I have seen three different lists of IRC requirements for governmental plans. All three state that benefits must vest when an employee reaches normal retirement age (NRA), but none gives any cite for that requirement. Pre-ERISA 401(a)(7)requires vesting upon termination of the plan or discontinuance of contributions but not when an employee reaches NRA. Is there a requirement for vesting upon reaching NRA, and, if yes, where is it? Thank you.

Assume a Non-Title I 403(B) with a commingled 403(B)(7) custodial account. Is it permissible to perform the participant level accounting on a traditional recordkeeping system not controlled by the custodian? The custodian would have to accept transaction, asset and distribution information as delivered by a TPA's recordkeeping system, and perhaps sign off on statements, but have no in-house record of participant data.

A 501©(3) organization has the following plans:

403(B) Salary reduction agreement up to 15% of pay

403(B) Match up to 5% of pay

401(a) Integrated 5% to TWB, 10% over TWB

Got a guy making $73,440 in 2000, who wants to defer the max.

The way we see it, he'll get $3,672 match and $2,472 401(a) (partial year comp).

His hire date is May 1, 1999. Prior exclusions are $9,498.

Comp $73,440 times 20% times service 1.67 years less $9,498 prior exclusion is $15,031. $15,031 less 401(a) and match is $8,887 for the exclusion allowance.

(The 401(a) is subject to vesting, if it matters. Also, all contributions are to TIAA/CREF, though under separate contracts for the 401(a) and 403(B) portions).

Letting him defer $10,500 is OK under the 415 limits. What are you supposed to do, if anything? Educate the employee of the "C" election, warn him that he's losing a future potential "A" or "B" election, nothing?

Any help is appreciated.

Who would be the beneficiary in the following scenario?

Taxpayer A converts his traditional IRA ("TIRA") to a Roth IRA ("RIRA") in 1998. For the TIRA the primary beneficiary was his spouse but for the RIRA the beneficary was a qualified trust [such that the beneficaries of the trust are the designated beneficiaries for 401(a)(9) purposes].

Taxpayer A dies in 1999.

In preparing Taxpayer A's estate the executor finds out that A's 1998 MAGI needs to be adjusted such that it will exceed the 100K limit. The executor recharaterizes the RIRA back to the TIRA by the 12/31/1999 deadline.

Who is the effective beneficary for this IRA?

i)On the one hand, Taxpayer A's last intention before he died with regard to the beneficiary was expressed on his RIRA. Which would leave it to the trust.

ii)On the other hand, 1.408A-5 Q&A-3 says the effect of the recharacterization, in this case, the RIRA "is treated as having been originally contributed to the Second IRA [herein the TIRA] on the same date ... that it was made to the the First IRA [herein the RIRA]". This implies to me that the beneficiary should then be the ben. of the TIRA, the spouse.

Seems to me result (i) makes the most sense. For example, the executor should not have the power to change the beneficiary designation of the decedent. Note in this case

1.408A-5 Q&A-6© gives the power to the executor to make a post-death recharacterization. It does not say it has to be a mandatory recharacterization. If result (ii) was correct the executor could change the intentions of the decedent. What if the executor was the beneficiary of the TIRA? You see where I'm going...

In addition, 1.408A-5 Q&A-1(a) says that if both the RIRA and the TIRA were within the same trustee instead of a tranfer back to the original TIRA, the RIRA can be "redesignated" as a new TIRA; which in this case a redesignation would keep the RIRA's beneficary, the trust. One would think that the effective beneficary would not rest on the way the trustee chooses to processes the recharacterization.

Does anyone have a citation that would apply, other than the previously quoted 408A-5 regs in this scenario? I think that result (i) should be right; but I have no legal basis for it.

One could go on and complicate things by asking about a fractional recharacterization and about whose lifetime would be considered for MRD purposes in the recharacterized IRA but I think I'll stop here for now...

Is there any instance where loan repayments can be made pre-tax? My client's TPA failed to set up loan repayments and is now going to "recharacterize" previous deferrals as loan repayments. They have also stated their intent to continue this practice, not just as a means of correction.

Under Labor Regulations 2510.3-1(B)(2), an employer's self-funded short-term disability plan can be treated as a payroll practice that is not an ERISA welfare benefit plan. One of the requirements is that the amounts must be paid from the employer's general assets. When the employer pays the full cost of the disability payments, this is an easy question. But what if the employer provides a base level of benefit (e.g., 60% of compensation), and permits employees to "buy-up" to a higher benefit (e.g., 80% of compensation)? Are the disability payments still being made from the "employer's general assets," so that the disability benefits are still a payroll practice and not an ERISA welfare benefit plan? The employee contributions are not segregated from the employer's general assets prior to being used to pay benefits.

Can a non-registered group retirement annuity be used as the investment for a governmental 457 plan? Our office has a disagreement with this; one source references the Securities Act of 1933 that non registered products cannot be used with non-corporate entities, the other opinion is that the state's enabling statute determines what investments would be appropriate for the plan.

Your opinions are appreciated.

Can a participant in a governmental plan with a 414(h) pick-up provision roll his account balance into a qualified non-governmental 401(k) plan?

