We have a client who put an early retirement window in who wants it to be recognized in a beginning of year valuation. We'd be interested in any comments as to whether this is feasible, practical, or impossible, and what might have to be done to accomodate this (i.e. change the valuation date?)

I don't know all the details, but I think it's a calendar year plan with maybe 200 actives. A window was put in mid-year 2000. The 2000 val was done before the window was put in. The client wants the val revised to reflect the cost of the window. We're looking to (1) talk him out of it, or (2) tell him it is not practical or is problematic, or (3) tell him, if we do that, here's the approach we suggest (which we haven't figured out yet).

Obviously, as of 1/1/2000, we don't know the actual experience of who took the window and how much that increased liabilities, so is it proper to change the val date?

Any comments or experiences would be appreciated.

We have a doctor who is a 10% shareholder in a large medical practice. She receives a $30,000 annual contribution from the medical practice's money purchase pension and profit sharing plans.

This doctor also runs a food brokerage business with her husband which is a partnership. The doctor and her husband are the only employees. Can a SEP be set up for the doctor's earnings in the food brokerage partnership even though she is already receiving $30,000 from the medical practice?

When Long Term Disability is approved for an employee does the employer terminate the employee as they are now receiving payment from the insurance carrier and not working?

According to 457©(2)(B)(ii) the dollar deferral limits

of rural cooperatives to not have to be coordinated making

it possible for a participant to contribute $8,500 to

the 457 plan and $10,500 to a 401(k)plan.

Are these limits coordinated under 415? Do the combined

limits for an individual under both plans (457 and 401(k))

held to the 415 limit of the smaller of 25% of compensation or $35,000. I can find no reference that would

indicate this is the case.

What type of benefits can be included in a Cafeteria Plan?? I am hearing some people say, only medical and daycare, but others are saying life insurance, std, ltd. What is the real answer?? Also could someone point me to the IRS code that spells this out. Thanks

In an old-style contributory DB plan, part of benefit payments to a participant are nontaxable. This is because the participant made after-tax contributions; the amount of these contributions (without interest) is the tax basis in the benefit.

Let's assume the benefit is a lump sum; this avoids the complicated basis recovery rules that I once knew a long time ago.

What happens if neither the employer, the plan sponsor, the plan administrator (who happen to the the same company) nor the trustee (who happens to be an external bank trustee) have the records that show the amount of employee contributions? Who is ultimately responsible if this information cannot be located?

Any suggestions on what to do if the information is truly unavailable. To assume zero contributions would overstate the participant's tax liability. To arrive at any nonzero amount would essentially be a made up number. And salary records for the time that employee contributions were made (over 10 years ago) are unavailable.

Any ideas?

We are two large medical practices merging to form a large medical practice with approximatley 100-125 employees. One practice has a formal PDO policy established approximately five years ago. The other practice does not allow for accrual of PDO.

Practice A

No formal PDO policy. Does not allow for accrual of either sick leave or vacation time. Employees are allocated ten sick leave and ten vacation days annually. At a certain point during the year, employees may sell back any unused sick leave (3:1) and any unsued vacation (1:l)

Practice B.

Formal PDO policy in place for five years. Sick leave and vacation days are accrued into one bank. Employees have an opportunity to sell back PDO time once a year.

Holidays are not accrued in the PDO policy.

It has been decided that the merged practice will have a formal PDO accrual policy with separate banks for vacation, sick leave and reserve sick leave bank.

Our dilema is how to equitably establish PDO amounts for the employees of the new practice and yet not place a financial and potential scheduling hardship on the newly merged practice

Practice A employees may not have any time to bring forward to the new practice. While some employees of Practice B may have a significant amount of accrued time.

The inital proposal is to set an across the board allocations to each bank for all employees with some allowance for tenure.

Practice B employees would be offered the opportunity to bring forward or sell back on a 1:1 basis any accrued vacation time. Practice B employees would lose any accrued sick leave. However, as I indicated earlier we would establish an initial allocation in the sick leave bank and reserve sick leave bank for all employees.

Has anyone experience a similar situation. Looking for other recommendations, pitfalls, reference sources. Help

Linda Wallace

odwlbw@bellsouth.net

I am making elective contributions to my 403(B) plans, and max out at $10,500. My salary is $90,000. Can I still make additional contributions to Roth IRA, and if so, up to what amount? My employer also makes contributions to my retirement plan @ 12.5% of my salary.

Please forgive the remedial question, but benefits is not my strong point.

With respect to 401K plans and "highly compensated employees," I have been told that the limit at which the $10,500 amount can be maxed out is 85K. However, does that mean that employees earning 85K or more are eligible at the lower contribution rate, and if so what is it, or is it $84,999.99 for the limit before the lower contribution standards apply? I have an employee that earns 85K, and I was wondering if we did him a disservice raising him that extra dollar. If he overpays what happens to the extra money?

Thanks,

Dan

I've asked this in "Correcting Plan Defects" but feel free to give this a shot.

My client has a 401(k) plan. For the 2000 year, it was operated as a Safe Harbor Plan. There were 5 employees deferring from 5 to 20%. During the year, all but 2 employees resigned, leaving one employee deferring 15% and the owner 20%. The "cushion" created by employees who didn't defer a full 15% was used up by late October, and now contributions exceed 404©.

