Our employer started a SIMPLE IRA back in August, 1998. I've been told that if I remove money from the plan, the amount withdrawn will be taxed, and an additional 10% penalty assessed. Is the penalty assesed on the total amount withdrawn, or is it on the tax? For example, if I withdraw $10,000, and my tax bracket is 28% (or $2,800), is the 10% penalty $1,000 ($10,000 x 10%) or $280.00 ($2,800 x 10%)?

When using the top paid group election for HCE determination, you are permitted to exclude employees who "have not completed at least six months of service by the end of the plan year" (among other exclusions) before multiplying by 20% to determine the number of people in the top paid group.

Are both of the following allowable exclusions for purposes of "not having completed at least six months of service by the end of the plan year" for a calendar year look back year?

1) An employee who has worked for the company for 20 years and terminated on February 15 of the look back year? This employee technically did have six months of service in the look back year.

2) A new employee who was hired after July 1? This employee would not have six months of service during the look back year either.

Thanks for any help.

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I made more money in 1999 than anticipated and didn't realize until January 2000 that all of my 1999 Roth IRA contribution and my wife's would be excluded based on our AGI. The mutual fund companies are returning the money to me, with earnings. From an IRS perspective, did I contribute to my 1999 Roth? If not, how do I deal with the forms that have already been sent by the fund companies saying I contributed $2000 in 1999? How are the earnings handled when they are returned to me? Are they treated as year 2000 early distributions? One fund actually lost money; how does that get handled relative to premature distributions?

Can a church affiliated health system which currently sponsors plans recognized by the IRS as church plans also sponsor ERISA plans for use in affiliated organizations that do not qualify for church plan usage?

When reading the 5305-SIMPLE form, the definition of Compensation appears to be wages subject to wihholding plus elective deferrals under 401(k), 408, 403(B) and 457. Notably absent is 125. Does this mean that Compensation for calculating the employee deferral and the employer match is actually (Gross Compensation - Sec. 125 contribuitons)?

Looks that way to me. Seems complicated for the client and not fair to cafeteria plan participants.

Initially received SPD for plan, later received the Adoption Agreement. In reviewing we found several discrepancies between the two documents. Do we need to submit a Material Modification to DOL? Are there any other problems this could cause?

I am setting up a NQDC plan with a Rabbi Trust for an independent contractor. The indpendent contractor wants to act as trustee. My gut reaction is that this would run afoul of the Code and result in constructive receipt. Plus, if it was allowable, everyone would be doing it. Anyone have any thoughts on the subject.

(Since the plan benefits an independent conractor and not an employee it should not be an ERISA plan and thus, I'm more concern about the tax issues.)

Received a 1099-R yesterday for what is reflected as a distribution code G (Direct rollover to IRA). What we did was change trustees (custodian) of my deceased father-in-law's IRA of which my wife is one of the beneficiaries. The money was in a fixed annuity and we requested the transfer to improve her opportunities for growth as the required distribution period is over 23 years. My father-in-law passed away at age 79 and was taking RMD's. We recognize that we must continue to take RMD's, etc.

The IRA that the money was transferred was registered in the name of the deceased and has his tax ID number on the account. My wife is beneficiary, etc.

I believe that the 1099-R that was issued is incorrect and the IRS will audit our tax return this year looking for us to report the entire amount as taxable income as a non-spouse beneficiary is not allowed to "roll-over" an inherited IRA.

The Annuity Carrier claims that the IRS has instructed them to use form 1099-R using the G (rollover) code when a trustee to trustee transfer is made, and that the receiving entity will report receipt on Form 5498 to cancel out the taxation impact.

It doesn't sound correct to me as the 1099 reports distributions and this was not a distribution. The form 1099R instructions also state that the form is generally not to be used for transfers (Page 32 of the instructions to Form 1099, etc.)

Anyone out there know who or what is the correct way to report this trustee to trustee (custodian to custodian) transfer of the IRA interest?

I am conducting a benefits analysis. I need to determine how competitive my company is in the benefits they provide their employees. I am looking for benefits that are provided to employees in the auto industry and also what benefits companies in Colorado are providing to their employees. Any suggestions on how to perform a benefits analysis and where I can attain more research on this topic would be a great help.

