I have a profit sharing plan that is adding a 401(k) feature effective 10/1. It is my understanding that this can be based on the full plan year's compensation. The attorney is disagreeing with me. Can someone provide me with a cite or tell me I am wrong?

Is a Trustee required on a 403(b) Plan?

Scenario: An employee is enrolled in a GTLI Plan which covers the employee only. Usually the amount of excess coverage over $50,000 gives rise to imputed income which needs to be added to taxable income. I have read, but been unable to verify, that when the employee is disabled, the amount of coverage that goes toward the calculation of imputed income is zero for the period of disability.

I have also read that the value of the excess over $50,000 of GTLI coverage is not taxable to a retired or terminated employee. The reference led to another section of the reg. specifically 1.79(b)(2), which discusses the exception to the rule of inclusion. Unfortunately, this discussion does not pertain to the reporting of GTLI by the employer, but rather the requirements an EMPLOYEE must undertake to delete the added income when filing his personal income tax return.

My question is whether disability is an exception to the application of imputed income and whether there is a qualification on the disability, such as it must be total disability. Any reference source would be appreciated. Thanks.

Can we do this.

We have a full-flex benefit plan (cafeteria - flex-credits) for health and dental insurance, health FSA and Dependent care FSA.

Right now we operate the plan so that upon a change in employment status (change-in-status), the employee may modify his/her election consistent with that change.

Here's the question, the CEO now wants to modify the plan so that the insurance premiums will remain paid on the employee until the end of the month regardless of when the change in status happens. If the employee terminates late in the month (last week) this is not much of an issue (but could be). However, if the employee terminates employment during the first week of the month - he/she would receive coverage until the end of the month (under the CEO's idea), but how would we work out the flex-credit issues? Would we have to have the employer pay the additional premium or could we limit the change-in-status until after the end of the month - or is there some other option that isn't coming to me right now?

In a fully insured situation, does the Group Contract and/or Benefits Booklet issued by the provider work as the plan document? If not, can an spd be utilized as both the plan document and spd to meet the requirements of ERISA or is it best to keep the plan doc and spd as separate documents. Can you point me to an example of fully insured plan docs?

Thank you in advance for your help.

Employer X maintains a qualified 401(k) that permits in-service withdrawals of elective deferrals under the safe-harbor hardship withdrawal rules. During 2003, Participant A makes a hardship withdrawal. Participant A also has exercisable shares under the X nonqualified stock option plan. For purposes of the 6-month suspension, since no contributions are made to the stock option plan, does this mean that A is precluded from exercising his or her options during the 6-month suspension period?

A small-town prosecutor called his first witness to the stand: a grandmotherly, elderly woman.

He approached her and asked, "Mrs. Jones, do you know me?"

She responded, "Why yes, I do know you, Mr. Williams. I've known you since you were a young boy. And frankly, you've been a big disappointment to me. You lie, you cheat on your wife, you manipulate people and talk about them behind their backs. You think you're a rising big shot when you haven't the brains to realize you will never amount to anything more than a two-bit paper pusher. Yes, I know you."

The lawyer was stunned. Not knowing what else to do, he pointed across the room and asked, "Mrs. Williams, do you know the defense attorney?"

She replied, "Why, yes I do. I've known Mr. Bradley since he was a youngster, too. I used to babysit him for his parents. And he, too, has been a real disappointment to me. He's lazy, racist, and he has a drinking problem. The man can't build a normal relationship with anyone, and his law practice is one of the shoddiest in the entire state. Yes, I know him."

At this point, the judge rapped the courtroom to silence and called both counselors to the bench.

In a very quiet voice, he threatened, "If either of you asks her if she knows me, you'll be jailed for contempt!"

I would appreciate any thoughts on the following. We are preparing to terminate a 401(k) and Profit Sharing Plan that imposes a 1,000 Hour and Last Day requirement in order for participants to receive profit sharing and other benefit accruals. The Plan operates on a calendar plan year and will likely be terminated effective September 30, 2003. Plan will not have any profit sharing amounts this year but will have some forfeiture amounts which are also subject to the 1,000 Hour requirement. Plan essentially provides for immediate eligibility so there are new participants in the Plan that have recently started work and will not have 1,000 Hours upon termination. Some but not all of these new participants would likely have 1,000 Hours by December 31 and thus would share in the regular allocation of forfeitures if the Plan were not terminated. Is it appropriate and/or is there any regulatory authority for prorating the 1,000 Hour requirement for benefit accrual purposes in such a situation so that any participant with say 750 hours at the time of termination (i.e., the plan will have been operated for 9 out of 12 months thus 9/12 X 1000 hours = 750 hours) would receive a forfeiture allocation? Would some different prorated allocation formula be appropriate? Based on a quick glance so far, I note that DOL Reg. § 2530.204-2©(2)© provides that a Plan is not required to take a 12 month period into account for benefit accrual purposes during which an employee has less than 1,000 hours of service. However, given the 100% vesting requirements in plan termination situations, it seems only fair that the 1,000 Hour requirement should some how be prorated but I have not yet found any regulations directly addressing this issue. Thanks in advance for any thoughts.

A plan sponsor filed a 5500 (small plan) 28 days late on Feb 28, 2003 (due Jan 31). They have now received a late notice penalty letter from IRS for $700.

