We are generally operating under the automatic extension as provided in IRS Announcement 99-57 to allow an IRA to be recharacterized in most situations until the tax return due date plus extensions which is October 15 for most years. (There was a special IRS Announcement 99-104 that extended the due date to 12/31/1999 but that was a one year only extension that no longer applies.)

However, there is still the posibility of requesting from IRS an extension of time to recharacterize under certain conditions as is shown in Private Letter Rulings 200116053, 200116057, and 200116058.

The gist of these rulings is that IRS may grant an extension of time to recharacterize if:

(1) Each taxpayer was either ignorant of the rules for qualifying for a Roth IRA conversion, or reasonably assumed that a responsible financial institution or professional had properly recharacterized the conversion on time;

(2) Upon realizing the error, each taxpayer took immediate steps to remedy the situation and asked the IRS for relief;

(3) The tax year of the improper conversion was not a "closed" tax year.

The regulation that permits IRS to grant these special extensions requires that the taxpayer "acted in good faith." Acting in good faith is assumed (1) if a request for relief is filed before the failure to make a timely election is discovered by the IRS; (2) if the taxpayer failed to make the election because of intervening events beyond his or her control; (3) if after exercising reasonable dilligence, the taxpayer was unaware of the necessity for the election; (4) the taxpayer relied on written advice from IRS; or (5) the taxpayer relied on the advice of a qualified tax professional.

Private Letter Rulings may not be relied on but are merely an indication of IRS's thinking in a particular situation. The services of a qualified tax professional should be sought out.

Any thoughts on the following would be apprecitiated: Have a 75 year old retired attorney who established a defined benefit keogh plan several years ago. He is, and has always been, the only participant. He has been receiving distributions from the plan for the last few years but would now like to terminate the plan and roll everything over to an IRA. The plan still holds a life insurance policy with a cash value of about $100,000. Understand he cannot roll the policy to an IRA. He doesn't want to surrender the policy and doesn't want to take the tax hit on having it distributed. Is there a good way to terminate the plan, keep the policy, and avoid taxes? For example, could the participant buy the policy from the plan with other cash (perhaps taken from an existing IRA) and then roll all the assets (including proceeds from the sale of the policy) to an IRA in a lump sum?

My understanding is that 457 plans are not subject to ERISA title I, are not subject to bonding requirements, and are not affected at all by the new small plan bonding requirements for nonqualifying assets. Am I correct?

Where can I find a survey about how much employers are contributing toward health plans? Or, how much they are having their employees contribute.

Someone interested in using a Roth to start retirement and education funding for 2 children. Both have income. College financial aid not very helpful as far as rules and how it would effect child's income. Any help would be appreciated! Thanks!

gross misconduct under COBRA

A client has a PTO plan that includes vacation, holidays, sick leave and personal time. There are no maximums for accumulation and full carryover into future years. They want to restructure to manage costs. One possibility is to set up an integrated disability management program. Are there any suggestions re. how the PTO plan might be restructured? In particular, how to freeze existing accruals? How to set it up going forward?

Thanks...David

Does anyone know of any set rules with regard to providing defined benefit information for top executives for proxy statements? I tried the SEC website- and couldn't find anything, except some sample (1993-1994) Executive Compensation information for 3 companies. One sample included a range of benefit levels based on hypothetical salary and service and then separately identified the top executives with current average pay and current accrued service. A comment was included in this sample that the company was not able to "project estimated benefits at this time". Another sample pretty much had the same type of information.

Are there any specific guidelines (SEC or Accounting)on what should be included- ex. estimated benefit at NRA, assume salaries increase if project, or just current accrued information? I'm thinking this is a employer decision on how to present the information.

Thanks

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Where could I find a listing of state regs regarding payment of accrued vacation time at termination?

