I looked at Code Section 72(f), and still am not sure how contributions to a 403(B)(1) will be treated. Do those contributions form a cost basis in the contract - e.g., go in tax deferred and come out not taxed? Does it make a difference whether the contributionsa are voluntary salary deferrals, or employer contributions? Yep, I should understand the Code - but, in this case, am getting tangled up in the language, and am being asked questions about 403(B) for foreign missionaries for the first time! Thanks for your help.

Company X provides a cafeteria plan to its employees. Employees are permitted to elect annually the coverages they will receive during the following year. However, with respect to dental coverage, an employee's election remains in effect for two plan years, in the absence of a change in status. Is a two-year lockout a violation of the cafeteria plan rules? If so, on what basis?

Hi,

I am new to the whole Roth IRA concept. I was wondering if someone could answer me this: I have a mutual fund started through Janus and heard that you could dump your mutual fund into the Roth IRA account. Is this possible (or did I hear wrong) and how would this work?

Thanks,

Fia

Has anyone else run into terminated participants who are rolling money over to a new employers plan that requires a letter from the "old plan" that it is a qualified plan? By the way in both cases we've rec'd the request the money was coming out of a group contract with a major carrier!

We have a client that has been a chronic late-depositer of 401(k) contributions. They are currently being audited by the DOL re: 1997 and 1998 late deposits. They have yet to file a 1999 5330 for same reason. Turns out that after 1998, they paid 15% tax on entire payroll amounts that were not deposited (about $5,000). My understanding is that, normally, tax would be paid on amount not deposited multiplied by some (lost) earnings factor.

Has anyone filed an amended 5330 and gotten money back? Is this opening the plan for more scrutiny? I'd like to wait for resolution of current audit before filing 1999 5330. How significant are penalties for late filing?

A participant has requested a copy of the Summary Plan Description that was in effect for the 1988 (yes, 12 years ago!) plan year. The sponsor no longer has it. What obligation is the sponsor under to retain and/or provide an old Summary Plan Description? The participant has also requested (unsuccessfully) a copy of the SPD directly from the DOL.

How are people handling plan document updates for the final and proposed Sec. 125 regulations? Is there any point in amending for compliance with the final regulations (e.g., change in status for group health/accident/long term life insurance), and then restating when the proposed regulations are final? Or restating for everything now and doing a "tune up" amendment if needed after proposed regs are finalized? How about operating the plan in accordance with final and proposed regulations, before plan is amended/restated (then making amendment/restatement retroactively effective as of date procedures changed). Finally, what are the prototype document providers out ther doing??

A new client of ours has not filed a Form 5500 since 1994 for its cafeteria plan. It is entirely funded by employee salary deductions for medical and dental insurance premiums and has no trust. There have been several changes in controllers over this period of time, but I have been able to talk to one of them that was at the Company during part of that time period. He indicated to me that he contacted the IRS and they informed him of some obscure revenue ruling that exempted this type of plan from filing a Form 5500. Can anyone tell me if this is true?

We have a situation where a covered dependent lost coverage under our plan effective Jan. 2000 due to his ceasing to be a dependent under the terms of the plan (i.e., he turned 19 and was not a full-time student). As a matter of practice, when covered dependent turns 19, our TPA sends the dependent a notice that coverage is terminating and the dependent or the employee-insured needs to notify them with respect to whether full-time student status is maintained.

In this case, the dependent, who is not a full-time student, did not reply. We never sent COBRA election forms. Recently, the dependent and the insured have come to us and asked for COBRA. Can we give him COBRA now? Can we do it retroactively, assuming he pays the premiums?

Will a participant satify their Minimum Required Distribution if they withdraw the required amount from one source (segregated account) within their 401(k) plan? Given a plan has after tax contributions, you can see where participants could minimize their tax liability by withdrawing from just the after tax money. Would the 72 regs affect the proportion of the after tax withdrawal?

Can money purchase plan contributions be reported on a cash basis on Sch. H and/or Sch. I? Can the money purchase plan be reported on a cash basis but contributions to the plan reported on an accrual basis?

