We have a Section 125 plan for FSAs and premium reduction for the health plan. If an employee experiences a status change, such as divorce or child reaches maximum age, but doesn't notify us until after the 31 day window, can the spouse or child be dropped when we are notified? Under our self-insured health plan, the former spouse and over-aged child are no longer eligible dependents for coverage and claims won't be paid. If they are dropped from our health coverage, can the employee contribution changed be changed (or is that their punishment for late notification) What type of documentation should we keep in the event of an audit by the IRS of our Section 125 plan?

Plan sponsor has a mppp with assets managed by a bank trust department. The sponsor paid the management fees directly. The manager failed to bill the sponsor for over a year, and the fees were automatically deducted from plan assets. Now the sponsor wants to reimburse the plan for these fees. I know that there are some restrictions here, but cannot find supporting documentation. The deposit would not violate contribution limits, but obviously would cause the plan's formula to be exceeded. Also, I believe such reimbusement must be allocated according to the plan's formula. Any ideas and references would be appreciated.

What limitations are there for establishing a SIMPLE IRA or SIMPLE 401k in 2000 if the company already has (1) a defined benefit plan, and/or (2) a profit sharing plan?

I have a dentist with an integrated mppp and a cross-tested p/s plan. There is only one HCE and, therefore, one rate group. The p/s plan passes the 401(a) nondiscrimination test by the ratio percentage test. Since the average benefits test is not needed, I assume I do not need to include the mppp for testing. Am I correct?

I have a client that is switching investment vehicles. Previously, he had a pooled account with six or eight mutual funds, mostly no-load.

Because of the time needed to administer the plan, they're switching to an insurance company product for investments, statements, etc.

The Trustee's only concern is that the employees will be absorbing an "invisible" charge at the switch. Basically, their account balances get invested in mutual funds at a slighly inflated share price.

Anyway, the Employer is amenable to making up roughly half the hidden charge. It'll be about $10,000, so the employer wants to allocate $5,000 on an account balance basis.

I've seen some cases where IRS has allowed additional contributions to true-up a fiduciary breech and the like. Is this do-able?

I'm fairly sure that highly comp'ed employees have larger account balances, but also may be smaller in proportion to pay.

Doest the term eligible rollover distribution include lump sum payouts of long term disability benefits pursuant to an LTD insurance policy, or is it limited to distributions from qualified retirement plans due to a participant's disability.

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This is for a public sector employer. When establishing a VEBA, does the employer put the money in one account and then use this money to pay for retiree health plan premiums or does each employee have their own account? Any information you could provide would be greatly appreciated.

Several years ago the accountant for a public corporation (a corporation created under state law that is considered to be a subdivision of the State) improperly chose a 403(B) plan for the employees. The corporation is not a 501©(3) or a public education organization and should have a plan under 457.

What is the procedure for correcting the plan? What are the proper IRS forms, etc.? How do you avoid any rollover taxation in switching the plans?

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all plans of the employer are to be aggregated for purposes of determining the $50000 limit. a participant has a vested balance of $50000 in one plan and $70000 in the second,he is eligible to borrow $50000 since his total balance exceeds $100000.can he borrow the $50000 from either plan, or must it be split between the two plans?

In 1998, I contributed $2,000 to a traditional IRA. Within the first three months of 1999, I found out I could not deduct this IRA contribution and recharachertized my traditional IRA to a Roth IRA. In 2000, I received a 1999 1099-R. I have 3 questions:

1. Why would I get a 1999 1099-R for a 1998 recharacterization?

2. Where am I supposed to report this recharacterization on my 1999 tax return.

3. Do I need to amend my 1998 returns or Form 8606 for the recharacterization? I never took a deduction?

Thanking your help in advance.

Bob

This is an area where the case law can get tangled. Basically, a court is going to find that, if the former employee has any kind of "colorable" claim to benefits, he has a right to the plan document.

Is there a good reason not to give the participant a document? Will he get a lawyer if you don't? Has he already got a lawyer, and is he fishing for a class-action lawsuit?

I'd suggest turning over the document, even if it is doubtful the former participant has an entitlement to any future benefits. Dealing with the grief a professional troublemaker can cause when denied something like this will be a good bit more than the copying costs. The only exception would be if you are afraid that somebody is trying to get a class-action lawsuit together.

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My wife & I each contributed to a Roth IRA for 1999 (and 2000). Based on our income, we do not qualify and are in the process of working w/ Schwab to recharacterize these as regular IRA contributions. What tax forms need to be comleted to report this? The specific lines to fill in would be helpful. Also, since the gains will roll over to the regular IRA's, I assume there are no tax payments/penalties associated w/ this...correct? HELP!

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TP made a $2,000 Roth IRA contribution for 1999. As it turns out, her income is above the threshhold to make a full $2,000 Roth contribution. She is only permited a $1,700 Roth contribution. I know the $300 excess in the Roth can be recharacterized into her traditional IRA. My question is, must the earnings also be recharacterized, or just the $300?

