Seeking guidance from the pros on deferrals from final pay of deceased employee. Plan is governmental 457 plan. Final pay may include earned wages and/or leave balance payout. In instant case, employee requested maximum deferrals from final pay. Beneficiaries are different for deferred comp account and final pay check, hence deferral from final pay is of great interest to both parties.

Final pay is a significant sum that would permit full year deferral, including catch-up contributions. Date of death was mid-January 2004.

How much deferral would you permit from final pay? Beyond the code definition of "compensation" eligible for deferral, is there any code cite, PLR, or other authority you can provide for permitting (or denying) deferral from final comp?

(Our Payroll Manager is requesting code authority for our current practice of permitting deferrals from final compensation in the case of deceased employees.)

Thanks in advance for the assistance and insights.

A plan with several adopting employers was erroneously tested using the current year method when the document states prior year. The employers are not members of a control group and are not tested together. I have three questions:

1. What is the time period for changing from prior to current year testing? Can the plan be amended during 2004 for a December 31, 2003 plan year?

2. What is the correction/impact for refunds made in excess of the corrective distribution amounts? Are the overpayments to be made back to the Plan in the same correction manner as a test using incorrect data?

3. What is the correction/impact for refunds made that are less than the corrective distribution amounts? Assuming that additional refunds are made prior to December 31, 2004, are the residual payments made after March 15, 2004 the only amounts subject to the 10% excise penalty? Do the HCEs then receive two 1099-R forms for 2004, one coded "P" for amounts taken prior to 3/15 and another coded "8" for amounts after 3/15?

Thanks!

6.55%

http://www.ustreas.gov/press/releases/archives/200404.html

I've looked through this board but I have not found a complete answer on this.

What is the result of a one-time irrevocable election of a participant - when the participant is first hired and first becomes eligible to participate in any plan of the employer - not to participate in the employer's profit sharing/401(k)/401(m) plan?

Here is what I think the answers are, but I'm not sure.

1. Profit Sharing Plan

(i) The employee will not receive contributions.

(ii) 410(b) - the employee is counted in the denominator, but not the numerator, for the applicable fraction (e.g., for the HCE fraction if the ee is an HCE or the NHCE fraction if the ee is not an HCE) for the ratio percentage test.

(iii) 401(a)(4) - EE is not eligible so 401(a)(4) does not apply.

2. 401(k) Plan/401(m)

(i) EE will not be eligible to make any 401(k) deferrals and of course will receive no match.

(ii) 410(b) - Same as 1(ii).

(iii) ADP/ACP - EE is not an eligible employee and therefore is not counted at all - numerator or denominator - for the ADP/ACP tests.

3. Forfeiture allocations

(i) EE will receive none.

(ii) 410(b) - ???

4. Other?

Thanks.

Domestic corporation (DC) sponsors a db plan. DC is in process of winding down its business, but cannot terminate db plan because it is not sufficiently funded. One possibility being considered is for the foreign parent of the DC to take over as administrator of the plan and satisfy its funding obligations. Can the foreign parent take over as plan sponsor? I am aware of the domestic trust requirements - but assuming those requirements can be satisfied - does this arrangement present any other qualification issues?

Hi,

If a plan covers a 100% owner of a corporation and his daughter, is the plan subject to PBGC coverage? If stock attribution rules apply, then the daughter would be treated as a substantial owner, but I can't find information on whether stock attribution rules apply for this purpose. Can anyone help?

Many thanks

Hi,

I am trying to figure out if a plan that covers the 100% owner of a corporation and his daughter can file an EZ. If 318 stock attribution rules apply, then the daughter is also a 100% owner and the plan would only covers owners.

Is that incorrect thinking?

Help!

Thanks

a dr with an S corp practice offers his employees a simple 401(k). the doctor also has a managment company. he is a 50/50 partner with his wife and in 2003 they drew income around 60k annuallly from it. his cpa wants to know if he could set up a plan outside the simple for him and his wife. the management company has no employees and he owns 100% of his practice. i think he would be able to do it separately of the simple 401(k) since i do not think it constitutes a controlled group, but i might be wrong due to his wife having some ownership. any suggestions?

Are catch up contributions excluded from 415 $40,000 annual additions limits? I cant's find any supporting data.

A target benefit plan provides for a funding of a benefit of 50% of pay. For the sole owner of the plan sponsor this produces the desired contribution for himself and an acceptably low contribution for his younger employee. Then the employee quits and is replaced by an older employee. In fact the new employee at 68 is 3 years older than the plan's retirement age.

It seems to me that her normal cost is going to be several times her annual pay. In years past this was limited to 25% of her pay by §415©. And now it is limited to 100% (since her annual pay is less than $41,000).

If he contributes 100% for her and 25% for himself, then it appears to me that 75% of the contribution for her is not tax deductible. And further that he may incur the 10% excise tax on the nondeductible contribution.

Hopefully, you can lead me to a different conclusion.

Are catch-up contributions excluded from 415 $40,000 limits? I can't find any supporting data.

If the time stamp on your post is incorrect and if you care about that, you can change it at “My controls”- go to “board settings “ under options. I noticed that my posts were off 1-hour, which is now resolved by checking the “Is daylight savings time in effect?” box

Who knows, maybe this could serve as an alibi in an important case -(I watch too much court TV)

What does distribution code 2 mean on 1099-R.

