discrimination regs under 401(a)(4), 410(B), and the like after 2003, how will that effect the arrangements sold by several insurance/annuity and custodial account vendors.

Specifically, I'm thinking of one-time irrevocable elections which are deemed employer contribution, not employee deferrals subject to 402(g).

I understand the "discrimination" regs. (LOL) for non-ERISA 403(B) plans is that an eligible employee is eligible for one 403(B) arrangement or another.

Ergo, the 403(B) arrangement that holds employer contributions (one-time irrevocable elections) has just the superintendents (HCEs) and the other 403(B) is salary deferral elections with everyone in it.

Will this arrangement fly in 2003 if governments are subject to the discrimination rules? Assume for purposes of this question that the arrangement could not be cross-tested.

Client wants to set up a new 401(k) Plan. In addition to several outside mutual funds, they want to use their hedge fund as an investment alternative.

Since the client runs the Hedge Fund, the fund will pay the Plan Sponsor management/incentive fees.

Am I correct in stating that this is a Prohibited Transaction?

Two corporations are members of a controlled group but have separate 401(k) Plans. I seem to recall that both plans must elect to use the same testing method (i.e. current year versus prior year). Does this still apply during the GUST rememdial period or can one plan use prior year and the other current year.

I appreciate your thoughts as well as the guidance as to where this is actually stated in the regs. It may be a result of the definition of employer and treating members of a controlled group as one employer.

A small DB plan with frozen benefits has been merged with a larger DB plan as of 7/1/2001. Both plans have calendar plan years. Are my following assumptions correct regarding the 2001 Form 5500 for these plans?

(1) The smaller plan will file a final form 5500 for a 6-month plan year.

(2) The larger surviving plan will file a form 5500 as if the plans were merged on 1/1/2001. In other words, the Schedule B will show 1/1/2001 amounts that are inclusive of the merged plan so that all amounts projected to 12/31/2001 include the merged plan.

Thanks in advance.

I have a client who invested $10,000 into a non-qualified variable annuity. It was surrendered in full in 2001 for $7500. Where does the loss get deducted on Form 1040.

One of the custodians we use for our plans will not make deposits to a state for withholding taxes on distributions as they will for Federal tax withholdings. This custodian will only issue a check payable to a state's Department of Revenue and send it to the Sponsor for the Sponsor to make the appropriate deposit and filing. That works OK when the state is the same state as the Sponsor and as an employer they are already making deposits to the state. But when the participant is now living in another state and wants state taxes withheld (or is required to have them withheld), the logistics become difficult.

Does anyone have a good solution for deposit of out-of-state withholdings?

Thanks.

In a 2002 DB/DC combo where the DB is not the dominant plan and the pv of the DB for the HCEs is high enough to make the gateway requirement be 7.50% of pay, who gets the 7.50%? Is it just people eligible for a contribution, or is there something that requires that all non-statutory excludables be included?

Example, I have one where only certain classes of employees are included in both a DB and DC plan. In the recent past, a DC contribution of 5.5% of pay was needed to pass 401(a)(4) and 410(B). As I understand it, the 5.5% needs to be increased to 7.50% to pass the gateway. Is that all? Do I need to bring any employees that I didn't need to include before (if not needed for testing)? For example, what about participants in the DC plan who terminate before the plan year end (assume a last day requirement)? Do they need to get 7.50% if before they would get nothing?

We are completing ADP testing for a takeover client. In the prior year, ADP refunds were returned to several HCEs. In our review, we've determined that an employee's HCE status was miscoded, and had the status been correct, they would actually have passed ADP.

We are at a loss as to how to correct this? Is it possible to return the refunds to the plan? Though it's tempting to stick to our hold harmless, we want to know what the options are.

Thanks!

We have an employee who has four children. One child (Child A) has had Medicaid coverage for several years because he has a special health condition. Child A and her other children have been on our company's insured health plan. Her other three children recently became eligible for our state's childrens health insurance program. She now wants to drop all of her children from our company's health plan and switch from family coverage to single coverage.

From our research, we see that losing or gaining coverage in this type of program is a qualifying event. Our question is whether it is a qualifying event for all the children since only three of the four recently became eligible for SCHIP. Our employee service company took the position that it was not a qualifying event because one child did not have a change. However, I do not think that is right since dependents are treated as a class. Does the status change of three out of four dependents entitle our employee to drop her dependent coverage?

