I have come across what appears to be an unusual situation (however, maybe I am just not doing the calculations correctly).

Client has an end of the year valuation (let's assume 12/31/2003) and has prepaid contributions during the 2003 calendar year. These contributions receive an interest credit for purposes of the FSA.

Let's assume the following at 12/31/2003:

Assets 100,000

Prepaid contribution 20,000 (designated for the 12/31/2003 plan year)

Interest on prepaid 500 (5% interest rate and made mid-year)

Funding method Entry age normal

EAN accrued liability 250,000

Expected UAL 125,000

What is the gain/loss base for the current year??

My initial reaction was {250,000 - (100,000 - 20,000)} - 125,000 = 45,000

However, IF I follow my initial reaction, then in 2004 assuming that all assumptions are met, a gain/loss is created equal to 525 (the interest on the prepaid contribution plus a years interest). Given that I exactly met my assumptions this answer does not appear intuitive.

OK. So I modify the gain/loss in 2003 by subtracting the interest on prepaid as well. This gives me a gain/loss of 45,500 and then in 2004 a zero gain/loss which is what I expected.

The latter calculation does not seem right for 404 purposes (not recognizing the prepaid interest because it is NOT real).

Comments???

A new client has been referred to us that used Paychex as their payroll processor and who adopted the "Safe Harbor" provisions of the Paychex 401(k) plan. They are leaving Paychex and will be adopting their own 401(k) plan. They want to continue with the safe harbor provisions. Would this be considered a "new" plan or a "successor" plan? Would this be considered an amendment and restatement of an existing plan for the purposes of completing the UBS Financial Adoption Agreement? Can we have the safe harbor provisions effective August 1, 2004 or do we need to wait until January 1, 2005?

I have a plan that is asking me to pay for an amendment from its forfeiture account. The document allows for expenses to be paid from there, but is a plan amendment an acceptable expense to be paid from the plan?

I seem to have come across something that said it wasn't. I'm thinking it might be in DOL Av. Op. 01-01A, but all the links on the 'net I see lead me to sites that just reference it. When I searched the DOL site for "Advisory Opinion 01-01A" all I got were opinions from '92 and '93.

Any thoughts would be appreciated.

1. What is the effective date of the Final 1.401(a)(9)-6 regulations?

Q&A 17 appears to imply that the regs are effective for 2006 - as it allows MRDs for years thru 2005 based on a good faith interpretation of Section 401(a)(9).

2. Calling ASPA summer conference attendees:

In the Q&As sessions, I recall hearing that the Account Balance method of determining RMD from a DB plan is OK for 2004 (but not for 2005).

The question is: Is the Account Balance method Ok for 2004 and 2005 or just 2004?

Employer is considering setting up a premium only plan providing for e/ee's to pay a portion of the health insurance premium. I assume that the Sec. 125 nondiscrimination rules apply. Employer has 14 HCE's and 34 NHCE's. Is there any way to assess the potential of failing the nondiscrimination req's prior to actually adopting the premium only plan? How feasible would it be to survey the e/ee's to see who would stay in and who would opt out in order to get a handle on the potential nondiscrimination issue? Thanks for your help.

We recently received a communication from our company announcing:

"On June 2, 2004, Fidelity announced the closure of the Fidelity Low-Priced Stock Fund to new investors through employer-sponsored retirement plans like the XXXXX Plan. As a result of this fund closure, no new investments will be accepted into the Fidelity Low-Priced Stock Fund through the Plan..."

If you already have a balance, you can keep it but you can make no additional investments in the fund. If you don't elect a new investment option, your future contributions that would have gone into the Fidelity fund will go into a CCT that is managed by our recordkeeper (who is not Fidelity). I can't seem to find anything on this announcement - can someone provide me with a link? Is Fidelity doing this closure different than previous ones? For example, the Magellan fund has been closed for years but you can still invest in it through a 401(k) plan (even if you didn't have a balance when the fund was closed)?

PAL

Background:

Large plan, acquires new division with it's own plan through an asset purchase.

Acquired plan has 6 NHCEs with loans, but will me terminated by way of the merger.

Acquiring plan does not permit loans, never has and does not intend to.

Questions:

Can it accept the rollover of the loans and let the 6 people pay them off within the original loan terms but grant no further loans???

Or, must the loans be paid off or distributed with penalties b/c the acquiring plan does not permit loans???

