We had an unusual set of circumstances arise. The good news is that we are dealing with less than $1,000 in benefits, so very little exposure is involved here. Participant enrolled in a 401(k) plan 2 years ago, indicated he was unmarried and designated his sister as his beneficiary. He died unexpectedly, one week before his divorce was finalized. The divorce was ultimately finalized after his death. Should the benefits be paid to the designated beneficiary or the ex-wife?? I'm thinking ex-wife since the beneficiary designation could be considered invalid since she didn't consent to the designation of another beneficiary. There are no children and the sister was designated as the beneficiary of his life insurance policy. Trustee would like to honor the request of the participant if at all possible.

Could someone please help me understand the interplay between Code sections 401(a)(14) and 409(o)? My understanding is that 409(o) is an acceleration provision. Therefore, the general rule is that distributions must commence according to the provisions of 401(a)(14) UNLESS the participant ELECTS to accelerate distributions under 409(o). Is this correct? This would mean that a plan must distribute under 401(a)(14) even if the exempt loan has not been repaid in full?

Also, does 409(o) apply to S Corp ESOPs? I read somewhere that it does not, but there was no cite to the applicable authority for that statement.

Assume that a PBGC premium calc is being done for 7/1/2004. Assume the asset valuation method for funding was market value but is switched to a smoothing method 7/1/2004 that amounts to 120% of market value. The premium instructions seen to call for the use of 6/30/2004 (market) assets, but would allow the use of 7/1/2004 provided that the actuary adjusts for the difference.

In this manner, an asset method change cannot be used to reduce PBGC premiums in the first year. Is this right?

But this all presumes that the change is effective 7/1/2004. If time permits, I suppose the change could be made effective to the prior valuation date, without phase in, and then utilized currently to reduce the premium, right?

We have a client that has a PS plan and the investments are at MFS. MFS provides quarterly statements directly to plan participants. Is it required for them to also get a statement for year end showing contribution made for that year? Obviously that info would not be on the Dec 31 MFS statement.

Thanks for any help.

A client called and asked me about a participant who was disabled a couple of years back. He was out of work, and was eventually terminated in 2002. This person is apparently receiveing COBRA from this company, and was recently looking for an extension. This person apparently has turned in a letter from Social Security that states he is receiving benefits as a perm. disabled person. The letter is from October 2003. My client's question is this: Since he is condsidered perm. disabled by the gov't, should he be considered so in the 401(k) plan? My answer was no, because he was terminated prior to his status being changed to perm. disabled.

Your thoughts?

READERS - post your experience about fees charged by brokerages and any rules that enable you to have a lower fee structure. This can help readers save some time.

John G - moderator

READERS: post your experiences as to who does and who doesn't allow minor children IRAs. This will save some folks time in finding a custodian.

John G - moderator

I converted a small amount from a traditional IRA into a Roth. Does this amount affect the total contribution for the year?

In other words, does this contribute to the total $3000 contribution?

thanks,

Pinkcory

I am having trouble (as are many others) finding a thread that I know has been beaten to death on this site.

The employer forgot to start taking loan payments out of the participants check in repayment of the loan. It has been almost 6 months since the loan was issued (so we're past the cure period). Can the loan be reammortized to increase the payments so it's paid off within the original timeframe of the loan? Or, is the participant stuck with a deemed loan and the tax consequences because of the ER's goof?

Any, thoughts would be helpful or if someone else can find the prior threads that discussed this and let me know where to find them I would greatly appreciate it!

Performing an affiliated service group analysis. Has anyone looked into the issue of whether an insurance agency is considered to be "performing services" for an insurance company whose policies it sells? Assume that there is no cross- or overlapping ownership between the agency and the insurance company.

Thanks.

Hi,

I can't find any regulations that require an ESOP to actually hold ER stock, although not holding stock in an ESOP seems strange. A company set up an ESOP in 2001, but hasn't yet bought stock so no participants actually hold stock in the ESOP. Currently, participants own shares of mutual funds pending the purchase of a large block of stock from the owner. Currently, the plan is building up cash through contributions and then plans to purchase the block without an acquisition loan. Do we need to be worried that for 3 years the ESOP has actually held no stock? I'm thinking no, but any thoughts would be greatly appreciated.

Thanks

An employee has not met the 1250 hours of service requirement to be eligible to take leave under the FMLA. She will be going on maternity leave shortly. Is it safe to assume that since she is not eligible for FMLA, the employer is not obligated to hire her back?

Terminating DB plan with excess assets. Sponsor wants to allocate the excess based on a % of comp times YOS, however, they want 4 different groups with each group getting a different % of comp. Since this is a non-safe harbor formula, I'm using the general test to test allocation of excess. Sponsor also has a 401(k)/PS plan, so I know that if I use the ABT, I'll have to include the deferrals and PS allocations in my ABPT. Sponsor doesn't want to wait until the end of the year when these amounts are known, so I'm trying to pass a4 using the ratio test. I have 1 HCE rate group and have determined I'll need at least 13 NHCEs in his group to pass.