I know it means early distribution...but what's the exception? I can't figure it out.

Thanks.

Two companies are owned by the same one individual. Both are maintenance companies and as such employ mostly lower paid workers with a handful of higher paid managers, no one reaching the HCE dollar limit however.

Company A employs a total of 131, including the owner. Company B employs 30, none of whom are HCEs.

The owner prefers to have two separate 401(k) plans, despite the fact that each has the same provisions, contributions, etc.

Each plan excludes participation by any employees except those of the adopting employer.

Am I thinking of this correctly?: Company A passes coverage with or without Company B. Without company B the NHCE ratio would be 130/160. Company B would pass coverage because, while the NHCE ratio is 30/160 the HCE ratio is 0/1.

Since the plans cover all the employees of the employer (Company A and Company B) separately I am assuming that I cannot use answer 3d on Schedule T? And that I must show the ratio test for each plan?

To take it one step further, if the manager of Company B does reach the HCE dollar limit and becomes an HCE, Company B will not pass coverage without Company A. The Plan would now benefit 1 of 2 HCEs and 29 of 159 NHCEs. I'm thinking I now need to aggregate the plans for coverage and also ADP testing?

Thanks for any clarification.

How would one go about becoming a paralegal with an ERISA specialization? Also, is one of the different paralegal certifications better than another? What would you expect an "ERISA paralegal" to do or where would they normally work?

I'm having a heck of a time understanding the practical application of the new proposed regs under 1.410(b)-6(g), probably because I'm unable to relate them to a real life situation. Perhaps some of you 401(k) specialists can help me out?

Suppose you have a 501©(3) organization, that currently sponsors a 403(b). Now the employer decides to offer a 401(k) as well.

Under (g)(2) of the proposed regulation, it says that employees of a tax exempt organization who are eligible for a salary reduction under the 403(b) plan may be excluded if:

(i) No employee of the organization is eligible to participate in the 401(k) plan, and

(ii) At least 95 percent of the employees of the employer who are not employees of the organization are eligible to participate in the 401(k) plan.

I note that (i) and (ii) use separate terms - organization and employer. But (i) and (ii) seem to me to lead you in a circle. First, you have to satisfy (i) that no employees are eligible to participate, then in (ii) at least 95% of the employees must be eligible to participate! But it distinguishes, in (ii) that the "employees of the employer who are not employees of the organization" must particpate. Now, what the heck does that mean, and what type of arrangement gives you employees of an "organization" who are not employees of the employer? Some sort of affiliated service group where they want to exclude certain employers within the group from participation in the 401(k)?

Hellllppppppp...... Thanks in advance, and my sincere congratulations to those who can make sense out of this.

A few years ago, after more than 5 years working for my company, I quit. At the time I had 3 weeks of vacation. Two years after that I was rehired, with a rate of 2 weeks of vacation. Two years after being rehired, I questioned why my earlier vacation time of three years was not being given to me. I learned that because my time not working for the company was greater than 6 months, I had lost the right to my previous vacation time of 3 weeks, and was now at the two weeks of anyone who has worked under 5 years. That is fair enough. Nonetheless, I explained to my supervisor that my vacation service had been deleted. He then requested that my vacation be updated to what I had before, 3 weeks. Per my request, he didn't ask that the first two years back working be restored, since I had not inquired about it during that time. Human Resources replied to my boss, an executive, that nothing can be done. My question is, is vacation a sort of qualified plan, where this would be breaking the rules, or can a request by an executive be subjectively denied by a human resources representative?

Another question on taking deductions.....in the case of a health or dependent care FSA which is elected by an employee during the latter part of their grace period (31 days from eligibility date), do most companies:

(a) amortize the goal based on the effective date and retroactively collect (pre-tax) deductions

(b) amortize the goal based on the next subsequent paycheck and begin taking those deductions with that paycheck

Example. Employee is eligible on March 1 but does not enroll in FSA until March 30 for 1000. In (a) the employee owes $100 per month and an extra $100 is collected on the April 15 payroll. In (b) the employee owes 111 per month with no retro.

In both cases, the participant would be able to claim expenses going back to thier effective date (or at least that is how we do it). However, have any of you heard of companies only allowing employees to begin participating when the first deduction gets taken? In other words, the employee in the example would not be able to claim expenses until April 1?

Sorry this is so complex!!

If an employer has an open enrollment period which is not based on the plan year, is there any reason the employer would have to either (a) file more than one 5500 for the year or (b) make any filings in addition to the 5500? It does not make sense to us that they would, but something in the back of our client's mind makes them think that if the enrollment period does not match the plan year, then two filings need to be made. This does not sound right to us. Any thoughts?

I'm wondering how the best way to structure retro deductions for new hires and change in status. Right now, we offer a 31 day period for the initial enrollment in our cafeteria plan. If an employee enrolls on the last day of that grace period, we take a retro deduction (pre-tax) back to the effective date of coverage. Do others handle it that way. I've heard the IRS frowns on retro deductions for new hires, but I wonder how many plans don't take retros.

That is the same way we work it for change in status. Do most others take retros in this situation with after-tax dollars?