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...

In the 5500 audit report the auditor reported that deferrals from payrolls on the 15th of the month weren't deposited until the final payroll of the month. They reported this as late deposits and calculated a representative amount of interest that the employer was to deposit for their "use of the funds". This was reported on Schedule H along with a 5330 filing.

Since we are 8 months into the new year do they have to make up the interest on the interest calculated to be deposited as well?

is anyone aware of an exemption to the 100 participant rule for simple plans if the sponsor is dissolving or winding down?

I am looking for survey data when a sponsor offers both a DC and a DB plan.

I am looking for:

What is the average match (in the DC plan) when a company also provides a DB benefit?

What is the average participation in a DC plan if the company also provides a DB benefit?

Anyone have any ideas where I can locate this data?

Thanks in advance........

I have a client that adopted a plan in 2001. The maximum tax-deductible contribution was $50,000. They contributed and deducted $60,000 for 2001. How does this effect the 2002 deductible amount. I am using Individual aggregate.

I think the extra $10,000 was a non-deductible contribution and they must pay a 10% excise tax. The 2002 asset value for 404 must be offset by the $10,000 non-deductible amount. The maximum tax-deductible contribution for 2002 will be reduced by the non-deductible carryover amount. Finally, they should amend their tax return for 2001.

Is this the way others handle this situation?

Has anyone had any experience--sounds good but would like some input

thanks -Karen

I am a little confused on how EGTRRA has changed the rules for rolling over IRA money into a qualified plan.

If a Plan uses the good faith EGTRRA amendment and allows rollovers from IRAs into the Plan this means that any traditional IRA can be rolled over, meaning that the IRA may consist of taxable earnings and previously taxed contributions? Does the Plan then have to account for these amounts separately?

If yes, let's say the Plan decides they do not want this extra administration, so they choose not to allow IRA rollovers, does this then negate the possibility of any type of conduit IRA rollover?

Also, if a Plan allows traditional IRA contributions to be rolled into the Plan, does the IRA money retain its IRA charectoristics, or does it take on the charactoristics of a qualified plan. For example, does the traditional IRA money lose the home buyer and education expense exceptions for distributions; can minimum distributions from the IRA money be delayed until after retirement; can loans be made against the rollover money?

Any insight into IRA rollovers would be appreciated.

Can I have 2 457 plans...a 457(b) and a 457(f) tophat plan? The participants in the 457(f) would not participate in the 457(b). Where can I find this in the regulations?

I've recently learned from a reliable source that the Service is backtracking somewhat on previous liberal rulings on employee elections to participate in pick-up arrangements.

The Service is now taking the position that a mandatory employee contribution that is picked up by the employer will not be valid under section 414(h)(2) if employees have a continuing right to elect participation in the plan receiving the pick-ups. Previous PLRs had approved pick-ups under plans that offered employees an election to participate as long as the election to participate was irrevocable. However, these rulings permitted employees who didn't at first elect to participate to make that election in future years.

Now it appears that failure to elect participation will be treated as an irrevocable election not to participate, although an employer may give employees 24 months to make a decision.

Perhaps this isn't news to others, but I was taken aback. Anyone else have experience with this issue?

I have a safe harbor plan that makes an additional profit sharing contribution. They are also top heavy. Can I have a 5 year cliff vesting schedule for the profit sharing piece, or do I need to have the graded vesting schedule?

Thanks