Company A acquires 100% of Company B stock 01/01/01. For determining HCE's in 2001, do I consider compensation earned by Company B employees during 2000? It appears to me that I do (414(q) says apply controlled group rules before applying 414(q)), just want to double check though.

Thanks for any help.

I am relatively new to 401(k) administration, but I had understood that a SAR was REQURIED to be sent from the employer to participants in their 401(k) plan within 9 months after the end of a plan year.

My current company has told me that the SAR is only required to be sent to participants if you have sent it in the past. Therefore, because we have never sent a SAR to particpants, we are not required to do so now. We do have it available upon request.

Can anyone shed some light on this?

Okay, this is rather complicated - I messed up with an IRA in a couple of different ways and now am trying to rectify the situation. I would appreciate any suggestions.

I opened a regular IRA on April 14, 2000 (for 1999 tax year) and never claimed a deduction for it on my tax form (that year I think didn't earn much and didn't even claim deductions). I actually meant to open a Roth IRA, but did it with an online brokerage while I was online, and must have messed the online application up (I don't even have a copy of my original application).

In any event, I now a) am on my company's 401k plan and b) earn more than I am allowed for deducting an IRA for tax purposes. What would be the best way of handling this? Do I try to amend my previous tax return? Or can I somehow "cash out" my IRA and contest the 1099-R, saying that I never took advantage of the tax benefits of the IRA and so shouldn't be charged a penalty (someone suggested writing a hold harmless letter). Or should I roll it over to a Roth even though I'm no longer eligible to have an IRA? I'm really a novice, so any thoughts as to what my options are, are very much appreciated!

Thanks again!

A client just called me and said that the company name had changed on 11/5/01. This is a calendar year SH 401(k) plan. I will draft a plan amendment to change the employer name and plan name. What about changing the Safe Harbor notice that was distributed on 11/30/01? My gut feeling is that there's no substantive change, so why change the notice. Is this correct?

A company has a Section 423 stock purchase plan under which payroll deductions are taken and, at the end of each quarter, stock is purchased at a discount. An employee was inadvertently allowed to purchase stock in excess of $25,000 for the year 2000, and the employer has just now discovered the error.

Must all of the stock purchased during 2000 be taxed as nonqualified options, or can the amount up to $25,000 be treated as a purchase under a qualified stock purchase plan?

Hoping someone can help me understand the "process" of allowing participants the ability to defer catch up contributions.

We have not yet updated our prototype plans for GUST (removing the deferral limit for NHCE's) so most of the plans that we administer still have a deferral limit (typically 15% but sometimes 10%). We did provide for a prototype plan sponsor EGTRRA amendment that allows for catch up contribuitons. I understand that the law allows for participants to exceed this plan stated limit to allow for catch up contributions.

The problems I am having is how to calculate the amount to defer? As compensation is a moving target (dependent on number of hours worked) how do we advise on the correct deferral rate to allow for catch up contributions? Is 12%, 13%, 14% the right number? What happens if the amount the participant defers is actually more than the stated limit, plus $1,000.

Or does it even matter......If by December 31, 2002 I amend the plan for GUST and remove the deferral % limit, only those deferrals in excess of $11,000 for 2002 deemed to be catch up?

How are plan sponsors notifying their participants of this availability? Any suggestion on a revised deferral election form until the plans are amended for GUST?

Any thoughts would be appreciated.

Thanks!

Could someone provide some guidance on this issue?

I meet with a client and walked through the benefits of a safe harbor match. The client agreed. I delivered the notices to the participants and explained the plan. About a week later, the client called wanting to eliminate the plan. Deferrals have not yet been made. Can the plan be stopped? Thanks.

Can someone tell me if 457's allow for Self Directed options. Thanks

I am sure this has come up before, but here it goes again.

Who has more liability as a trustee. A plan that does not allow for participant self-direction, i.e. a pooled investment that hires a money manager, has a written investment policy, makes decisions quarterly with investment manager. Or, a participant self-directed plan where the participants choose among 12-15 funds. Again, from a trustee standpoint, which scenario carries more liability? Thanks

good grief. people must think I am old enough to know these things. I have never even seen one of these animals.

anyway, someone is working on restating a 401(k) plan sponsored by the govt which has been granfathered forever.

does such plan require ADP language or were they exempt from testing as well (since govt plans usually have all type of special rules, I have no clue)

thanks!

Is the 10 year spousal exception an option or must the exception be used if the spouse/beneficiary is 10 years younger than the participant?