Can anyone explain to me the difference between a (1) unit benefit, (2) fixed benefit and a (3) flat benefit? I am trying to fill out a Form 5300 and I do not know which to put down. Thanks so much!

Is it allowable under a 401(k) Plan to have a different deferral limit % for NHCEs than for HCEs?

For example, HCEs limited to 15% up to $11,000, but NHCE limited to 25% up to $11,000?

What happens in the event of divorce, when a participant is taking substantially equal payments from IRA? Spouse will get on-half of IRA, therefore he will need to reduce amount he is taking monthly. How does he avoid getting penalized 10% for altering pymt schedule?

Here is the result of some research I recently did on the topic - I welcome all comments/criticism.

"Counting EGTRRA Before It’s Hatched:

California Legislators Struggle to Bring State Tax Laws Into Conformity

With New Federal Deduction Limits

In June of last year, Congress passed sweeping legislative changes affecting retirement plans, known as “EGTRRA” (short for the Economic Growth and Tax Relief Reconciliation Act of 2001). Among other significant changes, EGTRRA (a) increased contribution limits (and corresponding deductions under federal income taxes) under IRAs (including Roth IRAs, traditional IRAs, and Education IRAs), (B) increased contribution and deduction limits under qualified retirement plans (including salary deferral limits under Section 401(k), 403(B), and 457 plans), introduced a “catch-up” deferral for individuals aged 50 or older, and increased rollover options among IRAs and qualified plans. Most EGTRRA changes are effective for plan years beginning on or after January 1, 2002.

Many of you may have already approved modifications to your retirement plan documents conforming to EGTRRA’s new provisions. Employees who participate in such plans, or who maintain IRAs, have warmly welcomed the increased opportunities for retirement savings under EGTRRA.

However, in California and approximately a dozen other states, state income tax laws do not automatically conform to federal standards. As a consequence, employees in these states who participate in retirement arrangements to the maximum extent now permitted under federal law could face state income tax liability on contributions that exceed state tax levels. Conceivably, an employee’s entire retirement savings could be subject to state taxation under such circumstances, but it is unlikely that state taxing authorities would adopt so drastic an approach.

A recent article in the Los Angeles Times (January 6, 2002 Business Section) summarized this dilemma and mentioned three pieces of conforming legislation now before the California legislature. The applicable bills are SB 657, sponsored by Senator Jack Scott (D-Pasadena), AB 1744, sponsored by Assembly Member Ellen M. Corbett (D-San Leandro), and AB 1743, sponsored by Assembly Member John Campbell (D-Irvine).

Although there are distinctions among the bills, each essentially seeks to conform California’s Revenue and Taxation Code to the new contribution and deduction limits available to both individuals and businesses under EGTRRA (Note: AB 1744 would not allow deductions under state taxes for increased contributions to Education IRAs).

Of the three pieces of legislation, Assembly Bills 1743 and 1744 were only just introduced on January 7, 2002, while SB 657 has already been amended and is currently before the Committee on Revenue and Taxation, slated for hearing on January 9, 2002. According to a consultant to the Committee who is assisting Senator Scott on the Bill, it is widely acknowledged in Sacramento that passage of conforming legislation must occur sometime during 2002. That said, the consultant would not acknowledge that passage this year is a “done deal, “ because conforming the state tax laws will cost the state between $40 to $50 million dollars during a year when difficult budget issues are already looming on the horizon. Although the consultant stated that passage of conforming legislation is possible sometime in January or February of 2002, delays are possible in the event the matter gets caught up in the budget approval process. If conforming legislation is not finalized until next year, it is possible that the legislation would allow the filing of amended returns or other tax reporting that would permit employees to catch-up, for state tax purposes, with their federal deferral limits.

