With regard to "wrap around" plans (ie. non-qualified plan working with a 401(k) arrangment), there are a couple of PLR's out there that state that a participant must make his deferral election by December 31 of the prior plan year in order to "satisfy the 401(k) cash availability rules."

what would happen if a person decided to enter the non qualified plan in the middle of the plan year without making the prior year election?

MODERATOR NOTE: See post dated 7-26-01 entitled "IRC 402(h) Exclusion Limit under EGTRRA"

I understand that EGTRRA - Economic Growth and Tax Relief Reconciliation Act of 2001 - amended Sec. 404(h), the deductibility limit for SEPs, but didn't amend Sec. 402(h), so the maximum contribution permitted is still 15%. In other words, a person could deduct up to 25% but can't make a contribution bigger than 15%.

Can anyone confirm this

I understand that EGTRA - Economic Growth and Tx Reconciliation Act of 2001 - amended Sec. 404(h), the deductibility limit for SEPs, but didn't amend Sec. 402(h), so the maximum contribution permitted is still 15%. In other words, a person could deduct up to 25% but can't make a contribution bigger than 15%.

Can anyone confirm this?

Does the 410(B)(6)© transition relief also apply to ADP and ACP testing, particularly in a spinoff mid year? May the plan continue to test together for the rest of the current year?

I have encountered the following two situations relating to dependent care coverage. I am interested in whether people think these qualify as a change in status, thus allowing the participants in these cases to cease their dependent care pre-tax deductions:

1. A child who the parent thought would be in daycare in August, 2001, now realizes that the child will not be in daycare after all, and signed up to cover the cost at the beginning (1/1/2001) of the plan year.

2. Parents who had a child in day care because both parents worked during the day. One parent has been transferred to the night shift, and now the parents have the ability to watch the child themselves. The child was in daycare, and now due to the change in the one parent's work hours, now does not need to be in daycare.

Any help or assistance would be appreciated.

Thanks.

Under EGTRRA amounts under an eligible 457 plan of a state or local government are includible in income when paid. It also provides that the definition of "wages" for withholding purposes does not include payments under or to such plans. I take all this to mean that payments under such plans are now subject, for income tax purposes, to withholding in the same fashion as 401(a) qualified plans and reporting under Form 1099-R rather than W-2. Is this correct?

Also, I didn't notice any changes in the definition of "wages" for FICA purposes. Presumably then, payments from such 457 plans would still be subject to FICA taxes at the applicable time and these amounts would still have to be reported on a W-2 for FICA purposes. Is this correct?

Bottom line, under such 457 plans, for income tax purposes a payment would be withheld and reported (Form 1099-R, no W-2) in the same fashion as a 401(a) payment. However, such payment would still be subject to FICA taxes and related reporting would be done on W-2.

Thanks for any comments/guidance.:confused:

When a plan is late in submitting their contributions (missing payrolls, etc.), what responsibility does the recordkeeper bear? Should they inform the clients that in their opinion, the regulations are being violated? Should they cancel services for egregious violations? Once a recordkeeper begins to monitor these contributions for compliance with the regulations, do they take on a higher level of responsiblity? We have taken a harder line when providing administrative services (in conjunction with recordkeeping) which entails the completion of the 5500 which asks repeatedly whether contributions have been timely submitted. In egregious cases, we've cancelled administrative services. Should a recordkeeper also take the hard line? I"m curious as to what others in the industry are doing with this.

Can an employer make LTD a mandatory - employee paid benefit?

ok, I see where a number of people have downloaded the other report, haven't heard any negative feedback, so lets try another one.

6.0 report, designed to provide much of the info for the Schedule I. We have one person in the office who fills the forms out, so it is a big help to him.

There are certain user fields that can be used, I think they are actually indicated on the print out.

as with any report, certain modifications might be needed. e.g. I think I have a different version if forfeitures don't reduce contribution. or if forfeitures in suspense at begining of year are used to reduce the contribution. I don't think I have worked that one at yet.

