A client with a Safe Harbor 401(k) is going out of business. They use the basic match ($4$ up to 3% and 50% on the next 2% of comp). No other contributions have been made to the plan other than the match.

If the company provides everyone with a notice that the plan is terminating, I think the company has to do the ADP/ACP test. Since they have gotten a free ride on the top heavy issue, do they now have to make a 3% top heavy contribution?

I have an unusual situation, and I just want to make sure we don't run into some kind of nondiscrimination issue:

This is a three participant plan. Two of the participants are 50/50 owners of the corp., and the third participant is an ordinary NHCE.

The NHCE signed an election not to participate in the plan dated May 2003.

At the time he signed the election, he still had a contribution receivable applicable to the 2002 plan year.

That deposit was never made on his behalf, so issue number 1 . . . certainly you cannot retroactively opt out of a plan after you've already met the contribution requirements and a receivable has been posted (and possibly deducted from the tax return)?

Number 2, even though he has opted out of the plan, is he still counted for 410(b), as in: included as eligible, but not benefiting? . . . as in, FLUNK? Or is he now a quasi-statutory exclusion?

Thanks!

We have come across a bad situation with an HRA plan, and I would like to see if any of you have any insight on how to handle this problem.

A CPA came to us to have us set up an HRA plan. We drafted plan documents per his request for a group of doctors, giving coverage of $10,000 per year for each employee. The plan document was adopted and SPD's were distributed to each of the doctors. The problem is that the employer actually intended that the level of coverage be $4,000 per employee per year, and the CPA gave us bad information. Now they have an employee who has submitted claims for $10,000 and wants to be reimbursed, and the employer only wants to give him $4,000. The existing plan document does provide for $10,000 of coverage. (Of course, nobody actually bothered to look over or read the document prior to signing.)

Do any of you have any prior experience with a similar situation or ideas on what can be done? Can an amendment be drafted? Are they stuck reimbursing this guy for the full $10,000? I would really appreciate any advice. I guess there is going to be a big meeting with attorneys later today.

Plan defined compensation to include bonuses. For their 2003 calendar year/plan year, the employer did not withhold deferrals on the bonus and their Match did not take bonuses into consideration. They failed ADP/ACP for 2003.

The employer will be making a QNEC to correct the shortage of deferrals and an additional employer contribution to correct the Match. Prior year testing if that matters.

Must the 2003 ADP/ACP tests be re-run to reflect the corrective amounts? What about any excesses that have already been distributed due to the failed 2003 tests?

one of the funds in a plan is closing to new investors. they will remain open to participants in the plan that are currently invested in that fund. this differs from the normal scenerio in that when a fund closes, it typically remains open to all participants in the plan even if one participant is not invested in the fund. do you think that the fact that some participants will have access to a certain fund while others will not presents a discrimination problem?

We have a situation where an employee's child has had a baby and wants to add the grandchild to her health insurance stating that she has limited custody of the baby. Has anybody dealt with this before?

There are several types of employees that do not have to be considered in the Reg 410(b) coverage testing. One of those types is "EMPLOYEES of an employer which is part of the controlled group but which is considered a separate line of business".

What does "separate line of business mean" ?

I find it hard to believe that if a car dealership and a private hospital are members of a controlled group ....then the employees of the hospital are excluded from the coverage testing when the car dealership's defined contribution plan is being tested, soley because the two employers are not in the same line of businness.

Company A currently has their plan at an insurance company.

One particular HCE (who is not a principal) would like to move his assets out of the insurance contract to another location.

Four options have been discussed 1 - Taking an in-service withdrawal; 2 - Using the SDBA feature; 3 - Unbundling the plan at the insurance company to allow for a 2nd custodial account; and 4 - Creating a second plan with a separate investment option (at a mutual fund compnay) where the HCE would be the only participant.

Concerning the 4th option - if the HCE were the only participant in the second plan, either b/c of eligibility or lack of interest by NHCE's, would this have an impact (if at all) current and effective availability discrimination issues?

Assume an S Corp has an ESOP that owns 60% of the stock of the company. The remainder is owned by individuals. No stock will be allocated to a "disqualified person" because those people are excluded from participating in the Plan. The individual owners are receiving payments of nonqualified deferred compensation (although they will never receive ESOP allocations). I think it is clear that the Plan will not violate 409(p); however, it seems that there is a problem with 4979A(a)(4). Because these individuals have nonqualified deferred comp interests (synthetic equity) and there would be a nonallocation year (although no stock is allocated to the individuals), does that mean that they now are liable for a 50% excise tax? (I know they can distribute the nonq deferred comp by 7/21 and avoid the problem, but this still doesn't seem right).

Thanks.

I would appreciate the expertise of other members of this forum.

