Are excess deferrals subtracted from gross compensation to arrive at taxable compensation in box 1 of Form W-2? Or is only the deferral limitation subtracted?

Thanks,

Ken Davis

Section 79(d) of the Code provides that a group term life plan may not discriminate in favor of HCEs. Prior to 1989, 79(d)(7) provided that the controlled group rules of 414(b), © & (m) were in effect. However, 79(d)(7) was amended out. Now I can find nothing that brings in the controlled group rules. So if owners of a company set up a management company and are the only employees of a management company can they set up a group term life for the management company and effectively circumvent the nondiscrimination requirement.

This does not seem to make sense. Why have nondiscrimination if I can just set up another company and circumvent. However, I can not find anything in 79(d) that gets me to 414(b). And lending even more weight, the prior reference to 414 was amended out of 79(d).

I just am having a hard time believeing this result. Am I right that controlled group rules do not apply to 79(d) or am I misssing something?

Thanks for your help in advance.

We have a beneficiary who is due benefits under the plan. The beneficiary is incarcerated. I just wanted to double check that there isn't anything that would prohibit us from distribution the benefit to the incarcerated beneficiary. The beneficiary is incarcerated for something completely unrelated to why she is due benefits.

Need some assistance. We have a situation where a sole proprietor setup a 401(k) plan for herself. During 2003 she hired 2 part-time employees, (one quit during the year, the other was hired in fall and still with the company as of 12/31/2003) in which the position will never exceed 500 hours per year. This position will never be eligible for 401(k) deferrals due to the requirements the owner has placed on the plan.

Does the plan still fall under the "One-Participant" plan exemption? Or by having one employee on the books who is not a spouse or an owner force the plan into filing a regular 5500? The definitions given on the 5500 for "Participant" include, Active, Retired or separated receiving benefits, Other retired or separated or Deceased individuals with beneficiaries receiving benefits. None of these definitions fit the case of an employee who will never become eligible. If the instructions stated "Employee count" vs. "Participant count" I feel it would be justified to file the 5500.

The plan does not have over $100,000 in assets, so this is a question of whether or not a filing is required.

Thank you!

Question: Does Treas. Reg. 1.401(a)-20, Q&A-27 require the legal separation be by court order? Would it require payment of benefits to the children or the legally separated surviving spouse given these facts?

A North Carolina participant designated her children as beneficiaries and represented that she was legally separated (so no spousal consent). Under NC law parties can enter into legal separation but not take the final step of getting divorced (so they can keep health benefits, etc.). The legal separation is not by court order; it is a contract the parties enter and file in the recorder's office. Treas. Reg. sec. 1.401(a)-20, Q&A-27 states that if the participant is legally separated or has been abandoned and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Not clear whether the court order requirement applies to "abondonment" or "legal separation" or both here.

As I understand NC law, the parties could not remarry unless they proceeded with a divorce. The parties were legally separated for 15 years and now the participant has died.

Anybody have experience with this or have an opinion on the answer to the question above?

little rusty on the DC side ; currently an employer with a K plan that only allows deferrals can also have a DB with a required contribution that exceeds 25% of gross compensation.

Question : since this implies that the employer can take a deduction for the deferrals, does he in fact take it as a pension deduction or is it as a business expense in the payroll category for example ??

Iv'e read that the IRS released final regs on catch-up contributions on 07/07/03.

I've also read that those regs say that if the employer wants to set a plan limit on elective deferrals.... then such limits must be expressly provided for in the "PLAN DOCUMENT" and or adoption agreement.

Here's the situation:

1) The adoption agreement says that elective deferrals are limited to 10%.

2) The adoption agreement says that catch-up contributions are allowed, but makes no mention of any $amount limitation or % limitation for such catch-up.

Let's say a participant's gross annual compensation is $25,000. He elects the max 10% deferral = $2,500. He is age 53.

My Question:

Can the employer prevent him from deferring an additional $3,000 and calling it "catch-up contribution" ?

Could I sneak in a question as to what actuarial table IRC 7520 uses for private annuity calculations (estate tax planning) ? I apologize for the blatant misuse of this forum for non-DB plan purposes and accept my 20 lashes (or more !!).

Our retirement paperwork is set up so that if a participant should waive the QJSA, not only does he need to sign the waiver form but his signature must be witnessed. I know if there is a spouse, that the spouse would have to consent to waiving the QJSA and the spouse's signature would need to be witnessed by the plan representative or notary public. Can anyone witness the participant's signature- or must that be a plan rep or notary too?

If the person is not married and waiving the QJSA (single life), then would you agree that the same rules on "witnessed" signature would apply to the unmarried participant as would the married participant? That is, would need the plan rep or notary to witness the participant's signature. I can't find anything definitive in the regs on who must witness the participant's signature--just who must witness the spouse.

Thanks

Subsidiary A (which is in the process of winding down its operations) maintains a 401(k) plan that it intends to terminate 6/30/04. As of 6/30/03 the Plan had approximately 150 active participants. Due to a cutback in workforce, as of 1/1/04 the Plan had approximately 5 active participants. In January, 2 of the 5 transferred employment to Subsidiary B, and began to participate in Sub B's 401(k) plan. By June, there were only 2 employees left at Sub A- and both of them will be transferred to Subsidiary B, and will participate in B's 401(k) plan, by 6/15. As of 6/30/04, the Plan's termination date, there will be no employees left at Sub A.

Is Plan B a successor Plan?

