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The attorney is referring to a private letter ruling or some outdated regulation that she says makes this perfectly clear.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

Is Social Security and Medicare tax required to be withheld from disability benefits paid by an insurance company? The disabled person is a partner in a partnership (not an employee) and has not deducted the premiums for income tax purposes. I understand that the withholding will be only for 6 months after becomming disabled but I'm thinking that because the benefits are non-taxable, they are not subject to any SS or Medicare tax.

I am reviewing a stock pledge agreement for a leveraged ESOP transaction. The employer is the lender. The agreement states that on default, the Pledgor's (ESOP) voting rights to the stock that is held as collateral for the loan will cease and the Company will then be able to vote the shares. Obviously, the ESOP does not say this. Other than simply smelling bad, does this violate 54.4975-7(B)(6) (or any other section that you can think of?) The stock pledge agreement also provides that the loan is secured by "cash and non-cash proceeds and products of the stock"...I know that this is bad. Thanks.

Is there any information on the standards the DOL uses to determine whether to waive the penalties associated with the late filing of form 5500s? The DOL did not appear to be concerned with the late filings of form 5500s. Can anyone explain why the activity? The DOL is assessing a client a penalty of $50 a day or $15,000. Can this be negotiated and how do I go about doing so?

I'm having a hard time finding clear answers to the following two questions:

1. In first year of CY 401(k) Plan, is the look-back year for HCE determination the last calendar year even though there was no Plan?

2. I know if Money Purchase contribution is made 30 days after scheduled tax return date it is an annual addition for the next Plan Year,but is that "next year annual addition rule" the same for all DC Plans or just unique to Money Purchase plans?

Thanks.

I now know answer to #1 is yes, you do use prior year's comp even if there was no plan-any help on #2?

Is it safe to assume that all 945 witholding can now be remitted on a quarterly basis based on the IRS release on 11/27/00 provided the plan does not go over the $2500 limit? I spoke with an IRS official who told that it was reasonable but that I should speak to a person in Public Affairs. The number she gave me was out of service. Anybody know anybody out there with a good phone number so as not to have to spend all day on the phone?

Take this for what it is worth. On the front page of the Wall Street Journal (Wednesday, November 29, 2000) and I quote "Now being sought: Private letter rulings for people who failed to recharacterize their Roth IRAs on time and now face huge fines or penalties."

Anyone heard about any recent private letter ruling actually being issued on this topic? If the IRS does abate the penalties, that would be a huge break for taxpayers and show a kinder and more gentle IRS.

Is it a Prohibited Transaction for the owner of a company to make a loan with proceeds from his participant directed account (401(k)) to an employee who happens to be an officer of the company and an HCE?

I feel a bit silly asking this, but is the distribution election form required to indicate the dollar amount of the account balance available for distribution? I've always thought that informed consent would certainly include knowing the dollar amount, but more and more I see boiler-plate forms with no amount.

Is there any authority that does or does not require the amount to be on the form?

Thanks.