A year ago our company entered into Chapter 11 bankruptcy and the workforce has been reduced from around 100 employees to less than 10. Recently, we found that our plan administrator had levied over $800 and in some cases $1500 against each of our personal dwindling 401K balances without prior notification. Since we had not encountered fees before the bankruptcy is it legal for the administrator to levy fees without representing or notifying us beforehand? Secondly, please consider our dilemma where we risk losing our savings and the only recourse is to leave the company and seek employment elsewhere allowing us to rollover the plan to an IRA or another plan. What are our options in what appears to be excessive fees and perhaps illegal intervention of our 401K savings plan? What are the requirements that the administrator must convey to allow such large fees? If this is indeed inappropriate, under what terms may we contact the savings institution and notify them of the transgression by our administrator?

A retiring client, age 65, needs cash and wishes to distribute the employer securities (in-kind) from his 401(k), pay income taxes on the basis, and immediately sell the distributed shares at capital gains rates versus taking a fully income taxable distribution from the plan.

His average cost basis is $30 per share with a market value of $100 per share on the day he requests the distribution. A few days later the In-Kind distribution is made when the value of the stock has suddenly dropped to $25 per share ($5 per share less than his basis).

Would the In-Kind distribution still be taxed on his basis of $30 per share (despite the $25 per share market value)?

If the client is taxed at $30 per share, could he claim a loss if he immediately sold the distributed shares at $25 per share? Would it be a long-term or short-term capital loss?

Or would the In-Kind distribution be taxed at the market value of $25 per share?

If the client did not really need the cash, I would imagine that he could get the recently distributed In-Kind share certificates into an IRA within 60 days, pretend the whole thing never happened, and pray for the market value to rise.

STRATEGY FOR CLIENTS PLANNING WITH NUA IN A BEAR MARKET:

Assume another executive, an active participant in the same 401(k) plan that is not scheduled to retire for several years has a average cost basis of let’s say $50 per share for the employer securities in his 401(k). The total combined current market value of his 401(k) is $1.2 million (600k in employer securities and 600k in mutual funds). He is very happy with the long-term outlook and the current fundamentals of the employer stock despite its recent fall from a $100 per share market value to a $25 per share market value.

Do you see any tax disadvantages to having such a plan participant sell his existing employer securities with a current basis of $50 per basis only to re-purchase it a day later with a new basis of $25 per share? I am not much for short-term trading (especially with 1.2 mil) so perhaps the client would consider placing two transactions in one day as follows:

This client would simply instruct his plan to:

1) Sell his existing 600K in employer securities and purchase 600k in mutual funds.

2) Then he would immediately place another trade instructing his plan to sell his existing 600k in mutual funds and purchase 600K in employer securities.

He has now dropped his basis from $50 per share to a basis of $25 per share and still holds the same amount of employer securities and funds! If the stock continues to decrease in value and he maintains the same level of confidence in the stock, he will repeat this transaction in an effort to obtain an even lower basis in the employer securities.

If someone is planning on using an In-Kind distribution as part of his or her overall long-term tax strategy, doesn’t it make sense to obtain the lowest possible cost basis? Excluding portfolio diversification, what are some of the disadvantages to this approach?

Doesn't really bleong here... but:

is it true SEPs remain 15% in 2002?

If I have an IRA and a 403(B), can I take my RMD (I'm 74) distribution from my IRA only or must I treat them seperately and take one from IRA and one from the 403(b? Also, can I roll my 403(B) into my IRA? And finally, in determing the 2001 RMD I"m supposed to take, do I use the age I was on 1/1/01 or the age I am on 12/31/01?

Thanks

Company Alpha sponsors a defined benefit plan and a defined contribution plan. A participant in both plans terminates his/her employment with Company Alpha. Assume his/her accrued benefit and

account balance exceed their respective cash out limits. The participant would like to take a distribution from the defined benefit plan, in the form of a lump sum distribution, and roll that

amount into the profit sharing plan. The profit sharing plan is an eligible retirement plan. Since, at the time of the rollover, the individual is not an employee, can he/she make a rollover contribution to the profit sharing plan?

An employee is covered through a cafeteria plan. Her self-employed spouse's coverage through an agent has been cancelled due to the discovery of a condition that has been ruled pre-existing. Can the employee then add the spouse to her coverage? All the guidance I see talks about losing coverage due to a job change or eligibilty change. Again, the spouse is not losing coverage through his employer, as he is self-employed.

Sponsor of a Simple 401(k) wants to amend to be

a "traditional" 401(k). They are not using the

Model Amendment (Rev. Proc. 97-9) but have an Adoption Agreement. Can they amend to a traditional 401(k) this year (protecting accruals), or do they have to wait until 1-1-02?

And since there's 100% vesting under a Simple (k),

do all existing participants have to remain 100% vested going forward, not only in existing Simple contributions, but in the new traditional (k) employer contributions too? There are discussions under the 401(k) section, that indicate the vesting schedule must follow the participant.