How does this sum up, for purposes of employee communications? It is safe to say that it is likely that California will enact legislation later this year, to conform to EGTRRA. In the meantime, an employee has two options: (a) defer up to the maximum federal limits in anticipation of timely changes to state law, with the potential of exceeding state income tax deduction limits if state law changes are delayed; and (B) under-defer, for federal purposes, until such time as state law catches up to the EGTRRA standard. In this latter instance, it is possible the employee will miss out on maximum federal deductions if conforming legislation does not pass until 2003, and takes effect on a prospective basis only.

For those of you who are interested in tracking the progress of the various Senate and Assembly Bills, contact information for the Senator Scott, and for Assembly Members Corbett and Campbell can be found at http://democrats.assembly.ca.gov/english/index.htm."

© Christine P. Roberts, Esq. 2002

i opened an ira for the tax yr '01, w/o knowing all the rules and regulations.

i did not/ could not deduct the $2000 because i already contributed to a 401k plan at work. so can i now convert this to a roth? do i have to pay a penalty?

i do not know if a form for this was submitted cause i files with intuit

'on line'? thx..........

We have a plan that was terminated in the first part of 2001. The termination was submitted to the IRS and an approval letter was received in December. The plan is a calendar year plan.

Distributions are being made currently. We did not include any EGTRRA language in the termination amendment. Does anyone know whether we are required to add in language for EGTRRA? Of particular concern to me are the rollover rules (Re rolling out, not rolling in). If you think we need to amend for some EGTRRA provisions... which ones? Rollover and top-heavy are the only ones that come to mind.

I have a problem with an employee who is trying to roll some of her IRA accounts into her Profit Sharing Plan which I administer.

The Profit Sharing Plan is at Nationwide. The trustee is the Employer. The IRA is at Merrill Lynch.

The employee wants to roll the Merrill Lynch money into Nationwide. Here is what Merrill Lynch wants:

A letter from the employee saying she wants it transferred, specifying how check is to be payable, etc.--but accompanied by an acceptance letter from NATIONWIDE (huh?). I dont get why if we are transferring money from Merrill to a trustee, why the acceptance letter would not come from the Trustee??? why does the IRA fund group 1) care where the money is going, or 2) need a letter from the custodian (not the Trustee...) of where the money is going??? If we are doing a custodian to trustee transfer, why wouldnt it be that a letter of acceptance from the trustee is required?? Since Nationwide is not trustee, what right would they have to write an acceptance letter? Since it is the trustee who decides to accept the rollover or not. I am confused.....

has anyone done any of these yet?

How do you transition a city government that has a 403b plan into the appropriate plan, one that allows employee only pre-tax contributions. Also, what would be the appropriate plan to transition into.

If an employee does not hit a plan limit or the applicable 402(g) limit for deferrals are previous contributions that had been designated as catch up contributions then reclassified as ordinary deferrals up to the applicable limits?

Assuming a plan has a calendar plan year, and has created a Board of Director's Resolution to terminate the plan as of Aug. 31. However, assets are not fully liquidated until Sept. 30. Is compensation limits (i.e. $170,000) prorated for the 8 months ending in August or do you need to pro-rate the compensation limit through September?

I have a client with a conventional DB plan, and a subidiary with a mirror plan. The only difference between them is special minimums that apply to accruals prior to a specific date. Client wants to merge. My question is what would be the appropriate effective date to do so: 12/31/2001 or 1/1/2002.

I think 12/31/01 is valid as long as we complete the amendment(s) by 3/15/2002. However, anyone see any downside to this? A merger as of 1/1/2002 would give us much more time to do all the paperwork, but it gives a one-day plan year. Does this mean I have to do a 5500, including a Schedule B for a one-day plan year? I think the answer is yes, but I looking for feedback on pros and cons of each alternative.

I know that during the remedial amendment period, you can basically choose whether or not to use the prior year or current year testing method with no limitations. What I would like to know is if the plan uses the current year testing method for the 2001 plan year (last year of the remedial amendment period - the plan will adopt it's GUST restatement in 2002), can the plan use the prior year testing method in 2002? Do any of the limitations apply to switching to the prior year in the 1st year after the remedial amendment period?

Any help will be appreciated.

