I have a question on the rules on "net unrealized appreciation" (or "NUA") for employer stock that is held in a participant's account under a defined contribution retirement plan. The source rules are in IRC 402(e)(4).

If a retired participant has an account with such employer stock, and the participant has already started receiving "required minimum distributions" due to attaining age 70-1/2, does the participant still have the ability to obtain NUA treatment for the stock, if he takes a lump sum distribution of the stock?

(I am also interested to know: (a) if this is a straightforward issue or a tricky issue, and (B) whether there is specific authority on this point.)

This question has probably been asked and answered before, but please humour me - if a 401(k) participant maxes out his or her deferral limit early in the year - and the employer is allocating the matching contribution each payroll period, must the matching allocations stop as soon as the deferrals stop, even if the matching allocation formula would entitle the participant to more money if the deferrals took place over a longer period? Example: Employee 1 earns $170K, defers 15% or $1,062.50 per payroll period; maxes out at end of 9.88 pay periods. Matching formula is 50% up to first 6% of compensation - matching contributions total $2,100 at the time employee must stop deferrals. Employee 2 also earns $170K but defers at 6%. He receives full $5,100 matching contribution because he is not required to stop deferring, prematurely.

Presuming the plan document allows the employer to fund the match at the end of the plan year (or by applicable tax return deadline), can the employer can fund the additional matching contribution for Employee 1, after he or she must stop deferring??

I am looking for an article published recently regarding a terminated employee who sued his employer because the employer performed a special allocation mid-year on a normally only annually valued plan, because the value of assets had decreased due to market performance.

My employee's spouse is adding her during his open enrollment, which does not correspond with our open enrollment. She wishes to drop her medical coverage (125). Under the proposed regs for mid-year election changes, it appears this can be done. However, don't we need to make plan amendments to our self-funded plan document?

If a 401(k) plan provides that an employee must work 1,000 hours in a plan year to share in the employer's non-elective contribution for the year, can the non-elective contributions be paid to the trust and allocated to every participant's account each quarter during the year, and then forfeited at the end of the year from the accounts of the participants who did not satisfy the 1,000 hour requirement?

Any ideas on where to find survey information regarding median/average pension levels (e.g. $/yr. of service or % of final year earnings) for a particular industry in a specific or general geographic area?

Can a 401k plan become a market maker when offering company stock?

Does anyone know if there is a withholding requirement for distributions to Puerto Rican residents that is analogous to IRC 3405?

Question concerning additional profit sharing contribution made to a safe harbor 401(k) plan. We have a client looking at setting up a safe harbor 401(k) plan. The owner would like to max out at $30,000. He is maxing out his deferrals at 10,500 and he gets an additional 3% safe harbor. In order for him to reach the max how is the profit sharing contribution allocated? Before they had a cross tested plan (profit sharing). I guess I'm confused on how the additional works so that he gets the majority of the profit sharing contribution.

I apologize for the length of this message. I would appreciate critical comments on the analysis herein.

With respect to MRD's, I am trying to see if there is a distinction between "seperate plans" and "seperate accounts" and what defines a "seperate plan" with respect to IRA's. Are multiple IRA's under different custodians ever "seperate plans"?

Let's assume:

Individual A has IRA's 1,2,3 each held seperately with three different custodians. Individual A has spouse B and children C and D. Individual A is the eldest with ages in the following order: A>B>C>D. Individual A dies before his RBD.

Whose expected lifetime would be used for MRD's under the following scenarios?

Scenario I:

Each of the IRA's (1,2,3) has B,C,D as the multiple primary beneficary of each of the IRA's? (e.g. IRA 1 has B,C,D as the primary ben.,etc.)

Analysis I:

Assuming that seperate accounting under Q&A H-2(B) was not done, Q&A E-5(a) of the proposed reg's tells us that at DOD if there are multiple ben's with respect to an employee the designated beneficary with the shortest exp. lifetime should be used (Spouse b).

Scenario II:

Each of the IRA's has only one of the ben.'s as the primary (e.g. IRA 1 has B, IRA 2 has C, etc.)

Partial Analysis II:

Is each IRA considered to be a different "plan" since it was held and created under a different custodial agreement? If so, then seperate accounting under Q&A H-2(a) would not seem to be relevant because that refers to "a plan" divided into seperate accounts. Or are IRA's, whether held with seperate custodians or not, always aggregated to be one "plan" with respect to 401(a)(9). And thus because they were always held (pre and post death) with seperate custodians "seperate accounting" is applicable.

