Small medical practice, two docs, 3 staff. Practice started in 1969, existing DC plan started in 1985. New DB for 2004. 1 doc (AA61) & 1 staff in DB, other doc (AA41) & remaining 2 staff in DC (to avoid 404a7). Both participants in the DB no longer participate in the DC, but have frozen DC account balances. DC has 401l integrated allocation formula. DB accrues benefit fractionally using all years of service.

Older Doc was the only ee until 1989, when the younger doc came on board. First staff member was hired in 1993.

DB won't pass 410b alone, so I'm permissively aggregating both plans.

When calculating EBARs for the A4 testing using the Accrued-to-Date method (Testing on a benefits basis), what latitude do I have in defining the "Testing Years"? I've read 1.401(a)(4)-8(B)(2), but I'm still struggling. Must I calculate the DB portion of the EBAR using years of participation in the DB (which would currently be "1" as of 12/31/04), or can I use years of service since accruals are done on that basis? The DC portion would then be calculated using DC years of participation?

Could I instead use a common number for both portions of the EBAR - say, years of DC participation?

TIA!

I have a client who took out a $50,000 loan in June 1999 and never made a payment and a 1099r was never issued. Cure period is quarterly

My question is how much would the 1099R be? Would accrued interest be added on through now (2004) or just through the cure period?

I just had a comptroller yelling at me becasue my company processed an excess (adp) check on march 9. he said that unless the check was sent certified mail, the irs adds seven days to the check date as the date received. thus, he says, some participants rec'd their checks march 16 (7 days after mar 9).

has anyone ever heard of this? i always thought it was the "mailbox" rule, that is, the check date is the guiding factor.

I have a 3% safe harbor 401k plan with dual entry dates of Jan 1 and July 1.

The doctor puts in $12,000 salary deferral and gets 28,000 safe harbor/cross tested profit sharing allocation.

Another employee who started 3 years ago is in for the full year and gets the 3% safe harbor on full year compensation and 3.8% additional profit sharing to pass discrim testing.

The last employee started 6/1/02 and enters the plan on 7/1/03. Does she get the 3% safe harbor on the full year compensation or only on comp earned while a participant ? Same question for her 3.8% allocation for the cross tested profit sharing piece ( full year comp or from 7/1/ to 12/31 ) ??

Thanks

There is an ESOP company that's securities are traded on NASDAQ. The company wants to know if that gets them out of offering a put option. Under the ESOP regs 54.4975-8(B)(1)(iv), they use the term "publicly traded" to be exempt from the put option. However, IRC Section 409(h)(1)(B) exempts securities that are"readily tradeable" and that was added in 1978 so does that supercede the regs that were issued in 1977? If Section 409(h)(1)(B) supercedes the regs, does anyone know where I can find a definition of "readily tradeable?" The concern is that their securities are very thinly traded even though they are listed on NASDAQ.

We have a 12/31/2003 plan that failed the ADP test. A total of 10 HCE's require refunds. The client wished to issue 5 of them before the 2.5 months and the other 5 after the 2.5 months.

Is this possible?

A terminated ptp has an outstanding loan

Our plan basicalky requires the loan to be paid in full upon termination.

Ptp wants to leave her cash balance in the plan.

If she does not repay the loan (our plan has a cure period of quarter following date last payment made), can we deem the loan a distribution? If yes, do we add acrued interest from the date of last payment until end of cure period

Our recordkeeper is saying we cannot default a terminated ptp's loan, only an active employee

Can we allow her to leave loan in plan (accruing interest) until she takes final distributino of her cash account (this could be a year or more)?

Background:

Under a previously terminated DB plan, owner employee had 10 yrs of participation and $5,000 accrued benefit payable at age 65.

A new DB plan is being setup. Owner’s Hi 3 average is well in excess of $205k.

For S415 purposes, the prior DB’s participation and accrued benefit is taken into account.

Thus in 2004, for S415 he would have 11 years of participation (10 yrs in the prior DB and 1 yr in the current DB) and his S415 projected and accrued benefit will be $8,750 (13,750 less 5,000).

At NRA he would have 30 yrs of service with 24 yrs of accrued service @ 12/31/04.

Want to use non-safe harbor benefit formulas in the new DB.

Formula for the owner is X% of average comp reduced for service less than 25 years. Accrual fraction is based on service.

His projected and accrued benefits would be $8,750 (limited by S415) and $7,000 respectively, creating a huge PVAB and unfunded PVAB. Based on the Accrued-To-Date testing method, his accrual rate will be 1.71% [= 7,000*12/(205,000*24)].

To pass the test, the NHCEs’ accrued benefits would have to be increased substantially, further increasing the PVABs and unfunded PVABs.

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If there was “no prior DB plan”, we could have the following results for the owner:

Projected and accrued benefit would be $13,750 and 1,375 (1/10th of projected) resulting in much lower PVAB.

His accrual rate under the Accrued-To-Date would be only 0.335% and would need very low accrued benefits for the NHCEs to pass the general test.

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Any solution to the dilemma created by a prior DB?

