Plan X is a 401(k) plan allowing up to two loans to be outstanding at any time. P has two loans outstanding. P wants to pay off one of his loans and take a new loan. Following plan procedures, he requests a payoff amount and then sends a check to payoff the loan. P then requests a new loan. After the proceeds of the new loan are paid to him, P's check that paid off one of the previously outstanding loans bounced. Short of immediately taxing P on the new loan amount, are there any suggestions on how to correct this?

Until 1999, X maintained defined benefit plan M that permitted voluntary employee contributions. In 2001, X is taken over by Y. Effective January 1, 2004, Y wants to merge plan M into its defined benefit plan N, but not include the voluntary contribution portion of plan M. Can the voluntary contribution portion be spun off to a separate plan in connection with the plan merger? Can the voluntary contribution portion be spun off to Y's defined contribution plan O prior to the merger? What are the regulatory filing, notice requirements of such a spinoff? Are there any requirements that need to be taken into account if the voluntary contribution portion is spun off into Plan O (other than separately accounting for such portion)? Any thoughts, ideas, suggestions, would be greatly appreciated.

Can someone provide me with the exact Regulatory cite that says when an ADP failure is corrected by refunded excess deferrals that the match attributable to those deferrals is also forfeited? What if there is immediate vesting for matching contributions, do the Regs. trump this nonforfeitability and allow them to be forfeited?

All help is appreciated.

HELP! Client is a controlled group and does not file a consolidated return. One company is a management company and employs the two owners (the owners' W-2 compensation is paid by management company). Other company is the "productive" company employing all other employees (about 100 employees). The productive company has been making the contribution to the cross tested profit sharing plan and taking the deduction for the contribution. Obviously $80,000 of that contribution is deducted on the productive company's return, but the corresponding $400,000 of compensation is not on that return. Therefore, an agent could possibly look at the return and decide that the contribution is greater than the 25% of compensation deduction permitted because there would be no notice of the controlled group on the 1120S. Something about this does not seem right to me. It seems as if the IRS would have a problem with the productive corp (who has greater income) taking the full deduction on its return. However, I can not find any authority one way or the other (I want something to back up my conclusion when I decide to make an issue of this). Does anyone have any idea if this method of contributing to a plan and taking a full deduction is ok or wrong? Thanks.

I'm trying to file a final return for a MPP which held 2 insurance policies during the plan year. One of the policies was transferred to the PSP and the other was cashed in. Am I required to file a Schedule A for the final MPP 5500? Or do I just file a Schedule A for the PSP for the remaining policy?

Is it correct in saying that a participant can only defer on pay earned? I have someone who is receiving 80% of their pay from workers comp and the employer is paying the other 20%. Are they only eligible to defer on the 20%? Anyone know where I can find information regarding whether this can be done or not?

If employer sponsor is out of town this week, will the IRS accept a faxed copy of the signature pages along with the rest of the 5500 or is it tough luck?

I have an employer that has two locations (separate payrolls). They pay employees weekly, biweekly, bimonthly, monthly, and have special pays (bonuses, etc). All in all, each place runs payroll about 10 times per month.

They were depositing salary deferrals and match once per month. CPA auditor advised them they have to deposit just as they do withholding - within 3 days of each payroll. Now I am getting checks with a listing of a few names every few days for the employee deferral AND match. This is a pooled plan. One check I received was for $6.00. The monthly total is less than $10,000.

Question: Even though deposits are made throughout the month, can the splits and buys be done monthly as before?

It is my understanding that the DOL simply wants the employees funds segragated from the employer's general fund. I can not find any information regarding when buys must be done.

Kris

After coming up empty during 2002 in seeking bonding or restricted IRA solutions to the problem of paying a lump sum to Top 25 employees in a situation requiring restrictions, I was delighted to learn of #24 in the Q&A section of the 2003 EA Gray Book. The solution in the Gray Book seems both elegant and viable, in particular as it keeps the restricted funds in the very plan or trust to which they would need to be returned from a restricted IRA or other vehicle in the event of a financial meltdown of the sponsor and the plan.

My question at this point is, How many practitioners and companies are using this solution? Has it become a preferred solution, or are there sufficient unknowns about the approach to cause one to remain wary (keeping in mind that prospects for bonding or restricted IRAs seem no more positive in 2003 than they were last year)?

Second, if the retained lump sum solution is being used, is an amendment to the plan setting parameters--the earnings rate, for example--appropriate, or is a less formal approach being used?

Thanks to all. I know this has been a vexing problem to many service providers to medium-sized and small companies.

My experience is with DC plans so my knowledge with welfare benefits is limited.

My client offers the following benefits to their employees:

* GTL policy end 1/31 - over 100 participants

* STD policy end 7/31 - over 100 partic

* Community Blue HMO with KHPW policy end 12/31 - 75 partic

* Keystone HMO with KHPW policy end 12/31 - 34 partic

* Select Blue POS and drug plan with KHPW policy end 12/31 - 22 partic

Question: the prior administrator prepared a 5500 for the GTL as plan #502 and one for the STD as plan #503. They instructed the client that it was not necessary to prepare a return for the health insurance benefits since none of the policies exceed 100 participants. Is this correct? I've seen returns that combined all benefits even though the policy periods were different. Is there some reason why these benefits were not reported on one 5500 and given one plan number?

