Can a Company, who currently sponsors a SIMPLE-IRA Plan, terminate the SIMPLE Plan and put in a 401(K) in the same calendar year. (I am pretty sure you cannot put in a SIMPLE in a calendar year that you have a 401(a) type plan - BUT is the reverse also not allowed)

I have made excessive non-deductible contributions to a traditional IRA in the years 1997 ($4000), 1998 ($4000) and 1999 ($4000) [don't ask me why I was so stupid!]. I understand that I have to pay a 6% penalty for each year I did not correct these mistakes, but the following issues are not clear to me:

1. If I remove these contributions in January 2002, do I have to pay the 6% penalty for 2001 (I do not remove the excess contributions in the calendar year 2001, but I will remove it before the deadline for the tax year 2001 in April 2002) [it is clear that I have to pay penalties for the years 1997 --> $240, 1998 --> $480, 1999 -> $720, 2000 --> $720]?

2. As the excess contributions were higher than $2000, do I have to add the removed excess contributions (plus any gains) to my taxable income (they were not deducted from my income in the corresponding years), and if yes, in which year, i.e. the complete sum to the taxable income in the year 2001, or to the years I made the excess contributions?

3. Can I put forward some of these excess contributions and apply them as contributions for 2001 and 2002 (of course still paying the 6% penalty for the years 1997, 1998, 1999 and 2000, and depending on the answer to 1. for 2001)? Can I select these amounts so that I reduce the excessive amounts for two years [let's say 1997 and 1998] to $2000, so that the amount to be removed would be $2000 or less for these two years, and therefore not to be added to my taxable income? Could I even go further this way, leave the excess contribution for 1999 in the account, pay the penalty for 2002 and apply part of it in 2003 as a contribution for 2003, and so also reduce this excess contribution to $2000?

May a State or Local public employee pension fund operate a 457 plan?

Does anyone have any comments on the story mentioned in Friday's Benefits Buzz about the recent DoL advisory opinion?

I work for a very small 501c3. We currently have a typical 403b plan with high expenses. I want to use the occasion of rewriting our plan document (due to GUST) to change to a vendor with lower fees. I am considering changing vendors (to TIAA-CREF) or changing plans to a 403b7 with Vanguard or even a 401K with someone else.

We usually have between 9 and 11 people on staff and between 7 and 10 participating in the plan at any one time. Of these participants, 4 are long-term employees, in their late 40's to mid-50's, who earn relatively high salaries. The remainder of the staff is much younger (often in mid- to late-20's), lower paid, and usually leave the organization within one or two years of beginning participation in the plan.

The organization contributes a fixed percentage of salary and we allow elective deferrals up to the legal limit.

We outsource the preparation of our 5500 and plan document.

I am unclear about how these three different options will affect my organizations responsibilities. We have in-house resources to keep track of employer vs. employee contributions, but not for record keeping or education beyond that. Are the three options significantly different in terms of organizational responsibility for a plan of our size and configuration?

The employer/sponsor of an FSA plan goes bankrupt in July. Doors close, all employees find other jobs. What happens to the FSA plan? The employer found enough money to set aside to cover any unpaid claims. The question is, don't we have a plan termination? What expenses are eligible for reimbursement? The whole year, are just those incurred prior to the company closing. What about an individual that terminated prior to the closing that elected continuation?

Any thoughts would be appreciated.

Does anyone know if it is permissible to convert existing traditional IRAs to Roths if all are preexisting?

I intend to convert both of my existing traditional accounts (one is traditional deductible and the other is a rollover traditional deductible) by depositing them in my existing Roth account. Up to this point, I thought that they must be kept separate. Now I've read that this is not the case. It will be much easier managing one account rather than doing the conversions of my traditional accounts to new Roths and ending up with three Roth accounts.

Thank you

The Relius recordkeeping software included a participant's full-year comp in the calculation of the Average Benefits Test even though the participant didn't enter the Plan until 7/1. Relius' calculation of this participant's EBAR differs from mine since I had only used comp while a participant (as the Plan docs stipulate) for calculating both the dollar allocation and the EBAR.

Did I err in my calculation of the allocation and EBAR, or do I possibly have a setting incorrect in Relius?

Looking for some calirification. I realize that qualified plan distributions not eligible for rollover are not subject to 20% mandatory Fed withholding. Code section 3405b states that any non-periodic distribution not eligible for rollover (hardships, MRD's, etc.) will have 10% Fed taxes withheld unless payee elects not to. As a plan administrator must we comply with these regs or can we simply state in our distribution paperwork & tax notices that there will be no withholding done on these payments? Thanks.