A 401(k) safe harbor plan is using the 3% SHNEC. The profit sharing uses cross testing. The document (from the prior TPA) has an allocation requirement in order to receive profit sharing (1000 hours).

A participant with less than 1000 hours is going to get the SHNEC because they were eligible (met 1000 hours previously) but can't get any of the P/S because of the allocation requirement. Therefore the gateway is not met and the plan can't use cross testing.

What is the best way to correct this plan design flaw? Can you amend the allocation requirement out of the plan (retroactively)? They are trying to allocate 2003.

Is it common for QDRO expenses to be paid out of a DB plan's trust?

I appreciate any comments!

We would like to start a Cafeteria Plan effective April 2004, but would like to accept claims back to 1/1/2004 is this allowed.

I have a plan that has three locations, with lots of turnover. We (the record-keeper) did a force-out of an account that was less than $5000. When the person received the check, he questioned it. It turns out that he was re-employed with another location.

Fortunately, he did not cash the check, and we just reinsted the account.

UNfortunately, there were several other people in the same situation who cashed their checks.

What are the ramifications to the plan/participants if the money is not returnded to the plan? What if someone spent the money and refuses to pay it back?

I guessing it's an operational defect, but I don't know what the plan would have to do to correct it (besides having the participants pay back the proceeds).

It would appear that for HSA plans to really work if the goal is to make sure that participants use dollars "wisely" and in a "efficient" manner, published pricing and some sort of valid quality measures are prerequisites. Otherwise, HSA plans appear to be little more than new cost-shifting vehicles cloaked in a "new and improved" marketing scheme.

Perhaps my comments may be a bit harsh, but it strikes me that for these plans to really work, the key isn't whether Suzie has the MRI or not, but "WHERE" she has the MRI ~ in a competitive environment where prices are posted and where service quality is also easily available. In many healthcare markets, cost isn't possible to obtain and compare and quality measures are kept under wraps.

While healthcare isn't like buying a set of tires, for a marketplace to be competitive there needs to be more transparency rather than just shifting cost to participants.

My 2 cents ... or 1 cent after the provider discount is taken

I am a broker. One of our clients self-administers their health care FSA. They have an employee that states that since the plan is self-administered, the employee does not have to provide written documentation of claims. Is this true? In what situations? I can see if the answer is when the FSA is accessed using a debit card.

We have a client that has a Target Benefit Plan. We thought they had terminated our services so we never restated their plan document. Turns out, they had created a Profit Sharing 401(k) plan with a new administration firm and had a new document prepared that complies with GUST and EGTRRA. They had issued notice to the participants informing them the Target Benefit contributions were ceasing 6 months into the year. They want us to finish up the final year contribution calculation and close out the Target Benefit Plan which will then merge into the Profit Sharing Plan. Does the new document for the Profit Sharing plan cover the Target Benefit Plan?

I know that I have seen published information concerning this, but we have a situation where an employer pays 100% of the premiums for both individual and family health coverage. The employer wants to permit employees to "opt out" of family coverage and in exchange, the employer will make a contribution, in the amount of the premium, into the 401(k) profit sharing plan on behalf of the employee. Any guidance, cites, insight would be greatly appreciated!

I know that I have seen published information concerning this, but we have a situation where an employer pays 100% of the premiums for both individual and family health coverage. The employer wants to permit employees to "opt out" of family coverage and in exchange, the employer will make a contribution, in the amount of the premium, into the 401(k) profit sharing plan on behalf of the employee. Any guidance, cites, insight would be greatly appreciated!

We are looking at amending our SPD to allow OTC drugs under our flexible spending program. We can't, however, go into the hole with the plan, which we suspect could happen with this coverage. We have proposed adding a separate limitation to the plan, for example, a maximum of $250 in OTC drugs over the plan year. Is this allowable? If so, should the participant make a separate election, or could we simply quit paying OTC claims at the $250 mark, whatever the participant's election?

An MD owns 20% of a medical practice(A) and 65% of another medical company(B). He will max out at $41,000 in company A's 401(k) PS plan. Can he receive another $41,000 allocation from a plan Company B would like to establish? We realize since he will defer the annual maximum 401(k) in A's plan, he will be unable to defer anything in B's proposed plan. I'm awaiting a return call from the MD to get clarification of the exact relationship, if any, between A & B. Thanx. Finally, A has many EEs, but B has none. The other owner of B is an EE of A.

A municipal government is offering a one time retirement incentive payment of $500 per year of service provided the employee irrevocably elects to retire by June 30th. The payment will be made within 30 days following the termination of employment. This is a one time opportunity that must be elected within a six week window and employees have had no right to such payment until this year and will have no such right in the future.

We are trying to determine whether the retirement incentive can be deferred under the city's 457(b) plan. It has been suggested that it cannot be deferred because it is being paid after the termination of employment. Although Treas. Reg. 1.457-4(d) addresses sick, vacation and back pay and requires they be made available before termination in order to be deferred, this payment is none of those.

The "can't defer amounts paid following termination" rule seems troubling because it would mean employees could never defer anything from their final paycheck because it is always paid after employment is terminated.

If anyone can help me understand why the incentive payments could not be deferred it will be much appreciated.