I am in the process of creating a RFP for our company's health and dental plan. Using a broker at his time is not an option for my company. My company is in the automotive industry with 1200 employees. I am in the process of investigating our companies needs in this area, but would like feedback on what to include in the RFP and where I can receive further information on creating RFP's for benefit plans. Any information in this area would be great appreciated.

A small local government with a 457(B) plan just realized that it failed to comply with the SBJPA trust requirements for the 1999 Plan Year. Is there any way to fix this now that we're already in the 2000 Plan Year?

The regs under 411(d)(6) state that it would be a 411(d)(6) protected benefit violation if a participant's benefit under a defined benefit plan was transferred to a defined contribution plan at a time when the participant's benefit was not distributable and the defined benefit feature was eliminated.

The regs appear to imply that if a particpiant's benefit under a defined benefit plan was transferred to a defined contribution plan at a time when such benefit was not distributable but the defined benefit feature was preserved, this would be O.K. Does anyone have any practical experience in preserving a defined benefit feature in a defined contribution plan? How would this be done?

A company we are trying to clean up needs a Welfare Benefit Plan. What companies can provide this? Not the 125, or flexible benefit plan.

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C.M.Peery

I am trying to develop a compensation plan for the chief executive of an LLC. The LLC is currently owned by three corporations. The goal is to give the CEO an ownership interest in the LLC. Does anyone know of a publication that discusses, in detail, the available options for equity compensation in LLCs? It would be nice to have some specific examples or case studies.

Can anyone clarrify Rev. Proc. 2000-20 regarding extension of the remdial amendment period? Do Plan sponsors have 12 months from the date the GUST opinion letter is issued to the prototype sponsor? For the big ones like Corbel, when will that be?

2 questions please:

1. Just to be perfectly clear (to myself I suppose after all my reading) - may I safely assume then that employee elective deferrals in 401k plans are a legitimate loan source (and includable in the "1/2 of vested interest" limit)?

2. I have read the approximate following statement in several sources: "The DOL regulations on loans do not prevent a participant from borrowing funds from their account, pledging 50% of the account, and then making a hardship withdrawal, effectively reducing the security below 50%."

Question: Does the "security" then have to be increased again from another source?

(Please let me know if you think I am missing or misinterpreting something.)

Thanks,

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lcoop

I believe that life expectancy pretty much has to be determined by tables V & VI. Notice 89-25 gives some lattitude in mortality tables if using the annuity factor method, but the real difference in the amount of the annuity comes from varying interest rate assumptions.

According to a notation in Tax Facts, the tables are entered with the age of the annuitant at their birthday nearest the annuity starting date. No interpolation is necessary (with the dread exception of determining a non-spouse's life expectancy when using joint lives).

Hope this is of some help.

Is it possible for the Broker of Record for a 401(k) plan to also be a participant? Does this not conflict with their fiduciary responsibilities?

More information:

Broker has written consent from the board, but any materials sent to the participants, the Brokers name is left out. Does the name of the Broker have to be disclosed to the participants?

What is the responsibility of the Investment Company that knows about the situation? From what I hear, they asked for a written statement from the Trustees for the Broker of Record, but could they be held liable??

If I am not clear, please ask!!

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Respectfully,

Jeramy P. Lembeck

Question on what to enter on line 6 of Form 8606 (value of ALL Traditional IRA's).

I converted part of my Trad IRA to a Roth IRA. However, on 3/4/99 I contributed $2000 to a Trad IRA (a 1 yr Cert of Deposit at my bank).

Just got a statement from my bank saying:

current balance = 2000.00

accrued interest = 80.00

yr to date interest = -0-

fair mkt value on 12/31/99 = 2080.00

CD says "interest added at maturity", also says "interest calculated 365/365".

So what do I enter on line 6 Form 8606? (value of ALL Trad IRS's) Is this "accrued interest" included in the value if not paid until maturity?

When prescription drugs are requested to be reimbursed through a flexible spending account, can any state tax which has been applied to the cost be reimbursed?

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