I am a TPA who has never dealt with FSA claims under COBRA. My questions are if an employee elects to have his FSA under COBRA when they are terminated what is the claims cut off date? The date of termination or the end of the plan year? Can they continue to elect FSA in the new year? Also do you have to charge the 2% fee and if yes does this become part of the annual election or is it treated as a separate item.

Doing a (late) audit for a Company Division Plan from 2001 which merged into the Parent Company Plan at the end of 2001. In doing testing, a number of loans were discovered that were in default, but had never been given 1099s (due to significant personnel turnover and poor controls). Further, a number of these loans were not reported to the successor Parent Company Plan (loans were tracked separately from the remainder of Plan assets).

A few questions or requests for opinions:

1) In preparing the "final" 2001 audit report for the Division Plan (which would have a zero balance), how would you treat the defaulted loans that were not reported to the Successor Plan?

With the benefit of hindsight, would I show this as a transfer to the Successor Plan, and then inform the Successor Plan trustee so they could issue 1099s (showing as a withdrawal from the successor plan)?

I don't think I could show this as a distribution from the Division Plan since 1099s were never issued. Am I wrong on this?

2) Since the 1099s would be issued so late (many loans have not had repayments in over 2 years), would there be any penalties to the Plan Sponsor?

Any thoughts would be greatly appreciated.

Is there a notice that we have to give to employees (other than a SMM) if we are reducing their match to mirror another plan in our controlled group? I'm trying to figure out if we could accomplish this by the end of the year.

DB plan provides for unreduced disability provision if participant has 15 YOS.

Plan is frozen. Must participants be allowed to "grow into" the 15 YOS or can service be frozen for this purpose?

We have understood that an employer could hire someone and, to support the ‘recruiting package’ could offer that specific person accelerated eligibility for the retirement plan, since a new employee (unless he/she owned more than 5%) could never be an HCE in the first year so there is no discrimination. I’ve seen articles about this in the past but can’t put my hands on one now to answer questions from an attorney who is asking for the legal authority to do that. Has anyone out there heard of this technique and, if so, have you got something specific I can hang my hat on?

Can anyone please clarify the correction methodology and timing? I realize that a failed test c/n/b corrected after year end, and that all deferrals become taxable to the HCE's. That's fine.

My question is the option one may have for correction < year end. Can you simply impute enough W-2 income as needed to pass the test (a much better solution)? If so, where does it say that you can do this? If this is true, this method appears at odds with the first, i.e., how would anyone know if you "ran the tests" on 12/29/03 or 1/3/04?

Sorry I am so confused!!

Assuming the employee retired and has a 401(k) account, can the RMD be satisfied by after-tax monies? Would the answer be the same if the monies were in an IRA that had pre and post tax monies?

We have a client that will be filing as a corporation next year. They have a Profit Sharing Plan (calendar year). What do we need to do in order to make sure the IRS/DOL are informed that the Plan's sponsor has changed from a sole proprietor to a corporation? The plan is a one-man plan with less than $100,000 in assets, so we haven't been filing a 5500. Do we need to amend the plan? Or would a corp resolution adopting the plan suffice.

Any guidance would be appreciated.

Thanks

Does anyone know if Sec 125 payroll deductions withheld by the employer in error and then deposited to a trust are prohibited from being returned to the employee?

The deductions were for dependent care expenses under a flexible spending account.

I have seen a blurb regarding "new rules for 2004" that pertain to plan loans. Can anyone shed light on this for me? What new rules? Thanks.

Linda Michals

We administer a (non-PBGC) 20 participant DB that provides a lump sum and installment payments from the plan as optional forms of Benefit.

Our concern is that the plan will terminate soon, optional forms of benefit cannot be eliminated per 411(d)(6), an therefore we cannot eliminate installment payments from the plan. What happens if a participant has 20 years to NRA and chooses the installments? Does that mean the plan must be maintained for 20 years after termination?

Has anyone run into this?

Thanks.

