A small plan with 8 participants (3 HCEs and 5 NHCEs) allows after-tax contributions for all participants. The plan is not a 401(k) plan. Two HCEs wanted to make 10% after-tax contributions for PYE 10/31/02. The Employer is making a 15% PS contribution.

We believe that, as long as the NHCEs make no after-tax contribution, then the HCEs cannot make any after-tax contribution because, under 401(m), the lesser of 200% or 2+ percentage points is 0% (200% x 0% = 0%). Even if the NHCE made a nominal after-tax contribution, we don't think it would help much; e.g., NHCE average is 0.1%, then the most the HCE average could be is 0.2%. (The 125% test is even less than the 200%/2+ test.)

Could someone please confirm this understanding?

We have a situation with a small, terminated Money Purchase Plan where there is one remaining participant who refuses to make an affirmative election as to taking her funds. The account balance is over $5,000.

The “normal” form of benefit under the Plan is a Joint and Survivor Annuity, which we told the participant will be purchased absent an election for a rollover/lump sum, etc. The problem is that we cannot find an insurance company (in Pennsylvania), that will set up an annuity without the participant’s signature. Does anyone know of a company that will do this or perhaps accept the Trustee’s signature?

Thanks.

BTH

A Qualified Plan participant dies.

Her ex-husband had a post-death qdro entered awarding him the benefits under the plan. Post-death qdros seem to be OK in some jurisdictions under certain circumstances.

The deceased's children from another marriage claim the benefits under the Plan's default beneficiary procedures, as no beneficiary is on file with the Plan Administrator.

The Plan Administrator decides to file an interpleader action to have a court determine who gets the plan benefits.

So far, so bad, but here is the question I really need answered:

Specifically, may the Trustee of the Plan, at the direction of the Plan Administrator, pay the plan benefits into an "interpleader fund", i.e. into the Court, pending the outcome of the interpleader litigation without running afoul of ERISA's anti-alienation requirements?

I found proposed IRS Reg. 1.468B-9, that I think says the answer is yes, the distribution does not take place until it leaves the Plan, in this case upon distribution from the court to the winner of the interpleader action.

Our firm does not have alot of exposure to SIMPLE plans or the business that comes in. I apologize if these questions are too basic but I appreciate the assistance!

1. If a client has a SIMPLE 401(k) for 2002 and would like to have a traditional 401(k) for 2003 what can be done with the SIMPLE? Must the plan terminate and we establish a brand new 401(k) plan for the client for 2003? In affect, the Plan Number for the SIMPLE 401(k) would be 001 and the traditional would be 002 on the 5500? A new effective date? And are the contributions able to "rollover" or is the new plan considered a successor plan?

2. Is it possible to amend the SIMPLE 401(k) into a traditional 401(k) and leave the plan number, effective date, and assets the same? Are the SIMPLE provisions considered protected benefits, thus the plan would have to maintain the 100% vesting or is that vesting only for the SIMPLE assets and the client may choose a new schedule?

Any help is appreciated! Thank you!

We currently administer a 401K plan for company A. Company A bought Company B, who also has a 401K plan. Company B's plan assets are being transferred to Company A's plan. In order to receive vesting for this year, a participant must work 1000 hours.

I have a terminated employee that worked more than 1000 hours with Company B, but less than 500 hours with Company A. I will also need to know if I need both Company's hours for the year end census.

My question is......

Do we use hours from Company B in addition to hours from Company A in order to determine if a participant worked 1000 hours for this year?

Does anyone know of a source for extra-territorial insurance mandates by state? I'm hoping to find some type of matrix that might indicate which/all state mandates apply and to which states.

Thanks in advance!

Has anyone looked into the fiduciary aspects or consequences of electing to pay withdrawal or exit fees to move plan assets?

Is it possible under a safe harbor 401(k) Plan to have different eligibility provisions for deferral and matching contributions (e.g., immediate participation in regard to deferrals but year of service requirement for matching contributions).

Notice 2000-3 (Q&A-10) appears to permit this but also seems to require ADP/ACP testing....

The employer removed the after-tax provision during the restatement with the intent of removing (cash out) all emplyee after tax monies including earnings.

My question is what if the 2 participants will not consent to the cash out. Both are married so i need spouse cosent. Any guidance would be appreciated.

Where can I get a new, up to date enrollment form?

I am updating all the files in my office and was wondering if anyone knows of a good place to get a new, complient, up to date enrollment form for new employees to sign up for the new plan year. I would appreciate any help in finding a form, whether it be ordering through a company or downloading a template off the internet.

Thanks in advance.

Can a church-controlled organization maintain both a 403(B) and a 457 plan? What are the advantages/disadvantages of doing this? I have a church employer with an existing ERISA 403(B) plan that is asking about putting in a 457 for a select group of management employees.

QUESTION ONE

Rev. Rul. 2002-27 is troubling to me on so many levels. First of all, this was slipped in to the "list of amendments to be made by the end of the year" after many people had already amended their plans for EGTRRA (any changes under this Rul. that you make are tagged to the EGTRRA period).

