Hi,

I'm having a senior moment. A plan terminated. Do terminated participants with balances in the plan have to be 100% vested due to the termination if they quit before the plan termination date?

Any help in refreshing my memory is greatly appreciated.

Any suggestions on the following fact pattern?

IRA owner's spouse dies late 2001. IRA owner himself has terminal cancer, sees attorney to update estate documents. IRA owner and spouse had 3 kids, all in mid-30's. (No other spouses or children for either owner/spouse.)

Attorney prepares attachment naming each child 1/3 beneficiary, to be used for IRA and other beneficiary accounts. (Will likewise names each child 1/3, and default state intestecy law would yield same 1/3 result.)

In February of 2002, attorney sends change of beneficiary designation form with custom beneficiary attachment for IRA with Bank 1. IRA certificate comes due in April 2002. Intent all along was to roll over IRA to different bank. Estate planning materials (letter from attorney to IRA owner) show this intent plainly.

IRA owner in fact does roll over IRA to Bank 2 in April 2002 and handles the paperwork in person, without attorney. Dies later in 2002. IRA is currently in certificate of deposit, worth about $80,000.

Upon checking the IRA documents, the beneficiary attachment was not included. The space for a beneficiary designation is blank. Bank 2's position is that no beneficiary designation was made. Default under Bank 2's IRA contract is that estate is beneficiary.

Bank has been provided copies of Bank 1 designation and attorney's correspondence, but is firm that without a designation saying "Bank 2", there is no valid beneficiary designation. Doesn't matter to Bank 2 that each child gets 1/3 either way but takes less of a tax hit if they are the beneficiaries of the IRA rather than the estate.

Beneficiaries want to know what their options are and if they have any recourse against the bank. Assume all 3 would keep the IRA in tax deferred soloution, taking only required minimum distributions.

As for options, I see the following:

1. Don't fight the bank. Let the estate get the IRA; stretch out payments as long as possible. I believe this is five years. Is this correct? If so, does the estate need to be kept open until the IRA paid out?

2. Fight the bank. Take Bank 2 to court to require it to treat them as 1/3 beneficiaries each. My concern in pursuing this option is both the likelihood of success and the cost/benefit analysis.

As to the bank, I believe there is an argument that:

1. They had a duty to obtain beneficiary information and neglected to do so; or

2. They must have had the attachment but lost it. (Why else would the beneficiary designation be blank?)

Either way, it appears to be a negligence case. If so, I don't collecting anything more than the tax difference between paying taxes now (or next 5 yrs) by naming the estate or paying taxes later (over the 3's life expectancy), plus any deferred growth.

I'd appreciate comments on the above, and especially answers to the following:

1. Are my assumptions above (e.g., 5 yr payout for estate; amount Bank 2 could be on the hook for) correct?

2. Any other theories of liability against Bank 2? (Especially ones with award of attorneys fees available?)

3. Any idea what the relative tax hit would be if they took the $ now into the estate, rather than were able to keep as direct beneficiaries?

4. Can you suggest any other options/strategies?

Thanks for any help.

If a company ceases operations on April 30, and begins the process of terminating it's plan, can ADP refunds be distributed prior to any plan distributions?

I understand it that they'd have to wait until after the plan year end (December 31). They could have a short year if all assets were distributed, but that would require distributing the potential adp refund.

Second question - same scenario except the company stays in operation. Deferrals cease April 30th and the plan begins work on terminating the plan. They expect all assets to be distributed in the following plan year. Would adp compensation include all of 2003 compensation or would it be up to April 30th?

Thank you

A client has a plan with no active participants. The funding method is Individual Aggregate. What is permissible for valuation purposes??

1993 - IRS stated, one acceptable method, that for an Aggregate funding method that assuming the deferred vested were still active (compute the funding period to their expected retirement age)

What if all the partcipants are actually retired??

Obviously, IF the plan is fully funded, it is no big deal (Contribution is zero and get on with life!).

This client has a plan where they are short assets (by several 100,000) and they want no cost.

A switch in funding method would enable the monies to be amortized over a period of years but they can not change funding method (they already did within the last couple of years).

Any ideas??

Thanks in advance for any and all input.

My firm has a company with multiple participating employers on a prototype nonstandardized document. The employer no longer wishes to allow one participating employer to be part of the plan. As of some date in the near future, the participating employer will no longer be able to participate in the plan.

We have several issues we are dealing with. Can these former participants continue to new loans, hardships, and other in-service withdrawals available under the plan? My thoughts are no as they are no longer participants. IF this holds, then can they take a distribution of their plan assets when the participation agreement ends? Again, they haven't really obtained a distributable event.

I then thought about a partial plan termination, but am not sure if this meets that criteria. They don't intend to spin the plan off, it seems as if they simply want to freeze those assets. However, if no longer participating in the plan, but still employed by the sponsor (via subsidiary) they have no access to this money.

Does anyone have any thoughts on this? It would be appreciated.

