Is the following correct:

If a plan borrows an amount equal to the cash value of a participant's life insurance policy minus the accumulated P.S. 58 costs, and then distributes (transfers the ownership of) the policy to the participant, the amount of the P.S. 58 costs is treated as a non-taxable (or after-tax) distribution, while the distribution of the borrowed cash to the participant is treated as a taxable distribution (or as an eligible rollover distribution).

However, if a plan surrenders the policy for the cash surrender value, and then distributes this cash to the participant, the entire amount is taxable (and an eligible rollover distribution) - there is no basis for the P.S. 58 costs.

I'm looking at Private Letter Ruling 8539066, and trying to figure out what it means to "convert the whole life insurance policies to their cash surrender value," and what event triggers the loss of tax basis in P.S. 58 costs. Is the P.S. 58 tax basis lost anytime the ownership of the policy is not transferred to the participant?

A sole proprietor adopts a Profit Sharing and a Money Purchase Pension Plan. The sole proprietor has no employees so she did not apply for an EIN. Does she need to file Form SS-4 to obtain an EIN or can the plans use her social security number as the EIN?

I'm sure everyone has been following closely all of the proposed pension changes in the House and Senate this summer. One proposal in particular is to change the 415 limit for DC plans to the lesser of $30,000 and 100% of Compensation. On the surface this is great; however, we have a number of age-based plans where there are a few older NHCEs in the population who presently are capped at 25% of pay in their allocation. If this proposal goes through the attractiveness of the age-based allocation could fall dramatically (although a great windfall for these select individuals).

Anyone have any thoughts on this issue?

i'm looking for some help. I searched around and didn't find exactly what i was looking for. Here's my problem(not really a problem but you'll get the picture): i'm a 21 year old college student that nows diddley about IRA's, yet a Pharmacist i work with got hooked on the idea. I've defintly decided to get a Roth IRA. What is the difference and or value between a savings or a certificate of deposit IRA? Here's the deal i don't make a great deal of money and i'm going to pharmacy school next fall '01. so only in the summer's will i be able to make limited contributions. but i think anything to get on jump on my retirement will help, correct. what is better for just sitting around???? and i don't/won't 'play the market' cause i have a weak stomach for that. I need something i can dump some money into that will eventually grow. Any help would be great.

thanks

A client requested disability coverage in the UK for their 7 person office.

I was able to get a LTD quote for the group but not STD as I "was told" that their is a federal program called Statutory Sick Pay (SSP) that covers up to 28 weeks.

Does anyone have experience obtaining STD coverage in the UK? where did you go for it?

Thanks for your help!

Apparent "catch-22" in money purchase pension plan funding. If required contribution to a 25% money purchase plan isn't made by the tax filing date including extensions, no deduction for the year is available under Code section 404(a), but the obligation to contribute under Code section 412 remains. This appears to create a catch-22: if the contribution isn't made, the funding deficiency gives rise to an excise tax under Code section 4971. If it is made, there is an excise tax under Code section 4972. Moreover, since the plan uses up its entire 404(a) deduction every year for current funding, it appears that whichever excise tax is chosen will recur every year until accruals are reduced or stopped.

Is there something I'm missing here?

A friend converted two conventional IRA accounts into Roth IRAs in 1998, dividing the taxable 'income' (about $87k) into four parts, about $22k annually, ending in 2001. In '98, this $22k Roth conversion 'income' boosted her reported 'income' from about $12k to about $34k. In '99, from about $17k to $39k reported income. For 2000, a projected $27k

actual income to $49k reported.

This is a annual tripling or doubling of actual income vs. reported income. The Roths are considered long-term investments, and some Roth conversion software (T.Rowe Price's) projected a $35k overall savings.

But few institutions seem to differentiate between reported 1040 income and actual income. For example, her '98 actual income entitled her to certain free medical benefits, while the 1040 reported income then and in subsequent years might change that (untested). As another example, parents might fill out an application for college scholarship/financial aid and find themselves reporting 1040 income that's double their actual income. Bureaucratic forms for reporting income may not make distinctions between phantom Roth-conversion income and actual income. This 1998-2001 four-year Roth 'income' split must apply to many people and many situations.

Has anything been written into tax law or the Roth

legislation to minimize such problems? Thanks. -- John

I have a question about the "L" distribution code. If a terminated participant defaults on their loan, should the distribution code be 1 or L1?

I know that self-insured health plans must comply with the nondiscrimination rules of IRC section 105(h). However, this section allows you to "exclude" a lot of people for purposes of passing the "eligibility" test. Our plan would like to cover all employees that work more than 25 hours per week AND cover only highly paid employees who work less. While this certainly seems discriminatory in theory, it appears to pass the eligbility test. Any thoughts or comments? Thanks.

When running ADP Test, are deferrals that participants made in excess of 402(g) limit ($10,000 in 1999) counted, or do you only count the deferrals up to the 402(g) limit? Our client had several participants who exceeded $10,000 last year. Corrective distributions were made earlier this year, however, we need to confirm treatment in ADP test.

When doing a distribution of Excess Aggreate Contributions to correct an ACP test what happens if the Highly-Compensated Employee is not 100% vested?

I understand that you will forfeit the non-vested portion, but which vested percent do you use - the percent vested at the end of the plan year or the percent vested at the time of distribution?

Eg:

I need to remove $1000.00 from a HCE.

He/she was 40% vested at 12/31/1999.