Second, I don't think this was a big problem until the IRS made it a problem with issuing this Rev. Rul. I think most plans just assumed the amounts used to pay for coverage in Scenario 2 of the Rev. Rul. were pre-tax and 125 amounts and lumped them into the 415©(3) definition. Now the IRS says that these amounts are not supposed to count in the definition and therefore these people have less of a testing base for 415 purposes (i.e., 415© is tagged to a dollar amount or 100% of compensation. Assume someone in Scenario 2 of the Rev. Rul. making $15,000 pays $1,000 for coverage - his or her 415© comp is now $14,000) versus someone else in Scenario 2 who has $15,000 in 415© comp because he has alternate coverage and elects it). What I don't understand is why the IRS thought this was a problem? First of all, I would think that single people are heaviest hit since they do not have a spouse who has alternate coverage under which they could apply. Generally, single people tend to make less than a married couple. So the effect of this Rev. Rul. is to penalize/hurt people who make less money. Aren't the 401(a)(4) rules designed to protect NON-highly compensated individuals? What gives? This makes NO sense to me.

Another hard hit group of people are those with domestic partners. Unfortunately, numerous employers do not offer health care coverage to domestic partners (straight or gay) of employees. (If you are in a state like VA, it may even be ILLEGAL to offer benefits to same-sex partners). This means that the other DP will most likely find himself in a Scenario 2 situation. Generally, electing family coverage over the default coverage would put you back in 125 and all would be well, but many domestic partner couplings (especially male-male) do not have children - or may be barred by state law from adopting, etc. So, once again, we have a group of people unfairly targeted by this Rev. Ruling.

ANOTHER problem is what do I do with qualified medical child support orders? If my plan gets a court order that says that I MUST OFFER COVERAGE to my child, then I really don't have much of an "election", do I? In fact, it's the same scenario as if I were forced to take a default type of coverage. Are amounts used to pay for my child's health care under the order NOW not considered 125 amounts? Under this Rev. Rul. - I would think the answer is yes.

Can others think of other scenarios that might come under Rev. Rul. 2002-27?

Basically, I can't see any real justification for this Rev. Ruling and I would like to know what others think. Thanks so much for commenting!

QUESTION TWO

Another question I have concerning this Rev. Rul. is why the IRS says that you can treat amounts paid for coverage under scenario 2 where the employee has no other coverage as "deemed 125" contributions IF AND ONLY IF you do not otherwise request or collect information regarding the employee's other health coverage as part of the enrollment process for the health plan.

My thoughts are that the IRS thinks that where you simply have the employee certify that he has coverage, well, the reality is that someone can LIE and check that he does have coverage (when he really does not). Then, that employee would opt out and get money! So, in theory, he has the ABILITY TO CHOOSE BETWEEN money and coverage. On the other hand, if you request or collect information regarding other health coverage, well, you have the ability to VERIFY that the person indeed DOES have coverage. So there is no way around it - there is no ability to choose between money and coverage if someone really doesn't have coverage. That is the ONLY policy I see, and I'm not sure I like it. Does anyone agree? If not, why do you think the caveat was made?

Thanks again.

Can anyone direct me to guidance on fund mapping when a 401(k) is changing providers? Is there any DOL guidance on this (particularly recent guidance)?

Can someone direct me to a website that provides employer notification letters for Cobra?

On the Form 5500 question 8a, code 2R states to check if "Participant directed brokerage accounts as provided as an investment option"

What constitutes these "brokerage" accounts? Does that mean allocated accounts in mutual funds, or simply the ability to invest in stocks?

Thanks,

Ronnie

I have a scenario where numerous employees of a particular company have spouses who are citizens of Cuba. They would like to make their children who are legal U.S. citizens the beneficiaries to their retirement plan monies. Because the spouse is not a citizen or resident of the United States and probably never will come to the United States does she still have to give beneficiary waiver consent?

Is there a difference between an ESOP's more than 2% shareholder and a Sub "S" more than 2% shareholder for purposes of a 125 plan?

I've got a 100% ESOP owned Sub "S" corp. wanting to include the 2% owner employees.

Would appreciate any feedback from folks who have applied to the IRS to qualify a non-bank entity as an IRA trustee/custodian. For example, how long was the process from filing to completion, how helpful/obstructive was the IRS, etc.? We are in the preliminary phases of researching this for a client and are interested in the experiences of others.

Thanks.

Have there been any recent developments or pronouncements on the ability of a plan to permit "evergreen" elections (those that roll over automatically unless the participant affirmatively submits a new election form) in cafeteria plans?

It was my understanding that official pronouncements neither authorized nor prohibited such elections, but that informal statements by IRS personnel had suggested that they are permitted so long as the plan document authorizes such elections and the participants are clearly notified of this feature of the plan. (It would also seem that good practice would dictate that a new enrollment form be distributed each year, with a reminder about the evergreen feature.)

A colleague indicated that he had heard that the IRS recently came down on the side of mandatory annual elections, but no details were given about how, when, or where.

A participant in a plan took out loan for home purchase purposes which under plan provisions is allowable to be paid over 30 years. At closing the loan processing had not been completed and the participant took out money from savings to pay for the down payment required. The loan payment is then made to the participant and they use those funds for home repairs on their new home(In lieu of the savings they intended). Do the funds received for the loan have to be directly utilized in the purchase or will this work given its being a timing issue? Are they in breach of the plan provisions?