Stan P/S Plan. Corp has 4/25 fiscal year. Plan is 12/31. Corp makes deduction for corp fiscal year 4/25/04 in July, 2004 for the Plan Yr ending 12-31 04 (per Code Sec. 404(a)(3)).

Plan uses fiscal year for compensation. May a date other than 12/31/04 be used as the allocation date (such as corp fiscal year-end of 4/25/04, or 12/31/03)?

The question arises because the client does not want to wait for 6 months to make the allocation.

In a partnership where the % ownership is different for Profit and Capital which % do you use for determining your key employee status?

May a qualified beneficiary (the mother) who had family coverage under an employer health plan elect COBRA coverage as a result of the employee's (the father) termination of employment and add a dependent (a baby born in November, 2003) that the father forgot to add either during the HIPAA special enrollment period or during the open enrollment period? The mother currently is covered under the employee's family coverage, as is the couple's first child. The second child (unfortunately) is not currently covered.

I think the answer is NO, until the next open enrollment comes around.

The plan permits enrollment of a new child (retroactive to the date of birth) in accordance with HIPAA and permits change of status elections within 30 days of the change of status. The question is whether the employee's voluntary termination of employment constitutes a change of status that would permit the mother to elect family coverage for everyone (no difference in cost and no difference in family coverage for three or more family members).

We are considering items like free cholesterol screening, free programs like weight loss, smoking cessation, perhaps premium discounts for trying these programs. Is this covered by ERISA? Do we need a 5500?

Besides the usual answer "Because its the IRS"

under what conditions does the following instruction apply:

This is for the 5500 count, lines 6 and 7 definition of participant

1. Active participants.....the last line says

(b) former employees who have received a "cash-out" distribution...

now, much less why a former employee would be considered an active employee is beyond me.

item 3 is for 'other retired or seperated employees entitled to future benefits'

a cashed out ee is not entitled to future benefits

so under what condition would someone even try to include someone who was cashed out?

I retired on 1/2/04 from the federal government on an early-out, buy-out. Can I contribute to an IRA in 2004 using the buy-out money? Can I use that money to contribute to future years' IRAs? Can I use the money I received for my annual leave payment for IRAs? Thanks

If a client sets up a Safe Harbor 401(k) using the 4% match formula for 2005, both the acp/adp tests are passed, correct? Example- 2 owners 10 particpants. Owners defer and one participant defers. If the 4% match is given, auto passage of both the adp and acp test, right?

Let's say that the employer has been rolling FSA forfeitures from year to year, and now has a significant amount in the account ($100,000 +).

Can the employer take those funds, and move them into general assets, even though the Plan has not been terminated?

I know the reason behind sending 2004 1099's for excesses done before 3/15 for the 2003 plan year.

But does anyone have anything wriiten they might send to their clients explaining this? I've explained it to the Plan Administrators and a few HCE's, but I'm having trouble composing a written answer. My letters are either too lengthy and technical or too short and vague. I'm trying to find a happy medium.

Any help would be appreciated.

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