My plan year was 4/1 to 3/31/02. For ADP/ACP testing should the salary limit be referring to the 2000 or 2001 limit? I know they are the same $170k. I think it should be 2001 and then next fiscal year end 3/31/03 the limit used in testing should be the 2002 limit of $200k. Is this correct? Same question for the elective deferral limit of $10,500 this time and $11k for next plan year end testing 3/31/03.

I am not very famliar with 457 plans, however I have a customer who has a 457 plan where a contribution of 1% is made. They want to increase the employees per pay period gross wages to include the 1% and then set up a decuction for the 1%, so the net effect is zero on the employees net pay, however the "gross up" would occur to allow FICA and Medicare to be taken. Does this sound correct?

This question has a number of parts to it...

First, we have a client who has started a new 401(k) PSP effective 1/1/02 with all current employees in 03/01/02. The Plan was not implemented though until March/April. They want the Plan to be Safe Harbor for 2002. Is this allowed? They want to do 100% to 6% Safe Harbor Match. Can SH election be distributed now?

Second, they want to do additional disc match, up to 4%. I don't think they have determined the "disc" part. What kind of communication to the employees is necessary? Does the Company need to present a Matching Resolution in Addition to the Safe Harbor Election? I can't get a firm concensus if and when to use a matching resolution these days. It seems that years ago it was a standard part of the document process, now I can't seem to find that firms do these on a consistent basis. kmb

I have been asked a question that I have never come across before that is very basic.

Does a company have to actually perform the discrim. testing for the FSA plan?

Or is it allowable to not do the actual calculations, based on some preliminary figures that would indicate that the tests would be passed?

Let’s say an employer has a 125 plan and employees pay part of the cost of GHP coverage on a pre-tax basis. But, only employees who certify that they have other GHP coverage can waive coverage under the employer’s GHP.

Along comes new Rev. Rule 2002-27: Does this Revenue Ruling say that those employees who don’t have other coverage and MUST stay in the employer’s health plan are actually making “mandatory” contributions NOT SUBJECT TO 125? If so (i.e., if the contributions are not subject to 125), how are the contributions made on a pre-tax basis? And (since most of the employees who don't have other coverage won't even ask about waiving the employer's coverage) how would an employer know who does and who does not have other coverage?

Does anyone know the specifics of a private letter ruling or a revenue ruling which states that if an employee is given the choice to accept retirement incentive pay as cash OR as a 403(B) contribution, then that payment is considered to be an elective contribution (as opposed to a non-elective employer contribution)? That's my understanding of the IRS position, but I have been unable to find an appropriate document to cite. Thanks in advance!

Help!

We have a client who wants to get rid of his 401(k) simple plan and replace it with a nonstandardized 401(k) plan. Currently, deferrals and match contributions are made on a payroll basis. I'm thinking of using restating the plan to a nonstandardized 401(k) effective 7/1/02. Does anyone see any problems there? Any special notices required?

We are in the midst of correcting a plan for delinquent deferrals. Because we are talking about nearly a year of ongoing delinquency, we advised our client to follow corrective measures under VFC and submit all supporting documentation to PWBA as a precautionary measure. We started advising the client about a month ago, and have been working on corrective measures, calculating delinquency "principals," putting together timelines, etc, etc. Two of the issues we discussed with our client in detail were employee notification requirements (sticky #1), and the IRS Excise Tax issue (sticky #2).

Yesterday I learned that certain VFC rules have softened under the final, adopted program, specifically, that certain excise tax relief now exists, and notice requirements are less stringent or non existent (depending on whether or not excise tax relief is elected?). To confirm these issues (before I spread any "good news" to this client), I contacted the PWBA this morning, using the phone number specified in the documentation . . . ready for this . . . they knew nothing about these changes!

She said, "You'll have to call the IRS about the Excise Tax issue . . . that isn't our territory," and, "of course you have to notify the employees . . . "

So, any thoughts here? Have I misinterpreted what I've read?

I'm receiving more and more inquiries on nonqualified plans. Is there an organization, or training group that can assist me in understanding these types of plans better? All comments welcome.