Jane Freeman

Is there a possible discrimination issue if a plan sponsor starts a plan and allows all people employed as of a certain date to be 100% vested in all current and future contributions and the plan makes all new hires subject to a vesting schedule? The existing employees are not being credited with past service as they have only been employed for one or two years.

I think this is a current availability of rights or benefits issue. Does anyone agree or disagree?

Please help me with this question.

An employee participates under his employer’s 125 Premium Conversion and Flexible Spending Account. His daughter is currently being covered under his Group Health policy, but during the plan year becomes ineligible due to her age (19 and not a student).

The employee elects COBRA continuation for her health insurance. This employer’s plan document does allow for “Outside Insurance Premiums” as a pre-tax deduction.

Can this employee run his daughter’s COBRA premiums through any of his employer’s pre-tax accounts? Does his daughter still qualify as an eligible dependent?

I think no, but wanted to get other opinions.

Former member applied for a refund on Date X by personally delivering all the necessary forms to our offices (we date/time stamped, etc.). On Date X + 5 days, she started working for another covered employer. We denied her a refund because she was no longer "separated from service" at the time we processed her request (Date X + 10 days). Could we not honor her request because it was received when she was eligible for a refund? Thank you in advance for your analysis and opinions.

I have a tradional IRA - since 1986. I have invested $32,000 ($2,000 per year). Because my AGI was too high, most of those years I have paid taxes on approximately $28,000 (Form 8606) of that investment. The money is in mutual fund and is currently valued at about $53,000. The new tax laws now make it possible to invest $3,500 per year (I am over 50), but I want to move to a Roth IRA. I have heard that I can do this in pieces (years) - move some in each of, possibly, a 4 year period, so that I would not have an extreme tax liability in any one year. I would like to move, at least the $28,000 which I have already paid taxes on, this year and be able to invest this year's minies in the new Roth. That would still leave about $25K in the tradional IRA. I could also add $5K this year, and then move the remaining $20K over the next 3 years. Can I do this? Thanks

Has anyone had a chance to look at the sample employee notice for the new EGTRRA saver's credit for contributions to a 401(k) or IRA (IRS Announcement 2001-106)? Is it just me or is the first example that they use totally incomprehensible? If anyone has deciphered it, I would appreciate any help. Thanks.

An interesting Plan design possibility came up in discussion and I would like some feedback as to its legality. Employer has a safe harbor 401(k) plan with a 7/1 to 6/30 plan year. It seems the HCE could defer the 402(g) limit between July 1st and December 31st and then defer the 402(g) limit for the following year between January 1st and June 30th. Prior to the beginning of the next plan year, he could revoke the safe harbor election. The following year he would again go back to the safe harbor plan and defer the 402(g) limit ad infinitum.

Therefore the owner would achieve the maximum deferral each calendar year while only having to make the safe harbor contribution every other year.

Any thoughts?

Please comment on whether this example scenario makes sense: Employee marries at the beginning of year, after the open enrollment period. Employee wants to enroll dependents (who are step children) on to the Flex Dependent Care account.

Dependent Care SPD states that only decreases in coverage may be made for a change in status. In other words, no enrollment until the next open enrollment period.

I realize that companies are permitted to make rules that are more restrictive than the IRS regulations on change in status, but this SPD provision is insensible. It practically means that any new dependents must wait until the open enrollment period, unless one had the foresight to sign up for some Flex coverage, and then change the amount under change in a status event. (In this case the formerly single employee was not even eligible to sign up for dependent care because he did not have any dependents during open enrollment!) Perhaps the company doesn't want the administrative burden of tracking mid-year elections? (But, the company must track those who leave mid-year.)

Is the company miscontruing the cafeteria rules (perhaps thinking of health care Flex instead??)? Comments? What does your company do? :confused:

Can I use the money from the sale of inherited land to fund a Roth IRA or other tax deffered account? (ED IRA OR 529)

This will mean the difference between DCA over the next 12 months or lump sum in January!

Thank You