I've seen discussion of this here but don't recall any definitive answers. Can an active participant's accrued benefit go down legitimately? For example, if:

1. Average comp decreases (e.g. comp history is less than the averaging period and comp goes down in year 4 or 5) and an additional year of benefit service isn't credited for some reason.

2. Average comp decreases on account of a high 5 in last 10 definition where the highest years would be prior to the most recent 10 and additional service credit isn't enough to offset decrease in average comp.

3. An increase in covered compensation on account of indexing in a year of termination prior to accruing an additional year of service.

Thanks for any clarification of this.

Can anyone tell me if Section 125 plans need to be amended to incorporate GUST changes effective 1-1-02? Thanks!

A client asked if it were common for many companies to be terminating their pensions and just keeping their 401(k) plans.

My feeling is that the large companies are probably maintaining both plans, or at least convert DB to cash balance plan. And that this may be more common in mid sized companies. I also would say that it is more common than the reverse. i.e. companies terminating their 401(k) and just keeping their db plans.

Any comments on these points.

Also would you say that companies may eliminate early ret windows or significant subsidies in the years ahead because of the need to maintain good employees due to the fact that the baby boomers are approaching ret age and there may be a shortage in the labor force due to the demographics.

We are merging a money purchase plan into a 401(k) plan. The 401(k) allows in-service distributions at age 59 1/2. We want to allow this for a participant's entire account balance after the merger (which will include the assets transferred from the money purchase plan). Generally, in-service distributions are not allowed in a pension plan (though there is authority for allowing an in-service distribution at NRA or age 65 in a pension plan). It seems to me that this restriction is technically tied to the type of plan and not to the source of the money, such that we should be able to allow in-service distributions in the 401(k)plan, even if it contains old money purchase money. See 1.401-1(B)(1)(i). Any thoughts would be appreciated.

A client asked if the allowance or requirement to include overtime and/or bonuses in the definition of pension compensation was just based on the terms of the Plan or if it was a legal requirement.

I said that it depends on the terms of the Plan, but that it is common if not advised to use a definition that meets the statutory requirements for plan testing purposes. My understanding is that (under 414(s)) for testing such as 415, top heavy, etc. you are not allowed to include bonuses and overtime, but for plan purposes you can include overtime and bonuses.

Any thoughts?

Not really a cafeteria plan question, but....

For purposes of the nondiscrimination in eligibility test under 105(h), employees in a collective bargaining unit may be disregarded. However, the regulations don't say that these employees may be disregarded for purposes of the nondiscrimination in benefits test.

Does this mean that a 105(h) plan for union employees needs to be concerned about benefits discrimination? My client has a union plan that contributes unused sick leave to reimbursement accounts for retirees. Since the dollar amount available for reimbursement would be higher for higher-paid employees, this program could be discriminatory if union employees are not disregarded.

Client currenlty operates both its business and its PS Plan on a 11/01-10/31 tax year/plan year. Wants to change plan year to calendar year effective 01/01/02 and add 401(k) provisios to take advantage of (1) new increased PS deduction and (2) non-inclusion of 40(k) contributions in the deduction limit.

Will obviously involve a short plan year 11/01/01-12/31/01.

The businsess is to remain on its original 11/01-10/31 fiscal tax year.

I am confused as to what contributions for what plan years will be deductible for which business tax years.

I would appreciate any comments, suggestions, recommendations, cautions, etc. from our more knowledgeable and experienced readers regarding this situation.

Thanks for any and all responses!

We are trying to determine what withholding rules apply to MRDs. We are having a debate as to whether the withholding rules for non-periodic distributions (10% optional) applies , or if the annuity and periodic payments withholding rules (married with 3 dependents) applies.

Any help would be greatly appreciated.

It's that time of year again, and we have to remember the MRD requirements all over again.

Here is the question. If a plan adopted the SBJPA rules and allowed participants who had not yet commenced to defer until retirement, can a participant who is now age 72 decide to commence MRDs even while actively employed? The plan has no in-service withdrawal provision so we cannot use that to allow a distribution from the Plan. Does anyone know?

If so, we would appreciate the help.

Thanks

I know this may sound stupid, but I cannot find anything on the IRS site that provides a clear cut answer to my question.