In reading the 5500 instructions, they say "except interests issued by a company registered under the investment Company Act of 1940 (e.g. a mutual fund). If a plan only invests in mutual funds would line 4i be "No" and no attached schedule is necessary? Plan auditor said to check "Yes" and wrote in "See plan audit".

In 2002 the trustee of the plan (also employer) substituted one mutual fund for another. This was over 5% of plan assets. This is also a pooled account. All participants in that fund had their plan balance transfer to the new fund. The auditor said that line 4j should be checked "no" as this is a self directed plan. It is only self directed in that the participants choose their split among the mutual funds offer by the plan. It was not the participants choice the change this fund. I was told to change schedule H line 4j to no and delete the Schedule of Reportable Transactions. I have read the 5500 instructions several times but it is not clear to me.

Thanks for any help!

I have a plan with no historical data except for the last few years. A participant is requesting a distribution but I do not have the basis for him. I am going to try to get the employer to try to find the basis for me. My guess is they are not going to have anything. What would be the process for paying this guy out without knowing the basis?

We have a client interested in adopting a Safe Harbor design (as provided by SBJPA) to avoid ADP and ACP testing. They would like to satisfy the Safe Harbor by making an enhanced matching contribution ($1.00 for each $1.00, up to 5% of compensation), which will be made after an employee achieves a year of service. Further, the client would like to allow employees to be immediately eligible to participate in 401(k) salary deferrals. I understand that this design will require ADP testing for the period when an employee does not have the right to receive the Safe Harbor matching contribution. However, I am unsure of how this testing would be performed. Would this testing be performed only for HCEs and NHCEs, who have less than 1 year of service? If so, is it correct that there would be no HCEs, as determined by prior year compensation, included in this testing (since this group would not have any prior year compensation)? It seems that this testing would always pass, unless the company’s ownership changes and there is a newly eligible HCE, as determined by 5% ownership. Am I correct?

I am sure this has been discussed, but please clarify for me. Can the 3% non-elective safe harbor contribution be used to satisfy the gateway. i.e., if I am giving 3% to NHCE's so the HC's can maximize their deferral and 2% profit sharing to the NHCE's for a total of 5% so the HC's can max out on the ps too.

Is this okay.

Also, what is your opinion about allowing an HC's to defer the max. in this situation, but not giving him a PS contribution. I have two owners and one very young son. Any profit sharing contribution I give to the son makes me fail the General Test. Corbel says it is okay to exclude him from the PS piece?

Your thoughts?

An ESOP was established August 1, 2002. 3 millions shares of stock were also issued in 2002. The problem is no one is eligible until the 2003 plan year. What is done with the stock, and how is this reported on the Form 5500?

I have a participant in a PS plan who currently has a loan. She is wanting to take out a new loan and pay the current loan off. The plan allows this.

From my calculations, she does not have enough money in her PS account to get a new loan. Can someone please recheck my figures and see if I am doing something wrong?

Profit Sharing Balance 9/30/03 is $16,960.45.

1/2 of Balance is $8,480.23.

Highest Loan Balance in past 12 months is $5,855.61.

Current Loan Blance is $4,776.98.

Thanks in advance for your help.

At what point does a premium onlyp plan with more than 100 participants become required to file Schedule A for the insurance it offers in the plan? We have several clients who used to file Schedule F under the old rules but now no filing is required since the requirement for Schedule F was suspended. Some clients are questioning the Schedule A filing requirement. What is the difference? Please help.

Two LLC's are owned as follows by W, X, Y, and Z (all unrelated adults). Are they a brother-sister controlled group?

Since Y and Z have no interest in LLC-B, it wd appear that the more than 50% rule is not met and they are not controlled under Section 1563. Does anyone agree or disagree?

Individuals.....................LLC-A.................LLC-B

W .......................................25%.................. 50%

X .......................................25%.................. 50%

Y .......................................25%

Z .......................................25%

Employer elects to terminate two different types of retiree group medical plan:

1) an early retiree medical plan that offered the same coverage as was available to actively employed employees; and

2) a Medigap plan available only to retirees who were enrolled in Medicare Part A & B.

Employer never offered COBRA to employees transitioning to these plans.

Employer is now terminating both plans effective next year and intends to offer COBRA to those former employees (and dependents) who are enrolled in the early retiree plan. (Even though Treas. Reg. Sec. 54-4980B-4, Question 1, Ex. 5 only appears to require COBRA be offered to qual. beneficiaries whose 18 month period of coverage did not expire under the employer's alternate coverage).

But for those in the Medigap plan, isn't COBRA available only to the spouses and dependents of the Medigap plan participants, upon plan termination?