Can an employer with a POP or a Cafeteria Plan not have an annual enrollment but instead allow employees to make changes at any time with the effective date being the first day of the month following the date of change? This may include changes that do not follow under the Change in Status provision.

Hi: Recently I have had a major problem with my Roth IRA account. I started investing Roth IRA in 2000 under a strong influence from my banker. He promised me at that time that I would be allowed to take the money out without penalty before the five year limit if I was going to use that money for the buying my first home. I listen to him, because that was my major concern not to invest in a IRA account to begin with. We withdrew the money to buy our house last year. Now I am told we still have to pay 30% income tax on this money taken out from our Roth IRS account which we were never told! Can some one help me on that? David

Background - One of my plans was been amended to allow 401(h) accounts and 420 transfers to pay post-retirement medical premiums from the pension trust. The plan year is 7/1 through 6/30. The client only wants to do the 420 transfer part, that is, transfer some of the assets to a separte fund and use the money for the retirees medical premiums. They want to make the transfer in June, 2001. As of 7/1/2000, the plan had assets in excess of 125% of current liability.

Questions - (1) Can the money be used to reimburse the company for premiums paid during the 2000/2001 plan year? (2) What has to be included in the participant notice or where can I find a sample notice?

Thank you for your response.

I am hopping for some help with and area that I do not deal with very often. I have a cllient who converted some stocks from her traditionall IRA to her Roth account in 2001. The value of the stocks at the time of conversion was $16000. ( this was a mere conversion of existing stocks- not a new contribution) After the conversion, the total value of the stocks dropped to $8500. She would like to recharacterize the entire shares of stocks back to a traditional IRA. ( she wants to "undo" the conversion" )

Because she is putting all of the stocks back into another IRA, and becuase she had a loss and merely wants to act as if the original amount was never convreted, it seems to be OK. I have looked into this , and it appears that she can merely recharacterize the assets to a second tradtional IRA, thus making the intitial conversion be a mere transfer of assets from one tradtional IRA to antoher. Her financial planner wil not allow her to do the recharacterization. He said that, if she does, she will be required to pay taxes on the amount of loss( $7500) Or, she will need to move an addtional $7500 from her Roth to her IRA. Please advise me- I dont' know what I have overlooked, but it seems to me that she should be able to "undo" this mistaken conversion.

Thank you,

Gina

Assume Mr. X reaches age 70 1/2 in 2001, and dies in February 2002 (before taking the 2001 Required Minimum Distribution from his IRA, which was due April 1, 2002). His spouse, Mrs. X, is his designated beneficiary, and she will be 70 1/2 in 2003.

The proposed Regs. in Section 1.401(a)(9)-3 make it clear that Mr. X's IRS beneficiary is not required to take a RMD for 2001 because he died before his first required distribution date. A post-death distribution is due by December 31, 2003 (the end of the year after the year of death), and then that distribution will be calculated using his wife's life expectancy in 2003.

However, it is less clear about what is required if Mrs. X assumes ownership of her deceased husband's IRA. Proposed Reg. section 1.408-8 Q&A 5 provides that Mrs. X may assume her deceased spouse's IRA, but that the election to assume the IRA "is permitted to be made at any time after the distribution of the required minimum amount for the account for the calendar year containing the individual's date of death". The preamble to the proposed Regs. states that this sentence "make(s) the election consistent with the underlying premise that the surviving spouse could have received a distribution of the entire decedent IRA owner's account and rolled it over to an IRA established in the surviving spouse's own name as IRA owner." The preamble also describes the regulation as mandating the distribution of the "required minimum amount (if any)" due for that year - this recognizes that there may be no minimum distribution required before transfer. The question is, in these circumstances, what is that "required minimum amount (if any)" which must be distributed if Mrs. X wishes to transfer ownership in 2002?

If the assumption of an IRA is meant to be consistent with what would have happenned if Mr. X, prior to death, had directed a distribution of everything from his IRA, then under proposed Reg. section 1.401(a)(9)-7 Q&A 3, Mrs. X would need to take a distribution of Mr. X's 2001 and 2002 RMDs before she can assume the IRA, which is a worse situation than if she had not assumed the IRA.

Therefore, it seems that the better reasoned answer is that the determination of whether a RMD is required for the year of death is based on whether Mrs. X's assumption occurred before 2003 - if the assumption occurred in 2002, no RMD would have been due in the "year of death" because proposed Reg. section 1.401(a)(9)-3 Q&A 3(B) provides that the first post-death distribution is not due until 2003. In other words, the phrase requiring that the spouse may assume the IRA only after the "RMD for the year of death, if any, is made" only applies to an IRA owner who dies after his initial Required Minimum Distribution Date. For Mrs. X, no RMDs need be made in 2001 or 2002 (because Mr. X died before his first RMD date). Thus, assuming Mrs. X assumes the IRA in 2002, Mrs. X need not take her first RMD from the IRA until her personal RMD Date based on when she attains age 70 1/2 (i.e., April 1, 2004).

From everything I have been researching on catch-up contributions for the off-calander plans - it is my understanding that in order for a contribution to be characterized as a catch-up, the contribution has to be withheld and deposited after the date of the amendment allowing for catch-up contributions.

So for an off-calander plan year ending in 2002, any contribution made prior to 1/01/02 could not be characterized as a catch-up. Do you agree?

If this is the case, I understand how it would work for the first plan year ending in 2002. However, for future plan years on an off-calander plan, would you need to look at the timing of contributions in each calander associated with the off-calander year to see which ones could be characterized as catch-up or would you just look at the total contributions contributed at the end of the plan year?

