I requested information from a "high" friend at Treasury. Their reply, received on 7/26/02, is as follows--

"We talked with the IRS about this [the 3 questions below] and they are not prepared for us to go out with answers on these questions."

[see NOTE at end; Q3 may have been aswered]

Question 1: Integrated SEP -- Code Section 402(h)(2)(B) regarding the exclusion of an employer's SEP contribution provides for a reduction of the $40,000 limit. If, for example, a SEP plan were fully integrated (5.7%) at a $10,000 integration level, would the reduction for an HCE earning $100,000 of W-2 wages be (a) $570 [the integration level $10,000 x .057] or (B) $5,130 [the excess compensation of $90,000 x .057] under Code Section 402(h)(2)(B)? Based on the way integration used to work, $570 would appear to be the correct answer. But the language of IRC 402(h)(2)(B) suggests that the limit is computed separately with respect to each employee "by the amount taken into account with respect to such employee under 408(k)(3)(D)." This seems to suggest that the true benefit of integration is the excess compensation times the spread. Recent LRMs do not address this issue.

Question 2: SARSEP-- Whether compensation used for the 25 percent 402(h) exclusion excludes catch-up elective deferrals?

Assume $100,000 with an elective of $11,000 and a catch-up of $1,000. Is the maximum exclusion based on $88,000 or $89,000?

Under IRC 414(v)(3)(A)(i) and (ii), $89,000 would appear to be the corect answer, otherwise (if $88,000 were used) the employer would not be able to contribute, on an excludable basis, $250 (that is, $89,000 x .25 versus $88,000 x .25). IRC 414(v)(3)(a)(i) specifically references IRC 402(h).

3. Question: SARSEP and 401(k) -- An individual, age 50, earning $13,000. elects to defer $12,000 of this amount into a SARSEP. The employer makes a $2,000 contribution. Although the employer receives a deduction for the full amount under IRC 404(n). In the case of a SARSEP, most of the contribution is includible in the participant's income under IRC 402(h). IRC 402(h) aside, does the $14,000 allocation exceed the 100 percent limit under IRC 415 or any other limit? Same facts, but a 401(k) plan? [see below]

However, on July 30, 2002, the IRS issued and new publication that contains "draft" versions of worksheets that appear in other IRS publications. [Pub 918--Drafts of Worksheets in IRS Publications] In Publication 918, the IRS issued a draft of a worksheet for Publication 560 entitled "Deduction Worksheet for Self-Employed." This "draft" indicates that the sum of the employer contributions and the elective deferrals plus the catch-up contribution ($1,000 for 2002) may exceed the earned income (compensation) of the self-employed individual. Even if true, such a position would not apply to a common-law-employee or nonowner paid on Form W-2--Wage and Tax Statement. Arguably, the 100 percent of EI limit would not be exceeded in a SEP/SARSEP by the catch up amount, but Code Section 401(d) would appear to limit contributions to the amount of EI in the case of a qualified 401(a) plan.

Example. Based on Publication 918, if a self-employed's earned income is $10,000 (after reduction for the 1/2 of the self employment tax deduction), the individual may contribute $2,000 as an employer contribution (25% x ($10,000 - $2,000)) plus defer $8,000 as an elective deferral, plus defer an additional $1,000 if age 50 or older--and still be within the 25 percent deduction limit under Code Section 404(a) (3)(A). This totals $9,000 as an overall contribution with compensation equaling only $8,000. It should be noted that the 25 percent deduction limit is based on the eligible compensation of all plan participants.

Caution: The worksheets are subject to change before they are officially released. It is difficult to imagine the source of contributions that exceed an individual's earned income. As a general rule, an individual may only make elective contributions from amounts they would have otherwise received in cash, had the election not been made. With earned income of $15,000 or more ($16,140.27 before reduction for 1/2 of the self-employment tax deduction ($1,140.27) for 2002) this problem would disappear. In the authors opinion, the worksheet found in Publication 918 is likely to be corrected.

Lets say in July 01, an insurance company informed my client that they would be receiving a demutualization check before the end of the year. The valuation date is October 1. They received the check in December 01.

If I am just now doing (or re-doing) the 10/1/01 valuation, and I know the amount of the check, can I recognize it as a trust asset for the 10/01/01 valuation?

What if it increases my assets by 10%?

If I can recognize "accrued income" as an asset, is a demutualization check any different? Can I treat it as a realized gain that just hasn't settled?

Can an employer designate different eligiblity requirements for exempt vs. nonexempt in a cafeteria plan doc? For instance 1st of month following 30 days for non-exempt and 1st of month following 90 days for exempt? How about for full-time and part-time, etc.?

We've been having a little discussion here, without reaching an agreement. Say you have a person in a profit sharing plan, who is 73 years old. She has been taking minimum distributions from the plan monthly. Now she wants to take the remaining account balance and have the Trustee go find an insurance company and purchase her a lifetime Joint & Survivor annuity for her and her spouse. Can she do this, or must she get an annuity for a period certain not extending beyond the remaining life expectancy according to the joint life expectancy originally calculated when she started receiving minimum distributions? (or some other answer) Thanks.

I'm seeking information on Non Qualified Deferred Compensation Plan designs. Can anyone provide some insight on a site that will provide benchmark data for mid to large size companies, preferrable in the retail or service industry.

Thanks

I'm a rookie to the 457 arena, and have some basic questions,

1) Is the 457(B) considered to be a qualified or non-qualified plan.

2) Does the new EGGTRA changes allow a former participant in a 457(B) plan roll their account balance to a 401(k)?