He/she is 60% vested at the time of distribution-9/27/2000.

Do I forfeit $600.00 or $400.00?

Thanks.

I have a client who is past his plan NRD and his benefit is max'd out at the 415(B)(2)(B) 100% of comp limit. Since the comp limit is supposedly absolute, his lump sum is decreasing each year. Is this correct? If so,is there any remedy?

Assume that a participant stops making payments on a loan in November of 1999. The plan allows for a grace period for that extends to the last day of the calendar quarter following the date of the missed payment, or March 31, 2000. The participant does not make any payments by the end of the grace period, making the loan taxable as a deemed distribution.

Is the loan considered taxable in 1999 (the due date of the original payment) or is it taxable in 2000 (taking into account the grace period)?

Thanks.

Does anyone have experience with paying legal fees (preparation for litigation and then actual litigation) from defined benefit plan assets, where the plan is party to a lawsuit? Participants' benefits would not be affected (besides being a DB plan, it also happens to be substantially overfunded). I know that there has been recent DOL audit activity in the midwest challenging payment of fees from plan assets, including defined benefit plans.[Edited by mo again on 09-28-2000 at 03:24 PM]

For folks with Employee Stock Purchase Plans with monthly, quarterly, etc. exercise dates following the date of option grant: Are you amending Section 423/Employee Stock Purchase Plans now to add a six month holding/vesting period before exercise in order to avoid overtime calculation issues under the Worker Economic Opportunity Act or waiting to see if the DOL issues exempting regulations?

Self-Employed individual has two employees. When are the elective deferral contributions required to be deposited to the plan for the employees? And, more importantly, I would like to know when the elective deferral contribution(s) for the owner are required to be deposited to the plan.

Company Y is a subsidiary of Company X. Effective 1/1/2001, Company Y's qualified plans are to be merged into Company X's qualified plans. Company X ordered a compliance audit of Company Y's qualified plans in anticipation of the merger. Although there were no document defects for which Company Y did not have reliance on its determination letters, there were some ambiguities and inconsistent amendments. Therefore, Company X directed Company Y to apply for a determination letter before merging the plans.

Should Company X merge the plans after Company Y applies for the determination letter or should it wait for the IRS to issue its determination letter to the Company Y qualified plans?

If you have a prevailing wage (davis-bacon) plan with an offset profit sharing formula that also happens to be new comparability, when performing the rate group test, would you include the davis-bacon contribution that was used to offset the participant's profit sharing contribution. For example, if a participant would have received a profit sharing allocation of $2,000, but received davis-bacon contributions of $5,000, his actual profit sharing contribution would be zero. In the rate group test, would this participant's contribution be zero or $2,000? To me, it should be $2,000, since this is the amount that was used as an offset.

opinions?

Late last year, due to my relocation, my wife left her current employer on great terms and relocated to another job in another city. Both are billion dollar sales oriented companies.

She contacted her previous employer January 24, 2000 to begin the transfer of 401k funds to her new employer. She left 5 voice mail messages with a plan administrator during a 3 week period, and finally received a voice mail February 14, directing her to an automated line to request rollover amount and begin the transfer.

Through the automated line, she requested information regarding the transfer of 401k funds. Ten days later she repeated the process since she had not heard anything. A week later, March 6, she contacted the automated line, and through trial and error, reached an operator. My wife explained that since late January she has been trying to obtain information regarding the transfer of funds.

The next day she received a fax copy, and faxed it back to her former employer March 10.

According to her previous employer's records, on April 11, the company processed her request. On April 17, she received a check 23% less than the December 31, 1999 401k balance.

After several calls, she was told that a "blackout" period was occurring due to a change in the plan's administrator. The blackout period began January 1, 2000 and ended mid March, and that nothing could be processed at this time.

Also, during this blackout period, funds were transferred to similar investments with "similar risks", as she was told. After this transfer occurred on March 10, the fund value went south. However, the balance preceeding the transfer to these "similar investments" was within 1% of the December 31, 1999 balance. Many current employees voiced their dissatisfaction in the drop, and the company was forced to reevaluate their return computations. This only increased my wife's 401k holding by $100.

In a letter sent to her previous employer documenting these events, she received a reply stating that information was sent early December to all employees announcing this "blackout period". While we were in the process of moving and a change of address was made to the US Post Office, we did not receive any information regarding this announcement.

The only thing she received last December from her previous employer was some marketing material sent in error. We believe that this information was placed in the envelope instead of any type of notification. Unfortunately, we no longer have that material.

Our concern is that while she started the process January 24, my wife received poor service and was not advised of any blackout period. It took 6 weeks for her to even receive a form for the transfer. None of the voice messages or automated lines mentioned a blackout period. In fact, in July while visiting with a plan administrator via phone, according to their records, my wife was still an active employee with this company.

QUESTIONS:

Is there any recourse or action of collecting losses due to poor communication and service?

Are there any similar cases about blackout periods, and proper employer's notifications involving litigation?

She had approximately 70% in growth stocks. Did the market take a tremendous downturn mid March to mid April?

How can we register a formal complaint with the Dept of Labor?

Is anything specifically listed in ERISA regarding blackout periods, notification, etc?

Deceptive Sales Practices 401K

Does anyone know if it is a rule violation (erisa,Sec,Dept of Labor) for an insurance company to steer participants into their proprietary fixed annuity account where they make a higher fee ? The plan had several Mutual fund options but most of the plan assets went into the Insurance companys own fixed account.