The plan year for a safe harbor 401(k) must be twelve months long, unless it is a newly established plan (excluding successor plans) or, under the proposed regulations, a terminating plan.

A current 401(k) plan (not safe harbor) is on a calendar year. If the current plan elects a short plan year, say ending June 30th, can the plan adopt the safe harbor provisions effective July 1st? (This assumes proper notice is given and the safe harbor plan year ends June 30th.)

This scenario seems to meet the requirements of Notice 98-52, but something about it is nagging at me. Thanks for the help.

Should a 1099 be issued when making payment of a U.S. citizen's plan benefit to his Canadian beneficiary? What if we don't have a social security number for the beneficiary? Any other issues I need to know about? Thanks in advance!

Two companies, one owned 100% by a husband and one onwed 100% by his wife. Both companies have employees. The companies are not related (other than the husband/wife ownership). Is this considered a controlled group??

Client was SE as of 1/1/04 until recently and has made a $13,000 deferral to a Solo K for 2004. He has since closed a huge deal and his CPA told him to incorporate. He wants to establish a plan for the corporation. Can he make a $13,000 deferral to the SE plan from SE $, and in addition make a $41K contribution (no deferral) to the incorporated plan from the proceeds of this deal? This will mean he is going to shelter $54K for 2004 between the 2 plans... ok?

Company Z maintains a 401(k) plan and provides matching contributions. Z has discovered that a number of tis employees have failed to sign a certain agreement that requires them to disclose actual or potential conflicts of interest. Because a number of states do not consider continued employment to be sufficient consideration to signing such an agreement, Z cannot simply terminate those failing to sign. Z'a CEO suggests conditioning the matching contribution to the 401(k) plan upon signing the agreement. Does this violate any qualification requirement or ERISA requirement?

May a plan charge a "penalty" against a participant's account if participant trades in and out of a particular fund within a 30 day time period. (Note: The "fee" has no relation to the cost to the plan, which is negligible at best.)

A self insured ERISA health plan has been sued in state

court as part of a personal injury lawsuit. One count of

the complaint is essentially a claim for payment of benefits

that as of today have not been paid. (The member has

refused to sign the subro agreement as clearly required

by the terms of the plan.)

Prior to the QualChoice case which came out earlier this

month in the 6th Circuit, I would have simply removed the

case and gone through the constructive trust/equitable

lien hoops. However, QualChoice effectively killed these

options within the 6th Circuit. Therefore, if I remove the

case, the federal court is likely to give us a quick boot.

I am tenatively planning to discuss this matter with the

P.I. attorney and have his client sign the subro agreement.

This will allow us to pay the bills and participate in the

state court action under a true subrogation theory

(plan v. tortfeasor).

Questions...

1. What are your thoughts on this approach?

2. Does the state court have subject matter jurisdiction over

an action brought by the ERISA plan against the 3rd party

tortfeasor?

3. Any issues or options I am missing?

A self insured ERISA health plan has been sued in state

court as part of a personal injury lawsuit. One count of

the complaint is essentially a claim for payment of benefits

that asf today have not been paid. (The member has

refused to sign the subro agreement as clearly required

by the terms of the plan.)

Prior to the QualChoice case which came out earlier this

month in the 6th Circuit, I would have simply removed the

case and gone through the constructive trust/equitable

lien hoops. However, QualChoice effectively killed these

options within the 6th Circuit. Therefore, if I remove the

case, the federal court is likely to give us a quick boot.

I am tenatively planning to discuss this matter with the

P.I. attorney and have his client sign the subro agreement.

This will allow us to participate in the state court action

under a true subrogation theory (plan v. tortfeasor).

Questions...

1. What are your thoughts on this approach?

2. Does the state court have subject matter jurisdiction over

an action brought by the ERISA plan against the 3rd party

tortfeasor?

3. Any issues or options I am missing?

An employee signed up for the 401(k) plan in 2002, and deferred 10% of pay.

For some reason in 2003 and so far in 2004, the employer did not withhold the deferrals from the employees paycheck. Now, in 2004, the employee , brings this to the attention of the employer.

What course of action is the employer required to take? Must the employer make a special employer contribution for the employee in the amount of what the deferrals and match would have been, adjusted for gain or loss ?

Or was it the employees responisibility to bring it to the attention of the employer at an earlier date?

May a plan charge a "penalty" against a particioant's account if participant trades in and out od a particular fund within a 30 day time period. (Note: The "fee" has no relation to the cost to the plan, which is negligible at best.)

The bank that I work for is thinking about taking on custodianship and record keeping of a 403(b) plan. This would be our first endeavor into this plan type. What are the major differences between a 401(k) and 403(b) plan? What are some things to watch out for in deciding whether to take on the plan?

Any insight anyone can provide would be greatly appreciated.