Since Relius doesn't distinguish between types of distribution (e.g. corrective distribution vs regular distribution, you may have to adjust the report a little bit in some cases)

anyway, report is intended to give a good start toward the 5500.

The majority of contract employees working for a company were involuntarily transferred to a non-related employer as of June 8, 2001. The company, now left without the majority of its workforce, will close shop on September 30th. We have advised the company to file for a determination letter. It has always been my understanding that once a plan is terminated and a determination letter request is pending, participants are not able to take distributions from the Plan. The plan is in a "black-out" period, per se. However, the client wants people to have access to their money. Can we allow all employees who were transferred to take distributions from the Plan and then terminate the plan in September? At that point there should be no participant's left with balances. Am I missing something?

Any thoughts would be greatly appreciated?

A participant has a life insurance policy in the plan. The participant takes a loan of the cash value from the policy directly from the life insurance company without going through the plan, despite the policy being an asset of the plan.

Is this loan a prohibited transaction due to not being made in accordance with specific provisions that are set forth in the plan, or could this be an allowable participant loan as long as the plan does have a written loan program? What additional info. do I need to determine whether or not this is a PT?

i have an employer a with several plans (plan # 1 -5). in 2000, they acquired a new company with a plan (plan #1) which employer a will sponsor. what plan # should i use on the 2000 form 5500? #6?

If an employer wants to adopt a 401(k) plan mid year (no profit sharing or match), can they make the new plan effective january 1 or do they have to make it effective as of the current date?

please include the legal basis. thank you.

In a cross-tested plan what codes would you use on the 5500? 2A is for the cross-tested piece. Would you also put 2E because it is a form of a profit sharing plan?

I need everyones help!! I am a 21 year old male living in California. I work very hard at my job and I am now realizing that working hard doesnt mean that your guaranteed to make lots of money! Some co workers suggested to look into the "Roth IRA" so thats why I am here! If anyone happens to read this and they have some helpfull information I would really appreciate it! Also if you have any suggestions for me then I would really like to hear it. My email address if ryder_brickley@yahoo.com Thanks

The SEP IRA limits for 2002 do not appear to be changed under EGTRRA. They remain at 15%. Compensation will increase to $200,000 capping SEP contributions at $30,000. Profit Sharing Plans will be able to accept 25% of pay and will be capped at $40,000. Does anyone know if this was intentional or was it an oversight? If it was just an oversight, is it likely to be addressed in separate legislation?

We have a client with a fiscal year and plan year ending September 30, 2001. Is it permissible to change the plan year (i.e. have a short plan year from October 1 to December 31, 2001) and have a new plan year beginning January 1, 2002 in order to accelerate the applicability of the more generous limitations under the EGTRRA which becomes effective for plan years beginning on or after January 1, 2002?

I would like to know if this feature is used by any recordkeepers with Quantech and if it is found to be useful. Please give examples of how you may be using it in plan administration. Thanks

We have a Profit-Sharing sponsor who decided to "terminate" the plan on his own and allow participants to receive distributions/rollovers without providing a written 402(f) notice to participants. He claims that everyone rolled their money over--it remains to be seen whether he did these as "direct rollovers" or made out checks to participants. In any event, I'm assuming this is not a qualification error as defined in Rev. Proc. 2001-17 and is simply an error subject to the penalty described in 6652(i) ($100 for each failure). Can someone confirm that this is not a qualification failure?

Q(1). In a defined contribution 401(a) governmental plan with an employer "pick-up" contribution under Sec. 414(h), can the employee be given a one-time enrollment election to 1) elect a zero contribuiton and therefore never participate; 2) elect to participate, but have the option of irrevocably electing from 1 to 10% of base pay and bonus; or 3) irrevocably elect a different percentage from the bonus amount as compared to the base percentage? Alternatively, if this doesn't work, just what might be allowed to give the employees some flexiblilty when enrolling?