Participant aquired primary residence loan. Four years later purchased another home and took out another primary residence loan. The first loan is still outstanding and is now a rental property.

Is this compliant? If not, what are the ramifications?

I have a plan that provides allocation for the owners for 13.25% of comp contribution and 4% for all others. The plan also allows 4k but has low participation. The employer would like to put in the maximum 15% contribution. Due to the low 4k participation, the 15% will exceed the formula described above. Is their any guidance for contributions exceeding the base formula? I could not find anything in the document.

I have a U.S. Citizen employee who works for a foreign office of a U.S. LLP (foreign office is actually separate related general partnership). Assuming plan could be amended to permit participation, does Code Section 911 limit the maximum amount which the employee may defer (for example, if employee is expected to make $200,000 in 2002, does exclusion of $80,000 in 2002 under Code Section 911 make the compensation used for purposes of deferrals actually $120,000?)

I’d like to know how other organizations handle new employees who are on their initial probationary period. In one of our departments they earn less during their initial 90 day probationary period and are then given a raise once they complete their probation. Another department favors paying the same rate during and after the probationary period.

Carlos Rivera

Chief Financial Officer

Cooperative Home Care Associates

Crivera@chcany.org

What do other organizations start entry level employees at – both experienced and inexperienced. We have been in the low $20’s but there is some thought that our minimum entry level starting salary for inexperienced workers should be $24,000 per year. Any thoughts?

Carlos Rivera

Chief Financial Officer

Cooperative Home Care Associates

Crivera@chcany.org

We have a one-man mp plan we want to restate to a ps plan. Originally, we thought we would make the effective date 1/1/02 for the restatement and have the assets renamed as of 12/31/01 so we could do a final 5500. Now we are thinking we can't have the one-day lag period. If we restate and retitled the assets effective 1/1/02, would we have to do two 5500s for the mp plan? One for '01 and a final for the one day in '02? I think I am just confusing myself. This can't be that complicated. Help!

Another "who is the beneficiary?”

An IRA plan document has the following default provision, if the IRA owner died without designating a beneficiary for the IRA.

The IRA owner’s spouse, is any.

If there is no spouse, the IRA owner’s children, per stirpes, in any

If there are no children, the IRA owner’s estate

The Participant designated his spouse as the beneficiary of the IRA. No contingent beneficiary was designated.

The spouse now wants to disclaim the IRA assets. Who should the assets go to?

I’m thinking, since a beneficiary was in fact designated, the default provisions do not apply, therefore, the assets are passed to the deceased’s estate, not the children.

Employee who was a participant in employer's 401(k) plan terminated employment September 30, 2001 and was rehired Dec. 1, 2001. Employer will meet the safe harbor by contributing the 3% non-elective contribution. Since the e/ee did not incur a one-year break in service, then the e/ee will receive 3% of comp. from Jan 1, 2001 to Sept. 30, 2001 and from Dec. 1, 2001 to Dec. 31, 2001, correct?

With a plan year that ends June 30, how do limits such as the 401(a)(17) limit apply?

In other words if someone starts on January 1,2001 and is making $340,000, I would assume that they have exhausted the limit this calendar year on June 30, 2001 and that compensation is zero (for pension purposes) in the last six months of calendar 2001.

In the first six months of calendar 2002, they would only be allowed another $170,000 and then another $170,000 in the last six months of calendar 2002, and another $30,000 in the first six months of calendar 2003. Yes?

Thanks in Advance,

Johnny

Employer's 401(k) plan provides for age/service req's of 21 and one year with participation retroactive to first day of plan year. Plan year is a calendar year. Compensation is taken into account for all purposes for the entire plan year. Plan allows e/ee's to defer up to 7% of compensation. If an employee has not been deferring but now wants to max out his/her $10,600 deferral limit, can he/she elect to defer the entire final paycheck to be cut 12/31 if that paycheck is less than or equal to $10,600? The e/ee makes well above 170,000. From a reporting perspective the W-2 would of course reflect deferrals equal to the $10,600 limit. Any comments or suggestions appreciated....

An IRA owner named his living trust at the beneficiary of his IRA.

He is now deceased. The trustee of his living trust claims that there is a provision within the living trust that permits the trust assets to be moved/credited (not sure of the correct term) to a QTIP trust.

As far as I know, the assets must be reported under the name and tax ID number of the beneficiary(federal law). However, I am not familiar with trust laws. Is it permissible, according to trust law, for one trust to be named the beneficiary and the IRA assets to bypass that trust and go to a another trust that is established though directives of the first trust?