I'm in need of some assistance regarding FICA alternative plans. The question has been asked of me by a client who currently maintains a 401(a) FICA alternative plan, if there is a way to allow participants to defer a part of their wages under an additional plan 457? perhaps? without messing up the current plan as it stands? The gov. entity currently makes a 10% contribution to the money purchase. I do not deal with these types of plans very often, so I would appreciate any help anyone can give .

Situation: Former employee has a substantial account balance, which includes a life insurance policy (cash value = 20,000). He wants to roll the non-life insurance assets to an IRA, but does not want to take a distribution equal to the cash value of the ins. policy.

In addition to lump sum payouts, the plan document allows annual installments. Can he roll the non-life ins. assets to an IRA (2002 annual installment), then take the policy as his annual installment in 2003?

Other:

He does not have the cash to pay in to the plan to replace the cash value.

Yes, I know he might be able to take a policy loan and use the proceeds to pay the taxes.

I luv life insurance in qualified plans. Thanks.

Maverick

I have a client that wants to have their 401(k) plan have a 3 month wait for salaried employees and a 12 month wait for hourly employees. Naturally, the salaried group has HCEs, and the hourly group doesn't. I assume that I have a discrimination problem - right? If yes, any comments or ideas on how I can make this work? TIA

Can I establish a $2000 Roth IRA for 2001 before April 15, 2002 and then contribute $3000 for 2002 shortly thereafter (in May)? Thanks!

I am looking for any documentation regarding the legal consequences if an employer does not notify their employees of their Plan's entry dates. Would this fall under the SPD notification? Thank you.

Plan permits a match contribution to the catch up contribution "in accordance with the formula specified in the adoption agreement."

If that formula is "50% of the participant's elective deferral which does not exceed 6% of the participant's compensation,"

What is the proper match for this participant?

Annual comp = $50,000

Elective Deferral = 10%

Match = 3%

Catch up contribution = 2%

Catch up match = ???

A. 1% (50% of 2% elective deferral)

B. 0% (max match is received because of elective deferral)

If somebody works past NRA in a cross tested plan, what testing age are people using for the annuity rate conversion, NRA or attained age?

Is there any 401K plan that is not subject to FICA?

Here is a question I need help with:

I have a 125 client who has had a very poor year in regard to employees signing up as participants, making claims and collecting their annual declared amount, and then terminating early in the plan year before all the payroll deductions can be made.

If at year-end (and after the grace period) a client's Flexible Spending Account balance is in the negative whose liability is the deficit? I presume that it is the Employer's responsibility to make up this deficit amount to the Plan Administrator.

Am I Correct?

Thanks for your help in this.

We are taking over a 401k plan that has been in existence for many years. In the process of the takeover it was discovered that several owners of the s-corporation currently have outstanding loans (repayments have been made since the initial withdrawals several years ago). How can this be corrected since they were withdrawn prior to the 1/1/2002 effective date that permits such transactions. Thank you.

I want to personally set up a 529 plan for my son's college education expenses. I'll be the sponsor and trustee. I'll hire an attorney to set up a trust. The trust will be named "Sec 529 Plan for Moe Howard, Jr". My family and I will make contributions to the trust. I'll choose the investments. I'll do all the accounting for the trust & I'll keep up with how $much of the trust's assets are owned by each contributor. The contributors will get full benefit of all income and gift tax breaks allowed under IRC 529. I'll get the trust an EIN and I'll make sure that contributors are informed that earning withdrawls not used for college education expenses are taxable.

In other words, I'll set up the plan myself and not use a "state-sponsored plan".

My Ouestion:

Where can I get a generic "529 plan document" to use as a guide in designing my 529 plan document? .... and does the IRS have to approve my plan document (do I have to request something like a determination letter ?).

Do I need to get permission from my state ?

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This is not a nonsense question. I actually have clients that want to do this. I have told them that only a state can sponsor a 529 plan and that although banks, insurance companies, brokers, and others can sell mutual funds (on behalf of state sponsored 529 plans) .... no bank, insurance company, broker, or other individual can SPONSOR a 529 plan.

Am I right or wrong? I can't find this in IRC 529. Does anyone know what sentence in IRC 529 says that a 529 plan can only be sponsored by a state ?

THANKS

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My company is just setting up a 403B, of which I am the administrator, and my payroll company tells me that FICA must be taken out of the employee contribution. It is my understanding that all contributions, up to the yearly limit, are completely tax free - that all deductions will be taken when disbursements are taken upon retirement, disability, etc. What is the correct information?