Example: off-calander plan year 7/01/02-6/30/03

HCE - Participant A contributes $9,000 from 7/1/02 - 12/31/02 and does not contribute anything from 1/01/03 - 6/30/03. When testing is completed after the plan year ending 6/30/03, it is determined that the plan does not pass the ADP and Participant A must receive a refund of $1,500. Can you recharacterize the $1,500 as catch-up and applie it towards the 2003 catch-up limit or would you have to refund the $1,500 as it was withheld and deposited in the 2002 calander year?

Does this make sense?

Does anyone know where I might find guidance on this issue?

For 2001 for a self-employed person who is the only participant in a 401-k:

If his applicable compensation is $10,000, he can make an employee elective deferral for the full $10,000 and then can make a employer profit sharing contribution of 13.04% of $10,000 giving him a total deductible contribution in excess of his contribution.

This doesn't seem right but I don;t see anything in the IRS pubs that disagrees but then they don't really s. Is this right? the same could occur with a SIMPLE at different compensation levels.

For 2002 when Employer limits go to 100%. could he in effect contribute twice his compensation??? I surely must be missing something but the pubs seem to say that employee deferrals do not affect employer limits for the self-employed.

Does the amount of an employer credit provided in a cafeteria plan which is used get included as compensation for purposes of the highly compensated employee definition (414(q)?

I am trying to clean up a mess on a target benefit plan. Document indicates that compensation history is the 10 consecutive compensation periods ending in the current plan year and that the averaging period is the plan year. The averaging period is 5 compensation periods that result in the highest average compensation (consecutive). All of that seems clear enough. However, I cannot follow what the prior actuary used as compensation as the document also references a "fresh start" beginning with the 1996 plan year.

Can someone explain in a clear example (I'm not an actuary) what I'm dealing with here?

Also is there a spreadsheet out there that I can use to check the work? - the spreadsheet I am using and the prior actuary's numbers don't seem to agree, so there probably is something missing from my limited knowledge.

HELP!

Thanks!

Ervin Barham

The Florida Retirement System is offering its 600,000 participants a choice of 2 plans: The traditional Defined Benefit Pension Plan or the new Defined Contribution plan known as the Investment Plan. What are your views of the Investment Plan? See www.myfrs.com.

Peace,

Joel L. Frank

Are Employee Assistance Plans subject to the new HIPAA EDI & Privacy rules?

Plan Year end 2001. Plan is Top Heavy and cross-tested. Contribution to NHCs is 3%. NHC Jones enters plan mid-year & thus is entitled to 3% top heavy based on full year comp.

Q1. When doing the cross-test, I include full year comp in calculation of EBAR. Correct?

Q2. Assume same scenario except contribution to NHC is 8%. NHC Jones gets 8% of 2nd half comp and I only include 2nd half comp in calc of EBAR. Correct?

Thank goodness there are a lot of people a heck of a lot smarter and more experienced than me!!

Background - I am working on a 12/31/01 end-of-year valuation. The sponsor also has a 401(k) plan (w/ employer match). The maximum has always been limited by 25% of eligible compensation. The employer contributes monthly to the DB plan (this is necessary for their cash flow purposes). During 2000, the sponsor contributed over the maximum (excise tax was paid) by $27,000. The full amount was reported on the Schedule B, thus adding the non-deductible contribution to the credit balance.

This year, the minimum is $525,000 and the maximum is $541,000. Since there is a $27,000 carry over from last year, does that mean th must contribute $525,000 but can only deduct $514,000 ($541,000 - $27,000) of it?

Thank you for your help!

Hi- I can't believe this is so hard to figure out, but I've read thru all the IRS's forms, etc. and still am not sure of this...

I have 2 ROTH IRAs that were created in 2001. One is a ROTH Conversion (converted from a traditional IRA)- I'm fairly sure I need to report that on form 8606 and pay taxes on it this year, right?

The other is a new ROTH Contributory IRA. Do I have to pay taxes on the amount I opened it with/contributed to it or not (I did not exceed the maximum contributions- I opened it with the max amount and haven't contributed any more to it)? It seems like I would not, since it was created with after-tax income, so I shouldn't be taxed twice on it, I wouldn't think. Can anyone answer this definitively for me? I appreciate anything anyone can tell me about this-

Thanks!

Does anyone know when Corbel is releasing the 2001 SAR version?

I have a client who is not depositing employee contributions into their SAR-SEP plan in the required timeframe of the DOL/IRS . Where can I go on the Web to find the regulation and copy it so

I can show the client that what they are doing is not allowed.

Also is it a DOL or IRS requirement?Thanks.......Mike King

I have searched around in old posts, but am somewhat afraid to rely on these because of all the changes in the 457 area.

I am looking at a situation with a hospital who was a public entity with a 457 plan for employees. Effective 12/31/2001 the hospital is now a tax-exempt organization and is providing a 403b for employees and paying Social Security.

With plan termination they are allowing rollovers, if desired. There has been much debate and I have a few questions. This is not a strong point for me.

Would the original entity still exist? The hospital district no longer exists. Do the participants have a separation of service or are we talking same desk rule?

The 457 plan has a provision waiving all surrender charges, if there is a separation of service. Would the hospital have to distribute all assets under the plan with the loss of governmental status?

Thank you for any information / help --

Stephanie

Does anyone have a catch-up contribution form they will share?

Thank You

My client is setting up a plan to reimburse employees for premiums for coverage under a medical program for retired members of the military. The reimubursements are paid by the employer and are limited to premium reimbursements, so benefits are excluded from income under Code section 106. We don't have to worry about any issues under section 105 or 125.

Is there any argument that this program is not subject to COBRA or HIPAA? I think it probably is, but it sure would be nice not to give out COBRA notices to people who would gain no benefit COBRA coverage.

If a Federal employee defers money to theTSP, is it aggregated with other deferrals he may be entitled to make to a 403(B) or 401(k) plan subject to the one 402(g) limit?