The 5500s that I'm currently working on are for the plan year 7/1/99 through 6/30/00. Our document does not allow for short plan years. If a new plan's effective date is prior to 7/1/99 and no contributions were made prior to then, would it be acceptable to state 7/1/99 as the effective date on the 5500 to avoid filing a form with zero assets?

This is the current policy and I don't feel comfortable changing the plan effective date on the 5500.

If there are no assets/receivables for the plan, must a form be filed?

Would it be acceptable to file a first return for the 6/30/00 plan year if the plan's effective date was 3/1/99?

I have an interesting situation here. 401(k) plan was established effective 5/01/98 using a standardized prototype. 401(k) deferrals only. Document provides for discretionary matching, but none has ever been made. We have been retained to advise on correction of problems, which include:

1) Consistently late depositing of deferrals. In several cases, the deferrals were not deposited until participant terminated. The employer then made the deposit with earnings. How calculated, we have not been able to determine.

2) Form 5500 for initial plan year ending 4/30/99 was never filed. We put the 2000 form on extension, which is due 2/15/01.

3) The salary deferral amounts reported to us by the employer, contributions made to the money manager and deferral contributions do not match for either of the two years of the plan's existence. We do not know which numbers to use for reporting and testing purposes.

4) It looks like loan repayments for the principal were made with pretax dollars.

I'm considering VFCP for the late depositing of deferrals, VCR for the loan problem, if it exists, and mercy for the late 5500. Is there a better way? I've ever considered self-correction as much as possible course prior to terminating the plan. Problem is, a former participant has contacted the DOL, and an agent is now asking questions. The employer really wants to clear this up, as the company has been sold and the plan is terminating. Any thoughts?

A highly compensated ee defers more than 25% of pay. Do I have to include her "excess" deferrals in the (k) test. She is causing the test to fail and generating refunds for many of the highs. Thanks for your help.

We are currently in a severe cash-crunch and are considering asking key executives to take loans of $25,000 or more from their plan accounts to reloan to the firm for 90 days at a rate of 10% which will be paid directly by the firm back into their plan accounts. First is this legal and, if so, are there tax consequences?

Are there any special rules or regs regarding amending a 412(i) plan to a traditional non-412(i)defined benefit plan?? If so, is there a site i can reference?? Thanks.

I write payroll programs. I am confused about calculating tax on Cafeteria plan when it comes to the FICA max. Example, an employee makes $1500 a week, and his cafeteria is $100 a week. He is taxed $1400 for Federal, State, fica and medicare. When he hits the ficamax, should he continue to be taxed for fica on his ytd less cafeteria? So, if this year, he hits $80,400 in November, and has had $4000 deducted under cafeteria, should we stop taking any more fica, or keep going as if he was being taxed on 80,400 less 4,000? Does he need to pay the full $4984.40?

I am working with a company that has two separate plan docs for two separate divisions.

One of the divisions is going to be closing and terminating employment of all employees. They will fully vest all of these participants, but are asking if they will need to vest the other division employees as well.

For coverage testing etc. they are tested separately and on a combined basis.

My initial reaction would be that since it will be more than 20% of the workforce, that they would have to vest both divisions.

I have looked at partial term and term regs and nothing really addresses this type of situation.

Any help would be appreciated. Thank you.

Can a contribution that is made after the end of the Plan Year and allocated for the prior Plan Year be deducted in the following year? (e.g. Company exceeded 15% deduction limit due to Salary Deferral, Matching funds, and Safe Harbor non-elective contribution allocated for the 2000 Plan year, but the last contribution was deposited in 2001. May the Company avoid the excise tax on non-deductible contributions by deducting the amount of the last contribution in 2001?)

Is it permissible for an ESOP to be a party to a buy-sell agreement where the ESOP agrees to purchase stock from a majority shareholder for fair and adequate consideration upon the death of the majority shareholder?

A company plans to enroll its employees in its 401(k) plan through the internet. This would not be a negative election; rather, it is proposed that employees who decide to make elective contributions will be given a password, to be used to enroll through a company web site. Can anyone share guidance on the authentication and privacy concerns that are present with this approach? IRS Notice 99-1 is vague on these issues, as well as on the mechanics of electronic enrollment in general, although it does explicitly state that written paper documents are not required for certain transactions, including participant enrollment. Any advice on issues of authentication and privacy, or on the way electronic enrollment in a non-negative election setting has been handled, would be welcomed.