I am working an a 401(k) plan that has 21 & 1 month for (k) eligibility and 21 & 2 years for (m) eligibility. For purposes of determining otherwise excludable, can I use the earlier of 6 months or first of next plan year following 21&2 or do I still have to use 21&1? I can see having to use 21&1 for ADP, but it seems that I could use 21&2 for ACP OE.

Reg 1.410(b)-7©(3) says to use "...the greatest minimum age and service conditions permitted under section 410(a)..." which leads me to believe that 21&2 is OK for ACP OE. Am I correct on this? If not, can you please provide a cite that prohibits it?

Thanks!

Does anyone know if the Puerto Rico deferral limit of the lesser of $8,000 or 10% has increased for 2004?

Lasik surgery is a reimbursable pre-tax expense under the Section 125 Cafeteria Plan; however, if the surgery is preformed outside of the United State, in another country, is it still a reimbursable expense?

Hello,

I was hoping to get some thoughts on the following scenario:

A cross tested profit sharing plan's eligibility requirements are 1 year of service, 1000 hours of service and monthly entry. The plan year runs 11/1 to 10/31. The Plan also requires 1000 hours and employment on the last day of the plan year to receive an allocation.

The Plan is Top Heavy. The Plan uses compensation from date of participation for allocation purposes.

An employee is hired 9/25/2002. On 7/1/2003 they receive an unpaid leave of absence for surgery and do not return to work until November, after the plan year has ended. They did earn 1000 hours of service from 9/25/2002 to 6/30/2003.

Their plan entry date is 10/1/2003. Due to the leave of absence they do not have any compensation from date of participation.

First question is, if the employee is on an unpaid leave on their plan entry date, do they still become a participant in the plan?

Second question, if they are considered an employee for plan entry than is it logical to assume that they are an employee for the last day requirement and thus are eligible for an allocation?

Third question, if questions one and two are true, and the participant has no comp from date of entry, and the Plan is Top Heavy, are they due a top heavy contribution?

Finally, for nondiscrimination testing, if provided a top heavy contribution, how is the allocation percentage calculated if 414 comp (from date of participation) is 0?

Sorry for the length of the question, and thanks for any help.

I am 56 y/o. Can roll over into a Roth IRA? Is it wiser than an IRA. Layed off a year ago. Working on a contractor basis now. Retirement horizon is 60. Recommendations?

Is it sufficient for a determination letter request to be in the mail on January 31, 2004 to satisfy the extended GUST RAP deadline?

We administer a cross-tested 401(k) plan that will fail the ADP test. The employer may want to provide a 2% QNEC to all NHCE's to pass the ADP test. Can the QNEC be considered in meeting the 5% minimum gateway? Is the QNEC considered for purposes of passing the rate group portion of the 401(a)(4) test?

Thanks.

I have asked the question several times of the IRS and retirement specialists at a large brokerage firm if individual partners can open up their own SEP. Three partners with no employees. One wants to make a contribution at the 20% level, one at 10% and one doesn't want to contribute at all. I've been told that since they have no employees and their income flows to their 1040, they could each establish their own SEP IRA and determine their own contribution percentages. However, once they get one employee then they would all have to contribute at the same percentages (abide by one plan document instead of three).

I'm very frustrated. After a few searches on this board I've seen this question asked several times and the answer has always been "no". I'm wondering, are there special circumstances, that would allow individual partners to have their own SEP IRA.

Also, does anyone know of any revenue rulings or regulations/guidance that discuss this issue in more detail.

Thanks in advance.

A plan has provided for a contribution of 100,000 to an older owner in a cash balance. The owner is past normal retirement age at the end of the first plan year. The conversion of this contribution into an accrued benefit should be:

a Contribution divided by an APR at 66 (current age)

b Greater of prior accrued benefit actuarially increased or (a)

This particular plan is easy because it is the first year and the beginning balance was zero.

The normal accrual rate can now be determined as the benefit divided by compensation.

What about the most valuable accrual rate for this individual working past NRD??

Must the balance be converted to a J&S at plan rates and converted back using testing assumptions (like a normal person) OR can the most valuable rate equal the normal accrual rate for a person past NRD.

Thanks for any and all comments.