I have a potential client who has an existing discretionary profit sharing plan (restated 03/2002) with 1 HC and 14 NHCs, and offering life insurance to participants. The plan's annuity contract is not a group annuity but a single annuity where the HC is the annuitant. The annuity is held in an SEP IRA in the PSP's custodial account.

Question 1: Shouldn't the annuity be a group annuity instead of a single?

Question 2: Shouldn't the PSP's custodial account not contain an SEP IRA?

I could really use any applicable citations if any are available.

Thank you.

Hi all.

We have a participant that is requesting a combination payment of his ESOP - rollover & direct pay.

Question is he has both pre-1987 and post 1986 shares. As you can image, the cost basis for the shares pre-1987 is lower.

Which shares should be used on the direct pay? Is there a standard way of issuing shares? FIFO, LIFO?

Thanks.

I converted 4 traditional IRA’s to Roth IRA’s in 1998. I would now like to consolidate the four into one Roth IRA. As far as I know this is not an issue.

Once the consolidation has been completed, though, I would like to begin making annual contributions. Can someone please explain to me the contributory rules for converted Roth IRA’s. I don’t plan to take any distributions from this IRA until retirement, which is 30 years in the future. Thanks for the reply!

I know the safe harbor reasons for taking hardship distributions from a plan. Can I get some opinions on stretching the meaning of "the purchase of a principal residence" to "buying land for the principal residence" instead?

We have a situation where after 16 years of covering an employee it was determined by an independent auditor that the person was never eligible to receive benefits under the health plan. This person has since terminated employment and wants to elect COBRA. Are we now estopped from refusing to offer COBRA to this person by reason of allowing such person to participate in our health plan for the past 16 years, or can we deny this person COBRA coverage because he was never really entitled to receive any benefits under the plan? Any thoughts? Suggestions?

If a COBRA participant moves out of the doctors network, what are the rules relating to his COBRA coverage and insurance?

Thanks, Joe

We have a situation that I'm not sure how to handle. The client has a DB plan that will be frozen and a 401(k) plan with deferrals only-no match, no profit sharing. The plans cover the same employees, including 2 key employees. The 2 key employees are also the only 2 HCEs.

One of the key employees is receiving a life only annuity benefit from the DB plan, but continues to be employed. He has elected not to defer in the 401(k) plan, and, in fact, has no 401(k) plan balance. The other key employee is younger and is currently defering in the 401(k).

The plans are aggregated for top heavy determination and are top heavy.

Since EGTRRA, we no longer have to count service while the DB plan is frozen for top heavy purposes. If the plans are written to provide the top heavy minimum in the 401(k) plan, at the required lesser of 5% or the highest contribution rate for any key employee, and both of the key employees have elected to defer 0%, are we then required to provide a top heavy minimum in the DB, even though it is frozen?

If so, since the goal is to avoid providing the top heavy minimum, can we amend the 401(k) plan to make key employees ineligible, thus avoiding having to combine the plans for testing, and then provide the top heavy minimum, if necessary, in both plans? There would be no minimum in the 401(k), and participants in the frozen DB have already accrued their top heavy minimum when we don't have to count service while the plan is frozen.

We've gone around on this a bit in our office and would appreciate any comments.

We have a client that is terminating their Pension Plan that has never allowed lump sums. They want to offer lump sums to active employees only. They want to buy immediate annuities for their retirees and deferred annuities for the deferred vested population, but not offer any lump sum option to the "non-employed" group. This is the first client I have had that wanted to split things up like this.

Anyone run across this before? Is this discriminatory? I think the retiree group is fine, but what about the DVP's? Must they be offered the lump sum like the actives?

They will be filing for a DL with the IRS, so we will find out if it passes muster, but it would be nice to know ahead of time so that my client could be forewarned.

Many thanks in advance.

Cal. recently enacted a law which requires that employees in insured health plans who exhaust their 18 months of cobra coverage under fed law must be offerred the opportunity to extend their cobra benefits for an additional 18 months. The law was effective for employees terminating 1/1/03 which means that employees will be eligible beginning 7/1/04. Has this law been challenged by employers or trade associations because it imposes administrative burdens on plan administrators to provide notice to employees by amending their cobra notices and directing them to the appropriate HMO or insurer?

A client has roughly 80 EEs, 50% +/- have Kaiser HMO and the rest have a fully insured carriers PPO. Looking for an indemnity or PPO carrier to replace carrier PPO that does biz in CA that would accept Kaiser with no other HMO. Any help would be appreciated since both groups refuse to budge and they truly want to keep all happy.

Two questions on 401(h) plan.

1. Can a Section 401(h) plan exist without an associated pension or annuity plan?

An employer maintained a defined benefit plan with 401(h) features. The DB plan was terminated but the 401(h) is continuing?

The employer is looking to change the TPA for the continuing 401(h) plan. Anyone interested in taking on the responsibility, please email me.