Just checking: Can we use a 414(s) definition of compensation in calculating a participant's EBAR, or do we have to use a 415©(3) definition? What I'm really looking at here, of course, is limiting compensation to that which is earned during plan year while a plan participant. (I know that for top-heavy minimum, I still have to count plan year compensation (415©(3) definition).) The proposed new comparability regs got me thinking about this. As I understand the regs, we can use a 414(s) definition for the "1/3" gateway, but have to use the 415©(3) definition for the "5%" gateway.

Thanks.

Has anyone had experience setting up a 401(k)SOP, that is, a combined 401(k) and ESOP plan involving an S corporation? Are there any problems under the S corporation rules if the only contributions to the ESOP portion of the plan are salary deferrals directed by the employees for investment in employer stock? Any other problems from a qualification standpoint?

Are premature distributions such as hardship withdrawals subject to the 10% early withdrawal penalty?

I am an independent securities licensed representative from the San Francisco area. Here are my questions.

Do you know of a Roth IRA custodian that allows for the greatest range of investment options such as owning real estate or trust deeds or viatical settlements? I have several clients who like "non traditional types of investments and would really like to find a Roth IRA custodian that has the most flexibility.

Also do you know what kind of annual reporting has to be done if you own a Roth IRA.

Finally can you make your Roth IRA creditor proof? I understand that IRAs in many states may already have some sort of protection (at least to the extent that the IRA is necessary to "cover reasonable expenses"), but is there any thing else you can do such as domestic trusts (the Alaska/Delaware trusts) or pehaps shifting ownership off shore or to your kids?

We have a takeover plan. The prior TPA determined that the 1999 ADP test failed and instructed the client to distribute the excess contributions; which was done before March 15, 2000.

In reviewing the 1999 ADP test I noticed that two HCEs were incorrectly classified as NHCE. The test actually now passes, since one of these HCEs deferred zero and the other deferred 2.33%.

Since the ADP test actually does not fail, how is this corrected? Do the HCEs return the distributions? If so, then I assume that they would amend their 1999 1040 to reflect the higher deferred amounts. If the distributions are returned, should a 1099 be issued?

Just to complicate this further, two of the eight HCEs that received the distributions are now terminated. How should their situation be handled?

Is there anything that would prevent a new profit sharing plan require immediate payment of lump sum benefits only if the amount of lump sum is less than $2,500 (not $5,000)?

Also, what would be the impact on 401(a)(4) testing if the same profit sharing plan allowed participants to receive their lump sums (above $2,500) immediately upon termination only if they are over age 55, while participants who terminate under age 55 would have to wait two years to receive their lump sum. During the two years, the lump sum would participate in investment performance of the plan. The catch is the only participant over age 55 is, naturally, the owner! I'm thinking about benefits, rights, or features here.

(The business owner's rationale is to prevent his employees from quitting work solely to get their hands on the lump sum. It's not a highly educated work force.)

Thanks

An employer just discovered that their 401(k) plan has included individuals who are illegal aliens. They are now being deported. If those individuals made any elective deferrals, should they be returned to those individuals? What about any earnings on deferrals? Forfeit along with any employer contributions made on their behalf?

If a non 5% owner participant in a 401(k) plan previously elected to defer his 70 1/2 required distribution to the date of his retirement, can he now "change his mind" and elect to receive the 70 1/2 required distribution even though he is still working?

In practice, does anyone send elections to take a distribution or defer annually to all those participants who are over age 70 1/2? Or do you have participants complete a one-time irrevocable election to either commence distributions or to defer distributiosn until termination of employment?

Any help would be appreciated. Thanks.

I am currently faced with the following situation:

We have a client who's attorney feels that in an ESOP where 96% of the stock is unallocated and the outstanding 4% is owned by one individual, that the individual owning the 4% is considered a 100% owner because you don't count the unallocated shares in the ESOP.

The attorney is referring to a private letter ruling or some outdated regulation that she says makes this perfectly clear.

(By the way their previous attorney had the same view.)

Can someone please help me explain to her that this person is not a 100% owner? I've been trying but to no avail.

To make matters worse she is advising the client that they include retroactively a controlled group company they acquired Jan. 1, 2000 to help them avoid paying the 10% excise tax for exceeding their 404 Limit (They overdeposited by $1,000,000. $850,000 of which was deposited on the last day of the plan year - March 31, 2000). We tried to explain to her that the IRS would view this as a reduction of benefits to the employees of the original company as their accrued benefits would be "watered down" by the addition of the other employees. Could they possbily claim ignorance on the deposit and say it should have been made the following day? Any suggestions?

(Of course this is a takeover case)

Does Tennessee have an Act similar to the California Family Rights Act?

Do cafeteria plans allow for deferred compensation to a nonqualified plan such as a 457 Deferred Compensation Plan?

401(k) Profit Sharing Plan has three month eligibility and entry date on the last day of the plan year.

Plan document defines compensation for allocation in the initial year of participation as entire plan year wages.

For testing (Average Benefits Percentage Test and Rate Group Testing) can wages from the date of entry be used. For example, the testing compensation for a participant that enters on the last day of the plan year would be compensation for that day only?