I'm wondering about one of the exceptions to the early distribution penalty. In particular the one for separation from service after age 55.

72(t) makes the exception for distributions "made to an employee after separation from service after attainment of age 55."

IRS Notice 87-13 says that "A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred

during or after the calendar year in which the employee attained age 55."

87-13 seems to allow the exception if the participant separates from service before age 55, as long as they turn 55 at some point during that calendar year.

If the more lenient rule in 87-13 is being utilzed, why is this not in the IRC? I'm wondering if there is any more info out there on this subject and which rule is being utilized by practitioners and if this is the same one that the IRS is enforcing.

Thanks for any input.

Aren't 5500 forms public information? If so, how can I access one that was filed by a company?

My client did not make the entire required money purchase contribution within 8 1/2 months of the plan year end. In addition to making the contribution even if it is late (and paying the excise tax), must interested by calculated and deposited to the plan on the late contribution? If so, what is the interest rate and who determines the rate? We have a difference of opinion in our office regarding the application of IRS Code 412(B)(5)(A) for money purchase plans. Some say that although the minimum funding standards apply to a MPP, the funding standard account does not and therefore no interest should be credited to the plan for the late unfunded contribution. Others say that the reg applies equally to a MPP and a DB plan and interest should be credited. I would appreciate clarification on this issue.

January 12, 2001

American Express Brokerage

70400 AXP Financial Center

Minneapolis, MN 55474

Dear American Express Brokerage,

My immediate purpose for writing this letter is to check up on my complaint with case number 455561.

As background, at 10:44 AM PST on Tuesday morning, January 2, I attempted to sell what my positions page told me was 300 shares of JPM on the margin side of trust account &&&&&&&&. Shortly after 11:00 AM on the same day, I noticed that the order had been canceled, and that I had been notified that the cusip number for JPM had changed. I immediately called customer service and was connected to a telephone broker, who offered to help me make the sale at the online commission price (free in this case).

The explanation the broker gave me for the canceled order was that JPM was merging with Chase that day, and that my positions page had not yet become aware of this, so the order was rejected by the trading system. I was also told that trading through a telephone broker was the only way I could have sold a merging stock that day. I was initially unsatisfied with this explanation (I figured if your telephone broker was able to trade JPM, then your website should have been able to also if it were programmed well; after all, mergers are quite common), so I called some of the other online brokerage firms I use. One of them did tell me that on the day a stock merges, there is a period of an hour or so when one might run into problems placing orders on it due to the change in ticker symbol, but that the website alerts one of this on the positions page. As one of the more expensive “discount” online brokerage companies, you might want to consider adding such a feature to your website as well.

The telephone broker who assisted me in the sale of what had become, that day, 1110 shares of post-merger JPM inadvertently sold the shares on the cash side of my account, from what I’ve been told. While the correct value of the sale was added to my trade date balance, this resulted in a short position of –1110 shares of post-merger JPM, leaving my original position of 300 shares of pre-merger JPM intact. To add insult to injury, the next day my positions page showed a short position of –4107 shares of JPM, apparently double-multiplying by 3.7, the merger exchange ratio! At present, my positions page still shows that on the cash side of my account I am still short 4107 shares of JPM, and on the margin side of my account (which correctly accounted for the merger only once) I own 1110 shares of JPM.

This reflects a very serious flaw in your system—I don’t care how rare it might be. When I first brought the problem to the attention of a customer service representative, I was told that it was merely a website bug and that everything would be OK after the settlement date (January 5). If this had been the case, it would not be such an outrageous problem. Nor would it have been so outrageous if someone had been able to correct the problem immediately. I would have thought that a two hundred thousand dollar error on your part would have received top priority. But from what I’ve been told by customer service, I must wait the usual 5-10 business day period for the case to be reviewed. Meanwhile, I have also been told that my account is effectively frozen—I am limited in what I can remove from the account by the enormous short position inflicted on my account by one of your expert brokers. I suppose this implies, were it nor for the lucky fact that I had enough equity in the account to begin with, that I would be receiving margin calls from you right about now as JPM soars in price.