2. A one-man DB plan is overfunded. Can a 401(h) feature be added to the DB plan and transfer some or all of the Excess assets to the 401(h)? What is the maximum that can be transferred to the 401(h) plan? Would the answer be different if there were rank & files employees in plan?

Does anyone know what the fee is for obtaining a DoL Advisory Opinion Letter for a 401(k) Plan? I know in my case the fee for a Private Letter Ruling is $6,000, but I could not find anything on the DoL fees. Any help is much appreciated.

We are a registered investment advisor and new to the business of providing investment advice to qualified plan fiduciaries. The same clients are asking us to give investment advice to participants for a fee in a 404c plan. Our attorney is concerned about a prohibited transaction (self dealing) if we are also charging extra fees to participant accounts for their individual situations.

Does anyone disagree with our attorney's concern?

Thanks

When stock is reallocated to participants due to forfeiture, what is the cost basis of those shares?

When participant's purchase stock from their cash side fund due to repurchase obligation resulting from cash distribution to terminated participant, what is the cost basis of those shares?

Thanks

A Restricted Participant (top 25) who terminates employment elects a lump sum distribution of his benefits. Due to the Top 25 restrictions under 1.401(a)(4)-5(b), the participant's benefit is divided into a restricted portion and a non-restricted portion.

Under Rev. Rul. 92-76 a participant can receive both portions of the lump sum benefit provided certain restrictions are established in order to protect the Plan (i.e., letter of credit, surety bond, escrow account, etc). In fact, the participant can rollover his entire benefit to an IRA provided these restrictions are satisfied.

However, in my case, the Plan Sponsor does not wish to pay out the restricted amount - only the non-restricted amount. So the participant will receive a lump sum distribution each year of only the non-restricted amount.

Question - can the annual single sum payments the participant receive be rolled over to an IRA or does this type of payout fail to meet the "lump sum" definition (i.e., the participant fails to receive the balance to the credit within a taxable year).

It would seem logical (?) that if a participant could go thru all the hoops provided in Rev. Rul. 92-76 and have the full benefit paid in a lump sum and roll it over to an IRA or other qualified plan that a participant/plan sponsor who keeps the restricted portion in the Plan (which is the safest way to go from the Plan's perspective) should not result in a worse position for the participant.

Any thoughts would be welcome.

An employer wants to add a new comparability allocation and a safe harbor match to his 401(k) Plan. The match is 100% up to 4%. For the cross-tested formula he wants to contribute 2% to the rank and file and 6% to executives. If testing fails HCEs will be reduced. From a previous post I got the impression that the 1/3-2/3 could not be used for the gateway on a safe harbor plan but I cannot find anything to support this. Is this true? Does anyone see other problems with this formula? Of course, I could leave the definate formula out, but I want the employer to know what to expect.

Thanks!

According to our document provider, each time a client adds a new benefit such as life, prescription, dental, vision, ltd or voluntary benefits - an amendment in plan document language for cafeteria plan must take place. The charge is $250 in addition to annual administration. I am arguing that the term "group insurance" or "group health insurance" should be used to cover all these since the IRS already states that group health means medical, dental, vision or other employer provided insurance. The document must be modified even if the employer offers LTD as an employer paid benefit and then another if they offer voluntary buy-up the following year etc. If an employer offers life either employer paid or employee paid, it must be amended as well.

The only reason the TPA knows this is because apparently a well known voluntary benefit carrier is telling clients that when they add voluntary benefits, they need an add on document which this carrier will provide for free. Then they will also replace current TPA but do not explain that if the membership falls in the voluntary program, this free service will be withdrawn. The document provider does not provide for simple language like group insurance or group health. Why would the plan document have to include employer paid benefits as well? This is a well know firm that advertises here as well that provides Plan documents. What will result is that the TPA will lose entire cafeteria to AFLAC or if group insurance is handled, each time a client adds or modifies a benefit, they will have to be alerted that it will cost them to modify Plan Document. This goes against all logic seems ridiculous in light of IRS language in recent times and general market conditions. Does anyone have any thoughts or experience with this? It seems excessive to me. I can understand why restatement is necessary for HIPAA and COBRA for FSAs but amending a plan document and spds each time an employer modifies or changes does not ring true. Is this just a marketing ploy to push unnecessary plan language changes by the document vendor, TPA and the voluntary benefits company is piggybacking on this to their advantage to capture sales?

Does anyone know if workers in a Puerto Rican division of a US based company can participate in a Section 125 Plan? I didn't think they paid FICA or Medicare, so don't know what advantage there would be to the employer. How about federal income tax? Thanks.

Being exempt from Code Section 411, a church plan can cash out benefits without regard to the 411(a)(11) limit, and it can eliminate optional forms of benefit. Is there any restriction on amending the plan to increase the cashout limit as applied to vested participants who have already terminated before the amendment?

What, if any, type of withholding should be taken on a corrective distribution from a 401(k) plan due to ADP failure? Does it matter if the correction is after the 2 1/2 months following the plan year end?