Q&A H-1 says that if an employee has more than one plan then "the distribution of the benefit of the employee under each plan must seperately meet the requirements of section 401(a)(9)." However, for IRA's you may need to aggregate (see 408-2(B)(6)(vii)for aggregation required during owners lifetime). In other words do we have mutiple beneficaries under Scenario II or is each ben. a ben. under a seperate plan for the beneficary MRD's.

Does all this mean that each of the ben's in Scenario II can use each of their exp. lifetimes in taking MRD's from their inherited IRA? (e.g. IRA 1 over B's life, IRA 2 over C's life. etc.)Or is the conclusion the same as Scenario I where B's exp. lifetime is still used for MRD's.

Scenario III:

Each of the IRA's has a "Qualified" Trust X as the named ben. on each IRA. At DOD, Trust X creates sub-trusts Y and Z. B is the sole ben. of Trust Y; C and D are the sole ben. of Trust Z.

As of the DOD, the trustee funds Trust Y with IRA 1. Trust Z is funded with IRA's 2 and 3.

Partial Analysis:

I know that the IRS has ruled that "seperate accounting" under Q&A H-2(B) can not be done where the trust is the named beneficary of a IRA. But can we use the "seperate plan" logic used in Scenario II to say that since Trust Y is funded with IRA 1 the designated ben. is B; and thus B's exp. lifetime can be used for MRD's. Trust Z is funded with IRA 2 and 3, thus C and D are the designated ben.'s for both plans; thus since ages are C>D, C's lifetime should be used for MRD's on IRA 2 and 3?

Thanks in advance for any critique. I would be especially appreciative if you included citations with your analysis.

I apologize for the length of this message. I would appreciate critical comments on the analysis herein.

With respect to MRD's, I am trying to see if there is a distinction between "seperate plans" and "seperate accounts" and what defines a "seperate plan" with respect to IRA's. Are multiple IRA's under different custodians ever "seperate plans"?

Let's assume:

Individual A has IRA's 1,2,3 each held seperately with three different custodians. Individual A has spouse B and children C and D. Individual A is the eldest with ages in the following order: A>B>C>D. Individual A dies before his RBD.

Whose expected lifetime would be used for MRD's under the following scenarios?

Scenario I:

Each of the IRA's (1,2,3)has B,C,D as the multiple primary beneficary of each of the IRA's? (e.g. IRA 1 has B,C,D as the primary ben.,etc.)

Analysis I:

Assuming that seperate accounting under Q&A H-2(B) was not done, Q&A E-5(a) of the proposed reg's tells us that at DOD if there are multiple ben's with respect to an employee the designated beneficary with the shortest exp. lifetime should be used (Spouse b).

Scenario II:

Each of the IRA's has only one of the ben.'s as the primary (e.g. IRA 1 has B, IRA 2 has C, etc.)

Partial Analysis II:

Is each IRA considered to be a different "plan" since it was held and created under a different custodial agreement? If so, then seperate accounting under Q&A H-2(a) would not seem to be relevant because that refers to "a plan" divided into seperate accounts. Or are IRA's, whether held with seperate custodians or not, always aggregated to be one "plan" with respect to 401(a)(9). And thus because they were always held (pre and post death) with seperate custodians "seperate accounting" is applicable.

Q&A H-1 says that if an employee has more than one plan then

"the distribution of the benefit of the employee under each plan must seperately meet the requirements of section 401(a)(9)." However, for IRA's you may need to aggregate (see 408-2(B)(6)(vii)for aggregation required during owners lifetime). In other words do we have mutiple beneficaries under Scenario II or is each ben. a ben. under a seperate plan for the beneficary MRD's.

Does all this mean that each of the ben's in Scenario II can use each of their exp. lifetimes in taking MRD's from their inherited IRA? (e.g. IRA 1 over B's life, IRA 2 over C's life. etc.)Or is the conclusion the same as Scenario I where B's exp. lifetime is still used for MRD's.

Scenario III:

Each of the IRA's has a "Qualified" Trust X as the named ben. on each IRA. At DOD, Trust X creates sub-trusts Y and Z. B is the sole ben. of Trust Y; C and D are the sole ben. of Trust Z.

As of the DOD, the trustee funds Trust Y with IRA 1. Trust Z is funded with IRA's 2 and 3.

Partial Analysis:

I know that the IRS has ruled that "seperate accounting" under Q&A H-2(B) can not be done where the trust is the named beneficary of a IRA. But can we use the "seperate plan" logic used in Scenario II to say that since Trust Y is funded with IRA 1 the designated ben. is B; and thus B's exp. lifetime can be used for MRD's. Trust Z is funded with IRA 2 and 3, thus C and D are the designated ben.'s for both plans; thus since ages are C>D, C's lifetime should be used for MRD's on IRA 2 and 3?

