Is there any way, barring death, to make an adjustment to or even cease deductions to an existing Cafeteria Plan? I know there are allocations for "change of life" situations, but they seem to be centered around marriage, divorce, etc. My current situation involves the use of a new childcare facility and deductions being based on the cost of the new facility. After 2-3 months I realized that the facility was substandard (a key member went on medical leave) and I have managed to assemble a series of friends, neighbors and family to help with the subsequent childcare. My my son is now only in the current facility in the AM or partime. Consequently my payments have been reduced. My employer is telling me that I cannot reduce my contributions to the Cafeteria Plan, meaning that I cannot retrieve the money in my plan account because I do not have receipts to substantiate payments.

I refuse to keep my son in sub-standard daycare to simply fulfill a benefits requirement, but how do I go about reducing or eliminating my participation in the plan?

Hypothetical. I'm 64. Convert to a Roth from regular IRA March 2004. Start to withdraw 2007 (3 yrs. later). Any penalty? I'm confused about being older than 59&1/2. Thanks

A while back, we had determined it was permissable for a person who had two Commuter FSA accounts (one for transit and one for parking) to use funds from one account to pay for services under another account, as long as the maximum was not exceeded. For example, a person could get reimbursed from the parking account for transit expenses as long as the total reimbursements didn't exceed the allowable for transit. Now we can't locate the supporting documentation. Anyone have any ideas on where I can find supporting info on this?

Participant takes a loan, then terminates the day following receipt of the check. No loan payments were ever made and the loan was not defaulted or offset. One year later the Participant is rehired and now wants to reamortize the loan to extend the term. The term of the unpaid loan is 5 years. I know the loan can't be refinancied or reamortized beyond the original date. But, my belief is the loan cannot be reamortized because it was already taken for 5 years. What we can do is reamortize it for the same term but add to the outstanding amount the interest not paid during the year. That or demand payment in full or default the loan now.

Has anyone dealt with an issue like this? What did you do?

LLC Makes a retroactive S Corp election in March of 2003, retroactive to January 1 of 2003. The IRS allows you until March 15, 2003 to make such an election.

The question is what do you do with member contributions contributed before the member was treated as a W-2 employee? Because the S-Election is retroactive to 1/1/03, there is no self employment income. Similarly, there is no W-2 compensation because the member simply did not know during the first two months that they would in fact be a regular W-2 employee.

The literal interpretation would be, no earned income, no compensation, no contributions. The contributions made before the employee became an employee should be refunded.

But this outcome is ridiculous in so many ways. Would it be reasonable to make some assumptions and estimates about compensation prior to the election?

Any help on this cunnundrum (sp?) would be greatly appreciated.

If a 401(k) Profit Sharing Plan has one NHCE who defers 0 in 2004 and then terminates in 2004, how do you handle the ADP testing for 2005? Given that the NHCE ADP is 0%, does this mean that the HCEs can't defer anything in 2005? Obviously, the HCEs could just get profit sharing contributions, which would satisfy this problem. But there are certain HCEs who do not want to contribute the 402(g) limit because it comes out of their pockets. So, we're stuck with elective deferrals. How do you make a QNEC when there are no NHCEs in the plan for the 2005 plan year?

I am relatively new to floor offset and am hoping that one of you seasoned veterans can help me. It involves a 412(i) plan and I am REALLY new to that area.

Someone else in our office prepared calculations for this plan, but that individual has left the company and I have to finish the year end work. There are a couple of things that do not seem right to me, but, what do I know?

The first question is about the accrued benefit under the 412(i) plan. Since the accrued benefit is the cash surrender value of the insurance policy, it seems like there is the ability to control this number by timing the premium payment. That does not seem right, and in this case there appears to be some variation on that from year to year.

The second question is about the offset piece. In this case, we are in the second year of the plans. Only one year's premium has been paid on the 412(i) plan, and the cash surrender value reflects that. However, there are two years' contributions included in the calculation of the offset. That also does not seem right.

Any pointers would be appreciated. Also, how do the new regs affect these issues, if at all?

Life insurance purchased as a db plan investment must be 'incidental' or less than 50% of the plan's annual contribution amount. The db plan uses the 100 times the death benefit formula for determining incidental benefits. I know a db plan can use excess amounts toward a subsequent year's contribution and that minimum funding requirements do not permit shortfalls in ER contributions. But is there any situation regarding plan performance, where the Plan's LI could lose it's incidental character while complying with the 100 times rule?

Is a person a 5 percent owner for RMD purposes if the person owns more than 5 percent of the company after the year in which the person attains age 70 1/2? The regs state a person is a 5 percent owner if he owns more than 5 percent of the employer in the year in which he attains age 70 1/2, and the LRMs state that such person remains a 5 percent owner thereafter, but the regs do not appear to address my situation.

In response to the all the current Mutual Fund commotion, as well as insider trading issues, we are considering:

1. Imposing fees on quick round trip trades in any fund. This could be along the lines of last week's SEC proposal (2% fee on shares redeemed within 5 days of their purchase).

