Can allocations of ESOP stock from an existing ESOP Trust be considered as "contributions" to meet the 401(k) safe harbor for matching contributions?

I realize this section is for "multiemployer" plans as opposed to "multiple employer," but I thought my question might pertain to the former as well.

SCENARIO 1: Companies A and B have adopted the same plan; they are unrelated employers. Employee X makes $50,000 for each company. X is not an HCE for either company, correct?

SCENARIO 2: Same facts as above - Employee Y owns 10% of A and 0% of B. Y is an HCE for A, but a non-HCE for B, correct?

SCENARIO 3: Same facts as above - Employee Z earns $100,000 from A and $0 from B. However, Z performs services for B, and B reimburses A $50,000 for those services. Is Z an HCE for A and B, or just for A?

Any insight would be much appreciated.

------------------

Andy Treece

1)A sole proprietor lawyer has a net Schedule C of 3 year average of $220,000 (after subtracting the pension plan contributions)in a three person husband/wife/brother DB plan. The lawyer also has another totally unrelated business. Do Schedule C losses on the other business count towards reducing earned income for the calculation of the 3 year average pay limit of IRC 415(B)(1)(B)?

2) The plan permits in service distributions upon atttainement of NRD and prior to retirement. Non-periodic distributions have been made every year since he attained NRD 60 to current age 71. Assume a 12/31/99 freeze date for Old Law benefits. In determining the remaining permitted benefit under 415 at age 71, do you adjust the pre-age 65 distributions forward to SSRA 65 using the 75%, 80%, 86.67%, and 93.33% factors; then actuarially increase them using the pre GATT basis from SSRA 65 to age 71; then subtract such from the actuarial equivalent of the $130,000 12/31/99 COLA maximum benefit at SSRA 65; then add the GATT determined lump sum of the actuarially increased $5,000/year 2000 COLA increase?

Last, you test the total age 71 benefit (including the AE of prior distributions) for the 100% of 3 year average pay limit of $220,000 (w/o regard to 401(a)(17))?

3)The wife terminated 12/88 with 3 year pay of $50,000, and the brother 12/31/99 with a 40,000 3 year pay; but have not been paid. The plan will be amended 1/1/2000 to add a post termination COLA to the three year pay per 415(d)(1)(B).

a) the increased benefit is a post 12/7/94 increase, so is subject to GATT lump sum maximums, right?

b)Anyone have the rates for the post termination COLA, per 415(d)(2) and (3)?

The other day, a friend of mine sent me a few questions on conversion of benefits to other types of plans versus getting payouts in cash. Her questions spurred me to post them here:

1. Do you allow employees who resign (and are due vacation pay) to convert the vacation payout into a deferred compensation plan? If so, is their a "tax" issue since paying it out would be taxable? Also, is there an issue for unemployment comp since the former payout is treated as wages earned?

2. For employees who might lose vacation and/or sick leave once they have reached the maximum, do you allow the cash value placed in their 401k, 403b, or 457 plan?

3. Do you allow those retiring to convert vacation pay out into a special pre-tax medical or post-retirement account for purposes of payment of medical expenses?

Bob Carter

Guilford County Government

Greensboro, NC

I am filling out my first Sch D for a Manulife plan for 1999.

The way I read the IRS instructions and Manulife's interpretation of how to fill out Sch D is that you have to fill out the name of the PSA (I have pooled sep accts), the name of the sponsor entity, the EIN, the PN, the entity code, and the value of the PSA interest as of the last day of the plan year, for EVERY PSA the plan invests in. Manulife currently offers about 40 PSA's. Hence Sch D data has to be filled out 40 times. This seems extremely onerous.

I would love to just fill out the basic info once, and then attach an excel-generated schedule listing all the PSA's and the year end balance, but I know the 5500 processor the gov't hired will not read attachments.

Am I right about what has to be done w/ Sch D or is there a better way?

Thanks for any help.

Employer maintains an Attendance Bonus Plan wherein an employee is paid a bonus if s/he does not miss more than 8 days a year. If an employee is on FMLA leave, can the leave count against the 8 days (e.g., if the employee misses a total of 9 days in a year and the 9 days were all missed on FMLA leave, can the bonus be denied)?

We are taking over a plan from another firm, where the other firm completed ADP/ACP testing for the year ended 12/31/99. However, instructions to issue refunds weren't provided until after 3/15, so the 10% excise tax applies. This other firm (the local office of a national firm) insists they have official guidance (I assume from IRS or DOL) that the excise tax applies only to the allocable income and not to the returned contributions themselves. Anyone ever hear of such a thing? What advice would you give the client relative to their reliance on this advice?

We have a premium only plan where we offer employees medical coverage only. First, is this considered a cafeteria plan? Is it governed by section 125? Second, can an employee drop dependent coverage without a qualifying event? If so, is COBRA required?

Facts: Employee of Corp. A terminates employment with Corp. A and moves to Canada to become employee of Corp. B. Corp. B is a wholly-owned subsidiary of Corp. A. Employee participated in Corp. A's 401(k) plan and wants to take a distribution. Has employee separated from service from Corp. A (ie, is employee entitled to a distribution of his elective deferrals)? Note: Corp. B employees are not eligible to participate in Corp. A's plan. Corp. B has its own retirement plan established under Canadian law. Any citations

would be greatly appreciated.

