Should corrective distributions be posted on the Schedule I in the year they were actually paid (2002) or in the year of the excess contribution (2001)?

Facts:

1. Contributions were made to a SEP for the years 2001 and 2000 (this information is coming to our attention today) for a 100% shareholder of an S-Corp who had no W-2 wages.

2. Corporate and personal returns for 2001 AND 2000 have not yet been filed.

3. The broker/SEP Administrator has been notified and will be returning the contributions less lost earnings as excess contributions.

Q1. For 2001, no excise tax will apply since the contributions will be returned before the extended due date of the returns (both corporate and individual) - True?

Q2. For 2000, the excise tax will apply for both years - True?

Q3. Are the excess contributions includible into the employee/owners income? I've read yes, but this doesn't seem to make sense. Since all of the contributions are in excess of the employers deductible limit, we are not taking the deduction on the corporate return, and therefore not passing the deduction on to the owner thru the K-1. If I include the excess contribution in his income, he will be being taxed on money that was never deducted, or is not taking the deduction the same as including it in his income since he is the 100% owner?

How do you handle uncashed checks in a health or dependent care FSA??

Obviously, these funds were claimed, so it seems the $$ should not just be forfeited.

I have been sending letters to participants stating there is still an outstanding check and asking them to call to have it reissued, but there are still those who do not reply.

Is there a limit to how long I have to hold on to these funds? Do they revert to the employer?

My plan document does not provide any guidance.

What do you do?

Owner of Company A wants to make his brother-in-law the broker for the Plan. Is this a prohibited transaction? The brother-in-law is not a relative under ERISA §3(15), so I don't see that this is necessarily a problem, but just wanted to see if I was missing anything.

Based on Notice 2001-57, I think employers who implement catch-ups on, say July 1, 2002 for example, have until the end of 2002 to amend their plans for catch-ups. The 401(k) regulations would normally require an amendment for an expanded 401(k) feature to be made in advance of the first payroll, but I think the Notice overrides this rule for catch-ups. My view is that this is like updating a plan for the increased 402(g) limits - no need to do it until the end of the year. Does anyone think employers should be amending plans now rather than waiting until the end of the year?

We started working with the reports for Relius and we find the standard Plan Specifications report to be a little spartan.

Has anyone had much luck in formatting a Plan Specifications report through Crystal Reports?

Thanks

Dan Szuhay

Our plan uses forfeitures to offset plan admin expenses for the year.

We have only started utilizing this offset and as a result have a large forfeiture balance.

Can we apply these forfeitures toward amount we have prepaid for terminees?

Can we as employer retain these forfeitures?

The forfeitures are of pre-tax employee contributions

What other legitimate use can we utilize these forfeitures for besides reducing plan expenses?

How do you handle determination of eligibility and service for vesting for a participant who works less than 1,000 hours during the plan year in which they are hired?

EXAMPLE: Plan year is calendar year; EE hired 8/15/01 and works 950 hours in 2001, then 2080 hours in 2002. First year of service for both eligility and vesting is 8/15/01-8/14/02, during which he worked over 1,000 hours; second year of service is the 2002 plan year.

He should end 2002 with 2 years of service but our system does not give him credit for a year of service for his first 12 months. Does any system handle this properly?

It's been so long since I've done a plan that wasn't a takeover or having been a 'start-up' on Relius (first valuation year on Relius Administration system). I was wondering what administrators were setting the 'Plan Entry Requirements' screen parameters at, specifically which of the two:

- 'half-years' credited or

- 'not computed - use as entered' option

... is being chosen for an ongoing plan in which a valuation _has_ already been run on Relius for the prior year.

I see to recall that setting the system to 'not-computed - use as entered' had its drawbacks (I don't remember what though), but I would think that after the first estimated eligibility transaction, that the parameter would just as well be set to actual rather than estimated, am I correct?. Because we run only one annual payroll, varied, the system only has that one temp file field to look back to for hours, assuming a second or 'post takeover' plan year is being run.

After the first (startup/takeover) year, after the raw census data is imported, we input only termination date in the status field, and change the employee status to T - we'd like the system to do the rest of the work. We also input comp prior to entry if applicable.

Thanks,

Bill

I have a participant who only has deferrals. He requested a loan and hardship for the maximum amount. The loan was done for 50% of the total balance. Is it possible to do a hardship now? What about the 50% security for the loan?

Thanks in advance,

Jeff

An employee elects to enroll in the DCFSA during Annual Enrollment. Deductions begin on 1/1/02. At the time of the election, she was pregnant with her first child. She has now decided to terminate employment and stay home with her baby. She has requested a refund of the amount deducted to date.