Sally G

My client is a member of a large controlled group. All of the members of the controlled group have filed for bankruptcy either under Chapter 7 or Chapter 11. Some of the liquidating entities are terminating their health plans (some of which are/were self-insured and some of which were fully insured). We know that under COBRA the employees and former employees covered under these plans are entitled to COBRA benefits under existing health plans within the controlled group. Unfortunately, the insurance company has indicated that they will not cover the employees from the other entities in the insured plan and the banks have indicated that they will not let the remaining companies continue if they offer self-insured plans to cover these individuals. What do we do? Can we establish a VEBA which used employee premiums to purchase the best major medical policy we can to cover what we can? It seems we are between a rock and a hard place.

Company A sponsors an ESOP with match and a 401(k) Plan. Plan Year End 3/31.

Company B sponsors 401(k) plan with a match. Plan Year End 12/31.

Company A bought Company B 1/1/00. Company B employees employed 12/31/99 were allowed into the ESOP as of 1/1/00.

The plans are being merged 1/1/02. This merger creates a short plan year for Company B employees and their 401(k) plan for 3/31/02.

What can be done for the Company B 401(k) annual additions testing? The deferrals, match, and compensation will all be from the period 1/1/02-3/31/02. Whereas the ESOP contribution will be based on 12 months of compensation (4/1/01 - 3/31/02).

If the test is calculated in this manner participants could fail the annual additions test with just their ESOP contribution. (10% of $170,000 = $17,000 which exceeds the $10,000 maximum under the short plan year.)

Is there a way to work this situation? Can Company B set the limitation year for the 401(k) Plan to the 12 month period? Are there other options?

Can an estate use the social security number of a deceased participant as its own tax ID or does the estate need to apply for a tax ID?

How many amendments to a 401(k) plan are allowed before the IRS states you must rewrite the entire plan?

Situation:

An employee was covered under the voluntary long tem disability plan in 2000, elected coverage again in 2001, but was somehow (by employer) dropped from coverage. Employer is not sure how it happened.

It is clear from the enrollment forms that the employee elected coverage in 2001 and the employer and or insurer dropped the ball.

Employee elected coverage for 2002 and due to "break in coverage" insurer requires either medical underwriting (blood etc) or payment of back premiums for 2001 - when employee was apparently not covered under the LTD plan.

Questions:

1. Is employee entitled to coverage in 2002 without paying either 2001 premiums or going through medical underwriting?

2. What happens if employee becomes disabled before medical underwriting is complete?

3. What happens if after going through medical underwriting, the insurer denies coverage? Can employee then pay 2001 premiums and still be covered?

thanks

How can you find out if an employer made a Top Hat filing on time without asking the Employer to prove it. Can you confirm the Filing with the DOL?

Carol V. Calhoun wrote a fantastic article entitled "The Tax Law and the Nonqualified Variable Annuity" on her website at http://benefitsattorney.com/annuity.html. After reading this article I am very interested to hear opinions regarding the following situation.

Say an individual purchases a nonqualified variable annuity (as the owner and annuitant) with $100k for purposes of making a profit. The following day the market crashes, the value of the variable annuity drops to $75k and the individual surrenders the entire variable annuity for cash. Please note that this contract was not annuitized (e.g. Life & cash refund, Life & 20 year term certain, Life annuity) - it was simply liquidated for cash. Would you view this transaction as a:

1) Capital loss

2) Ordinary Loss

3) A loss deducted as a miscellaneous itemized deduction subject to the 2% AGI limit (Schedule A, Form 1040)

4) No loss at all (for tax purposes)

According to Tax Facts, under IRC Sec. 165, an "ordinary loss" could be claimed if a taxpayer sustains a loss upon the surrender of a "refund annuity" contract. Then Revenue Ruling 61-201 is cited. What if the surrender of the contract was not distributed as "refund annuity" over a predetermined number of years - but as a lump sum surrender where no prior distributions were made? I believe the definition of a "refund annuity" was defined in Reg. 1-72-7.

Others have argued that the tax treatment of variable annuities and nondeductible traditional IRAs are similar IN THAT, as discussed in Publication 590 under paragraph titled: "Recognizing Losses on IRA Investments", "If you have a loss on your traditional IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. You claim the loss as a miscellaneous itemized deduction, subject to the 2% limit, on Schedule A, Form 1040." It is widely believed that this philosophy could be applied separately to the aggregate of an individual's Roth IRAs, Education IRAs, or 529 College Savings plans too.

Yet, others argue that a nonqualified annuity is like holding a bond IN THAT the earnings (interest) generate ordinary income (when distributed); however, the sale of the underlying instrument is a capital transaction (just like the sale of the bond itself) and gives rise to either a capital gain or loss.

If it is determined that a profit sharing plan does not incorporate the 401(a)(17) comp limit by reference, and the plan has no last day requirement, and it is amended mid-year to incorporate EGTRRA's $200,000 comp limit, is this a cutback for other employees?

If so, is the IRS contemplating any relief under 411(d)(6)?

This question is discussed in more detail on Corbel's website here:

http://www.corbel.com/news/pensionupdatesd...tail.asp?ID=157

Opinions?