A principal for a vocational not-for-profit school had a 401(k) which has been terminated and now the school wants to start a 403(b). The principal gets paid by the school and the principal also set up a management corp to manage some of the schools activities, for which the school pays his company. I think the management corp does sales, advertising, etc. He wants to set up a 401(k) in the management co. I think his management company is a B-Org, thus they would be an ASG.

Is it permisable to limit the maximum loan from a PSP to an amount less than 1/2 vested benefits (or $50,000)? I have a client that wants to limit the max. loan amount to the lesser of 50% of employee deferrals or $10,000. As long as I'm not tying the max loan amount to a percentage of compensation I don't see why this wouldn't be allowed but haven't found any regs to validate my thoughts. Any help would be appreciated.

if i want to use top 20% paid group, how do i handle owners by attribution? i think when using this election you have to automatically include 5% owners regardless of comp. but does that include 2 sons that are only owners by attribution?

thanks for any help....

A company wishes to make their annual pension plan contribution (DB or DC, does not matter for the example) with appreciated property. I know that for purposes of the contribution, the property is transferred into the plan at fair value; however, how does the appreciation of the property (for example, a $10,000 piece of property gets "contributed" to the plan at a time when its fair value is $40,000) get handled? Is it taxable at the company level?

Thanks for any replies.

If an employee leaves a company because they are called to serve in the armed forces are they still an employee of the company (for qualified plan purposes) while serving? Don't you have to be "employed by the employer" to be an employee?

The company policy is to continue to pay their salary, but should the company continue to contribute to the 401(k) account? (the employee was actively contributing to the 401(k) before leaving)

If they are not an employee, and I withhold and contribute 401(k) contributions on the their behalf is it violation of the exclusive benefit rule?

I contacted the local veterans office and was told that the employee who left to serve is still an employee and the company should continue to withhold and match accordingly. She could not provide specific guidance so I am a bit leary of her response.

Any help would be greatly appreciated.

I think this can be done - please advise if you think this is incorrect:

Business owner is incorporated and pays himself a paycheck. He makes a $3,000 Trad IRA contribution for tax year 2003. During 2003 he establishes SIMPLE IRA for his business.

He would like to recharacterize his 2003 Trad IRA contribution into SIMPLE IRA before the end of the tax year.

I think he can do it - the key to the correction would be that he runs the correction through his payroll records. This would involve including the $3,000 in his payroll income, paying FICA/FUTA and proper inclusion on box 12 of the W-2.

On the financial institution's side (we hold both accounts), the Trad IRA would issue a 1099R showing a current year recharacterization, and the SIMPLE IRA 5498 would report the receipt of the rechar contribution.

Does anyone have any information which would indicate that this is not allowable under the tax code?

I have a 83 yo owner who needs to take a RMD, and her son, born in 1944 is the beneficiary (spouse has waived his rights). The Relius program is caculating her RMD based on the Uniform table, and not the Joint table (Table VI). I know she will questions this - is this correct? I thought we could use the Joint Life table in a case like this.

Any thoughts on this? Thanks for your help!

Do Employer Sponsored 403(b) Plans need to be amended by the end of the 2003 plan year for the final 401(a)(9) Regs?

A new client is trying to establish a 457 plan. The sponsor started withholding deferrals before even signing the plan document (which hasn't been done yet) and has been holding the withheld deferrals in its general account.

How do you fix that problem?

Form 5307 #2 asks for the person to contact if more information is needed. Instructions to the form indicate that the person listed will get copies of all correspondence. Does this mean that if question 2 on Form 5307 is completed, there is no reason to do the 2848 anymore? Thanks for all help!

Facts:

At plan year end the only asset of an ESOP plan is the employer stock. During the plan year, the ER loaned the plan $ to pay plan benefits. I am showing net assets of the plan as the market value of the employer stock reduced by the loan.

I'm not sure how to show this in my recordkeeping system. I'm thinking that I need to show negative cash in the participant accounts in my recordkeeping system.

Am I on the right track?

Issue 1:

I would like to know if anyone has any experience dealing with net earned income calculations for large partnerships that have numerous partners that extend their personal tax filings.

