I am using the accrued to date method in order for a defined contribution plan to satisfy the general test on a benefits basis. I am using 1/1/02 as my fresh start date. I have the account balance as of 1/1/02 and as of 12/31/03.

I believe I exclude the earnings (or losses) attributable to the 1/1/02 account balance that were credited during the measurement period (1/1/02-12/31/03) but include the contributions made for the 2002 and 2003 plan years (including the employer contribution for 2003 that will be made in 2004) and the earnings attributable to the contributions made during the measurement period. Is this correct?

It seems like it will be very difficult to figure out the earnings attributable to the 2002 and 2003 contributions, especially if the accounts are self-directed and/or 401(k) deferrals were being made. Am I missing something?

For a participant who becomes eligible on 7/1/03, I believe I cannot use his compensation only while a participant so his accrual rate will be his 2003 comp. divided by the 2003 allocation, normalized to an annuity at normal retirement age. I assume I do not include his 2002 compensation since he was not a participant for any portion of 2002. Correct?

I have a client which failed the 70% average benefit prong of the general test for the 2003 plan year, which is being calculated on a cross-tested basis. The failure is attributable primarily to one HCE who deferred the $12,000 401k max on comp. of only $33,000 ... which produced a very high EBAR for 2003.

In an effort to salvage the situation, I came across the three-year averaging provision of 1.410(b)-5(e)(5), which seems to permit an EBAR to be determined based on the average of the employee's EBARs for the the current year (2003) and the immediate preceding one or two testing periods (2002 and 2001).

This "problem HCE" had a very low EBAR for 2002 and was not a participant in 2001.

Questions:

1. Can I perform the average benefit prong of the general test for 2003 based on the average of her 2003 EBAR (16%) and her 2002 EBAR (1.5%), which would result in an EBAR of 8.75% (16% +1.5% = 17.5% / 2 = 8.75%)?

2. Can I assign an EBAR to her based on the average of 16%, 1.5% and 0% when, as stated, she was not a participant in 2001?

3. If I calculate this one person's EBAR based on a 2 or 3 period average, am I required to determine all participant EBARs based on an average also? and, if so, how do I do this for those who were not participants during the entire period?

4. Is there any authority and/or guidance in addition to the scant language in the cited Reg?

Thanks for the help.

I have a client with a lot of non-qualifying assets in his profit sharing plan. He is having problems getting a bond to avoid the audit requirement. His share of the plan is over 70%. He is also the trustee. He wants to waive any fiduciary liability for his share of the assets to reduce the bonding requirement. I told him that he cannot do this. However, he wants me to look to make sure. I have and found what I expected - nothing. Has anyone ever heard of this? Can it be done?

Cost and coverage under employer's retiree plan is different than cost and coverage for active employees. Because retiree plan is technically "alternative coverage," retiree (and spouse, as applicable) are given choice between COBRA under the active employee plan and enrollment in the retiree plan.

I know that the retiree's spouse must be offered COBRA under the retiree plan if the spouse loses coverage under the retiree plan because of legal separation, divorce, employee's death, or employer's bankruptcy, per the Treasury Regs (54.4980B-7, Q&A 7©).

But is the employer's bankruptcy a QE for the retiree who elects alternative coverage under the retiree plan? The general rule under the Reg is that "if an individual rejects COBRA continuation coverage in favor of alternative coverage, then, at the expiration of the alternative coverage period, the individual need not be offered a COBRA election" (Reg 54.4980B-7, Q&A 7©). However, "a proceeding in bankruptcy under Title 11 of the US Code with respect to an employer from whose employment a covered employee retired at any time" is a QE (Reg 54.4980B-4, Q&A 1(b)(6)).

Does the "bankruptcy as QE" rule supersede the retiree coverage's status as alternative coverage, so that bankruptcy is still a QE for ANY retiree coverage? Or is the loss of coverage by the retiree due to bankruptcy the "expiration of the alternative coverage period," so that COBRA need not be offered to the retiree under the retiree plan?

when were/are these required to be done?

Can a tuition reimbursement program be wrapped with other welfare or fringe benefits so that they can all be covered under one wraparound plan, and only one 5500 need be filed for the entire group?

KSOP has 401(k) employee deferrals and discretionary Employer contribution (non-match). All contributions invested in company stock. Plan does not allow any other investment options, so it satisfies diversification requirement through distributions.

IRC 401(k)(2) and (10) do not allow distribution of deferrals until 59.5, but diversification requires age 55 (assume 10 years of participation).

I originally thought deferrals were excluded from diversification, but 401(a)(28)(B) consistently refers to "the participant's account" or "the participant's account in the plan." To me, that sounds like the entire account balance, not just the employer contribution portion.

Does a participant entitled to diversification distribution get 25% of entire account, or only 25% of employer portion of account?

My client has a super Top Heavy Defined Benefit Plan (12/31 YE). They ceased accruals and froze the plan in 2003. The DB plan may be terminated by 12/31/2004 YE or, since plan is underfunded, plan may be continued for funding purposes only. Can the client install a Safe Harbor 401(k) with the 4% SH match formula in 2004 and be exempt from making TH minimums for 2004? Also, if no NCHE's defer can the HCE's still put in the $13,000 deferral and not receive a match because no NCHE received a match?

