We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

IRS reg 1.417(e)-1(b) states that a qualified joint and survivor annuity is an annuity that commences immediately. The same reg proceeds to state that thus, for example, you cannot offer a separated participant a choice between an immediate single sum payment at separation and a J&S that commences at normal retirement age (rather than immediately). (Of course, some here debate whether this portion of the reg is invalid ala BBS Associates.)

A qualified preretirement survivor annuity is defined by IRS reg 1.401(a)-20, Q&A 18 as an immediate annuity for the life of the surviving spouse. However, unlike for the QJSA, there is no "thus, for example," a plan cannot offer the spouse a choice between an immediate single sum and a deferred annuity.

Does this mean that following a participant's death, the spouse eligible for a QPSA can be provided with a choice between an immediate single sum or a deferred QPSA? Or not?

This has come up under a db plan where the plan sponsor want to offer a non-QPSA death benefit payable in single sum immediately upon the death of a vested participant.

However, the plan sponsor does not want to pay a spouse both a QPSA and the non-QPSA death benefit. This means that the QPSA would have to be reduced by the value of the non-QPSA death benefit, which is awkward and likely a single sum distribution of part of the QPSA in any case. Thus, the desired alternative is to provide the spouse with a choice between an immediate single sum distribution or a deferred QPSA. The single sum distribution would be the higher of the non-QPSA death benefit or the present value of the QPSA.

We seem to be getting conflicting information on how the annual compensation limit of $200,000 (401(a)(17),404(l),408(k)(3)©, and 408(k)(6)(D)(ii) ) should be used in a 401(k) plan.

The basic question is: If an employee has reached $200,000 in compensation, but has deferred less than $12,000 ( limit for employee deductions) of his/her salary, should the employee's deduction stop? Please list any references that may be helpful in your responses.

Governmental employer wishes to offer an employee an incentive of one year's salary to retire. The arrangement is voluntary. The offer would be made to only that one employee. The offer would be to pay one-half on 8/1/03 (which is when the employee would retire) and one-half on 1/2/04. The employee will not have the option to receive the money at any other times. Assuming the employer considers the incentive payment to be compensation, could this arrangement be considered a "severance pay" plan that would fall outside section 457(f) or is it clearly a "deferred compensation" plan subject to section 457?

Thanks,

Ken

Other than Veit and Oates cases, and some degree of acquiescence by the IRS, what's the authority for allowing a deferral election of compensation earned but not yet paid?

I noticed the (excellent) Davis & Hartman LLP chart on the American Benefit Council page that seems to categorically state that case law supports deferrals made any time prior to the amount being paid - seems like a pretty broad statement to me. Am I missing something?

The plan allows participants to take a principal residence loan for a term of 15 years or less. The plan only allows one principal residence loan at a time.

A participant requested a principal residence loan for a term of 5 years. The participant has requested the loan term be extended to 10 years (no additional dollars).

Can this be done or would it be considered a separate loan and thus not allowed by the plan.

Thanks and Happy 4th.

Any thoughts/authority on the following: (Carol Calhoun - I would really appreciate your comments - I have ordered the Govermental Plans Answer Book which possibly would be of help when I get it, but I need answers ASAP.)

Gov'l entity, via merger, inherits an underfunded DB plan that was originally established by a non-governmental non-profit (501©(3)) entity. Is the plan now a governmental plan for purposes of ERISA and the IRC? More particularly, does IRC 412 no longer apply following the merger such that the 412 amortization for the underfunding no longer applies?

Assuming that the plan is now governmental and that there are no state funding rules that apply, it appears that the only funding rules are the pre-ERISA IRC 401(a)(7) rules which would require 100% vesting, to the extent funded, upon plan termination or complete discontinuance of contributions (subject to the non-discrimination rules set forth therein).

Last, any thoughts/authority on the application of "to the extent funded" under pre-ERISA IRC 401(a)(7)? Surely a seriously underfunded gov'l plan cannot just be terminated to avoid the underfunding?? Maybe so, but the obvious reasons that it would not likely be done are: emplyee morale issues and the huge invitation for state lawsuits based on breach of contract, fiduciary duty, fraud . . . since preemption would not apply to a gov'l plan.

Can anyone comment on a plan termination (IRS approved) where the plan assets were placed in a non-interest paying account for the purpose of paying out participants. Where most of the assets were paid within a reasonable time, there are still remaining a few that have not responded or can't locate. There balances are being held in the paying account under the name of the plan, but it does not pay any interest. Any problems here?

A particular participant (an NHCE) is experiencing a financial hardship. The 401(k) plan does not allow hardship distributions. Can the employer amend the plan to allow only this single participant to receive a hardship distribution?

Is it possible to impose a 1,000-hour or end-of-year requirement to remain as a participate in a nonelective Safe Harbor 401k?

A plan had an excess Safe Harbor contribution deposited in 2000 which is waiting to be allocated.

In the 2002 plan year, there is a 3% Safe Harbor contribution which is the only contribution for the year besides 401(k).

Can the deposit for that 2002 Safe Harbor contribution be reduced by the excess amount from 2000?

Thank you.

I think I know the answer to this one but am hoping for a different one

I have a formerly large plan that terminated and is in the process of distributing all accounts. However, they missed a small portion of 4 participant's accounts and the plan still had a balance as of the end of 2002 (of $10.78).

