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?

May a governmental plan (a defined contribution plan) require more than 1000 hours for a "Year of Service" for participation and eligibility purposes? Generally, governmental plans are exempt from the 401(a)(3) minimum participation rules (of 410) and exempt from the 401(a)(7)vesting requirements (of 411 (except for 401(a)(4) and 401(a)(7) requirements in effect on 9-1-1974 (i.e. 100% vesting rules at NRA and plan termination etc.)). Am I missing something here? Thanks.

During open enrollment, cafeteria plan participant elects to contribute $3,000 per year towards Medical FSA, due to planned LASIK surgery. Surgery was to occur towards end of year but now physician says participant is ineligible for treatment. No change in status events are relevant. Is there ANY way to avoid having her forfeit the $3,000, other than buying LOTS of eyeglasses?? I have heard that there is some support for the practice of allowing unused FSA money to carry over to FSA account for the following plan year . . .

I posted this once before and didn't get a response. Does anyone have a suggestion or comment about this? I plan to submit to IRS for FDL, but would like to know what my chances are.

The employer wants to base profit sharing plan contributions on the following: $150/month for each employee with perfect attendance, $150/month for each employee with no accidents, $200/month for each employee based on some production goal for the company as a whole. No HCEs will benefit under this plan.

I haven't worked out all of the language yet, but wanted to know if anyone saw anything wrong with the basic concept of this just on the surface. I'm concerned as to whether or not this meets the definition of definitely determinable allocation formula.

Also, the ER wants to base these incentives on monthly goals (perfect attendance for the month, etc), but still wants a last day/1000 hr rule. My concern is that if the plan specifically allocates on a monthly basis, how can we have last day/1000 hr requirements?

How does a plan sponsor terminate an underfunded DB plan? Can it even be done?

What is the penalty for a plan that fails to provide the Safe Harbor notice prior to the beginning of the plan year? We have a safe harbor plan that has a 10/1- 9/30 plan year, and we think the employer did not provide the notice prior to 10/1/2000 for their 2000 plan year.

Would the plan not be considered a safe harbor for 2000, and therefore subject to testing?

Thank you!

Section 125 rules say that only for birth/adoption can new coverage be permitted retroactively. This means that a spouse cannot be covered as of the marriage date UNLESS enrollment takes place BEFORE that date.

However, most plan material still uses the 30 or 31 day rule (enroll within 30 days after marriage, coverage is effective as of date of marriage.)

Has anyone changed their administrative documentation or employee communication to address this? How are you handling it?

Earlier this year, I established a subchapter S corporation. I am the only employee. My accountant tells me that S corporations are not eligible to establish SEP retirement plans. Nothing that I've read in Publication 560 leads me to believe that my corporation cannot set up a SEP. As a matter of fact, on page 6 of the publication, under the heading "Where to Deduct Contributions", the pub states that contributions can be listed on form 1120S - the form reserved for S corporations.

Bottom line - can an S corporation with 1 employee (me) establish a SEP?

Thanks,

Mike Bernier

What is the remedy for an overcontribution of a match in a SIMPLE IRA?