2. Imposing a limit on number of trades a participant could make during a specified time period, or a complete ban on round trip trades over time periods shorter than XX days.

3. For the Company Stock Fund Only, greatly expanding our definition of what constitutes a 16(b) insider, and prohibiting all trades by that group in the period 10 days preceeding and 3 days following a earnings release date.

Background: plan has approximately 20,000 participants and $500 million of assets, a third party recordkeeper, and no two funds from the same investment manager.

So the question is: We are aware that many companies are thinking about these issues, but has anyone done anything yet?

RCK

Wow!! The new rules being proprosed are a doozy!

Conversion of cash balance plans will now require the benefits earned by the participant to be not less than that he would have earned if the conversion had not taken place. (Of course, regulations will specify how to determine all this).

This, depending on the regulations, would kill conversions and just force employers to terminate their defined benefit plans. They would just install a cash balance for future purposes only (might even be generous and allow employees to increase their benefit by 'rolling' in additional monies from the old defined benefit).

The other provision which is really wild is the new 'yield curve'. Better yet is that it is phased in with weighting over a 3 year period.

I can't wait to see what the final result of this proposal is. Of course, they do recognize that small plans might consider this overkill, so they have opined that maybe a single rate might be more applicable in that case.

i have a client that wants to allow a $1,500 hardship w/d from a 401(k) plan for an employee to purchase a vehicle. i have advised against this but my client is insisting that the hardship is that the employee needs to get to work. has anyone ever heard of this before? also, you do withhold the 20% fed tax on hardships, correct?

thanks for any help...

Ok, I have a cross-tested profit sharing plan only.

A = Shareholders (1)

B = all others - NHCEs (3)

Client wants to make a $2,000 contribution only to the plan. However that does not pass top heavy, b/c it only comes to about .75% of compensation. However, would it pass the top heavy rules if I spread the $2,000 across Group B and gave nothing to Group A....the total contribution then is only 2% of compensation.

Any thoughts???

I always thought it had to be 3% regardless in order to pass top heavy, am I wrong here after all this.

The owner signed a letter saying he was resigning, did the paperwork to take out everything, profit sharing and deferrals, then came back to work the next day. He never missed a paycheck. He was age 55, he paid taxes and 10% surtax and spent the money (over $200,000).

It is a large Plan and the CPA wants to note this as a prohibited transaction on the audit they will file with the 5500. Is this required?

I do not have a copy of the document, but I think it did not allow in service withdrawels. Would it matter if it did, since deferrals and gains were taken too? (Not a hardship situation)

Would you note this on the 5500 any where?

Would you go to the IRS and file under one of the correction programs?

Would the IRS require him to pay it back?

Does anyone have any guess as to what penalties and costs might be?

Plan has 500,000 insurance policy. I have information on the "fund value" which is about $11k, but there is no "cash value" for another year. Is the "fund value" appropriate to show as a plan asset and use for valuation or is zero cash value?

Broker called to inform that a $160,000 bond had been called. This was part of reinvested ESOP proceeds to defer the gain as per Sec. 1042.

I have reviewed Code Sec. 1042 and cannot find an exception that will prevent the taxation of the disposition. Sec. 1042 does except the taxation of replacement property in the events of disposition at death, dispositions by gift, a reorganization under Code Sec. 368 and a subsequent sale of the replacement property to an ESOP.

Please note that he did not sell the bonds. They were called by the issuer. These bonds had an expected 20 year term I believe. So, there was the expected outcome of the bonds being taxable if there wasn't a death first, etc.

Does this become taxable event where the replacement securities are unilaterally disposed of by the issuer?

Does anyone know where I can get a copy of the new DOL rule regarding cashouts between $1000-5000? besides TAG?

The possible problem arrises if you for example change the fund mix in the balanced model and the participants are not given the opportunity to elect the revised version of the model (they would remain invested in the model). I am referring to a very subtle change from say 20% of one fund to 25% of the fund. does this violate the opportunity to excercise control requirement of the 404© regulations?

Loan Policy does not allow a class of participants to receive loans. A participant from this class accidentally received a loan in 2003. How is this corrected?

I am guessing we have to issue a 2003 1099-R for a deemed distribution. The participant is unable to pay back the entire amount of the loan (about $18,000) at this time, can he make payments on this deemed distribution? Also, he is under 59 1/2.

It seems unfair that the participant will face huge tax consequences because the plan, or TPA allowed the loan to be issued.

Company X and Y form a controlled group. Plan A is a tiered Profit Sharing Plan and covers employees of X. Plan B is a 401(k) Plan and covers employees of Y.

Plan A satisfies 410(b) with respect to the Profit Sharing Contribution with all employees of X not receiving a Profit Sharing Contribution.

For 401(a)(4) general test for Plan A, must the denominator of the rate group calculations include the employees of X even though they are not covered under the Plan?