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Last fall I advised a client to pay himself (president of an S corporation with a calendar year-end) a salary and to open a SEP. He opened and funded a SEP; however, he did not pay himself a salary all year. Therefore, the SEP has an excess contribution. If the contribution is withdrawn before June XX, 2001, there is a $140 bank penalty. Can we (1) extend his personal and corporation returns, (2) withdraw the excess funds in June, (3) pay the excise tax on the earnings only (4) redeposit all the money back into the corporation to reverse the transaction (in effect) and declare interest earnings? (5) If so, is the excise tax 6% or 10% and (6) is it reported on the corporate return? My interpretation is that the excess must be withdrawn by the due date of the corporate return, plus extensions, and that only the earnings will be subject to the excise tax. Thanks for your help.

__________________

Bette N

Bette N

Joined Feb 2001

1 messages posted

Employee X terminates employment with Company Y and directly rolls entire account balance to new employer Company Z's plan. Employee X is rehired by Company Y a few years later, and Employee X rolls over his entire account balance from Company Z's plan, including the amounts initially rolled from Company Y's plan. Do these amounts count as a "repayment" of Employee X's account so as to entitle Employee X to a restoration of forfeitures?

my husband recently went out on permananent disability from his 30+ yr job. 401k was over 350k. he rolled it over into several IRA's. we have recently separated & i have discovered that he has spent all but 150k of the $. my lawyer says i am entitled to 1/2 of what is left, but he has total control, & continues to spend wildly! how did this happen? shouldn't i have had to sign something when he rolled this $$ over? I have never signed anything that allowed all this $ to go into his name only. help?!!

Suppose that an employee of a public school district has more than one job classification/title and "accrues" aggregate full-time equivalent service in excess of 100% during a given taxable year. To be specific, suppose the employee holds one full-time position and another half-time position simultaneously, both positions with the same employer. I have searched the Code, Regulations, and other resources, including these message boards, and have not found any citation that limits full-time equivalent service [as defined in Code Section 403(B)(4) and further discussed in Regulations Section 1.403(B)-1(f)] for a given taxable year to at most one year.

Code Section 403(B)(4)(A) comes close, when it states "one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him," then goes on in 403(B)(4)(B) to briefly describe the accrual of service under various scenarios in which an employee works less than one full year as a full-time employee. However, the logic used in describing how years of service should be calculated in both the Code and the Regulations suggests that "more than one year of service should be accrued for each full year during which the individual was employed at more than full-time equivalent." Moreover, I don't see anything in the wording of the cited Code and Regulations sections that prohibit accrual of more than one year of service during a single taxable year.

The following hypothetical example illustrates the potential impact of allowing accrual of years of service at rates greater than one per taxable year:

Eligible "Employee" works for qualified organization [see Code Section 402(g)(8)] for 10 calendar years in two positions, one full-time with compensation of $40,000 and another half-time with compensation of $20,000. To simplify the example, it is unrealistically assumed that there were no variations in compensation or contributions over the ten-year period. Elective 403(B) deferrals of $5,000 were made each of the first nine years, and Employee did not participate in any other pension or retirement savings programs. The following are calculations of general limitation election maximum allowable contributions for the 10th year of employment under the two scenarios in question (calculations for taxable/calendar year 2001):

Allowing accrual of at most one year of service in a given taxable year:

402(g) Elective Deferral Limit = $10,500 (less than 15 years of service)

403(B) Exclusion Allowance = .2 * $60,000 * 10 - $45,000 = $75,000

415©(1)(A) Dollar Limit = $35,000

415©(1)(B) Compensation Limit = .25 * $60,000 = $15,000

General Limitation Election MAC = $10,500

Allowing accrual of more than one year of service in a given taxable year:

402(g) Elective Deferral Limit = $13,500 (see explanation below)

403(B) Exclusion Allowance = .2 * $40,000 * 15 - $45,000 = $75,000

415©(1)(A) Dollar Limit = $35,000

415©(1)(B) Compensation Limit = .25 * $60,000 = $15,000

General Limitation MAC = $13,500

Notice in the second scenario that 15 years of service have been accrued by the end of the 10th calendar year of employment, so Employee becomes a qualified employee [as defined in Code Section 402(g)(8)] and becomes eligible for up to an extra $3,000 elective deferral. Also, even though Employee has contributed $5,000 per calendar year, $5,000 times years of service is $75,000, which substantially exceeds the $45,000 total of elective deferrals in prior years for purposes of Code Section 402(g)(8)(A)(iii). Hence, the 402(g) elective deferral limit for this employee is $13,500 for 2001.

