A client of ours has an employee who became a member of an eligible class of employees during the plan year. The plan document says he is immediately eligible to participate if he meets the age and service requirements, which he does. During the time he was a member of the eligible class he only worked 875 hours, but if you count his prior hours, he would be well over the 1,000 hours. Do his hours prior to him becoming part of the eligible count toward his eligibility for a current year contribution and allocation of forfeitures? Also does his salary before his eligibility count?

For 401(a)(4) testing, the plan will be restructured into component plans A and B. The plan has 3 HCEs and 5 NHCEs. One of the HCEs is excluded from participation by the plan document. Component plan A will have 1 HCE and 2 NHCEs. Component plan B will have 1 HCE and 2 NHCEs. I assume that the excluded HCE may be assigned to either of the component plans. Is this correct?

Both component plans must pass 410(B) coverage on their own. In testing component plan A for coverage I assume that I include participants in both component plans in the test, but with only the participants in component plan A as benefiting. Is this correct? Also, in testing the component plan for coverage, are all options available (70% and ABT)? In performing the ABT for a component plan, is the ABT test preformed as if the component plan was the only plan, or are all component plans aggregated for the ABT.

When performing rate group testing on a component plan, are there any special rules that I should be aware of? When testing component plans, each employee is cherry-picked for one component plan or the other. Does this make the classification not "reasonable", therefore the rate group must pass 70% and not the mid-point %?

Also, in performing rate group testing for component plan A, I assume that I include all participants (including component plan (B) in the rate group test, but with all participants in component plan B as a 0% benefit. Is this correct?

Thanks.

I wonder if the SSLI factor and the ERF created by our adminstrative system is are both actually ERFs (Ns over Ns). Could someone take a look at this and tell me what you think?

First of all, I have noticed that the administrative factors system creates "Social Security Level Income Option" (SSLI factor) from the same screen as actuarial "Early Retirement Factors" (ERFs).

If I calculate ERFs for unreduced benefits at age 62 using 5.78% and GAM83U, the age 60 ERF = .84475, whereas the age 60 SSLI factor = .83887 (so they are very close). For ERFs with unreduced benefits at age 62, the ERF at 62 is obviously = 1. The SSLI factor (for age 62 level income option) at age 62 = .99304, and at 62 and 1 month = 1. This makes me wonder if the SSLI factor is actually an actuarial ERF with unreduced benefits at age 62 and 1 month.

I believe the use of the SSLI factor we produce is as follows: The estimated age 62 PIA amount is $1300 and the early retirement benefit for a participant is $600 as a single life annuity at age 60. The Social Security Level Income Option at age 62 would produce an amount payable at age 62 of $1300 x .83887 +$600 - $1300 = $390.53. The amount payable from age 60 to age 62 = $1300 + $390.53 = $1690.53.

Thanks for any comments.

If a employer appears to have gone bankrupt due to

insufficient funds, there has been no formal termination of the plan, there is nobody to contact as their phone number is disconnected AND

participants are wanting their money, what should you do? It is our understanding that distributions do not automatically occur. Thanks for any input on the issue.

We employ the safe harbor rules regarding 401(k) hardship withdrawals. A participant has requested a withdrawal for the purchase of a primary residence, which is an existing house in need of repairs. In addition to requesting the cash needed at closing, he is also asking for an amount necessary for roof repairs and painting. Under our past procedures we would not approve a withdrawal for household repairs - for a home already owned by the participant. We would, however, approve a withdrawal for building a home - including roofing and painting. And, certainly, if the participant could structure the deal so that the repairs would be paid by the seller and and added to the sales price, then they would be eligible for hardship withdrawal. My question: Are we permitted to treat home repairs (at the time of purchase) as part of the purchase price, making their cost eligible for hardship withdrawal?

I have been asked to file for a determination letter for the pension plan of a local government. The problem is that there is no "stand alone" document, rather the government has a compilation of local ordinances that make up the terms of the plan.

My question is this - If the local government will pass an ordinance saying that this plan intends to comply with 401(a) and address all portions of 401(a) that apply to governmental plans, could this compilation of ordinances be submitted to the IRS in lieu of a plan document?

Does anyone have experience with something like this?

Thanks

I work with a bunch of guys who swear buy this plan…. They on a weekly basis buy and sell into our company share offering though our 401K. Our stock, lets say XYZ, has an almost predictable, cyclical pattern where-by it will oscillate from $50 to $70 a share through out the year. They buy low and sell high for example 3 in the afternoon on Monday they will see its at $50, buy the end of the week or month it may be at $60 and they will sell.

