Our cafeteria plan provides for salary reduction for health premium payments by employees. We have an insurance "subsidy" which, if unused to purchase health coverage, is mostly given to the employee. We do not consider this "subsidy" to be part of the cafeteria plan as not all employees (based on date-of-hire) are eligible for the cash-back feature. We have 2-tier premium rates and nothing other than medical insurance coverage for the employee to purchase with the "subsidy".

Example: Employee is on plan A. Plan A premium is $180 for single, $480 for family. $460 per month in "subsidy" is available to the employee, so employee's monthly cost for coverage is $20, which is taken pre-tax.

If an employee receiving the "subsidy" drops their last dependent, their rate goes down by a significant amount and they would be eligible to receive most of the "subsidy" amount in their paycheck. This is fine during Annual Enrollment or if we are within 30 days of a family status change event.

But it is now September and the employee comes in to drop their spouse and it is determined that the date of the divorce decree was April 6th. We can make the premium change prospective, effective October 1, and drop the spouse retroactive to May 1 (if the plan allows). We will take whatever credit the carrier permits. The employee wants the premium credit back to May 1 ($300 per month).

1) Based on the regs, we cannot retro the election change for the employee, thus the employee's $20 per month salary reduction for June-Sept cannot be refunded.

2) But what about the "subsidy" dollars, which are not considered part of the Cafeteria Plan? Can these be refunded to the employee or are they also forfeitted?

Sorry for the long winded story. Any thoughts or comments greatly appreciated.

I am inquiring if a 401(k) plan is allowed to invest in a Limited Partnership and / or a Venture Capital Fund. If allowed, I would appreciate if you can tell me the section of the code where I can find this information. Any help is greatly appreciated. Sincerely, A Milano

It is unbelieveable that the Schedule SSA instructions do not define what the phrase "deferred vested benefits" mean.

Here's my situation:

I am a sole proprietor. My business has a profit sharing plan with 15 employee/ participants. I make discretionary contributions to the plan each year for each participant. The plan has "NO" 401(k) feature and the employees "DO NOT" contribute to the plan on either a pretax or after tax basis. All contributions are from me (the employer).

Some participants (with a vested balance) have terminated employment with my business. Their vested account is still in the plan. The plan expects to make a "lump-sum" distribution to them in a couple of years.

Here's my questions:

1) Is their vested account balance (which is still held by the plan) deemed a "deferred vested benefit", which requires the plan to attach a Schedule SSA to its Form 5500 until the lumpsum distribution is made ?

2) Since no employee deferred funds were contributed to the plan, does the plan even have to file a Schedule SSA ?

3) What in the world is a "deferred vested benefit ?

We have a profit sharing plan adopted in 1999. No contributions were made during 1999. It is my understanding that a 5500 still must be filed. However, it has been expressed to me that since there is no money, a trust has not been established and the 5500 filing is not required. Which view is correct?

Which type of plan do you use if the employer wants to offer only voluntary pre-tax employee contributions - no employer contributions. Very small employer.

On August 2, 2000, the California Attorney General issued Opinion No. 00-204 to the California Department of Financial Institutions regarding California 457 plans, though it may have implications for 401(a) plans and may serve as a precedent in other states. The conclusion is both puzzling and troubling, and will directly impact any bank or trust company holding custody of California 457 plan assets. Indirectly, it could have a significant (adverse) cost impact on California plans.

The opinion states, in essence, that a bank or trust company holding assets in trust for a 457 plan must pledge collateral against the bank's insolvency, bankruptcy, etc. By way of background, state governments (and, I believe, the Treasury Department) require that state assets placed on deposit with private banking institutions must be protected via a pledge of securities (based on a legal list). In other words, unlike most depositors, a governmental entity becomes a secured creditor of the bank. Banks agree to this b/c of the huge amounts of $$ involved. But, this is usually thought of as applying to commercial accounts, not trust accounts.

In California, it appears that the amount required to be pledged ranges from 105% to 150% of the value of the assets on deposit, depending on the types of assets pledged. Moreover, the pledged assets (1) must be held by a California-based institution and (2) generally are limited to certain low-risk/low return securities. In other words, for every $1 held in trust, the bank may have to have up to $2.50 in assets set aside.

Am I missing something here? Aren't trust assets in effect already fully secured against the bank's general creditors?

Perhaps worse, as the main point of the legislation is to ensure the return of principal, does this in effect turn every California 457 trust into a form of synthetic BIC, with the bank required to guarantee against loss of principal?

Finally, note that logic of the AG's opinion would appear to apply equally to 401(a) and other trusts.

I would like to hear some opinions from users of the Investlink system or the Quantech system in regards to processing daily valuation plans and the ease of use for the end user. Any other system that someone thinks is better, I would also like to hear your comments.