In the second scenario, it should be observed that in the calculation of the 403(B) exclusion allowance, the most recent period that may be counted as one year of service is only two-thirds of a calendar year, so includible compensation is reduced to two-thirds of the corresponding annual figure. Also, it is interesting to note that the 415©(4)(B)(i) modified compensation limit for the B Election [.25 * $40,000 + $4,000 = $14,000] is less than the 415©(1)(B) standard compensation limit [.25 * $60,000 = $15,000].

Government plans are exempt from ERISA. What reporting obligations exist for a government plan as far as any required filings with the IRS or any other federal agency.

Please advise.

Prior to removal of the J&S language in a PS or 401(k)

Plan, a notice is required at least 90-days prior to

the effective date of the change. Is this notice required

to be free standing? Or can it be included in the contents

of the SPD?

The regs indicate the notice must have the same content

as a SMM, but this is a separate instrument, not an SPD.

A client of ours is starting their own "labor Pool". A way for them to hire employees on a temporary basis. The contract is a temp to full contract. The contract will expire after 6 months. The question is in regards to how the hours worked would count towards the 1000 hours for 401(k) participation. Any information would be helpful.

thanks

Can the new minimum distribution rules be relied upon for someone whose RBD is 4/1/2001 (i.e. the first RMD for the 2000 DCY)? I understand that the model amendment must be adopted beforehand. I am pretty sure I know the answer, but want confirmation.

How do the new required minimum distribution rules effect distributions from Defined Benefit plans??

Last fall I advised a client to pay himself (president of an S corporation with a calendar year-end) a salary and to open a SEP. He opened and funded a SEP; however, he did not pay himself a salary all year. Therefore, the SEP has an excess contribution. If the contribution is withdrawn before June XX, 2001, there is a $140 bank penalty. Can we (1) extend his personal and corporation returns, (2) withdraw the excess funds in June, (3) pay the excise tax on the earnings only (4) redeposit all the money back into the corporation to reverse the transaction (in effect) and declare interest earnings? (5) If so, is the excise tax 6% or 10% and (6) is it reported on the corporate return? My interpretation is that the excess must be withdrawn by the due date of the corporate return, plus extensions, and that only the earnings will be subject to the excise tax. Thanks for your help.

Does anyone see a problem with paying invesment advisory fees out of plan assets in light of the recent DOL opinion on fees?

Where the participant dies before distributions are treated as having begun, can the beneficiary (spousal or non-spousal) avail himself of the optional 5-year rule instead of commencing distribution no later than the end of the year following death???

The 457 Answer Book (1999), Q 2:210, states "a beneficiary may irrevocable elect to pay deferrals over the life or life expectancy of the beneficiary (or any shorter period) if the beneficiary is the surviving spouse or over a period not in excess of 15 years if the beneficiary is not the participant's spouse. Such distributions must commence no later than the end of the year following the year of death or, if the surviving spouse is the beneficiary, on or before the end of the year in which the decedent would have attained age 70 1/2." There is no mention of the applicability of the 5-year rule???

If the optional 5-year rule is available for 457 plans...

In the newly proposed 401(a)(9) regulations, in order to take advantage of the optional provision, qualified plans must adopt a provision to use the 5-year rule. In the absence of a plan provision, the life expectancy rule applies in all cases where there is a designated beneficiary. However, there is no guidance (under the old or new regs) with respect to whether or not a 457 plan must state that a participant may avail himself of the 5-year rule.

I am a TPA with a client who has a cross tested plan that we administer using Quantech. There also is a 401k plan that is sponsored by the leasing company that covers our client's employees. I am trying to check the average benefits test for the cross tested plan. In order to do this i need to consider all contributions from all plans. However, the "annual additions, other plans" field is only for 415 purposes. Is there any way to include the other contributions for the average benefits test?? Thanks.

Under DOL Regs, to get ERISA 404© fiduciary protection, a participant must be provided with the opportunity to "exercise control" over his account assets. The DOL Regs further state that a participant "exercises control" over his account assets only if he is "provided" or "has the opportunity to obtain" sufficient information to make informed decisions with regard to investment alternatives available under the plan.