Is there anything wrong with doing this through their 401K?? Won’t they have crazy capital gains tax to pay when they retire from all the buying and selling??? Am I better off sticking with regular 401K investments to my company stock, XYZ, or should I ‘day trade’ like my coworkers.

thanks

Is 204(h) notice automatically required when converting or amending a money purchase plan to a 401(k) profit sharing plan (as opposed to a merger of MP into PS)? A recent case issued by the 3rd Circuit (Brothers v. Miller Oral Surgery Inc. Retirement Plan, 25 EBC (3rd Cir. August 31, 2000)) suggests that this might be the case. However, my understanding of the regulations to Section 411 of the Code and from conversations with representatives from the PWBA is that this determination is very factually intensive. This begs the question: what result in the scenario where the plan participants are all HCEs and all contribute the maximum to the MP and will continue to contribute the max to the PS? I am of the belief that this is not a "substantial reduction" of benefits. What if one of eight participants is able to contribute $25,000 instead of $26,000? I would think this would not change the result. Obviously, if the plans are small and it is unlikely that a participant would file suit for lack of notice, I would anticipate that the risk of not giving participants 204(h) notice is minimal or none. Any thoughts?

I have a Cafeteria Plan that offers health insurance as a combo. insured/unfunded benefit, and then they keep the employees' health FSA contributions in a trust. The beginning of year participant count on the health insurance went over 100 for 2001. I realize that I normally wouldn't have to have an audit due to the funding on the insurance...but I've got that trust piece in there as well...Does it need an audit just because of that trust feature, or do I consider the under 100 count on the trust as the determining factor?

Client wants to put a cap on the HCE deferrals (9%)in the plan document. I guess this doesn't cause a problem--does this smell funny to anyone?

Currently I have a Trad IRA with equities valued at 16,000 and a 401k saving. I would like to invest in a Roth IRA and would like some information such as

What is a ROTH IRA and how is it different from a Traditional IRA?

How can I benefit from investing in a Roth IRA?

What kinds of investments should I have in a Roth IRA?

What does it mean to covert and unconvert?

Thanks!

For states that have adopted the EGTRRA provsions, the 403(B)(2) part of the old MEA calculation goes away completely effective Jan. 1, 2002. What about in states that have not passed legislation to comply with the EGRTTA limits particularly California? I am of the opinion the MEA/MAC limit has to be calculated the"old" way? (i.e using 403(B)(2) Is there agreement for this opinion or does anyone think otherwise?

Question: Does a spousal consent is required if the participant is divorced, her former spouse is the beneficiary, there is no DRO or QDRO, he is not naming any other beneficiary and he wants to rollover the money? Thanks in advance for any comments.

Where in the updated code can I see where owner-employees are now allowed to take loans under EGTRRA?

I'm in the process of preparing restated prototype document. Existing Money Purchase adoption agreement allows employer to elect a special timing rule for distributions on disability after separation from service. Plan allows for distribution of account exceeding $5k in the first plan year after separation for service. Special rule: distribution as soon as administratively possible after separation from service on account of disability.

New prototype Adoption agreement eliminated special disability distribution timing employer election. Plan language states that disability distribution is same as regular separation from service distribution. Is there an anticutback issue by eliminating the "as soon as administratively possible" exception?

I am curious as to how other practitioners are interpreting Code Section 414(k)(4) which was added by EGTRRA. This section provides

‘‘(4) SPECIAL RULES FOR SECTIONS 403(B) AND 408.— For purposes of this section, any annuity contract described in section 403(B) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (B) or © of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.’

It is effective for limitation years beginning after December 31, 1999. It seems to retroactively require employers to aggregate contributions between employer 401(a) plans and 403(B) contracts that might not have any employer money, but I am not quite sure due to the refernce to 414(h) which deals with pick-ups. If I am reading it correctly, then some clients need to review 2000 and 2001 401(a) and 403(B) contributions for any excees contributions.

What commentary that I have seen about this provision just repeats the law.

Hi-

If a plan fails ADP and money needs to be returned to the (one and only) HCE but there are also matching contributions - do I have to refund the related match as well? THX

Is it permissable for an IRA to invest in an S Corporation?

I heard that you can establish a plan document that requires an employee to continue to make contributions to their Health FSA when they terminate and their claims have exceeded their contributions to the plan, even if it requires withholding the amount from their last paycheck. Is this true??

Is there a limit on the amount an employer can contribute to a self-funded welfare benefit plan (health insurance) in one tax year? The Plan is an IRS approved 501 © (9) VEBA trust. The employer is a tax-exempt organization. An extremely negative year in terms of claims paid has resulted in the trust reserve balance falling to uncomfortable levels. Can a lump-sum payment be made to bring the reserve up to acceptable amounts? And can that level of reserves be established by the Plan trustee based on claims history or some criteria other than an actuarial calculation?