Can a traditional IRA invest in real estate? If so, are there any penalties or special reporting requirements?

I've read the IRS publication and know about the prohibited transactions but I wasn't sure if the property could be purchased from a third party.

Thanks in advance for your responses.

Facts: A company sponsored ESOP was terminated late 2002 and payouts were made based upon an independent appraisal value as of the termination date.

The owner of the company now has a potential buyer. If the selling price of the company differs from the final appraisal for the ESOP distribution (which it will), what is the liability of the company to increase payout payments to the former ESOP shareholders, or, if the value is below, any reprecussions?

Thought would be appreciated.

Thanks,

Diane

Can anyone point me to any helpful resources on this topic?

I am aware of (1) an article titled Avoiding Difficulties When Unwinding an ESOP and Selling the Company in the September/October 1997 issue of the Journal of Taxation of Employee Benefits, (2) BenefitsLink's ESOP Q&A 11 (1999) and (3) certain discussions on this message board (including a number of helpful posts by RLL).

In the deal I'm working on, the company maintaining the ESOP will receive cash for its shares. The goal is to convert the ESOP to a profit-sharing plan and eliminate the right to stock distributions, while avoiding a termination.

The article referred to above suggests one approach would be to simply amend the ESOP to remove the right to take stock distributions. But it notes "Congress, the DOL and the IRS have all addressed and imposed conditions for an ESOP attempting this strategy." I'm aware of the 411(d)(6)© guidance that says such changes must be nondiscriminatory. Are there other "conditions" I ought to bear in mind?

Any other words of wisdom from those of you who may have dealt with this before?

I have a client for whom I prepared an ADP Test in January. The test failed and 5 of the HCE's took the required refunds to correct. The client just now provided us with new Census information and, while the test still fails, the HCE refunds are less than the original result. What can they do?

An employee brings in a doctor's statement requesting that the employee be released from work due to a medical condition. Can the employer contact the doctor to verify the request? Can the employer ask the doctor if the employee can work a reduced schedule versus being released from work completely (as the statement indicated)? The employer already knows the medical condition.

We are currently working with a sole proprietor who has a pension plan. He has a domestic employee, and would would like to offer a plan to that employee. If he sets up a separate plan, is this employee going to be considered part of a controlled group?

As a Health Plan broker I have a client in NYC currently self-insured and using a mediocre TPA I am looking for a recommendation from an emploiyer or from a TPA. The TPA needs to be HIPAA compliant and not using a clearinghouse and geared to customer service.

kova7.

I have a plan that we have been the TPA for several years. Company A aquired another dealership (call it B), and B's plan was closed, and the monies moved over into A's plan. I am trying to do the Schedule I, and I want to make sure I am logging this "merger" correctly. I need to put the amount that was transferred into A's plan from B's plan on line 2k. The monies from both plans show in the ending balance. There is no other place that I am supposed to log this merger in, correct? I have never been faced with this situation before, and don't want toget a letter from IRS/PWBA/DOL or whoever!

Thanks for your help!

PS: we were not the TPA for B's old plan, and the former r/k is doing their final 5500.

Client has a cafeteria plan with pre-tax medical insurance premiums and a health care/dependent care FSA. When you perform the annual non-discrimination tests, do you include the total cost of the health insurance (pre-tax employee share plus the amount paid by the Company) or only the amounts paid by the employees on a pre-tax basis. Of course, either way we will add in the FSA elections.

Thanks for your help.

As long as union employees are not considered "terminated", it is my impression that both scenarios are handled similarly. That is, they do not accrue service during the time they are either on strike or locked out by the employer.

Can anyone offer any war stories?

Are there any restrictions on what type of entity may be the dcument sponsor of a prototype defined contribution plan? I notice that most are sponsored by financial institutions - is that a requirement? Thanks for any assistance or cites you can send my way.

I've just started looking into investing in a ROTH IRA. One of the first questions asked is the name of the owner. What should I consider with regards to putting the IRA in my wife's name vs. my name? Thanks

Does anyone have a current state by state listing of which states allow cafeteria plans on a pre-tax basis and which states do not. One of my clients will be hiring shortly throughout the United States and wanted to know which states recognize the tax preference for contributions and FSAs.

My fax number is 856-778-3376.

Thank you very much.

Bob

The IRS rules are not clear as to how the owner of an IRA, who dies before RMD (70.5), can prevent his non-spouse beneficiaries (who cannot be trusted with money) from selecting a lump sum or any accelarated distribution.

A qualfied trust allows the beneficiaries of the trust to be considered beneficiaries of the IRA. But does the trust has the power to take away the option of the beneficiaries to select an accelarated distribution at any time. HELP

The IRS rules are not clear as to how the owner of an IRA who dies before 70, can make sure that his non-spouse beneficiaries do not use a lump sum or any accelerated distribution.

Using a qualified trust allows the beneficiaries of the trust to be considered beneficiaries of the IRA. But does the trust has the power to take away the option of a beneficiaries to select an accelared distribution at any time? HELP