to protect the actual company involved, I will change the name to something similar.

This is a true story!

we process a plan for 'SUPER WOMEN of AMERICA'

its a 401k, self directed.

the plan is top heavy

the profit sharing portion is integrated.

and it was a prototype.

so on the old 5500 forms, we had to indicate this with the following codes:

CHIK

Truly, a CHIK plan.

Did EGTRRA (or anything else) change the requirements for eliminating optional forms that were spelled out in the final 411(d)(6) regs released about a year ago?

That is, is it still necessary that:

1) after the amendment takes effect for a participant, the alternative payment forms that are still available to the participant must include payment in a single-sum distribution form that is “otherwise identical” to the eliminated or restricted optional form of benefit, and

2) an amendment eliminating or restricting a participant's right to receive payment of accrued benefits under a particular optional form of benefit cannot apply to a participant for any distribution with an annuity starting date that's effective before the earlier of (1) the 90th day after the participant receives a summary that reflects the plan amendment and that satisfies DOL's requirements for an SMM, or (2) the first day of the second plan year following the plan year in which the amendment is adopted?

Our client ("Buyer") is purchasing a company maintaining a KSOP. The KSOP is to be terminated. Buyer, for a number of reasons, wants to terminate the KSOP shortly after closing, but wants the newly-acquired employees to begin participating in Buyer's 401(k) plan immediatley following closing. To avoid a deemed merger of the KSOP and the buyer's 401(k) plan and to avoid a one-year hold-out of the newly-acquired employees' participation in the Buyer's 401(k) plan, will it suffice to terminate only the (k) portion of the KSOP prior to closing and terminate the ESOP after closing?

Although the EGTRRA did not make any changes to the rules regarding the participant's exclusion of SEP and SARSEP contributions under Code Section 402(h), technical corrections are likely to be forthcoming. It is unclear to what extent Code Sections 402(h) will be changed, if at all. The practitioner will need to examine any change by taking into account the following:

1. Whether the "percentage limit" (currently 15 percent) on the exclusion of contributions from a participant's income, is increased (i.e., to 25 percent). [iRC § 402(h)(2)(A)]

2. Whether elective contributions (within appropriate limits) are excluded from a participant's income in addition to the percentage limit (up to the $40,000 aggregate limit under Code Section 415).

3. Whether elective contributions continue to be excluded for the purpose of applying the percentage limit, thus requiring that only "includible" (taxable) compensation be considered [iRC § 402(h)(2)(A)]

4. Whether the reduction to the $40,000 (for 2002) limit should continue to apply when the plan is integrated. [iRC § 402(h)(2)(B)] With a projected taxable wage base (TWB) of $84,900 for 2002, the maximum SEP contribution for 2002 would be $35,160.70 ($40,000 - ($84,900 x .057)) in a plan fully integrated at the projected TWB amount. The language of Code Section 402(h)(2)(B) would appear antiquated and inconsistent with current legislative intent.

5. Whether the compensation cap of $200,000 under Code Section 401(a)(17) for 2002 will apply for the purpose of the percentage limit, which in the authors opinion, it has never been subject to, although it does apply to Code Section 415.

6. Whether elective contributions (within appropriate limits) are deductible by the employer in addition to the 25 percent of aggregate compensation deduction limit (but not in excess of the $40,000 per participant limit under Code Section 415). [iRC § 404(n)].

I submitted a comment to Treasury and Senate officials on July 18, 2001, proposing the following changes be made to address these issues:

(a) Amend Code Section 402(h)(2) (dealing with the exclusion from income) as follows:

Limitations on Employer Contributions. - Contributions made by an employer (other than elective deferral contributions made pursuant to an arrangement under section 408(k)(6)) to a simplified employee pension with respect to an employee for any year shall be treated as distributed or made available to such employee and as contributions made by the employee to the extent such contributions exceed the lesser of -

(A) 25 percent of the compensation [Authors Note: Or "includible compensation," see item 3 above] (within the meaning of section 414(s)) from such employer for the year (determined without regard to the employer contributions to the simplified employee pension), or

(B) The limitation in effect under section 415©(1)(A).

(B) Strike the remainder of Code Section 402(h)(2)(B).

© Amend new Code Section 404(n) (dealing with the 100 percent deduction rules for elective deferrals) as follows:

Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a), or subparagraph © of subsection (h)(1), and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.