This New Comparability plan has three groups. The document says to reallocate forfeitures comp to comp, but is silent about which group or groups to allocate the forfeitures to. I think that forfeitures from group A should be allocated to group A only, otherwise I don't know any logical method to allocate between groups.

Can I allocate the forfeitures only to the group that originated the forfeitures, or must the document be amended to be more specific.

I'd like to use the 5% safety valve which permits the plan to satisfy 401a4 amts testing if up to 5% of the HCEs are treated as non-benefiting.

The regs state that this is available "if the Secretary determines" certain conditions to be met.

Does this mean that I actually have to apply for a ruling to use this method? If so, does anyone have any experience with how to do this, what type of documentation is needed, etc?

------------------

The sole employee retires after NRD, and starts taking a life annuity. 2 years later, the plan terminates, and he would like to have the remaining value of his annuity paid to him as a lump sum and transferred to an IRA.

Can this be done?

(The plan can be amended accordingly on plan termination if needed.)

In the news stories about the sale of the stock of the former employer/now competitor from the qualified plans, the discussion focused upon the investment decision and whether the sale was made based upon the interests of the employer rather than the interests of the participants, and whether the participants should have been given the opportunity to roll the stock into their own IRAs.

But I didn't see any discussion of the special tax treatment for employer stock.

Is or could that also be an issue in the case?

------------------

Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

I am working with a 403(B) plan for an employer who offers two fringe benefit programs. The programs pay out lump-sum benefits for vacation or sick days earned by the employee, but not utilized. The payments for the vacation days are available at retirement only; payments for the sick days are available at the end of the calendar year.

My question is this: can a participant in the employer's 403(B) plan elect to defer payment of a portion of these fringe benefit payments into his or her 403(B) plan, subject to thier existing 403(B) salary reduction election?

------------------

AVS

getting conflicting viewpoints on whether we can have 2 roth ira's for our 1 income family (have 401k and make less than 100k). need clear answer and possibly a source to print for backup for tax files. thanks a bunch.

LL - nashville

A prototype adoption agreement was incompletely filled out and signed December 1999, effective 1/1/99. Almost all (about 90%) of the entries were properly filled out, but a key entry (the normal form of annuity) was left blank. A brokerage account in the name of the plan was also established in December 1999.

Was the plan in effect on 1/1/99?

If the plan sponsor doesn't completely and properly fill out the adoption agreement, I believe (but please correct me if I'm wrong) that the plan sponsor cannot rely on prototype status; an IRS determination letter would clearly be advisable.

(If I'm wrong in this statement, then we have no plan for 1999 and the rest of this message is moot.)

Maybe we don't have a plan for 1999 because we don't have definitely determinable benefits. I'm concerned here, since the form of benefits is crucial (the few other entries left blank were minor). Can this be solved by amending the adoption agreement now (April 2000, unfortuantely, we're past March 15) retroactive to 1/1/99 specifying the normal form of annuity (and cleaning up the other stuff)?

FYI - the question for normal form of annuity had two alternative boxes to be checked -- (1) "Standard - Life Annuity", and (2) "Other", with a blank to be filled in. "Standard" was used throughout the adoption agreement; the plan sponsor checked the "Standard" box for virtually each question in which "Standard" was indicated. It could perhaps be argued that the intent(?) was for the normal form to be a life annuity? Hmmm.

Finally, if this can be deemed a qualified plan for 1999 (subject to determination letter request), what normal form of benefit should the actuary assume for 1999?

(I wished they called me 4 months ago!)

From a practical standpoing, how are plans operating the $5,000 cashout in a daily environment where the account could be under $5,000 when starting the process of a cashout, then go over $5,000 before distribution date? Considering the timing of sending paperwork to participants, having them fill it out and send it back for processing, then have the check cut, there are times when the value goes over $5,000.

Suppose you send someone paperwork telling him he will be cashed out, then receive his rollover forms, then go to do the distribution, and the account is now over $5,000? How would you know if you should do the distribution or not, since he may or may not want the distribution to occur in the absence of the mandatory cashout? Perhaps he just went ahead and requested the distribution because he wants it to occur, regardless.

A defined benefit pension plan generally cannot begin distributions until the participant has terminated employment. However, plans can (and many do) allow a participant who has reached normal retirement age to commence receiving benefits, even if the participant is still employed. Similarly, many plans offer an early retirement feature. Could a participant who qualifies for early retirement, but is still employed, elect to begin early retirement benefits? It strikes me as a real administrative pain for the plan, but it seems a plan could offer it if it wanted to. Any thoughts appreciated.

Our companys ESOP Plan defines Credited Service as "The number of Plan Years in which an Employee is credited with at least 1,000 Hours of Service, including one year of credited service for each three full twelve consecutive months of Service prior to the Effective Date."

Do the years of credited prior service count as years of participation for 10 year and age 55 participation requirement on the diversification provisions of the Plan?

Can a participant in a (basic matching) safe harbor 401(k) plan take a loan from those safe harbor contributions? I haven't seen any guidance prohibiting it.

On a related note, has anyone ever seen any commentary on the wisdom of allowing participants to take a loan from their elective deferrals? I realize many plans allow it, but it seems like a loan default in this circumstance (i.e., a deemed distribution) would technically violate 401(k)(10). Any thoughts are appreciated.