to fund the participant. Do we just convert the value to a monthly benefit and compare from year to year this way??

It has come to my attention that if you bought a variable annuity sometime prior to 2000 inside of an IRA and your account balance is lower than your death benefit you can reap huge tax savings for your heirs...It doesn't help the account holder all that much but it really helps the kids later down the road.

It works like this... Many people bought variable annuities during the late 90s and in most variable annuities your premium payment becomes your death benefit. Some have annual ratchets and other bells and whistles that boost your death benefit on each anniversary date. Like most stocks, many of these annuities got crushed when the market went down but what most insurance companies didn't realize was that when you took some money out of your IRA or rolled part of it over to another IRA the death benefit didn't go down on a pro rata percentage basis, it was just reduced by the dollar amount that you withdrew. Bad deal for the insurance companies when Roth IRA's came into the picture... Finally after getting scathed, the insurance companies changed the wording in their contracts to reflect if you moved any money out, the death benefit drops by the same percentage. (IE.. You have 50K in account balance and you move 10K your death benefit drops by 20%)

Now that you are fully confused let me give you an example of real world example of what I did for a client.

The client invested 100K in an annuity(within an IRA) in 2000. The client mismanaged their investments and the account balance fell to 50K in 2 years...Bad deal for the client. However, after careful consideration we rolled over 45K to another IRA where we bought a mutual fund. We then reduced the death benefit of the IRA annuity to 55K with only 5K in account balance. We then converted the annuity IRA to a Roth IRA. My client now has 55K in death benefit that when he passes away will go to his heirs tax free in the Roth IRA and also has a 45K IRA for himself. Granted the client had to pay regular income taxes on the 5K he converted but he is essentialy giving his heirs 55K income tax free upon his death(provided he lives 5 Years). Their is obviously no monetary benefit for the client but he figured at least he could help his kids. There are thousand upon thousand of these cases out there and you won't hear one insurance company talk about them.

Now the insurance company hated this but had to do it based upon how the policy was written and I am sure when the IRS sees this, they won't be happy either because of all the tax revenue they will lose as a result of this, but it is completely legitimate until they change the law. The client is happy, I am happy, and well the government and insurance company...SO SORRY!

Hello,

Curious what people have to say about setting up profit sharing plan with 401k arrangement for one person. Rollover contribution comes into plan, loan provisions are put in place, loan is to be taken, contributions are not going to start being made in the non-elective and 401k/401m sources until a few years down the road...

Is this substantial and recurring?

Any thoughts are much appreciated.

Go Ducks!

The company I am working for has a policy where it reimburses exempt employees for their Cobra expenses. This covers the hire date until the employee is eligible for the company’s group plan. I was asked to submit an expense report with copies of my Cobra payments as proof. I received a check but it was grossed up. I ended up paying taxes on something I have already paid. Please let me know if this proper or if I should have them reverse the transaction and cut me an expense check.

Thanks

Satchi in CA

What software do you use for mid-size (200 - 1,000) plans? How well does it work for you? We currently use Datair and are looking to upgrade our software and would like to get some feedback from users of other products. Thanks.

Not sure if this should be on the ESOP or 401(k) board, but here goes:

Company A maintains a KSOP for itself and its subsidiary, Company B. Participants can direct the investment of their deferrals among several investment funds, including Company A stock. Company matching contributions are initially invested in Company A stock, but participants can redirect those contributions into any other fund.

The company is about to spinoff Company B, which will be an S Corp. After the spinoff, the account of every participant in the plan who is invested in Company A stock will hold shares of Company A and Company B stock. Because Company B stock will no longer be employer securities, and because Company B stock will subject the plan to UBIT, Company A plans to close Company B stock as an investment fund and prohibit plan participants from investing any future contributions in that stock and, over time, the plan will attempt to get rid of its Company B stock. However, it may take a while because of the limited market for Company B stock.

One idea that is being contemplated is for Company B to establish an ESOP, to which the accounts in Company A's plan of the Company B employees will be transferred. As a result of the transfer, both plans will hold stock of both companies. The two plans would then do a "stock swap" (i.e., Company A's plan exchanges Company B stock with Company B's plan for Company A stock of equal value). After the swap, the Company B plan would hold only Company B stock, while the Company A plan would still hold some shares of Company B stock, but fewer than it did before the swap.

A few questions:

1. Because participants have the right to direct their investments, can Company A unilaterally do the stock swap and replace shares of Company B stock in participants' accounts with Company A stock?

2. A similar question with respect to Company B stock remaining in Company A's plan after the stock swap (or all Company B stock if the swap does not occur). Does the participants' right to direct investments impact the ability of the plan to sell Company B stock over time?

I realize that an investment fund is not a protected benefit and a plan sponsor can eliminate a fund whenever it deems it necessary, but in most cases, the fund being replaced is a mutual fund, and the replacement can be done on a single day. Just curious as to how the gradual phase-out of Company B stock can/should be done.

Any thoughts?

Does anyone know if there are any reporting or notice requirements when a H&W plan terminates or, otherwise, merges with another H&W plan. Is there an "ERISA advance notice" that needs to be distributed? How about if the plan is a multiemployer plan? Does the PBGC need to receive notice?

Does anyone know if there are any reporting or notice requirements when a H&W plan terminates or, otherwise, merges with another H&W plan. Is there an "ERISA advance notice" that needs to be distributed? How about if the plan is a multiemployer plan? Does the PBGC need to receive notice?

I know EGTRRA allows a rollout provision as an optional Plan benefit. Has there been any legislation that makes <5000.00 rollouts a mandatory provision?

I have a client with a Money Purchase Plan who has just discovered that they did not fund 2002's contribution properly. They under-funded one of the Partners by $4,710.00 (confusion between individual's CPA and the Firm's accountant). We will be amending the 2002 return and will file a 5330. My question is, since I'm new to this area of admin, do we just have to file the 5330 for the amended 2002 return, pay the 10% excise and have them fund it or does anything carry forward for 2003? They will fully fund 2003's contribution plus the 2002 shortfall on or before 9/15/04.