The company will be changing insurance companies August 1. Due to this change employees will have to pay an additional deductible of $500 for the time period of august through december. Can employees change their section amounts to reflect this new deductible?

Under a Master Trust filing, are self-directed brokerage assets reported as part of the master trust or the individual plan? There seems to be one argument that these should be treated like loans and reported under the separate plans; while the other side argues they should be under the master trust 5500. Would it depend on the structure? In some cases, the brokerage assets for a single participant could be made up of assets from two or more plans within the master trust, and be very difficult to segregate by individual plan.

DB plan fiduciary serves on the board of a trust company that provides services to the plan. Receives no compensation for services. Fiduciary wants to set it up such that s/he is compensated for services, but the money is used to offset the plan's fees for services w/ trust company (i.e. s/he never touches the money).

Anyone seen something like this? ERISA 406 issues?

I've seen several QDROs that permit the AP to elect to commence benefits on or after the P's earliest retirement age, but no later than the date the P commences benefits.

Any thoughts on why this would be part of a separate interest QDRO? For the convenience of the plan administrator? (Complete stab in the dark coming--) Anything to do with required minimum distribution rules (not required by the rules, but perhaps in response to rules)?

Thanks.

I have a profit sharing plan that set up a SIMPLE in the same year. They say they could do this because the PSP was "frozen". There are no deferrals, this is ER PS only.

Is "frozen" an actual term? What makes a plan "frozen"? Do you need to do an amendment or anything to "freeze" a plan?

The PSP has not had contributions in a 2 years.

Thanks for any help.

Do the non-discriminatory eligibility tests under IRC section 105(h)(3)(A) allow us to exclude (for testing purposes) employees under 25 or with less than 3 years of service even if the plan has less onerous eligibility requirements?

Hospitals X and Y are members of the Healthcare System A controlled group. Healthcare System A has already sought an obtained a private letter ruling from the IRS that has established that all retirement plans are Hospital X are "church plans" within the meaning of section 414(e) due to Healthcare System A's status as a 414(e) church and its control of Hospital X. If Healthcare System A controls Hospital Y in the same fashion as it controls Hospital X, are all plans of Hospital Y deemed to be "church plans" as well? Or must an additional private letter ruling be sought to establish whether the retirement plans of Hospital Y are church plans?

We have a 401(k) Plan (standardized prototype) with a 4 tier integration formula for the discretionary contribution and a safe harbor match provision. The plan is top heavy, which is why the 4 tier was originally elected - to cover the 3% required minimum.

The document has the good faith amendment for EGTRRA, which provides that the match contribution can be used to satisfy the top heavy minimum.

If the discretionary contribution is allocated according to the first step of the 4 tier integration, the top heavy minimum is met here, rather than utilizing the match contribution as EGTRRA provides.

Do you think the actual EGTRRA restatement will change the verbiage to permit skipping the steps for the minimum required if the plan provides for a match contribution (similar to skipping the steps if another plan provides for the minimum)?

What options do you see in this situation in the interim? We have our ideas, but would like to see what everyone else thinks.

Thanks for your input!

Does a Simple 401(k) have a plan document?

I know you can adopt the model amendment if you already have a 401(k) plan which is updated, but what if you never had a 401(k) plan?

Thanks!

does anyone have the name and number of someone at the service to discuss compliance program related questions. you can send me a private message if you so desire.

We are in the process of developing an HRA for a union health plan. It is going to be offered to all participants eligible for coverage under the major medical portion of the plan.

This is a construction industry plan, which means that the number of eligible participants can significantly vary from month to month or season to season.

The question is whether there is any legal requirement to keep the account balance active for a certain period of time after the participant terminates coverage. As of now, the proposal is to provide for a forfeiture of the account at the end of first quarter following the plan year in which the termination occurred.

Any problems with this approach?

Around the first of July I filed around 50 Form 5500's electronically with EFAST. I received the DOL Acceptance File for each return immediately after they were transmitted. I have not received anything else from the DOL.

This is the first time I've used electronic filing and I'm a little paranoid. I'm also leaving this afternoon for vacation and won't return until after July 31.

If I have the DOL Acceptance File for each return, do I have all my bases covered? Thanks.

I am setting up a new Safe Harbor PS 401k plan with a cross-tested contribution formula. One of the HCE's has opted not to participate in the plan. Do I use him for the general test or ignore him all together?

Thanks.