This brings me to another problem I had on January 2, which, though resolved by now, is equally outrageous. On Friday, December 29, 2000, I placed a market order to buy 732 shares of PWER. I kept a close watch on my email alerts, and within a few seconds I was told that my order for 732 shares of PWER had been filled in three different lots. I received no other emails that day regarding PWER, and both my positions page and my portfolio page correctly showed that I owned a total of 732 shares of PWER.

The following Monday, however, my positions and history pages showed that I owned 1464 shares of PWER, all purchased at the same time and at the exact same prices. I had received no further fill notifications regarding PWER, nor had my account portfolio reflected the change from Friday. But when I called customer service, I was told that indeed my account showed that I had purchased 1464 shares of PWER. When I insisted that I had not, and that I had evidence supporting me, she told me that sometimes customers accidentally double-click when confirming their orders, resulting in the order being placed twice, and that when this happens, American Express Brokerage cannot be held responsible for the double order. As you can see, my address is not in Palm Beach, Florida. I told her that I had not double clicked the brand new mouse I had just installed before placing the order, but again, I was told that my complaint would have to be placed at the end of what appears to be a long list of similar cases awaiting review.

This explanation is truly beyond belief. However, with even the remotest possibility that such a flaw in the design of your website exists, and even though the double order was canceled by the settlement date, it is alarming. Unless you are willing to assure me that your customer service representative (whose name, unfortunately, I did not take down) was giving me unauthorized false information about the condition of your website, I will avoid making any further trades on any of my securities during their remaining time at American Express Brokerage.

This raises the larger issue of why I, or anyone for that matter, should remain a customer of yours in light of the deplorable service I have received and continue to receive up to this very moment. I was one of many investors who were attracted by your offer of unlimited free trades in accounts with large enough equity. While I knew that you had every legal right to rescind this offer without warning, it greatly soured my opinion of American Express when this happened so shortly after the offer was made. I am probably one of the many customers whom your researchers told you would be “unaffected” by the change in policy, and whom you would therefore retain—at least for the time being—mainly due to the inconvenience of brokerage account transfers. However, that will likely change in the very near future.

I follow an investing strategy that involves trading different securities at fixed intervals—some monthly, some quarterly, and others annually. Thus my trades are concentrated in certain times of the year. Upon finding out about the change in free trade policy, I called customer service to ask some questions. I found out that the 10 free trades I was allowed each month would not accumulate, but that I was entitled to the 10 free trades each month for each account I had that met the minimum equity level requirement. I was also told that if I had more than one account under the same title, tax ID and registration type, I could journal securities between them with a mere phone call. I thus decided to open two more accounts, effectively giving me an adequate 30 free trades per month, with the intention of distributing my trades among them, and journaling securities between accounts before each trade if necessary.

All went well until I started requesting security journals. Apparently your policies change on a monthly basis, or else they differ according to whether the lottery connects me to your Colorado branch or your Minnesota branch when I dial customer service. I have been told on occasion that such a journal between accounts would require a written request, delivered through the mail, and directed to the Change of Ownership Department, even though the action requested involved no change of ownership whatsoever. Other times a faxed letter, signed by both trustees, has been sufficient. Yet even then I have discovered that my requests have been either lost or ignored. Fortunately I have discovered a competent employee in your back office who is willing to do the journaling on the same day that I send him a signed and faxed request, but this is still a lot more hassle than the phone call I was originally told would be sufficient.

For your information, I am in the process of opening a brokerage account with Brown & Co., who, as you no doubt know, offers market orders at $5 a trade. The estimated $1000 I save on commissions each year by remaining at American Express is no longer compelling, considering the hoops I must hop through to obtain my free trades, and the enormous risk I apparently assume each time I click to confirm a market order. I haven’t even mentioned the times I’ve had to request trade confirmations that have been missing from the envelopes containing others, or the long delays I’ve experienced in having check deposits posted to my accounts due to being misplaced. I may yet decide that at the bare minimum, I am safe in letting my annually traded stocks reside in your possession each year so as to avoid the $150 fee I would have to pay to close down the three accounts, but I’m not so sure. If I do, I am still frustrated enough that, should I happen to assume any margin debt in the future, I will be utterly scrupulous in making sure that every cent of it resides at Brown & Co. (I also notice that their lending rates are significantly lower than yours) In short, I will see to it that you never make any money off of me as customers.