If a money purchase plan can report contributions on a cash basis, is it okay to show zero for contributions on Sch. H or Sch. I if the contribution for the 1998 calendar year is deposited in 1998 and the contribution for 1999 is deposited in 2000?

Answer I got from the IRS was yes, and zero should be reported in above situation (of course, 1998 5500 would have had to show both contribution for 1997 and 1998 if both contributions were deposited in 1998).

Does anyone use the "modified cash" method? What is this method?

I am not sure where to post this. Does anyone know what "k1 processing" is? Thanks, JimJ

I have a closely held client that sponsors an ESOP. In the past, when a participant exercised his or her put option, the ESOP purchased the shares from the participant. The ESOP was "frozen" two years ago and the company began redeeming shares when the put option was exercised, with the repurchased shares pledged as collateral for the company's repurchase obligation. Prior counsel advised the company that shares pledged as collateral were considered outstanding under state law, and therefore should be considered outstanding for valuation purposes until the shares were no longer pledged. The state law in question simply states that shares pledged in a redemption are not considered redeemed, but are also given no voting or distribution rights, except in the case of the company's failure to pay the redemption amount. My interpretation of the state law is that it protects sellers from pledged shares being considered retired in the event of default. If shares were considered retired, the selling shareholder would not automatically receive shares upon default and board action would be required to "reissue" the shares. I conclude that shares pledged as collateral for the company's repurchase upon the put should not be considered outstanding for ESOP valuation purposes unless and until default. Any thoughts?

It is my understanding that a taxpayer can open an Education IRA for just about anyone that he/she would like to (for example a neighbor's kid). I am currently using a Roth as a education savings vehicle for my son. But assuming that I was planning on using the money to pay for the higher eduction of my non-relative neighbor's son, would his education expenses be eligible as a qualified education expense? Could I draw funds out of my Roth penalty free to pay for a neighbor kid's eductaion, or does it need to be for a dependant child in order for it to be a qualified education expense?

Second question - Can a taxpayer take advantage of a hope credit or a lifetime learning credit during the same year he/she takes a tax-free distribution from a Roth to pay for education expenses?

Our firm has been an independent TPA since 1976. We have been working with a major insurance company [will gladly disclose via direct email] as a third party administrator using their group separate account annuities as a 401(k) funding vehicle. With deteriorating public opinon of insurance products in general, the trend is towards more bells and whistles and is moving away from insurance based products. Many firms are developing trust based products investing directly in mutual funds and directed brokerage accounts as replacement products. The Directed Brokerage Account has created conflicts of interest with major brokerage firms who do not want their brokers selling the Directed Brokerage accounts. The insurance company recently asked its PPA's and Marketing people basically to lie to brokers of one of the major Broker dealers [will gladly disclose via direct email] or simply not mention that the Directed Brokerage Account is available. Other major brokerage firms [will gladly disclose via direct email] have declined to enter selling agreements with this insurance company to sell their Trust product because of perceived conflicts of interest arising from the Directed Brokerage Account. I am personally uncomfortable with such mandates.

Besides a high degree of discomfort and due to a difference of opinion relating to grandios production expectations, other newly imposed requirements, and the direct promotion and public endorsement by the Insurance Company of a competing TPA's in the same market we are in, topped by a conflict of interest in their replacement Trust product is an unacceptable replacement product.

Therefore, we are seeking to explore other alternatives for 401(k) plan fundng with other media than variable annuity products but short of running Trustmark type programs. According to the OTS, there have been something like 125 applications for Trust charters since 1997. I do not believe these institutions are spending huge amounts of money to establish Trust Companies, just to say they have a Trust Company.

Does anyone know of a broker/dealer, insurance company, or other financial institution that is using a trust type product to market 401(k) participant directed accounts that involve the use of an outside TPA?

If your firm is either selling or administering insurance based daily valued variable annuity products, and are having problems with the carrier of a contract nature or otherwise, I would be interested in hearing from you also to compare notes or problems and the possibility of resolution of conflicts. We may all be in the same boat sooner or later.

J. D. Wright

Benefit Investment Group, Inc.