Thanks in advance for any critique. I would be especially appreciative if you included citations with your analysis.

Company A has leased employees who have worked more than 1 year and 1000 hours so they are now eligible to enter Company A's plan (effective 1/1/2001).

Leasing Company has an ESOP. The leased employees participate in this plan.

Company A has an integrated profit sharing plan. Company A is in budgeting mode for 2001 and is considering new plan design options.

Question:

If the leased employees are now eligible to participate in 2 plans, does Company A get any "offset" for contributions made by the Leasing Company's ESOP for the leased employees?

Someone recently asked me this question and I am completely unfamiliar with anything beyond the very basic rules of leased employees. Any help will be greatly appreciated!

Is it a requirement for all cafeteria plans to be amended by 1/1/2001, or do the final regs merely make it possible to amend for the new provisions?

I have a client that wants to terminate his Corporation's ESOP. He feels that it is too expensive to maintain and the participants do not appreciate the plan. The Corporation has been successful (the stock's value has increased by 300% over 7 years). He wishes to terminate the ESOP. The Corporation also sponsors a 401(k) plan and after the termination the Corporation will add a more generous match and make discretionary employer contributions to the 401(k) plan. The ESOP owns 75% of the Corporation's stock. There is one outside shareholder that owns 25% of the Corporation's stock. An independent trustee will be hired to review the redemption price. The annual appraisal values the stock at approx. $30 per share. An appraisal will be commissioned for purposes of the Corporation's redemption of the ESOP's stock.

My problem is that the outside shareholder has been talking with an investor. The investor is willing to buy common stock from the Corporation for a premium price that will exceed the appraised price of the common stock for purposes of redeeming the ESOP's shares. The investor will not buy the stock unless the ESOP is terminated. Has anyone dealt with this situation and how did they resolve the issue? I am concerned that the price that the Corporation is willing to pay for the ESOP's stock is not fair market value.

My company is evaluating it's preventive care benefit. I am wondering if anyone has any idea of resources out there that would give us statistics, information, etc. on what other employers are offering.

Thanks.

What is the procedure for filing 5500s for merged plans in the following example - 3 plans with the same plan years (1-1) intend on merging effective 1-1-01. Separate testing and 5500s would be completed for each of the 3 plans for their respective 12-31-00 plan year end. Do you then have to complete a final 5500 for each of the 2 merging plans (#1 and #2) for January 1, '01 (a 1 day 5500) reflective of the fact they have merged into plan #3? Or is there a procedure or some permissable method of doing the 2000 Form 5500 for these merging plans (1 & 2) and attach a statement saying they are merging into plan #3 on 1-1-01?

A dependent child did not attend college during the summer, and due to financial issues, worked fall semester, but will return to school in the winter. I know that there is something relative to an allowance for a kid in college to continue coverage when taking off for summer type of scenario, with the intention of enrolling for the following term, but is there anyway to extend that until winter term? OR Did they loose all COBRA rights because of failure to notify the plan within 60 days from the time she knew she would not return in the fall?

My question is regarding the 1 of 10 employees rule owning a 1/2 percent of the company making more than $30,000 per year. My manager is telling me to apply this rule all of the time and I have always been under the impression that you just apply this rule when you are dealing with a large company with a lot of owners. According to my manager anyone owning a 1/2 percent making $30000 would be considered key. But then what is the point of even having the 5% and 1% rule wouldn't those people already be key since they own a 1/2 percent?

Plan sponsor started a cross-tested plan in August of 1996 and the document was drafted by maximizing the owners and minimizing the nhce's at 5.75%. Upon receiving the year-end census, it was determined that the hce's could hit their maximums and pass at 3% to NHCE's. This formula was utilized for 1996 & 1997. In 1998, the plan was transfered to a different tpa and when the 1998 calculation was being completed, it was determined that there was never an amendment done to the plan to change to the 3% level. What are the issues, options for resolution and potential results(penalties, fines or other) at this point?

Company A and Company B are going to form a joint venture into which both will contribute assets and employees. Rightly or wrongly, it has been determined that the same desk rule will apply. Company A has a profit sharing plan that includes a 401(k) element. Company A is considering a spin-off with respect to the employees that are being terminated and offered positions with the joint venture. What assets can be spun-off? The entire balance of participants accounts? Only the 401(k) portion that is covered by the same desk rule? Wouldn't you be violating the terms of the plan if you don't distribute the profit sharing portion because the employees have terminated employment?