My only concern would be the length of time between the freeze and the unfreeze. The longer, the better. Otherwise it looks like the employer is just trying to get around the minimum funding rules for a few years. Could the employer accomplish the same thing by converting the plan to a discretionary PS plan? Or is there a desire for a higher deductible limit?

It is OK for the employees to deduct the premiums on their individual tax returns if they received a taxable reimbursement. I agree that it would be better for the employee to receive a tax-free reimbursement.

The basic issue in this topic is the impact of excess 402(g) elective deferrals on amounts that must be included in gross income for participants in 403(B) plans. The "IRS Guidelines for Examination of 403(B) Plans" applies a strict interpretation of IRC Section 403(B)(1)(E) and concludes that if excess elective deferrals are made by an employer to a 403(B) contract on behalf of an employee, then the 403(B) contract "loses its 403(B) status" and the entire contribution must be included in gross income. On the other hand, "IRS Publication 571" indicates over and over again that only "the excess deferral" must be included in gross income.

I do not believe that the severe technical interpretation of IRC Section 403(B)(1) adopted by the IRS in the Examination Guidelines was the intent of Congress when it enacted the Tax Reform Act of 1986. The end result when the Examination Guidelines are applied is that participants in 403(B) plans are much more severely penalized for exceeding the elective deferral limit than are participants in qualified defined contribution plans (e.g., 401(k) plans). This seems patently unfair. Has anyone sufficiently researched the legislative history of TRA 86 to determine the intent of Congress on this issue?

IRS Guidelines for Examination of 403(B) Plans may be found at the following URL, which requires that you enter certain standard information about yourself (see Section V.A.1(4), especially Section V.A.1(4)(B)2):

http://www.ntsaa.org/compliance.html

IRS Publication 571 for 1999 may be found at the following URL:

http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p571toc.htm

Although the Introduction in Publication 571 clearly states:

"The publication is for employees who participate in TSA plans. It is not for custodians or plan administrators because it does not cover many of the operating requirements of these plans."

It would seem that employers sponsoring 403(B) plans could confidently refer its employees to Pub. 571 as a definitive information source for the rules that apply to 403(B) plans, at the very least for 403(B) plans that allow only elective deferrals. Yet, the fifth paragraph in the Introduction section of Publication 571 states the following (emphasis added with **):

"There is an annual limit on elective deferrals. Generally, you cannot defer more than $10,000 for 1999 for all plans covering you, including TSA plans. If elective deferral contributions on your behalf are more than the allowable amount, you must include **the excess** in your gross income."

The technical interpretation of IRC Section 403(B)(1)(E) as it appears in the Examination Guidelines is in direct conflict with the Publication 571 statement above, and with all additional statements related to this issue, the "Comprehensive Example" at the end of the Exclusion Allowance section, and Worksheet 2. Based on the Examination Guidelines, all of these statements and worksheets should replace "you must include **the excess** in your gross income" with "you must include **the entire 403(B) contribution for the year** in your gross income."

In addition to opinions about the legislative intent behind IRC Section 403(B)(1)(E), I would be interested in whether the IRS has been challenged with respect to its strict interpretation of this Code section in audits of 403(B) plans.

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NCompliance Software and Carruth Compliance Consulting

In December 1999, I filled out all the paperwork at my brokerage/custodian #3 to recharacterize my January 1998 conversion of a traditional IRA to a Roth IRA. The only assets in the account were and still are restricted (not publicly traded) shares of a private placement stock. I had opened the Roth Conversion IRA in Jan 1998 at brokerage #2 which was later bought out (acquired) by the large nationwide discount brokerage #3 in the spring of 1999.

When my Jan 2000 statement didn't show the recharacterization, I called brokerage #3 and was assured they were working on it and the final paperwork would show a December 1999 recharacterization. But after many calls to brokerage #3 complaining about why they were taking so long to complete the recharacterization and after a variety of earlier excuses or reassurances that it would happen soon, brokerage #3 now says that it is their company policy to not hold restricted securities in their accounts so they will not complete the recharacterization.

About 4 weeks ago, they mailed me (I did not request this) the share certificates asking for a "legal opinion" by counsel. I hope this didn't start a clock ticking on an IRA distribution. I've told them that the shares are still restricted.

I have already filed my 1040X and received a refund for the taxes that I had paid on 25% of the conversion value in 1998.

I don't want to pay taxes on non-existent profits... I converted in Jan 1998 because the stock was supposed to have an imminent IPO and a dramatic rise in value. By Dec 1999, it was clear that it was more likely to be worth less than I paid for it. The price I had paid for the private placement stock in 1996 is also what my initial custodian #1 had reported in a 1099R as the Roth conversion value in Jan 1998 when I transferred the account to a Roth conversion at brokerage #2. What a mess! What can I do now?

When I recently began talking about going to the IRS or SEC to complain, brokerage #3 said their compliance dept. could send me a letter explaining their position/the problem. Will that allow me to deposit the certificates in a new traditional IRA with a new custodian?...there still will be no record of the Dec 99 requested recharacterization!

I would appreciate comments from anyone who has looked at whether an independent gospel mission, not associated or affiliated with or controlled by a church, is a church for church plan purposes under ERISA. This gospel mission serves transients, including providing room and board, and requires them to attend daily religious services provided by the mission, which are conducted by licenced minsters employed by the mission.

An employer established a leveraged ESOP. The loan was for 15 years. After 10 years, the employer merely desires to terminate the ESOP. Does the employer have a PT problem under 4975(d)(3)? Assume that the employer is not in any financial trouble nor has any acquisition transaction occurred.