OK, got a controlled group question. Two companies, two plans. Each must pass coverage in order to be tested separately. Company 1 has 3 HCE's plus the owner and Company 2 has 2 HCE's plus the same owner. The owner is an employee of both companies and lets say he makes $50K at each. Both companies make a profit sharing contribution, but the percentages of pay are different. My question is this - what is my percentage of HCE's benefitting under each plan? I have 4 HCE's getting a contribution in plan 1 and 3 HCE's getting a contribution in plan 2. Bearing in mind that one of the HCE's is the same person, is my coverage in plan 1 equal to 4/7 and 3/7 for plan 2? Or, because the same HCE benefits in both, are the coverages 4/6 and 3/6, respectively?

Any references would be greatly appreciated.

Thank you.

If two DB plans are merged are there any participant notification requirements and if so under what circmustances?

Due to some Third Party Administration testing tracking problems...

A very small 401(k) Plan didn't perform ADP/ACP test for PYE 12/31/1999 -limitation year 1999. Test was performed for 1998 and 2000.

ADP/ACP Test fails for 1999.

If the corrective distribution for 1999 limitation year failure is made after 2000 plan year end, is IRS Rev. Proc. 98-22 the best option to correct?

If so, does anyone have experience using this method "permitted plan sponsor self-correction of certain qualification failures" ???

Any help is much appreciated!

Matt

Employer A hires from the Leasing Company all the leased employees who have been working for Employer A's subsidiary. Effective 1/1/2001 these former Leased Employees are part of Employer A's payroll.

I am required to include the service with the Leasing Company for eligibility and vesting purposes in Employer A's Plan. For ADP/ACP purposes, am I obligated to use the 2000 salaries with the Leasing Company as the benchmark in determining any HCEs for 2001 from this group of Leased Employees?

Thanks in advance for any insight. Andmik

Just a little note to RLL (whoever you are) for all of your ESOP advice. I have learned a tremendous amount from reading your replies. You are to be commended for your public service to the benefits community. Thank you.

What's the difference between a Multiple Employer or a controlled Group of Employers? Do different Employer Idenitication Numbers for the respective Employers have anything to do with making a distinction

Can a Section 521 entity (farmer's cooperative) sponsor a 401(k) plan for its members? If so, where can I find the IRC authority to do so? Thanks.

Suppose a DB plan is amended to eliminate future benefit accruals (benefit "freeze"). At the time the amendment is adopted (or effective date, if later) A participant in this plan has a benefit governed by the 415 $ limit. For example, suppose his accrued benefit under the benefit formula at the time of the freeze is $8,000/mo, but the 415 $ limit is $6,000/mo. Since his accrued benefit under the formula is $8,000/mo, is he entitled to future benefit increases as the 415 $ limit is indexed, regardless of the benefit freeze? Or, since the 415 $ limits are presumably part of the plan document's provisions, can the benefit "freeze" eliminate entitlement to the 415 $ limit indexed increases?

A doctor is leaving his LLP group. He will receive a buyout over time for his equity interest in the partnership. In addition, he will be receiving his net realizable value of the receivables over the next 24 months. This is for work that he did while with the group and it will be taxed as ordinary income.

CPA thought that he could set up a SEP for this income. I do not think this would constitute earned income for self employment purposes as there is no trade or business being carried on by him. He has already performed the service while a partner with his former LLP. I don't see how he could set up a separate plan for this. I also don't see how he could continue to participate in his LLPs plan as his service has ended.

Comments?

Elderly IRA owner lost $$$ in IRA based on bad advice from an investment advisor. The worthless stock is still in the IRA. Lost $$$ is recovered.

Question: is the recovered money immediately taxable to the IRA owner, is it now considered part of the IRA portfolio, or can it be pocketed without tax consequences?

I have a client which was an employee of a very large company last year. In November my client bought a part of the company he worked for and it was moved to a new company. All of the employees which worked for the part that was purchased were terminated on December 15 and rehired the next day by the new company. Some of the employees still received paychecks until December 31 and deferrals were withheld.

We established a new plan on March 1 and then discovered that deferrals had been withheld for December but never submitted and still remain in the general operating account of the old company. Any suggestions about how this can be corrected without causing a huge problem?