You might also be interested to know that I intend to post this letter, along with any replies you might send me, to the investing message boards I frequent at The Motley Fool and elsewhere on the Internet.

Sincerely,

A near-bankrupt plan sponsor of a PBGC-covered pension plan has decided to not make its required minimum contribuiton. As a result, they have a funding deficiency, with a resulting 10% excise tax on the deficiency.

They file a timely Form 5330 (as of the due date of the contribution) without paying the 10% excise tax. (They either don't have available cash or more likely have more pressing needs for the available cash.) What are the consequences of this? Will the consequences of this change if the plan sponsor declares bankruptcy?

Also, they have to notify plan participants of the funding deficiency. Does the inclusion in the SAR that "an actuary's statement indicate that they have not made the contribution requirement; the deficiency is $X," or words to that effect, meet that requirement. (I think the answer is yes.)

Finally, they will be notifying the PBGC of the funding deficiency; clearly it is a reportable event. Do they have to notify the PBGC that they have not paid the IRS' excise tax? (I think the answer is no.)

Some additional background. There are no controlled group issues. The plan does not have a variable premium liability (since it is based on vested benefits), but if it terminates shortly (which it will), it will not have sufficient assets to cover accrued benefits --- however, the owner is willing to reduce his benefit to cover the diffence.

(This is gonna be fun!)

I have a client that has a SIMPLE 401(k) plan. I want to convert it to a safe harbor new comparability plan for 2001. They stopped the SIMPLE deferrals 12-31-2000 and I want to start 401(k) deferrals 2-1-01 (they posted the safe harbor notice 1-1-01). My first question is - can I simply restate the plan, effective 2-1-01? The current document is a prototype and I will restate to an individually designed document.

Second question - could I instead terminate the SIMPLE and start a new plan? I would think the "no 401(k) within 12 months of terminating a 401(k) plan" rule would apply.

Any thoughts?

Scenario:

Employee ineligible to participate in a 401(k)plan defers $700.00 for the year. This is a daily valued plan, but we did not update eligibility until after year end. To correct this, I think we should sell shares purchased from the employee's account and instruct the ER to reduce a future deposit by the $700.00. This would be assuming the proceeds from the sale are at least $700.00. If the proceeds are more than $700.00, then I would allocate the gain accross participant balances. If there is a loss, I would instruct the ER to only reduce a future deposit by the proceeds of the sale. Some in my office believe that the ER should be able to use the gain to offset a future deposit. Any words of wisdom out there?

I know that ineligible deferrals can be distributed using APCRS.

I am interested in hearing of other practitioner's experiences and opinions on the topic.

Currently my wife and I are maxing out our 401K's at work and are looking to pad the retirement account a bit more with a Roth. Assuming we qualify, is it true that both my wife and I can set up individual accounts and contribute $2,000 each (total of $4,000) per year? If we were to establish a joint account, would we be able to only contribute a total of $2,000 per year?

If we each open up new accounts before April 16, is it true that($2,000 each) can be counted toward a year 2000 IRA and, if we wanted, that we could pay an additional $2,000 each at the same time to count toward 2001? Finally, what would be the overall benefit to making a late addition to a year 2000 IRA?

Thanks,

Todd

Two separate entities constitute a controlled group and each of them have maintained separate (almost identical)plans. Both are on Standardized Prototype documents. They now want to merge the Plans into one. If they use EPCRS (SVP) and go before the IRS, practically speaking, what do you think the IRS would require?

Looking for a separate retirement vehicle to cover only our pastor. Diocese has a DB plan, but pastor's benefits will be very small upon retirement. Will consider a DC plan, or Roth IRA, etc. Have no good experience in this environment. Funding will be from the church budget, not from pastor, nor deferred wages. What options can we look at? what do we need to be careful or watchful of?