I am really frustrated trying to keep up with years of vesting service using elapsed time in Quantech. Just as one example, I have one particular employee in my plan who had 0 years vesting service as of 12/31/98 and for some reason incremented to 4 years as of 12/31/99 with no change in date of hire. Does anyone have any comments or suggestions or opinion regarding Quantech's capability to correctly calculate vesting under the elapsed time method?

Company A sold off a segment of the company to company B. All employees of the sold off segment were automatically employed by company B. Being pension eligible under company A's pension plan, I requested that payment start. I was now working for company B. I was told the pension plan had been "transferred" to company B and I would have to wait until I retired from company B to start collecting the pension due me for the time I worked for both company A and B. They said that was the terms of the sale. Can they do this?

If a 401(k) plan's end of year testing was completed incorrectly, resulting in erroneous distributions being given back to the HCEs; what recourse does the plan administrator have?

According to the professionals at our 401(k)investment company, our employees have "no choice" and must pay back the monies. Well, this is easier said than done. Especially in the case of terminated employees.

Does anyone have experience with this? Or have a suggestion on how to persuade all the plan participants to pay back the money?

Any help would be greatly appreciated. Thank you.

http://www.benefitslink.com/articles/reform000907.shtml (click)

Provocative. Comments, anybody?

Client declared a profit sharing contribution in December of 1999 for the 1999 plan year. It is now time to make that contribution and they don't have the money. What are their options? It looks to me like if they don't fund, they lose the deduction and are subject to the excise tax. Am I missing anything? Is there anything they can do to put off the contribution?

Thanks,

Jeff

Schedule H, Part I states that you do not enter the value of the portion of an insurance contratc that guarantees during this plan year to pay a specific dollar benefit at a future date. We have always taken the postion that this means we should not include the cash value of life insurance policies held by the plan. I have a one person plan that has always had less than $100,000 in assets and has never had to file. If I include the cash value of insurance assets exceed $100,000 at 12/31/99; if I exclude insurance assets are less than $100,000. Do I include the insurance as an asset file or not?

DOL Regulations provide that the fidelity bond need not exceed $500,000 unless such greater amount is "prescribed by the Secretary". Does anyone know under what circumstances a bond should exceed this limit and actually reflect 10% of plan assets?

Notices to Interested Parties must be posted (one option) before submitting a Form 5300 for favorable determination.

May this posting be via internet?

We have been retained by a client to obtain an approval letter on a pre-GUST nonstandardized 401(k) profit sharing plan. The document was executed 4/96 through another TPA and never filed. The company is being sold and the purchaser wants a letter and cannot wait for our restated Cobel prototype. Will the IRS issue a pre-GUST letter? Can we attach GUST "clip on" amendments that we have been using for terminating plans? Any ideas?

All employees of a "start up" company are on COBRA from their previous employers. All employees are highly compensated. There are no non highly compensated employees. Can a 125 plan be established to cover the COBRA premiums? If so would the plan go into effect on the date adopted or could it be made retroactive? Is there special wording for the plan document?

Does anyone know where I might find a list of all Rev. Procs (or legislation, rulings, etc.) that have affected 401(k) (or at least employee benefit) plans in 1999 and 2000?

Does anyone know where I can find a "Special Tax Notice..." that has been updtaed for recent law changes?

Hi Everyone,

I need some help in properly interpreting the use of the MDIB Tables involving a RMD calculation.

Assume the following: An IRA owner age 70 1/2 (attained age of 70)and a non-spose beneficiary with an attained age of 42.

IRA owner elects the "joint life expectncy" option and the "Term Certain" method on BOTH individuals before the first RMD.

According to MDIB rules, the non-spouse beneficiary is "age adjusted" to appear to be age 60 for RMD calculation purposes. The life expectancy factor used for the first Distribution Calendar Year's RMD is 26.2 as taken from the MDIB Table (after compasrison with the standard J/L/E tables on an unadjusted age basis).

Here's the question. For subsequent RMD's in future years, is the original divisor of 26.2:

1. Reduced by one for each elapsed year (to reflect the "Term Certain" election on both lives made by the owner) resutling in a divisor of 25.2 for the second year, 24.2 for the following year and so on...

OR

2. Newly determined directly from the MDIB Table for each subsequent year resulting in the divisor of 25.3 for the second year, 24.4 for the following year, etc.

Concensus of opinion is that option #2 applies (even though using this method acutally introduces an element of "life expectancy recalculation" on the non-spouse beneficiary which is prohibited by the RMD Regs).

As one person told me, "The MDIB is a "table" and not a "method" so use it and don't think too much about it. Its how the IRS chose to implement MDIB rules."

The differences are subtle but important to understand especially as balances for RMD's skyrocket and people become more sophisticated about their options.

So if any of you have some factual information on this aspect of RMD's and MDIB's, I'd welcome hearing from you by e-mail on posted on the list.

Confused? I am.

Thanks

David H.