Is she eligible to participate in the plan prior to the birth of the child? Does the baby have to be born before deductions can begin?

Our plan does not specifically state that you can not contribute to the plan if you don't have a child.

How can you cap an employer's cost for health ins. premium within a cafeteria plan? Is it just a matter of the the plan doc stating that e/er will pay $x toward premium for health insurance and e/ee can defer portion of pay for the balance assuming e/ee chooses the health ins. as an option?..... That way e/er, going forward, is only obligated for the $x amount...and any subsequent premium increase is on the e/ee??????

Got a question...

A teacher that is out for the summer develops a medical condition that pretty much puts her out of action. She has active STD benefits and her policy requires a seven consecutive day waiting period. The teacher has been out for school break since 6/30/02. Can she still apply for her STD benefits during this time? I've gotten two different (contradictory) answers and unfortunately, my information is not specific to this scenario.

Prospect has no plan document for paired MPP and PS plans adopted in 1994. Some contributions were made in the early years to both plans, but no contributions have been made since 1996. Some 5500's were filed, but it is likely that no 5500's have been filed since 1997.

Prospect would like to implement a new 401(k) plan during 2002 and hire our firm as the TPA. They would like to pretend that the old plans never existed, and take their chances that they are never audited.

We are very concerned about potential liability associated with the prior plans, since they are out of compliance and we are aware of this fact. There are a couple of questions we have at this point in the process:

1) Since there are no plan documents, did they ever have a qualified plan subject to ERISA?

2) If the answer to #1 is that they do potentially have a qualified plan, could our firm absolve itself in writing of any responsibility/liability for the prior plans, and simply assist the client on a prospective basis? We use detailed engagement letters for all clients.

3) If the answer to #1 is that they do NOT have a qualified plan, are there any other liability issues we need to consider before assisting the client with a new plan for 2002?

Thank you for any assistance.

On 1/1/02,plan participant elected and started to receive a monthly distribution from a defined benefit plan. In June 02, plan administrator notified plan participant that there was a loan default since the plan receive the last loan payment in

July 00. The loan default was never used as an offset in the calculation in the monthly distribution. What does the plan administrator do and what is the effect on the plan participant?

Does anyone know of a source for Sample DEMOs for attachment to Schedule Q, Form 5300? I'm specifically looking for a DEMO 4 regarding "Restructuring, Mandatory Disaggregation or Permissive Aggregation". Thanks.

We have a new hire (eff 7-1) that wants to enroll in the Dependent Care Reimbursement Program. Our company's program allows an annual maximum deduction of $4992. During his previous 6 months he elected $1664 worth of deductions. How much is he eligible to have withheld for the remainder of the year with us?

Facts:

1. 100% owner operated S-corp with independent contractors in the past.

2. Owner takes distributions only, no W-2 wages.

3. Owner establishes SEP in current year with 1 year of preceding 5 years service requirement, age 21 and current compensation limit.

4. Owner hires independent contractors in current year and pays on W-2.

Q1: Are the new employees (which are the previous independent contractors) eligible for the contribution? I think not, because they were not employees in any one of the PREVIOUS five years.

Q2: Is the owner eligible to receive a contribution, and if so, based on what? This seems tricky to me. Since the owner doesn't have W-2 wages, how does he distinguish himself from the independent contractors of the past as it relates to meeting the service requirment for the current year?

I have an owner-only client who has never had a cash flow problem.

Is there a "magic age" at which a significantly larger contribution (i.e., more than $40,000 in a DC plan) can be achieved with a DB plan?

Since my experience is limited solely to DC plans, I'd really appreciate some input from you DB folks.

Thanks!

I have a DB plan which used to be a safe harbor until an amendment was added affecting one (HCE) person only. It was an addition to his accrued benefit, simply $x per month was added to his accrued benefit.

This QSERP feature was designed to pass the general test. In fact we did the general test and it passed.

The affected person is at NRA and will still be employed on a part time basis while collecting his pension.

My question is: Is there any way to avoid the general test in the future? Is this a candidate for the "Fresh Start" rules in 401(a)(4)? Is anybody out there fluent in these rules?

I think there are three possibilities:

1. The plan is forever subject to the general test.

2. The plan is subject to the general test only until the person affected by the non-safe harbor provision is excludable from testing.

3. Item #2 is true, but only if the plan is amended to an (a) plus (B) formula, with (B) being a safe harbor. Then, the fresh start rules seem to be available, although this makes little sense to me.

Or, and I guess this is #4, the plan is amended to (a) + (B) and it doesn't matter whether the person in question is included or excluded from testing.

Any help would be appreciated.