3) Since the 457(B) Plan does not require annual discrimination testing and 5500 filing, is there any need to have (and pay for) a TPA?

4)Is there any reason an eligible employer would not want to have both a 401(k) and a 457(B) plan, since an eligible employee can now contribute $11,000 to each plan?

5) It appears that a 457(B) plan allows a plan sponsor to discriminate who is eligible. Are there any rules governing eligibility or can I, the plan sponsor, allow only the people I like (and who are nice to me) to enter the plan?

6) Do you have any recommendations as to an investment company who is willing to work with smaller non-profit entities in establishing 457 plans?

Thanks for your assistance,

Where does the liability lie? If the TPA is processing claims and performing its due diligence in assuring an expense is viable and then the expense is not; what are the consequences? and who holds the liabality? Could the TPA be laible for issuing a remiubursment check that shouldnt? (example: An employee submitted a claim for a dependent( they said) and that "dependent" was not being claimed by the participating employee)

Okay--bear with me on this one. We've got a client in a 1-man MPPP plan with substantial assets that wants to terminate the plan and roll to an IRA. He is 70. For reasons I won't go into here, he would like to avoid getting spousal consent, so we are trying to figure out a way to assert that the benefits are not subject to 417/annuity provisions. Chew on this: Assets were originally accrued in a DB plan back in the 80's/90s. Early 90's,the DB plan was terminated (determination letter received) and participant and spouse both executed the annuity waiver and elected to transfer the benefits to a newly established MPPP (by the way, this DB plan also survived the actuarial audit "witch hunt" back in the late 80's). This MPPP was set up to provide for a 0% contribution and no contributions were ever made to this plan. Now, the participant wants to terminate and roll the funds to an IRA without his spouse's consent. Okay--this may be far fetched--don't pummel me with the "rules" because I know them. But how about an argument that asserts that since this plan was set up with a 0% contribution, the plan is and never has been subject to 412? Thus, the plan would not be subject to the annuity requirements of 417? So . . . we could amend the plan under the 411(d) regs (1.411(d)-4) to eliminate the annuity provisions (remember, an annuity waiver/consent was already obtained back when the distribution/transfer occurred between the DB and the MP). I realize that this is pretty "creative," but I would like any comments . . . .

I'm working on a new 401(k) plan for a partnership with four partners, and I'm calculating the safe harbor contribution. The CPA has allocated the non-partners' safe harbor contributions in accordance with the partnership agreement. However, I was told that the safe harbor contribution for the partners is not a partnership expense and is not allocated according to the agreement. It is allocated to the partner who is receiving the contribution.

Is this correct?

Would a bank acting as a trustee of a VEBA required to include it in the "other" category on the Federal Form RC-T for Fiduciary and Related Services???

Does anyone know if medical and dependent care flex spending accounts can be administered on a company's fiscal year as opposed to a calendar year? I've never seen it done any other way besides calendar but I thought I'd double check. Thanks!

Can an employer in SC terminate the health insurance under it s welfare plan to an employee who is currently out on a workers' comp claim and who refuses to pay his share of the insurance premium? Where do I start the research? Any cites? Are there any special rules in SC for this?

I'd like to know how administrators out there handle clients when using the Financial Interface in Relius with regard to ADP/ACP tests. We have many small clients that we test at June 30 to project to year-end and prevent test failures. When using the financial interface, the data contains a prior year receivable and does not yet have the current last payroll receivable. At this point, we still request census data including deferral/match every six months, but I have to have the client in the database twice, using one for account balance data and one for testing. How do others do this? Is there an easier way? Any input is appreciated.

are VEBA's governed under ERISA?

Thanks in advance

Two country clubs have merged into one. The one club has a 401(k) plan the other club has a 457(B) Top Hat Plan.

1) Can they have both in place at the same time?

2) If so, can participants who are eligible for both plans contribute to both plans during the same plan year?

3) If they decide to stop the 457(B) plan, what can participants do with their account balances? Roll into an IRA?

4) Will having a 457(B) plan affect the testing (or anything else) for the 401(k) plan?

This is kind of a strange Question, but any wisdom is appreciated.

In a Simple 401(k) plan, do the owners have to give theirselves the mandatory match. I have two owners who don't really want to match their deferrals? Strange..

Marybeth

We have a client who completes their own 5500 and then they ask us to review it.

Among the Plan Characteristic Codes they have chosen for line 8a is a Code "2R." I've never seen code 2R before. Is this a new code for 2001? What does it indicate?

I have a client who wishes to install a plan whereby the employer makes all the contributions. All contributions will be used to fund medical costs not covered by medicare insurance (I'm not sure if this client wants to actually purchase supplemental insurance coverage or actually pay the non-covered expenses).

He wants to do this on a tax qualified basis (deduction to employer for the contributions, tax deferred growth of earnings). I have done quite a bit of hunting to find out if this is an allowable type of plan and can't find anything on point.

Can anyone point me to a good article or give me any guidance as to what type of plan document would be needed, what code section this falls under, etc. I am a 401k person - hopefully I'm not asking a dumb question. Any help is appreciated.

An employer sponsors a Union plan and an non-Union plan. The employer amends for catch-ups in the Non-Union Plan on 1/1/02.

When does he have to allow catch-ups in the Union Plan- by the 10/1/02 date?

Or by the plan year that begins after the termination of the CBA in effect on 1/1/02?

Does anyone know whether Missouri has passed EGTRRA conformity legislation? Do you know where I could find the bill or statute? I can't find anything for this state on conformity legislation. Any help would be greatly appreciated!