When is the 2% threshold measured? If read literally under the regs., it is measured based upon based upon eligible employees as of the date of the plan's termination. In this scenario, there are no eligible employees as of the date of plan termination.

If not measured as of the date of plan termination, at what earlier point? In total (based upon participants over the last 12 months) 4 of the 150 participants are participating in Sub B's plan, which is 2% or greater. Does this fact make it a successor plan?

Thanks for any help.

Can anyone confirm the following annuity purchase rate?

5% interest

1983 Individual Annuity Mortality (Male) Projected to 2000 with Scale G

At Age 62 = 155.9645 (monthly)

Any response would be appreciated.

Under this decision (issued today by the Supreme Court), would it violate 411(d)(6) to amend a db plan to suspend actuarial increases on previously accrued benefits while working for the employer and not receiving benefits after normal retirement age, as to benefits accrued before the amendment, where these actuarial increases have been provided pursuant to ERISA and not pursuant to the plan document? My first reading of the decision is this would violate 411(d)(6). I would like to get others' thoughts.

A lady who works with me asked me a question about gains on stock that was gifted to her originally. This is a non-pension issue, and I have absolutely no knowledge in this area. So I told her I'd post her question, to see if any of the experts here can either provide some feedback, or provide some reference sources? Thanks in advance for any feedback! Here's her question:

Situation:

366 shares of bank stock were gifted to me in the early 1980's. Value was approximately $8000. Dividends have been paid in cash so they did not purchase additional shares. I have not redeemed any shares since I have owned it. This stock has split twice so I now own 1464 shares. Value is now approximately $45000.

This bank has been bought by another so I need to turn in my current certificates so I can be issued stock on the new bank.

Questions:

The stock was originally owned by a grandparent but I do not recall if it was gifted to me directly from the grandparent or if it went to a parent then to me. Do I need to know from which generation the stock was gifted?

For 2004 tax purposes, will the sale of the stock of the original bank all be reported as a capital gain?

If so, what info do I need to determine my basis? How do I obtain that info? I have possesion of all of the certificates but no additional information.

Is it to my advantage to convert the stock to the new bank stock or would it be the same tax treatment as selling the stock?

I had not planned on selling all of this stock in one calendar year as I don't want to increase my taxable income by more than $10000 in any one year.

When selling stock that has been split, how is the basis determined? Is it a different method if selling all at once than if selling a portion?

Advice welcome. thanks

Are Calcium Pills eligible for reimbursement?

A company has a 401(k) with a discretionary pay period match. They chose to stop the match at the beginning of the 2003 plan year due to financial constraints. They are now condsidering re-starting the match.

1. Is there an issue restarting the match mid-year if is is a pay-period match?

2. Other than having a problem with prior year testing - i.e. the 2003 ACP of the NHCE's was -0%- is there any reason the HCE's can't share in the match. I would think they have to get the match - except it will be refunded/forfeited due to "prior year testing - unless we amend the plan to current year testing.

Assuming a union and multi-employer bargaining unit

have signed a declaration of trust to create a plan, is

there any reason the trust assets couldn't be maintained

within a union subaccount?? There is joint administration

and audits of the account.

I know the usual procedure is to set up a custodial account

with a bank, but is it required?

I attended the ASPA webcast and had several conversations with other actuaries regarding the 'benefit payout' information that is supposed to be a new disclosure.

Does anyone have an idea HOW this information is supposed to be calculated??

How detailed the calculations have to be - for example a joint and survivor annuity for a retiree - possibilities abound that 'could' be valued - both alive, participant/spouse dies, both die???

The presentation appeared to imply that these calculations are NOT present values at the valuation date BUT the value in the year paid. Does anyone agree with this or disagree?

Just trying to get a handle on how these calculations are to be performed since no direction was provided by FASB.

This is a first for me so I thought I would ask if anyone has ever seen this before and solicit comments.

The mortality factors used to determine optional benefit forms that are actuarially equivalent to the normal form vary depending on when the participant was born.

For DOB < 1940 use UP84,

For 1939 < DOB < 1950 use UP84 set back one year,

For 1949 < DOB < 1959 use UP84 set back two years, and

For 1959 < DOB, use UP84 set back three years.

It smells like an age discrimination issue to me.

I appreciate your feedback.

For an employer who has no need for borrowing (i.e. pre-tax financing), I'm trying to think of an exhaustive list of benefits that an ESOP would provide that simply comp'ing out stock wouldn't provide.

If we were to concentrate solely to the tax benefit inuring to the employer (the employer doesn't really care that the employees would have tax deferral in an ESOP), the only benefit I could see really is the absence of FICA tha would apply if the employer simply comp'd out stock to employees. However, the comp scenario has the benefit of the immediate deduction, where the deduction comes over time with an ESOP via deductible contributions that are used to "pay" off the note to the employer. Further, if the stock is NPT, the employer would ultimately be required to by back the shares distributed from the ESOP if the associated put option is exercised, which can be a cash cruncher.

Any additional thoughts would be appreciated.

Client has an IRA from which she is withdrawing $4,800 monthly to avoid 10% premature distribution penalty. Four years into the withdrawal program, one of the funds from which sytematic withdrawals were coming from was depleted, leaving her $900 short for that month. Broker switched liquidations to a different fund for the next and subsequent months, but never made up the $900 shortfall. Consequently, her year 2003 distribution was short.

CPA is saying she's subject retroactively to the 10% penalty plus interest.

What has been others experience in trying to get relief from the penalty? With distributions at $55,600 annually for 4 years, the penalty will be in excess of $22K for missing $900 in distributions.