First, let me say that this site and the opinions from contributors is absolutely great. I've learned so much here, but after reading back 10 pages of questions, I still want to be 100% sure on my planned course of action. Any advice is greatly appreciated:

My husband and I want to establish new Roths before the 4/17/00 deadline. (We've already filed our 99 return, but I don't think this matters, does it?) I also have $90K in a 401k plan from my previous employer (I'm now unemployed) that I was thinking about converting to an IRA, then right into a Roth.

My first question: does it make more sense to first establish the new Roths, then add conversion money into mine (and then an additional $2K for the year 2000 max contribution)? From researching on this site I think I CAN do all this - convert and contribute into the same Roth - am I right? Or, should I convert my 401k first, then contribute $2K (probably only have time for the year 2000 contribution then though). Or does it not make a difference at all?

Second question: is there a good tax calculator that would show me exactly what I'd owe in taxes after rolling 401k over to IRA, then converting to Roth? Are these taxes payable upfront when converting, or April 15, 2001 on my tax return?

Third question: if all money in a Roth and especially earnings on investments, are always tax free, why would anyone keep large sums of money in a 401k?

Thanks in advance for your help. I'm determined to take more control of my money in 2000 and this site has helped tremendously.

Claudia

Working with a plan which has its assets invested through a brokerage firm. In the past when making distributions, checks were prepared from the plan account and then despoited with the fed tax deposit coupon at the employers bank. However, bank is no longer willing to take check drawn on another bank (brokerage account bank)for tax deposit.

How are other people handling this.

Also, have a plan which uses the employer TIN for the plan TIN. This requires that tax withholding be remitted electronically. How would this be handled using the same situation above.

Does the IRS have a general number that a plan sponsor can call to obtain a new copy of a favorable determination letter that the sponsor obtained but is now unable to locate?

Participant received a distribution without being given any rollover notice and/or forms to roll the money over. Employer issued participant a 1099. Four months have passed since the distribution. What can the participant do, if anything, to avoid income taxation? Does participant have any recourse against the employer (assume this is the first time the employer has failed to give the notice to any of its participants). It appears to me there is not much the participant can do other than to bring some type of claim under ERISA. Any thoughts would be appreciated.

I know deferrals in excess of the plan document limit have been discussed before, but I haven't been able to find an answer to this particular question. Are the deferrals in excess of the plan document limit counted in the ADP test? We are planning to do an APRSC and distribute the deferrals over the plan limit.

Read on, you will find this one interesting!

according to the regs established under GATT, the $30,000 annual addition limitation can only increase in increments of $5000.

This figure is tied into the CPI, in particular, the (average CPI value for the period July, Aug, Sep) / 145.7667

the CPI for Feb was 169.5, which means we are currently sitting at 34,884 as the dollar limitation. With 7 months to go there is an excellent chance we will hit 35,000. (The index only has to reach 170.07!)

Now, the annual addition is the amount in effect on the LAST day of the limitation year.(1.415-6(a)(2))

(A plan can define its limitation year = plan year. If there is no definition, it defaults to the calendar year)

1.415-6(B)(7) Time when annual additions credited: an annual addition is credited to the account of a participant for a particular limitation year if it is allocated …as of any date within that limitation year.

Suppose the plan year runs 3/1/00 – 2/28/01. There is no definition of limitation year in the document, so it defaults to the calendar year. Contributions to the plan are ‘deemed’ to be made to the plan as of the last day of the plan year. It appears a contribution made for the plan, since deemed to be made on 2/28/01 falls in the calendar year 2001, and thus the new limit applies.

1.415-6(B)(7)©(example 5) (Plan year runs 3/1/77 – 2/28/78)…..” Because the last day of the plan year is in the 1978 calendar year limitation year, and because, under the terms of the plan, employer contributions are allocated as of the last day of the plan year, the contributions are considered annual additions for the 1978 calendar year limitation year.”

Recall, the compensation limit is as of the first day of the plan year! Thus it appears for non-calendar plan years you end up using two different limitation years. The compensation limit is based on the year 2000 limits, and the annual addition is based on the year 2001 limits. Since the annual addition has been stuck at 30,000 forever (since 1984) it has never made a difference. But this next year it looks like it might.

Agree? Disagree?

Our company has a SARSEP IRA which has been in force since 1990. With it, employees who have been with the company at least three years can choose to fully participate by electing salary deferrals out of their paycheck. At the end of the year we are also able to make an employer SEP IRA contribution (salary percentage based) to all elegible employees even though they don’t elect salary deferrals. We have no problem with that. However, we now have a former full-time employee who left employment here in 1998 and has since gone on to another job. Since then, he has performed consulting work for us as a software developer for which he has been issued a 1099 as an independent contractor. He now claims that he is still eligible for the yearly employer contribution based on last years 1099 because there is an IRS definition that says compensation can be “fees for professional services”. Do IRS rules require a 1099 based SEP IRA contribution to former employees who had no wages the previous year?