Unfortunately, after setting forth this seemingly *alternative* criteria ("provide" vs. "has the opportunity to obtain"), the Regs go on to state that a participant is NOT considered to have sufficient investment information unless a whole laudry list of items are "provided" to him by a plan fiduciary. This latter criteria seems to take away the "opportunity to obtain" (make available) concept. (There are other specific items listed elsewhere in the Regs that must be made available upon request, but that is not part of my question).

Question: Must the investment information to be provided to a participant under DOL Regs. 404c-1(B)(2)(i)(B)(1) be *directly* "provided" (e.g. individually hand delivered or mailed), or does giving a participant the "opportunity to obtain" such information suffice (e.g. Notice + posting it on the company's intranet site and making it available at each work location via a branch benefits contact)?

Thanks for sharing any thoughts.

We canceled a DC plan on 06/30/99, which had a plan year of 8/1 thru 7/31. We are just now filing the 5500 for the plan year end 7/31/00. Plan assets were distributed by 7/31/00. Can we file the normal plan year-end 5500 and final 5500 as a combined filing or do we have to file the normal year-end plan and then do a final filing? I can’t see doing it twice and I sure don’t want to pay to have final audit done separately

Say we have a pension plan with age 65 normal retirement and a lump sum feature (using GATT rates). Also, let's say that for funding purposes, the actuary is assuming 7% preretirement interest and that all employees will take a lump sum at the assumed retirement age of 65. Currently, the GATT rates are about 5.2% and the PBGC interest rate for the variable premium is about 4.5%. For valuation purposes, the actuary uses the current GATT rate to determine the lump sum.

Is the present value of vested benefits for PBGC Variable Premium purposes equal to the lump sum (calculated at 5.2%) discounted at 4.5%, or the value of the age-65 life annuity discounted at 4.5%. The former will obviously produce a lower PVVB, since the lump sum (per the actuary's assumptions) will be less than the age-65 value of the annuity at the PBGC's 4.5% discount.

As a second question, I have seen actuaries assume lump sum will be paid, but do not assume the current GATT rates will remain constant. Rather, they assume a specific GATT rate in the future (for example, 6.5%) in the funding calculations. In this situation, would the PVVB for PBGC purposes be calculated as the lump sum (determined at 6.5%) discounted to the present at the PBGC's 4.5%?

I have been terminated from my job. How can I continue my insurance coverage under COBRA if the company where I worked had less than 20 employees?

My Credit union has a Roth IRA that returns 4.12%(I don't know if this is guaranteed I don't even know if this is good!) It seems that I've seen other places, or read about them, that show higher returns 9-11%, is this the case? My dilemma is that I will not be putting the minimum $2000(I would be contributing but I don't know how much) in every year for a few years, the reason being I'm going into Pharmacy school for the next four years and it will be tough enough to make ends meet with out complicating things. The reason that I would like to go with my credit union is that they offer on-line banking which would allow me to transfer money in there with a few clicks of my mouse, which would make things easier. Or is all of this pointless, I just know that 'The power of Compounding' would do me well over the next four years but would waiting until I could make the $2000 a year contribution be better? Also is it possible to transfer an IRA somewhere after I get out of school? BTW I'm 22 years old and will be 26 when i'm done. Thank you for any help you can give me.

I have a 401k participant who named her son as beneficiary She is married and did not provide a spousal sign-off. She tells me her spouse is not the biological father of her son and as she is not on good terms with her spouse, she does not want to try to get him to sign off. The biological father is deceased. Attorney time?

Under the proposed new rules for MRD's, the required beginning date is set as April 1 of the year following the year in which the participant attains age 70 1/2. Under the old rules it was my understanding that the beginning date was the year in which the participant actually attained age 701/2. However in the first year, the first year's distribution could be delayed until no later than April 1 of the year following the age 70 1/2 year. This however would require the doubling up of distributions in that year with the first calculated on the balance from the 70 1/2 year, and the second on the balance from the beginning of the year following 70 1/2. Therefor the propsed regs would seem to have eliminated the doubling up of distributions made during the period from January 1 through April 1 for participants who attained 70 1/2 in the previous year. Am I reading this correctly?