Thanks for the responses to my previous thread. The next question is when exactly the partial plan termination is deemed to have occurred. This profit-sharing plan had a steady loss of participants over the course of a year, first crossing the threshold of 20% in March of the year in which the most layoffs occurred--by the end of the year, the overall reduction was over 50%.

Section 411(d)(3) provides that you vest the accrued beneift as of the date of the partial plan termination. Where do you set that date? At the date the reduction first exceeds 20%? At the end of year? If it's not at the end of the year, it seems like there could be subsequent partial terminations?

All insights are very much appreciated.

We're filing Form 5500 for Health Care FSA with 100+ participants for the 1st time since we've learned it's considered a welfare plan (no longer filing as fringe plan per new IRS rules). We need to do a Summary Annual Report as well - has anyone done a SAR for a Health Care FSA? Should it include elections and/or paid claims? Or can we just advise participants that a copy of the report is available. I'm using standard DOL format and not sure what's relevant. Thanks.

A 401(k) fails testing and contributions (for whatever reason) long after the end of the calendar and plan year and also after W2s have been issued and all employees have already filed their tax returns. it is determined that monies have to be returned to the participants.

How and when is this returned amount taxed?

How, when and where is it reported?

An additional factor is that the employer would like to pay for the employees ant taxes due.

How can this be done?

When does the increase from 15% to 25% take place for Profit Sharing Plans? I have a Profit Sharing and Money Purchase with a 9/30 plan year end. Can we merge the Money Purchase now and get the 25% in the Profit Sharing in plan year ending 9/30/02? Or is it plan years starting in 2002?

If an employee is covered under Florida Mini Cobra and the employer changes plans or goes out of business, does the employee lose mini cobra coverage like he would cobra?

If so how does a conversion policy work and how much more is it?

These questions relate to United Healthcare policies.

If a bank is trustee of ERISA plans who invest in the banks proprietary funds, can the bank charge their own proprietary funds a fee for work done in connection with filing regulatory reports such as 5500s. (is there a confilic of interest/affiliate/arms length issue here???)

if so are these costs amortized by the funds?

Thanks

I am an HCE (CEO) of a state intermediate education agency. The agency is a state political subdivision organized as a public corporation, e.g., with an autonomous board of directors. I have found conflicting opinions on this question: Are governmental employer 403(B) contributions subject to HCE discrim testing? Can anyone point me to a cite for this question?

I am considering asking my board (in my next employment contract) to reduce my salary by $XXK annually, and direct same to my 403(B) account as an employer contribution, unless this would create HCE discrim problems. I am maxing my elective 403(B), and will also use a new 457(B) plan for maximum elective contributions. If governmental employer 403(B) contributions are exempt from plan discrim testing, they would appear to allow me additional deferrals not otherwise available.

Are there caveats in this scenario, if allowable?

I would like some clarification.

All along, I always checked line 3d of a Schedule T if everyone is benefitting. I would not check it if an employee did not get a contribution due to EOY. Unfortunately, as I read the instructions, I see that the employee that fails to get a contribution due to EOY is not included in the count for line 3b. When do we ever complete the rest of Schedule T? It doesn't make sense because you can still fail coverage if you have a lot of EOY exemptions.

Also, how is it handles when you have a new comp plan with employees benefitting at different rates and you need the average benefits test to pass?

Thanks, Karen

We recently received a QDRO for a participant in a profit sharing plan. Over the years, the participant received forfeitures that we re-allocated within the years of marriage. Would the alternate payee be entitled to a part of the forfeiture money as well? I have included them in a seperate account for the alternate payee but the trustee recently questioned whether they should receive it. Any help is very much appreciated!

I was under the impression that the IRS was supposed to have come out with a new Form 5310 earlier this year, but the old form is still on their website. Are you supposed to still use the old form at this point? Is a new 5310 supposed to be released soon? Thanks.

BTH

An employee has resided in the US for 2 years and will continue to work here for an additional 3 - 5 years. She is wondering whether or not she should participate in a 401(k) plan. What would be the consequences to her when she returns to Brazil. What would be her options with regards to the balance in the plan?