I'd just like some assurance I'm on the right track with this, make sure I'm not overlooking something, and get any ideas anyone has for passing the test.

Thanks!

Hi all...

I have a situation where the college has a 403(b) and a 401(k) for all employees. The employer wants to make contributions to the employees and allow the employees to determine which account recieves them. Any problems?? I guess the real issue is whether there are "employee directed employer contributions"?

A small client with a 12 participant plan has a large payroll and is required to make 941 deposits by EFTPS. In 2003, three participants were paid out with two rolling and one cashed out with $ 3000 mandatory withholding. The Trust maintains all funds in a Brokerage account. On distribution the issue arose of how to make the 945 deposit. The client does not have authority to initiate EFTPS payments from the Brokerage Firm's account. Having the brokerage firm issue a check for the 945 deposit payable to the plan sponsor could be construed as an illegal reversion of trust assets to the plan sponsor. There is no provision for the plan sponsor to recover 945 tax deposits paid from and processed through the company's EFTPS processing, so the only viable alternative seemed to be for the brokerage firm to issue a check for the 945 withholdings payable to a Federal Depository and make the deposit on an 8109 coupon. The deposit was made the same day the check was received from the brokerage firm.

The IRS issues a Federal Tax Deposit Notice suggesting that because the $ 3,000 deposit was not made by EFTPS and as the result, a 10% penalty tax is being assessed.

The 941/945 commingling seems to be diametrically opposed since the trust funds are not employer assets and therefore should not be commingled or required to be aggregated for depositing purposes. In fact IRS regluations preclude such commingling of Trust assets with employer assets. Certainly I can see if the State of New York pension plan distributes for instance $ 500,000,000 in benefits and has $ 100,000,000 of 945 withholdings it would be reasonable to require EFTPS for the this Trust in that instance. A plan of this size typically uses an independent trustee who makes distributions and has facilities to withhold and EFTPS deposit 945 withholdings. On the other hand, a plan with less than $ 1,000,000 total assets held in a brokerage account and has no plan checking account and never distributes gross more than $ 30,000 in a year and only has $ 3,000 of 945 withholdings, aggregating and requiring those deposits by EFTPS is unreasonable and is overkill.

Not only is it unreasonable, it is impractical, and I simply don't see how in a typical small balance forward plan not utilizing the services of an independent trustee penalties for failing to use a sysgtem that will not work is enforceable. It sounds as if one division of the IRS EP/EO and the Tax guys are getting their IRS regulations confused.

Has anyone encountered a problem of this type? If so, how did you handle it?

Are there any rules, guidelines, etc. on when the first payment for a plan loan must be made? For example, within 30 days of the distribution, 45 days, any "reasonable date"...

As always, thanks for any assistance.

A client asked if they had to file a 5500 for their cafeteria plan. They have AFLAC who takes in premiums to pay the employee portion of health insurance and other pre-tax benefits. Sounded to me like it's a basic premium only plan and doesn't require a filing. But, since I'm a pension guy and not a Health and Welfare guy I thought I'd check with the experts. File? Don't File?

Please forgive me if this is a silly question, but it is Friday and my brain isn't working as well as it did on Tuesday.

When you charge the QDRO determination fee directly to the participant, do you have to withhold taxes on the fee?

If the fee is say, $800, is the $800 considered a "withdrawal" and subject to taxes? I have a feeling the answer is no, but I would like confirmation.

Thanks!!

Lets assume for all purposes that the child involved has enough earned income (i.e. wages, not allowances) to support an IRA contribution:

1. For children who are under age 21: can a parent make a Trad/Roth IRA contribution on behalf of their child? (This question also assumes that if the parent can do this, the deduction for the contribution (if any) appears on the child's return). Does your answer change if the child is included as a dependent on their parent's return?

2. For adult children - assume older Mom & Dad want to reduce their estate and decide to make Trad/Roth IRA contributions for their adult children and/or grandchildren. (Again, assumes that if older Mom & Dad do this, the children will take the deduction on their own returns).

For some reason I have trouble with these two transactions, but cannot really put my finger on why (except that the paper trail between the contribution & the deduction isn't exactly nice, neat & clean).

For #2, I have assumed that these contributions fall below the annual $11,000 gifting rules. I am not aware of any interplay between the annual $11,000 gift rules and the rules for making the Trad/Roth IRA contributions.

I am interested in your thoughts......

I have a governmental employer that cannot meet minimum funding standards for their MP plan in the foreseeable future. The question is, can they freeze their plan until such time as they are financially stable, and then unfreeze the plan with the intent of remaining solvent to the point that they will not have a problem meeting minimum funding, or would they be better off by simply adopting a PS plan, and merging the two.

If they freeze the current plan, does anyone know of any authority rregarding unfreezing the plan in the future?