Do I need to file a Schedule H for this plan since there is still a remaining balance or is there any way to file a Schedule I? Also, I am assuming if a Schedule H is required, then they will need an audit attached... is this correct?

The money has since been distributed and I will be filing the final 5500 shortly. Do they need an audit for the few months in 2003 as well?

Thanks,

Rachel

This is probably a stupid question, but anywoo... When distributing a SAR for a welfare plan, is it to be distributed to all participants for the year the SAR applies to, or all current participants? (I'm thinking an employee who went on the plan last month will not care about what happened in the plan last year. But then no one cares about SARs anyway....)

Wanted to make sure this course of action was ok...

A partnership consisting of four partners has a 401(k) plan. The partnership is terminating and becoming two new, completely separate partnerships (each with two of the four previous partners).

They would like to terminate the existing plan and each new partnership wants to create a new plan, crediting prior service with the old partnership.

To add to this scenario, it is determined that the plan is top heavy for 2003. If the plan terminates mid-year is a top heavy contribution required? (This issue seems unclear in the reference material that we have.)

Would be interested in any opinions on the top heavy issue and any successor plan issues.

Thanks.

If a plan allows rollovers and an employee rolls into the plan assets formerly in a deductible IRA, this would be considered just a plain old rollover -- not a "deemed IRA" -- correct? My understanding is that owner-trustees must have a custodian to hold a "deemed IRA" but that has not been the case for rollovers. Do rollovers from IRA's need to be looked at differently than other non-related rollovers from qualified plans?

Employees who are not 5% owners may be exempted from the RMD rules under qualified plans. What if that individual rolls his deductible IRA's into the plan -- are they now also exempt from the RMD rules until the individual retires?

Any ideas?

We have a dependent student who has reached the limiting dependent age (age 25), but who is still attending school.

This plan includes the use of a PPO. Since dependent students, who live outside of the PPO service area, cannot reasonably utilize the network, there is a specific benefit that states that Dependent full-time Students who reside outside of the Network service area while attending school will receive the Network level, rather than the non-network level of benefits for their claims.

This dependent has elected COBRA and is still living outside of the PPO service area. We received claims for an injury (again, outside of the PPO service area, therefore non-network). The question is - Does this COBRA participant still receive the in-network benefit that is reserved for "dependent full-time students" or would they receive the non-network benefit level since they are technically no longer a "dependent full-time student" under the definitions of the plan?

On one hand the Regs talk about QB's having the same status as active employees (therefore not eligible for this class of benefits) , on the other hand there is language concering "similarly situated non-COBRA beneficiaries."

Any thoughts?

Can a 401k participant name a nonspouse beneficiary without the consent of spouse? Also, does this also apply to Defined Benefit Plans?

I need some additional input on how ADP failures recharacterized as catch up contributions at the end of a noncalendar plan year should be handled in calculating the 402(g) limit.

I am using the 'Catch-Up Contribution Worksheet for Noncalendar Plan Year' provided by Sal Tripodi and am running into testing results which are causing 402(g) failures that I am unable to justify.

Example:

I am working on a 3/31 plan year end and have an HCE, older than 50, who has deferred the following amounts:

1/1/2001 - 3/31/2001..... -0-

4/1/2001 - 12/31/2001..... 10,500

1/1/2002 - 3/31/2002..... 1,000

4/1/2002 - 12/31/2002..... 11,000

1/1/2003 - 3/31/2003..... 2,000

At PYE 3/31/02 the catch-up worksheets were used and no failures occured on the 402(g), plan limit or 415(limit). ADP failure did occur for 624.00. There was 1000 still available and the refund was not processed and the 624.00 was recharacterized as 'Catch-Up'. Everything is fine up to this point.

The calculation provided in the worksheet for the remaining 402(g) limit (for the calendar year in which the plan ends) advises to take the limit for calendar year less deferals made up to the PYE. Which in this case is 11,000 less 1,000 indicating that 10,000 can be made for the remainder of the calendar year. When the worksheets are completed for the next years test, this is causes a 401(g) failure of 1,000 w/ 326 in catch up still available which leaves a 402(g) refund due of the 624.00.

It seems to me that if the 624.00 was characterized as catch up contribution resulting from the prev year ADP failure that it should not be also counted as part of the elective deferrals in the calulation for determining the remaining amount of deferrals left in the calendar year.

It seems unfair that the 1000 deferred from 1/1/02 - 3/31/02 was characterized as elective deferrals, then ADP failure alloted them to be recharacterized as Catch-Up and remain in the plan, to then say that on the 402(g) testing that they are included as the elective deferrals made and excluded from the catch-up available for that year which results in a refund amount of 624.00???????

Your input please.

We have a cash balance plan that permits terminated vested participants to receive a partial lump sum. We have been advised that we are probably not required to provide a 50% QPSA on the residual annuity. We're not sure we want to follow this advice. Has anyone else looked into this?

Thanks.

When a person has been reclassified as a temporary employee, thus they are no longer eligible for company benefits which includes losing eligiblity to receive the company's payment of 401K contributions, can they withdraw from 401k plan participation and rollover their 401k funds into a roth ira? The 401k plan administrator says that the newly classified temp employee can not withdraw since they are not 59.5 years of age so any information citations or references would be greatly appreciated.