The IRS site says: Although interest earned from your IRA is generally not taxed in the year earned (using generally is what concerns me because generally says there are cases where interest earned is taxable).

My question: Are all sales of securities held solely in a Roth IRA account tax free as long as a withdraw is not made?

Thank you,

An employee has asked us if the procedure to harvest stem cells would be reimburseable through his medical reimbursement account? The employee's wife is pregnant, and they are looking into the procedure as an option to use the cells if anything should be wrong with their child after it is born.

Does anyone have any information about stem cell procedures and how they apply back to reimbursement accounts? The subject matter is so new that we're having a hard time scaring up information on it.

Any information that can be provided will be greatly appreciated.

Can an employer through a premium only plan offer a voluntary individual life program on a pre-tax basis and if so, would the actual life benefit be taxable or would it be non-taxable?

Has anyone heard of "intermittent" disability whereby an employee can use his/her STD benefits over time? For example, our STD policy allows for 90 days - can an employee use one day a week until he/she reaches the 90 day mark rather than take the days concurrently?

Many professional corporations have difficulty passing the Key Emloyee concentration test. My firm fails the test annually. My question involves how you correct the failure.

Most TPAs recommend that you adjust §125 deferrals mid-year when you project a concentration test failure. The problem with this approach is that it is imprecise. For example, if non-key employee participation picks up substantially through new hires or changes in family status, you will likely "over-correct" key employee deferrals if you take action as soon as you project a testing failure.

An approach that makes a great deal of sense to me is to perform the concentration test at year-end. If you fail the test, then it is necessary to adjust key employee contributions. However, there are no contributions remaining in the Plan Year, so the only way to correct is to "recharacterize" contributions by key employees to the extent necessary to pass the concentration test. To recharacterize, you simply report the §125 contributions that are in excess of the concentration test as taxable compensation to the key employee and adjust FICA withholdings to the extent necessary in the key employee's last paycheck of the year. This approach has the same income tax effect as reducing contributions mid-year, but is much more exact.

I have spoken with several other benefits attorneys regarding this approach, and while we agree that it should be allowed, we can not find support for it in the §125 regs or statute and find that most TPAs resist it. Any thoughts?

A 401(k) plan sponsor currently has a loan policy with a minimum loan amount per request of $1,000. Is their anything to consider if the plan sponsor wants to increase that amount to $2,500 or $5,000?

Credit Union requests rollover to IRA of their 457 plan assets.

Aren't CU's non-governmental, and therefore not subject to EGTRRA?

If not subject to/covered by EGTRRA, they cannot rollover to IRA.

Unless I am mistaken, only governmental employers, who were previously subject to the Small Business Job Protection Act of 1996 (same employer informed us they were not subject to this act) have had their assets made portable under EGTRRA.

?

I'm looking for a copy of the complaint in the class action filed against Nationwide in Connecticut re mutual fund fees. Lead plaintiff is Flyte Tool & Die. Anyone have a copy?

I don't work with SEPs too often, but have been asked to look into a couple of things. I was looking in the Pension Answer Book and saw the following: "The trustee or issuer of the IRA is required to furnish annual information regarding contributions to the SEP and the fair market value of assets in the SEP. For this purpose, Form 5498 must be filed with IRS by May 31."

I thought the advantage of SEPs was that the employer didn't have an annual filing requirement. What is this 5498, and who files it? Would it be filed by the financial institution? Thanks in advance for any help.

I thought I read a post here that dealt with an individual who wanted to contribute to a TIRA and if the account REALLY appreciated to Recharacterize as a Roth. This would enable them to insure that only "winners" ended up in the Roth and that "losers" would stay in TIRA where you got a $2000 tax deduction. For example a $2000 TIRA contribution that had $2500 in earnings in 6 months would be Recharacterized as a Roth. That puts $4500 into the Roth on a $2000 contribution.

I think that this idea was shot down for a reason that I do not recall. I've tried the search feature but have had no luck.

Anyone recall it or know why this would not be permitted?

It is essentially the reverse of the normal reason why Roths are recharcterized.

Any thoughts on Notice 2002-2's requirement that under Q&A 10 that effectively says that a 401(k) plan cannot be amended retroactively to become an ESOP (at least for dividend purposes).

Is this a new requirement that overrides the remdial amendment rules?

Any thoughts?