We are the TPA for an orphaned plan where the plan sponsor filed for bankruptcy, terminated all employees, and closed their offices. We are in the process of terminating the plan. A plan audit is required for which the accountant's fee will be paid from the plan assets. If we decide not to have an audit conducted and file Form 5500 without the accountant's report who would the DOL & IRS impose delinquent filing penalties & fees? The bankruptcy estate?

Apparently, IRS has issued a PLR and ruled that the right of an employee to make an election to receive cash in lieu of vacation in the year before the vacation is earned does not trigger the constructive receipt doctine. The PLR is 100130015, 7/30/2001.

Am I the only one who missed this? Does this mean that the door is open to allow employees who choose to sell next year's PTO and recieve cash (or flexible credits) during the next year, and not impact have any impact on those who choose not to sell PTO?

Obviously, PLRs are only valid for the taxpayer requesting it. However, this seems to be much different than the discussions posted on this board over the last couple years. Interested in the "experts" comments.

Is there any way to exclude bonuses from the definition of compensation for a safe-harbor plan?

Notice 98-52 requires that the 414(s) definition be used. 414(s) says compensation means that within the meaning of 415©(3). The related Regs. include bonuses.

Are we just simply out of luck on this one? If there is a way, I need statutory cites in support of your position. Thanks.

When doing form 5330 for reverse deferals taken back after the 2 1/2 month deadline. the HCE has to take back match, Vested portion goes to him, remainder forfeited, Do we list the total amount of the match reverse deferal on form 5330 or just the vested portion.

Thanks

James

If anyone could provide some feedback and rather quickly I would really appreciate it.

I have a 403(B) plan that is excluding independent contractors, union employees, and those who work less than 500 hours per week from deferrals. There is only one plan of the employer.

Does this violate the Universal Availability Rule?

It is my understanding with a 403(B) plan that all "common law employees" must be allowed to defer to a plan of the employer.

Is it allowable to exclude these populations named above from making deferrals?

Thanks Nabiyah

I'm looking for information on church plans--health and welfare benefits only. I know they are exempt from ERISA, COBRA, HIPAA. What then regulates them? Anything special the TPA should require in terms of the ASO agreement? I would appreciate cites to books, etc. if you know of good sources.

Has anyone come across this? I have a non-calendar plan year that failed the ADP test. The employer elected to have corrective distributions for excess contributions completed within the 2 1/2 months. The affected HCE's will have to amend their tax returns now. Because they have to amend their returns, they will get penalized with interest. Is there any relief that waives interest and/or penalties to the HCE? It seems the IRS should allow for some kind of waiver because the HCE would have no way of knowing the final results until after the plan year end. If anyone has come across this, I would greatly appreciate any guidance. Thank you!

Has anyone come across this? I have a non-calendar plan year that failed the ADP test. The employer elected to have corrective distributions for excess contributions completed within the 2 1/2 months. The affected HCE's will have to amend their tax returns now. Because they have to amend their returns, they will get penalized with interest. Is there any relief that waives interest and/or penalties to the HCE? It seems the IRS should allow for some kind of waiver because the HCE would have no way of knowing the final results until after the plan year end. If anyone has come across this, I would greatly appreciate any guidance. Thank you!

If a sole proprietor has schedule C income of 230,000 and 15% contributions to his employees of $6,000. Can his contribution be $25,500 (15% of 170,000)?

Any comments?

Thanks

My client XYZ was organized and established a new individualized Plan in May 2001. XYZ tax year and plan year are calendar years. The general GUST amendment and IRS submission deadline is December 31, 2001. But the general remedial amendment period for this new plan would be due date of employer's 2001 tax return or March 15, 2002 (plus extensions). Does anyone have any thoughts as to whether this Plan would need to be submitted to the IRS by December 31, 2001 or by March 15, 2002 (or extended due date)?

Also do you think it would make a difference if XYZ and XYZ Plan were established in connection with an asset purchase of another company's ABC Division, where all employees of the ABC Division became XYZ employees upon deal closing, and the assets attributable to their benefits in the seller's plan were transferred to the XYZ Plan. The seller's plan had a TRA '86 determination letter, was not yet amended for GUST when the transfer occurred, presumably seller plan will be GUST amended and submitted by the seller by December 31. (Seller Plan is a large plan covereing all the other Seller's employees -- the ABC division was just one division of the Seller Company.)

If anyone else has given thought to this situation, your thoughts would be appreciated. I have 3 or 4 situations similar to this one, and having until the tax return due dates in 2002 would be helpful...but I certainly do not want to miss the GUST deadline!! Thanks.

Some Insurance Co's. won't allow annuitzed 90-24 transfer of individual 403(B) contracts if the employee is under age 59 1/2, and or, still in service. I know you can't take distribution till some key triggers take place, but a) why can't annuity settlement payments be transfered under Rev. Rul. 90-24 to avoid being a distribution, b) If the IRS allows this, how can the Insurance Co. prohibit it?

My mother in law is the beneficiary of her son's ESOP Plan, he recently passed away. Does the beneficiary have to Roll Over that money? Is she taxed on that money if she takes a Lum Sum? Finally; how long does it take before payment is made. There are no rules pertaining to payout for the beneficiary in the Plan Book.

Does a beneficiary pay taxes on a 401K Plan, when it is a mother of a son who passed away?