Our client ("Buyer") is purchasing a company maintaining a KSOP. The KSOP is to be terminated. Buyer, for a number of reasons, wants to terminate the KSOP shortly after closing, but wants the newly-acquired employees to begin participating in Buyer's 401(k) plan immediatley following closing. To avoid a deemed merger of the KSOP and the buyer's 401(k) plan and to avoid a one-year hold-out of the newly-acquired employees' participation in the Buyer's 401(k) plan, will it suffice to terminate only the (k) portion of the KSOP prior to closing and terminate the ESOP after closing?

Hello, I am running into a brick wall on this one. A participant takes a hardship from his deferral source. He has the right to elective federal withholding. If he elects to have nothing withheld for federal taxes, how does any mandatory state withholding follow.

I have found that in Massachusetts for instance, they follow the federal statute, therefore it looks like if a participant elects 0% federal withholding there would be no state withholding as well.

What about all the other manadatory withholding states; how should a withholding agent handle those withholdings? Waivable or not?

Thanks in advance for any insight you are able to provide.

andmik

Wish I could take credit for this one. This appeared in the May 16, 2001 Washington Times as unsourced.

What rules the world in simple two cow terms.

Socialism: you have two cows. You keep one and give one to your neighbor.

Communism: you have two cows. The government takes them both and provides you with milk.

Fascism: you have two cows. The government takes them and sells you the milk.

Bureaucracy: you have two cows. The government takes them both, shoots one, milks the other, pays you for the milk, and then pours it down the drain.

Capitalism: you have two cows. You sell one and buy a bull.

Corporate: you have two cows. You sell one, force the other to produce the milk of four cows then act surprised when it drops dead.

Democracy: you have two cows. The government taxes you to the point that you must sell them both in order to support a man in a foreign country who only has one cow which was a gift from your government.

Realizing that Salary Deferrals will no longer be considered employer contributions for purposes of Section 404 deduction limits (starting 2002) will they still be considered toward a participant's 415 limit?

An HCE terminates in '94. Balance is distributed in '98. My understanding of the top heavy rules is that an employee's account balance is excluded from the top heavy test if that employee has not performed services at any time during the 5 year ending on the determination date. I am running a 12/31/00 test, Quantech is including the distrib. in the top heavy test. How do I get it out of the the test (or should it be in the test and I just don't know the top heavy rules as well as I should)?

It seems an actuary was retained by a major airline to do a study on the statistical chances of a bomb being on an airplane. Before the study, this particular actuary never flew on planes due to his personal fear of a bombing.

After the study, his associates noticed he now flew everywhere. One of his colleagues asked about this marked change in behavior.

The actuary replied that he had determined in his research that the statistical chance of a bomb being on an airplane was very small, though not small enough to relieve his anxiety. But then, he said, he determined that the probability of TWO bombs being on the same airplane was infinitesimal.

Hence he's now quite comfortable flying on airplanes, because he makes it a point to always carry along one bomb!

The answer to the eternal question: "Is it better to be a jock or a nerd?"

Michael Jordan having "retired," with $40 million in endorsements, he makes $178,100 a day, working or not.

If he sleeps 7 hours a night, he makes $52,000 every night while visions of sugarplums dance in his head.

If he goes to see a movie, it'll cost him $7.00, but he'll make $18,550 while he's there.

If he decides to have a 5-minute egg, he'll make $618 while boiling it.

He makes $7,415/hour more than minimum wage.

He'll make $3,710 while watching each episode of Friends.

If he wanted to save up for a new Acura NSX ($90,000) it would take him a whole 12 hours.

If someone were to hand him his salary and endorsement money, they would have to do it at the rate of $2.00 every second.

He'll probably pay around $200 for a nice round of golf, but will be reimbursed $33,390 for that round.

Assuming he puts the federal maximum of 15% of his income into a tax deferred account (401k), his contributions will hit the federal cap of $10,500 at 8:45am on January 1st.

If you were given a penny for every 10 dollars he made, you'd be living comfortably at $65,000 a year.

He'll make about $19.60 while watching the 100-meter dash in the Olympics, and about $15,600 during the Boston Marathon.

While the common person is spending about $20 for a meal in his trendy Chicago restaurant, he'll pull in about $5600.