I'm allocating a QNEC to correct an ADP Test. The QNEC is to be allocated to all participants, including HCE's. There is 1000 hour/last day requirement on all employer contributions. Since the QNEC is tested in ADP - is it also tested under the 401(k) provision for 410(b)?

I had to suspend allocation conditions for the 401(m) to pass 410(b). If the QNEC is tested under the 401(a) provision for 410(b) I'll have to suspend allocation conditions - which increases the employer cost...again!

Thoughts and/or comments are appreciated.

May a premium conversion plan provide for a semi-annual enrollment period without violating cafeteria plan/constructive receipt rules? 125 regs appear to only define "period of coverage" as a 12 month period with respect to health FSAs and Dependent Care plans. Can this be interpreted as meaning that for non-health FSA and Dependent Care benefits (such as medical coverage) the applicable period of coverage durin which participants are prohibited from changing elections (unless the 125 exceptions apply) may be six months?

I have a 401(k) plan that matches .50 up to 5% of deferrals.

There are 2 HCE's, the owner and his son. The owner is on disability and has no comp or hrs for 2003. He is not terminated and may work part time in the future. The son has comp for 2003 and defers about 12%. Should the owner be considered in the ADP/ACP test?

If he is included in the test, they pass....if not included they fail.

Any help would be appreciated

I received my unemployment check for time I was laid off, but I just received Notice of Restitution for this money. Basically I was not eligible for the benefits because I stated that I was in a class and that I could not rearrange it for work.

I suppose I shouldn't have revealed this information, but now I am going to try to protest it. Has anyone been through this before? Should I be honest or try to say that I mistakenly checked off yes to the class questions.

No work was offered to me during my time of unemployment. The first job that was offered - through my electrician apprenticeship, was accepted. How do you get around this red-tape?

For a given fund, can Relius deduct a redemtion fee for a round trip trade? For example, if the fund specifies an X% fee for a trade in and trade out (or vice versa) within Y days, can the system automatically deduct that fee?

Does anyone know if OmniPlan and OmniPlus have this capability?

A similar post has been placed in the Schwab RT area.

Plan has 3 month eligibility (no hrs req't).

What is someone works for a month on a project, say for the entire month of January. Then works on another project in May for two weeks. Is this person eligible for the plan? Why or why not.

A 401(k) profit sharing plan participant received a RMD in 2003. There were several problems with this distribution. First, the plan contained vestages of a money purchase pension plan and the participant, although I'm certain that he never intended to take the annuity, never waived his right to receive a Qualified Annuity Benefit. However, the plan administrator did not purchase an annuity with the portion of the participants' plan account attributable to the money purchase plan. Second, the plan administrator has yet to prepare a 1099-R and did not withhold on the distribution. How would you correct these problems?

A client received a notice from the US Bankruptcy Court informing them to stop the loan repayment deduction for a participant in their 401(k) plan. The Notice cited the 6th Circuit Court's 1995 decision in Harshbarger. Is there any more current information that I can look at regarding this situation?

Old Company was a group of 60 doctors, 80 nurses, and 20 administrative staff. Old Company closed and each doctor group formed new corporations at their own hospital. There were no spin-offs, no stock sale or purchase, simply the Old Company went out of business 12/31/2003.

One of the new corporations would like to set up a qualified plan. The size is small, consisting of 5 doctors, 15 nurses, and 3 administrative staff. In 2003, working for Old Company, many of the nurses made in excess of $100,000.

The plan design would benefit if I could classify the nurses as HCEs in the initial 2004 plan year, based on what they earned in 2003. However their earnings in 2003 were from Old Company.

Is there any type of same desk rule where even though this is a new corporation, the employees remained the same, they are doing the same job, they are working at the same place, and I can use their prior year wages to determine HCEs?

After 2004 it is no problem, as "normal" determination will take place in 2005. It is only in the initial plan year that I am questioning.

Thank you.

We have a plan that is interested in using salary levels in $25,000 increments with the last salary defined as >$100,000 as the group classification. They are doing this to balance out the expected soscial security replacement ratios for the various salary levels. Is there any reason to think this may be considered an inappopriate class definition?

The small plan sponsors invariably want to know the plan cost attributable to each participant. For the Individual Aggregate and Unit Credit methods, this question is easily answered. However, answering this question for the EAN and the FIL methods has always been a challenge and problematic. I have used the following approach to allocate the Min/Max funding to each participant.

(a) Allocate Normal Cost in proportion to each participant’s EAN NC.

Plus

(b) Allocate S412/S404 net Amortization Charges in proportion to each participant’s UAL, where each participant’s UAL = Total UAL * Participant’s EAN AL / Total EAN AL.

However, at times the results produced are not palatable to the sponsors and are not consistent from year to year, even after allowing for changes in wages etc!

Your thoughts on and approach to this would be appreciated.

does anyone know where I can find instructions/forms to apply for a waiver of the min funding standard on behalf of a client ??