An error was made. Is there any way to undo the error?

Participant dies at 73 on July 1, 2000 past the RBD. Sole beneficiary is son who withdraws entire balance from the IRA on September 5, 2000. After speaking with me, it is clear to him that an error has been made. Is there any way to get the money back into deceased mother's name and do a stretch?

I have a few difficult questions about contribution limits to a combination of 401(k) and 403(B) plans. My spouse works as a professor in a public university in NC. There are two retirement plan options: 1) the state defined benefit retirement plan 2) the defined contribution plan for only EPA (exempt from personnel act) employees (academic staff and administrators), a 403(B). The State of NC also has the “Supplemental Retirement Income Plan of North Carolina,” a 401(k) plan, which all state employees can contribute to. From what I understand this is a “grandfathered” 401(k) plan. There are only employee contributions to the 401(k) plan. The 403(B) plan, which s/he joined with TIAA/CREF, has 6% mandatory employee and 6.66% employer contributions of salary.

I have been told that s/he can also contribute up to 20% or $10,500 (the maximum elective deferral) to the 401k. I also was told that the amounts contributed to the 403(B) RA did not count toward the maximum elective deferral because 1) this was in lieu of the state defined benefit plan and did not count 2) the 401k plan was grandfathered. However, I was told if s/he contributed to what TIAA/CREF calls “Supplemental” SRA 403(B)s (GSRAs) then that would offset any contributions to the state 401(k) plan and fall under the $10,500 combined limit for 2000. Is what I have been told accurate, especially the 401k limits? (BTW we have maxed out the 401k under this advice for several years.)

To make matters even more complicated: My spouse has a semester visiting appointment at another public university out of state which in addition to his/her normal appointment in NC is paying some top-up salary. They have offered to contribute to a 403(B) on his/her behalf for this extra salary. (Hence, my spouse has two employers.) Their retirement plan has immediate vesting in the ORP 403(B) (TIAA/Cref also) and the institution contributes roughly 10% of his/her salary but does not have employee matching. They do offer the option to make “voluntary” additions to 403(B) (I assume GSRAs?) but they state that “The aggregate of employer contributions and voluntary employee contributions cannot exceed the IRS Code 403(B)2, 415©, and 402(g) limits.” This situation raises further questions. 1) is my spouse eligible for two 403(B) plans at the same time? 2) If so, how does the second 403(B) plan effect the first 403(B) plan (if at all) at his/her primary institution in NC? 3) How does the second 403(B) plan affect the 401(k) contribution limits (if at all) at the primary institution? As one can imagine this situation is novel (and difficult) for most HR officers. Many thanks for any assistance.

I remember seeing a thread on my question a while back, so please forgive me for being repetitive. My question is whether Code Section 318(a)(4) requires shares subject to unvested (i.e., unexercisable) stock options to be included for purposes of determining whether an employee is a 1% or 5% owner under the top-heavy rules. It seems logical to exclude such shares until they are vested, but the only authority (not directly on point)that I have found supports the opposite conclusion (e.g., Rev. Rul. 89-64, unvested options taken into account under Code Section 302(B)(2)in determining whether a redemption qualifies as substantially disproportionate).

I work for a financial institution in CA that is seriously considering "partial" self-funding of our medical benefits.

We have 200 employees with 120 lives insured in the medical plan that we want to self-insure. The self-insuring option appears to provide us with the option of giving the employee the types of coverages they've enjoyed in the past EPO/PPO vs. HMO/POS. We also believe that because we have a younger, healthier group that we can pay less in actual costs vs. paying fully insured premiums.

My question to the gurus who've done this before:

What are the major pitfalls?

Any surprises?

Overall experience with self-funding?

General advice?

Thank you for your help.

Premium only plan has been operating on "negative election" basis even though plan document requires positive election. This fact has surfaced because of an IRS audit of the corporation. Now the IRS has requested a copy of the plan, and I am concerned that once they receive it, they will request copies of the nonexistent election forms.

Any suggestions for arguing this one? It seems like revocation of the plan's tax-exempt status would hurt the employees more than the employer.