This year, he'll make more than twice as much as all U.S. past presidents for all of their terms combined.

Amazing isn't it?

However...

If Jordan saves 100% of his income for the next 500 years, he'll still have less than Bill Gates has at this very moment.

Game over. Nerd wins.

We have a plan that offers 3 group medical choices, one self-funded plan and 2 fully insured plans, self-funded dental, vision, flexible spending account, group life, supplemental life, dependent life and supplemental dependent life, and group legal. The employee is given the choice of cash if opting out of the plan. Pre-tax payroll deductions are taken for the benefit choices made and the employer funds the remaining premium and funds the claims. As claims are incurred funds are provided from the employer's general assets to a separate account that the claims are written on so it is more of a fund as we go plan. Question is, can we file one 5500 and just a Schedule F and is an audit required. There were more than 100 participants at the beginning of the plan year. Calendar year 2000 was the first year of the plan and we have filed an extension. There is one plan document describing the coverages, benefits, and provisions of the plan. Help!

Does anybody know of an IRS ruling (or other IRC law or regulation) that limits an employer's buy-back of accrued vacation time (PTO) to 90% of the face value of the benefit? A client of mine received a copy of a soon-to-be subsidiary's policy regarding the employer's purchase of accrued vacation time, which limited the employer's liability to 90% of the total accrued amount, based on a memo from its law firm, indicating that IRS rules require this 90% limit. I haven't been able to find this ruling in any of my research. Does anyone have any suggestions for me? Thanks!

Does anybody know of an IRS ruling (or other IRC law or regulation) that limits an employer's buy-back of accrued vacation time (PTO) to 90% of the face value of the benefit? A client of mine received a copy of a soon-to-be subsidiary's policy regarding the employer's purchase of accrued vacation time, which limited the employer's liability to 90% of the total accrued amount, based on a memo from its law firm, indicating that IRS rules require this 90% limit. I haven't been able to find this ruling in any of my research. Does anyone have any suggestions for me? Thanks!

I'm just curious if practioners out there are entering code "3E", protoype plan, for plans that have amended the prototype out of actual prototype status. For example, we have many plans that use our basic prototype document and then add an addendum to add cross-tested plan language. They have even filed for determination letters under this scenario. Would 3E still be appropriate at this point? In 2002 and forward, these plans will utilize volume submitter plans.

Any thoughts?

I am still a bit confused on payment schedules for COBRA payments. For example, if an employee terminates on 5/31, they have until 7/30 to make the first payment. When is the second one due? I keep seeing information that the first payment has a 45 day grace period and subsequent payments have a 30 day grace period. Does this mean the employee can always be a month behind in payments?

Can someone please explain this to me using my example - actually giving me dates, like the 1st payment is due 7/30, the second is due 8/1...etc?

is it a cutback or reduction in benefits to amend a plan so that the break in service rule is applicable? how does this effect the 5 year break in service rule?

Client started 125 plan and insurance benefits 2/1/99. 125 plan is a calendar year plan. Insurance benefits have a contract year = 2/1/YY - 1/31/YY. They had approximately 30 covered employees at the beginning of 1999. They have 160 covered lives at the beginning of 2000.

Looking to confirm that they are still considered a "small welfare plan" for 2000 because at the beginning of the contract year that ends in the 2000 calendar year (i.e., 2/1/99), they had less than 100 covered employees.

Perhaps more succintly, is the "beginning of the year" determinant the beginning of the plan year or the beginning of the contract year?

HELP!!

Is there any guidance that specifically notes whether a new owner can or cannot continue a 401(k) plan of a bankrupt company?

A company goes bankrupt and so no further salary deferrals are made. A few months later, a new potential owner wants to buy the company and reactivate the 401(k) plan. Is there any reason the plan must be terminated? Is there any reason the new owner cannot simply reactivate the plan immediately after purchasing the company? The new potential owner does not own any other companies.

What steps are necessary to reactivate the plan?

Any cites would be appreciated.

I have a client who filed the 5500 for their welfare plan/fringe plan last year, including Schedule A information for their various fully-insured welfare benefits, even though they had less than 100 employees covered at the beginning of the 1999 plan year.

Now we are doing the 2000 5500. They still have < 100 employees covered at the beginning of 2000. Can we just file a Schedule F (since they are small and fully insured) or will some red flag go up because they filed Schedule As last year?