Non-profit plan sponsor wishes to consolidate its C/T Money Purchase Plan and its 401k plan (non-integrated). Since it is a non-profit, the 15% deduction rule doesn't come into play here.

However I am concerned that by merging the two plans, and restating the P/S to be a cross-tested plan, that we may be running afoul of the IRS February 28 deadline since the P/S currently does not have a cross-tested feature.

Any thoughts out there?

Thanks.

I could have sworn that I read somewhere that the spouse's signature is NOT REQUIRED on a Beneficiary Designation as long as the spouse's cut is at least 50%. But now that I need this information, I can't remember where I read this. First of all, does this even sound right? If so, where might I find the documentation to back this up? Thanks for any and all help!

Our client has $1.8 million in a 401(k) plan and is in the process of establishing an ESOP. To facilitate the ESOP purchase, the client proposes to "spin-off" about $300,000 in participant matching and profit-sharing contribution accounts from the 401(k) plan to the newly formed ESOP. The spin-off would be based on a formula developed by management, and would not be elective on the part of the participant. The participant account balances in the two plans after the spin-off would be the same as the 401(k) balances immediately before the spin-off, and participants would be 100% vested in the balances transferred to the ESOP.

The client understands the fiduciary issues related to converting a portion of the 401(k) plan assets to an ESOP. Are there any statutory, regulatory, or administrative guidelines on the appropriate conditions and/or methods for a plan spin-off? Are there other potential pitfalls with the proposed spin-off?

As usual, the client's timetable for the ESOP purchase makes it impractical to request a PLR.

A Plan defines act equiv mortality as GAM1971; 5 yr setback for females. Any thoughts on what this translates to? And if a plan uses sex distinct tables for lump sums, would they be required to make up a shortfall to males or ask females to make a payment back to the plan?

Can medical expenses incurred in a foreign country be reimbursed under a medical FSA? Please assume that the expense would otherwise be reimbursable (not cosmetic or illegal). I cannot find a resource that says one way or the other. I specifically looked to IRS Pub 502 for an answer but could not get ahold of my Thompson's Guide.

Thanks,

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Steve Moss

Benefits Administrator

On the Form 5500, question 7, we are ask to indicate number of "active participants" I am confused with the instructions, could someone help explain who I need to include?

Would active participants include all eligible participants during the plan year, even if termed prior to PYE, as well as termed participants (prior to PYB) who have an account balance and have not incurred a break in service? What about participants, who terminated, cashed out, were not fully vested and still have not incurred a break in service (those who forfeited and still have rights to those monies)?

On line 7c, we are asked to indicate retired or separated participants entitled to future benefits. Is it possible that these participants are also in the "Active Participants"? If so, why are we subtotaling and adding these two groups together on line 7d? Wouldn't we be double counting?

I know I am missing something, if not plenty, could someone let me know how they calculate? Thanks in advance.

If two plans are created, each covering a dif ee group, each with one HCE, the ave ben test is passed for coverage by aggregating the plans, does each plan seperately have to pass the general non-discrim test? Or can a safe harbor formula, etc. in each plan avoid the gen test?

Exempt employee becomes non-exempt and pay is reduced. At a later date he is paid vacation balance (we pay all unused vacation at anniv date)

I paid at CURRENT pay rate. He thinks he should be paid at the higher rate prior to his reduction.

Employer wants to amend its MP plan to lower the contribution for the existing plan year. There is a last day requirement in the plan. Assuming an appropriate 204(h) notice is given, can this be done? I am aware of some guidance in the area of a profit sharing plan, but not aware of what guidance exists, if any, in the money purchase plan arena. I know there are practitioners who will make these types of amendments arguing that there is no entitlement to an allocation until the last day of the plan year (which I personally think is a good argument). Is there any authority directly addressing this issue? Are most practitioners allowing such amendments, or is this considered a very risky approach?

I have an active plan participant who would like to payoff a loan he has through a DC plan. The loan policy in force does not have a provision for early payoff. From the materials I have read, I do not see where this item is specfically addressed other than to state the loan must be paid off through payroll deductions.

So, can an active participant payoff a loan early using a personal check? Any citations out there?

Thanks in advance.

The ESOP's plan language is going to determine the answer to this question. However, an amendment that cahnges the Plan from allowing distributions at termination of employment under any circumstances, to allowing distribution only after severance payments cease will violate 411(d)(6).

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I want to better understand using a Roth IRA to fund a credit shelter trust. For example:

I have clients who are husband and wife in their early 60's. They have approx $1M in qualified money (all in his name) and another $300K in other assets. I'm going to recommend that they convert to a Roth (they are eligible based on their AGI). Can someone point me to an article or publication on estate planning with a Roth? What is the best way to fund the credit shelter trust in each case (husband dies first, wife dies first). Once the $ is in the credit shelter trust, how is the best way to hold it? Taxable account? Variable annuity? Or, is the deferal potential so great for their 5 kids that I should ignore funding the credit shelter?

Any comments or pointers to books or articles would be appreciated.

Best Regards,

Jeff

There was a 1992 DOL Publication entitled "MEWAs Multiple Employer Welfare Arrangements Under ERUSA: A Guide to Federal and State Regulations." On pages 26 and 27 its discusses "common control" and then refers to 25% or more ownership and then 50% and 80%. Does anyone have the definitive answer (with a cite - e.g. DOL Opinion LTR) as to how much ownership you need to be under "common control" and thus not a MEWA.

Thank you.

In response to some of the IRA and Roth allocation questions here, I suggest you check out the Investor Workshop at http://www.americancentury.com/workshop/index.jsp

This page has tons of objective, helpful links to information about retirement plans including the answers to rollover, to-Roth-or-not-to-Roth, IRA loans, tax shelter and other related questions.