The plan addresses several issues that may be corrected. We can create a suspense account if an employee exceeds 415 limits. Didn't happen. We can return excess deferrals. Under the safe harbor, there were no excess deferrals.

The document does say "The contribution for any Plan Year by the Employer shall not exceed the maximum amount deductible...." however, it is silent on what happens if 404© is exceeded.

Even if we "revoked" safe harbor, the excess deferral created would be too small to fix the problem.

What can be done?

Is the top 20% paid group limitation available when testing SARSEP's? When defining compensation, do either the government form or any prototypes allow net compensation (not grossed up for deferrals and 125 contributions)to be used for allocating contributions, like qualified plans?

When an excess contribution is distributed within the first 2 1/2 months after the end of the plan year, and there is a loss associated with the distribution:

1) Should the check be cut for the amount adjusted for the loss (answer appears to be yes to me since 401(k) regs seems to say that losses should be taken into account,

2) how is distribution and loss reported, and for which year? (if it were a gain instead of a loss, then the deferral would be reported for the prior year, and the gain would be reported in the year of distribution; for a loss, is the gross amount reported on the 1099-R as being taxable in the prior year, but the loss reported on the 1040 for the year of the distribution?)

The question is for a calendar year plan year.

Does anyone just report the gross amount on the 1099-R and not worry about reporting the loss?

In January 1998, I converted my IRA to a Roth IRA. The only assets in the IRA were shares of a non publically traded private placement stock. I had been led to believe by the broker thast sold them to me that they would be going public early in 1998 at a much higher price than I had paid for them. The custodian for the traditional IRA used the price that I had paid for the stock in ~ 1995-1996 as the conversion/IRS 1098? distribution value. The stock is still not trading, but looks like it might trade for about 3 percent of what I paid for it. I am still paying taxes on over the 4 year 1998 Roth conversion rule.

Question 1- It's now clear that the stock value was worth far less than my purchase price even in January 1998, so that the custodian greatly overestimating the value at the time of the Roth conversion. In order to amend my 1998 and 1999 tax returns, do I need to get the 1998 custodian to issue a revised 1098??

Question 2- As an alternative, I would proposes to take a non-qualifying early distribution of the private placement shares, so that I can take the Schedule A Miscellaneous deduction tax loss on these shares(my only Roth IRA assets). If the shares are still not trading, who sets the value of the shares at the time of the early distribution to me? I don't think that the present custodian will be willing to decide on a value.

Are step children considered when determining who the HCEs are due to family attribution?

I have a client with a cross-tested PS plan. He wants to adopt a 401(k) plan for his staff using a plan offered by his payroll service. I specialize mainly in DB plans and don't want to do any 401k administration (my eyes glaze over with the mention of 401k issues, in the same way that others often do for DB plan topics). I would like to continue doing the X-tested PS plan admin.

Would it be advisable (or ill-advised) to have 2 plans, the 401k offered by the payroll service and the existing cross-tested PS plan? Seems the payroll service 401k could have a 3% non-elective to satisfy the safe-harbor and top-heavy needs, allowing the 401k plan to stand alone more easily and work together with the existing cross-tested plan.

I presume the payroll service 401k uses a standardized document. With 2 plans, the standardized prototype 401k offered by the payroll svc would no longer qualify for reliance on the opinion letter, so it would have to be submitted to the IRS. Comments?

Has anyone had bad/good experience with a payroll service 401k that I can pass along to my client as a precaution?

Any thoughts/comments on this would be appreciated.

Education IRA contribution deadline. Ref. books in the area states that the deadline follows IRA regs and pub. 590 stating "post marked by" vs invested at the firm by, in this case December 31st. Which is true?

I read through the discussion relative to funding for projected top heavy benefits unde a DB plan.(6/8/2000)

I agree with the consensus; however, if discovery occurred 2 years later that a plan should have incorporated the top heavy minimum in its funding, is it absolutely necessary to assume the plan will remain top heavy for purposes of reworking the MFSA or can the MFSA for those missed years be recomputed taking into account the minimum accrued? (I know, in retrospect, this assumption doesn't make sense; however, if it were 2 years earlier, could that have been the assumption?) Is it purely an assumption as to whether or not to project the minimum T-H benefit for cost purposes?

The plan sponsor failed to provide complete data; that is the reason why we are going back 2 years to the date that T-H should have been reflected in costs.

Does anyone have any thoughts on the application of the new minimum distribution rules to 457 plans? Specifically, whether participants may take advantage of the new rules prior to amendment of a 457 plan document? I do not see any specific guidance/model amendments, so I assume a 457 plan with old language would need to be amended to take advantage of the new rule?

On line 15 of Form W-2 the Pension Plan box should be checked if the employee was an "active participant" for any part of the year. Where can I find a definition of "active participant."

I have about $1500 in a stock portfolio. Can I use these stocks to start a Roth IRA? I also have a small bond portfolio. Can these be used as well? It would seem a waste to me to sell a portfolio, incur taxes, and then fund a Roth.