As a result of the tax filing extensions, the amount of unreimbursed partnership expenses claimed by some partners is not available in some cases until very late in the year. Since these deductions are taken into account by Schedule SE before calculating the 1/2 self employment tax deduction, the whole NEI process appears to be stalled -- which in turn delays the contribution allocation and testing. This delay in the contribution determination then causes complaints by the partners that do want to file their returns early.

Assume that there are partners that make under the compensation cap and that there is not a single accountant that prepares all the personal tax returns for the partners as well as the Form 1065 filing for the partnership.

Does anybody have a workaround methodology that somehow sidesteps this unreimbursed partnership expense issue that has been reviewed by the IRS?

Issue 2:

What is the proper way to allocate a defined benefit plan contribution deduction to the individual partners. Based on the following sections taken from Sal Tripodi's ERISA Outline Book., there seems to be some issues that will need to be considered to properly make this allocation. It seems as though there is no common-law employee contribution deduction, and the entire contribution to the defined benefit plan is allocated to the partners based on the same proportion as the partners' profits interests, regardless of whether the contributions are made to fund benefits for the common law employees or the partners (even though some partners may be older than the others and more of the contribution costs are needed to fund these partners' benefits).

The author of the FSA referenced by Sal analyzes Treasury Reg. section 1.404(e)-1A(f)(2) which was promulgated under a Code subsection that was repealed by TEFRA. However, since the subsection did not specifically address allocations the FSA author concludes that the rationale remains applicable. Treasury Reg. section 1.404(e)-1(e), effective for tax years prior to 1974, was the operative regulation for partnership allocations of partner’s retirement plan deductions without distinguishing between defined contribution or defined benefit plan contributions. Treasury Reg. section 1.404(e)-1(e) is substantially similar to Treasury Reg. section 1.404(e)-1A(f)(1) which is effective for tax years after 1973 but with specific reference to defined contribution plan deductions. Treasury Reg. section 1.404(e)-1A(f)(2) was added specifically addressing defined benefit plan contribution allocations to partners.

Treasury Reg.1.404(e)-1A(f)(2) provides in part:

In the case of a defined benefit plan, a partner’s distributive share of contributions on behalf of self-employed individuals and his distributive share of deductions allowed the partnership under section 404 for such contributions is determined in the same manner as his distributive share of partnership taxable income….

Except for the applicability of this regulation, the general statutory scheme of IRC 704 would allow for the partnership agreement to be drafted to try and make the economics of funding a defined benefit plan deduction match the allocated cost of the defined benefit plan for that partner. The FSA author also concludes that the defined contribution plan deduction for all partners should be shared by all partners in accordance with their interests in the partnership. However, this interpretation conflicts with Treasury Reg. 1.404(e)-1A(f)(1).

Considering the plain language of Treasury Reg. 1.404(e)-1A(f)(2) requiring defined benefit plan deductions to be allocated consistent with the partner’s computation of his distributive share of partnership taxable income, is there a way around this requirement to allow for matching the partner’s defined benefit plan deduction with his economic cost?

I am unemployed. I have never been employed. I live off of inheritance funds. I have my own individual medical insurance policy. I am 35 years old. I personally pay my medical insurance premiums each month. In other words, my coverage is not through an employer sponsored group plan.

I realize that I have no rights under ERISA. But do I have any rights under HIPPA ?

I realize that my medical providers and insurance company must obey the HIPPA confidentially rules regarding how my private medical records are handled. But what about stuff like the HIPPA "no more than one-year waiting period for preexisting condition" and "new born & maturinity rules" ? ...... even though I am not a participant in a group medical plan, don't these kind of HIPPA rules apply to my insurance coverage also ?

I apologize for the simple questions, hopefully one of you guys can help me out.

I'm new to Roth IRA and after reading some of the material on your website, I'm very interested in starting a RothIRA acct.