We are inclined to to file amended return and check off "filling under..DFVC program". This, according to Corbel, will negate the IRS penalty and subject the plan sponsor to the DOL $10 per day penalty up to $750 max.

However, to what date do we count as the late filing for calculation of the penalty? The date the 5500 was originally filed (Feb 28) or the date the amended return is filed?

A client recently underwent an audit. Two of the major concerns with the IRS agent (who appears to be an "old-timer") were:

1) The plan was adopted/executed in October and had a retroactive effective date of the prior November 1st.

2) Contributions made after the end of the plan year (but before the extended due date of the corporate return) were deducted for that plan year.

The second part should be fairly easy to resolve using Section 404(a)(6). I am having trouble finding an applicable citation for the first issue. I have reread several topics that address the issue of a new business entity set up mid-calendar year and IRS spokespersons opining that a 1/1 effective date is OK, but none of these provide a source. Any help or suggestions would be appreciated immensely.

Needless to say, I am somewhat flabbergasted.

I wanted to post this for anyone out there who thinks us experienced "pensioners" can't get boggled by something easy...

I have a client with two employees who were HCEs in 2002 (by their comp in 2001; both made somewhere in the $90,000 range - over the $85,000 limit). In 2002, these participants both made EXACTLY $90,000. I was preparing the June 30th, 2003 semi-annual valuation report. (I always run prelimiinary ADP/ACP tests on clients with testing issues to get an idea where the Plan stands.) Lo & behold, my Relius software knew, but I wasn't thinking, that the definition states (see below)"...compensation from the employer IN EXCESS of $80,000..." (indexed, of course). Well, the software had moved these gentlemen into the non-highly compensated category for my preliminary 2003 testing. Imagine my frustration thinking that the software was doing things it shouldn't and affecting my testing!!!!! Until I checked the code carefully, I couldn't imagine what could be happening. Wording can be everything

DIRECT FROM THE CODE:

The term "highly compensated employee'' means any employee

who--

(A) was a 5-percent owner at any time during the year or the

preceding year, or

(B) for the preceding year--

(i) had compensation from the employer in excess of

$80,000, and

(ii) if the employer elects the application of this

clause for such preceding year, was in the top-paid group of

employees for such preceding year.

Hope someone can get a chuckle.............

For large plan participant count purposes, are number of participants in a medical spending account based on the number eligible to participate or the number participating in the plan (had at least $1 excluded from gross income).

Number example: 1000 eligible employees, 50 employees elect to have salary reduced for medical expense reimbursement. Is a 5500 required to be filed?

As always, appreciate your comments. Thanks

Does anyone know of a good software that implements the FlexCards? We are looking at making the FlexCards an option for our clients, but are needing to find software in order to make it happen.

Does anyone know of a good resource that compares state health care continuation laws vs. COBRA. (Preferably free.) Thanks!

The CPA found, through late bank reconciliations, that two payroll run deposits for 401k deferrals did not clear the bank. Don't know if they got lost in mail or what, but investment company did not receive. The first was 2-28-03 and the second was 3-14-03, both were caught and resent - clearing the bank by 4-24-03. Plan year ended 3-31-03.

I believe these are prohibited transactions, and as such we need a 5330. Do we describe this as late deposits or as a loan? Seems like if it is a loan, we have to do this again for the next plan year also...?

Please advise.

1) What is the current 6621(a)(2) underpayment tax rate to be used for calculating interest on late employee salary deferral contributions.

2) Must the VCR program(s) be used, or can the client discretely make all of the necessary corrections?

Is there any requirement under federal law that employers must give employees at least 30 days advance notice of a premium increase for health or dental plans? I have an employer who only notified employees last week of rate increases for September 1, 2003. An employee says under the law they are required to receive 30 days advance notice.

Not sure where to post this, so I'm starting here...

Employee of PEO terminates employment and goes to work for Client Organization of PEO (who sponsors their own plan). Is this considered a distributable event - where the employee can take a lump sum cash distribution from the PEO 401(k) Plan? My confusion comes in where an employee who has worked for multiple Client Organizations of the PEO - you count all years of service. I'm not sure if this works the same and the employee is still considered employed - therefore, there is not a distributable event.

Any ideas of where else I can look are greatly appreciated.

Employer wants to increase the deductible in its group health plan from $500 to $1,000. The employer, however, wants to provide employees with an additional $500 non-elective contribution in their FSA but designate that this employer contribuiton can only be used for medical expenses that are included in the deductible after an employee satisifes the first $500 of the deductible. The FSA will remain the same for employee contributions--it can be used for any Section 213 expenses.

The 125 Plan TPA is saying that this cannot be done within a single FSA. Does anyone know of a reason an FSA could not be structured this way.

(We considered a HRA, but it seems silly to have 2 plans rather than one especially if the employer is not going to allow a carry over from year to year of the employer contribution Also, you don't get the limited scope COBRA rule for the HRA)

A TPA just told me that all trades are executed on a shares certain basis. If there is a trading error related to the deposit being a day or two late for whatever reason, then the TPA needs to ensure that the right number of shares is deposited to the account. Therefore if the price of the fund decreased, the TPA can keep the extra money, and if the price increases, the TPA needs to make up the difference.

Per the TPA this is very isolated (a few times a year). HAs anyone seen or heard of this? Is this a common policy? They made it sound like everyone does it...