My question is, does it matter where I start the account? Is there a place that is more preferrable than another? I have a 401k acct with fidelity benefits, should I check with them?

thanks in advance! p

We had an existing PS plan (effective '90) that we restated 1/1/03 and added the 401(k) language. Can I use the 3% rule (average deferral for NHCEs) and let the HCE's put in 5%? Or does this rule only apply to brand new plans?

Thank you for any input.

401k and other defined contribution providers have worked long and hard to have participants on a level playing field with other investors. That is, daily transactions are allowed to be submitted to recordkeepers and other intermediaries up to the 4:00 p.m. stock market close.

SEC Chairman Donaldson is going to propose a "hard" 4:00 p.m. close for orders to be at the mutual fund, not the intermediary. I have written the following e-mail to the Chairman. I hope many of you do the same.

From: "jim geld" <four01kman@yahoo.com>

Subject: Late Trading of Mutual Funds

To: chairmanoffice@sec.gov

CC: tim@camasinc.com

Chairman Donaldson,

It has been reported today that you are looking to create a "hard" 4:00 p.m. close for mutual fund trading. This will cause a tremendous amount of hardship for the millions of participants in 401k and other defined contribution plans that allow for "daily" transfers among plan investment choices.

The trading and administrative systems currently in place for 401k and other defined contribution plans allow for the transmittal of orders (changes in their plan investment choices) from participants to their recordkeepers as late as 4:00 p.m. The recordkeepers then transmit the orders from all their clients to their bank, brokerage firm or other intermediary, who in turn transmit the orders in bulk to the mutual funds. These bulk orders may not be transmitted to the mutual funds until well in the evening.

In turn, the mutual funds then process the orders (buys and sells) and transmit the confirmations to the intermediary, brokerage firm or bank, who then transmits the details to the plan's recordkeeper. These details generally are transmitted to the recordkeepers early the day after the effective date of the trade, for posting on the recordkeeper's website.

To change to a "hard" 4:00 p.m. close for orders at the mutual fund will mean changing a system that has been in place for over 10 years without any violations, to the best of my knowledge. It is clear to me an exception should be carved out for participants in 401k and other defined contribution plans to continue allowing current practices to remain in place. If no exception is made, the communications efforts to inform plan participants of the changes and the software and procedural changes among the service providers would cause the unnecessary expenditure of millions of dollars.

I would be pleased to talk with anyone you choose to elaborate on this topic.

Sincerely,

James Geld

Based on the following in preamble to the proposed 457 regulations, I conclude that 457 plans need not be amended by 12/31/03 for EGTRRA and the final 457 regulations:

"Plan amendments to reflect EGTRRA, and any other requirement under these regulations, are not requried to be adopted until the later of when guidance is issued addressing when plan admendments must be adopted or the date final regulations are issued." 67 Federal Register at 30831 (5/8/02).

Any votes to the contrary?

I have an employer whose practice has ceased operations in order to dissolve. All employees and operations are terminated other than the owner/shareholder. The company is still in legal existence although the only operation still happening in existence is the collection of A/R. Does anyone know of guidance that would suggest the plan terminates when the practice theoretically ceased operations?

98-1 discussed the first plan year and states that if a plan (other than a successor plan) uses the prior year testing method and for its first plan year the plan determines the ADP or ACP for NHCEs for the prior plan year using the ADP or ACP for NHCEs for that first plan year (in lieu of 3%), then the use of the prior year testing method in the next testing year is not treated as a change in testing method.

my plan has checked off current year election for the first year. However, they will be using 401(k)(3)(E) which provides that, for the first plan year of any plan (other than a successor plan) that uses the prior year testing method, the ADP for NHCEs for the prior year is 3%, or, if the employer elects, is the ADP for NHCEs for that first plan year. in the second year they will use current year testing.

am i operating correctly under 98-1 or should my plan have elected the prior year method for year 1 to be consistant?

I have a 401(k) Profit Sharing Plan that has recently been made aware of $8,000 that has been in a "side" account since 1997. For whatever reason, nobody was aware of this asset until just recently. The question is...do we need to go back and allocate it to eligible participants in April 1997 or can we just allocate it as gains now? This was money that was trustee directed profit sharing asset.

Any thoughts would be much appreciated!!