We have recently received several "unregistered tender offers" -- typically first come, first serve offers to purchase less than 5% of outstanding shares at less than current market value. As a plan trustee, is it proper/safe to adopt a policy of NOT passing along such tender offers to participants in a self-directed 401k plan? Would the answer be different if the tender was for employer stock in a traditional 401k?

I am reviewing a db plan which credits service with a predecessor employer of certain employees back to 1977. The provision benefits several HCEs, but only one NHCE. The IRS issued a determination letter approving this provision back in 1995. The Demo 7 for the application provides that the formula is nondiscriminatory because past service for HCEs is limited to no more than what at least one of the NHCEs is credited. Anyone have any thoughts about this?

Co A has a 401k plan that is 5 years old. there is no record of a review by the trustees during this period. is this a problem?

additionally,rumor has it that the Co administrator's close relative worked for the investment advisor. isn't this a conflict of interests?

I was recieved a call today from my former boss, stating that I had to make a decision by December 31st about what I wanted to do with my money in the ESOP plan, I previously question him about the fact that I worked till August 4, 1999 and don't I have to wait till the next Individual Statement comes out for the year ending 1999. It seems there is a quick rush for me to make a decision.

I am beginning to see cash balance plans which permit employees to rollover DC plan account balances to the cash balance plan. The rolled over amount is converted into a cash balance and credited with "interest" as if it were a benefit accrual. Companies apparently want this feature in their plans because they expect the plan to earn a greater return than the "interest" that is being credited; so, the plan makes a profit off of the transaction, which could boost corporate earnings. I can't figure out why an employee would go for this unless he is terrified of investing, and the plan is offering a higher rate of return than a money market fund.

I wonder whether any one has considered whether this sort of plan provision creates a prohibited transaction.

What is happening as a matter of economic reality is that the pension plan is selling annuities to participants in the DC plan. If the DB were to sell annutities directly, wouldn't it need to become a state regulated insurance company? Therefore, I wonder if this sort of provision subjects the plan trustees to regulation by the state insurance commissioner.

I assume that the conventional wisdom is that the DC account is being converted into a DB accrued benefit. If that is the case, does anyone have any authority that such a presto-chango conversion is permissible? If it is permissible, then it seems to me that IRC 414(i) and 414(j) have no meaning, and why isn't the reverse permissible?

Other questions:

- Are the rollover amounts subject to the PBGC insurance program? There doesn't appear to be any policy reason why the PBGC should start to insure DC accounts.

- May a plan give a higher rate of interest to HCEs than non-HCEs? Why not? The rollover amounts are not subject to IRC 401(a)(4). It seems to me that the only limit should be the point at which the IRS asserts that the interest rate is so high that the HCE is in fact accruing a benefit. Therefore, if this sort of DB to DC conversion is permissible, there are all sorts of planning opportunities.

- May a 401(k) plan make a pre-59 1/2 inservice (non-hardship) transfer to a DB plan (getting around IRC 401(k)(2)(B))? [NOTE: I understand that Bank of America did put such a provision in its 401(k) plan. Does anyone have any inside information on the Bank of America plan?]

- Is there a point at which the rollover assets are so large that the DB plan is no longer a DB plan?

Does anyone know of any authority to permit DC rollovers to DB plans (without keeping the rollovers as separate DC accounts)? Am I missing something? Thank you.

[Posted for Josie K by Dave Baker]

posted 11-26-1999 11:42 AM

I hope that someone can help clarify this issue for me. A child born to a Cobra continuant is a qualified beneficiary and the continuant has 60 days to inform us of the birth of the child. Is the 60 day time frame correct? Or is the notification requirement limited to 30 days? Thanks

I converted my Traditional IRA to a ROTH in January, 1999, thinking my Adjusted Gross for 1999 would be less than $100K.

After a Big bonus in 3/99 (s/b so lucky!!@#$$#%), even after a $3,000 Capital Gains loss, my proforma 1999 AGI looks like about $100,700 if all stays “as is” for the rest of 1999.

QUESTION: Is it legal for my Employer to “defer” $1,000 of December, 1999 pay until January, 2000, so that my AGI would come in at below $100K? Ie, I would like my 12/15/99 pay check reduced by $1,000 and my 1/15/2000 pay check increased by $1,000 as a way to defer 1999 earnings into 2000. Would this be a violation of any law? Could this action in any way be a problem for my employer? If OK, how can I prove this to my Employer, who's worried that it's legal?

I have a client, group of 3 doctors w/ no employees. They want flexibility to contribute different levels year to year to each of themselves. Cross testing does this in a breeze, but how to designate? All equal prts., all hired same day. Another topic on the board discussing ownership attribution mentioned "naming" the doctors as group members. (A=smith, B=jones) I always thought naming was not allowed. Comments?

[This message has been edited by Earl (edited 11-24-1999).]

Banks frequently will not accept tax deposits if the check is drawn on an account not maintained at that bank. I have been having clients mail tax deposits to the Federal Reserve, with details letter and 8109 coupon. Lately, a couple of checks have come back saying "Submit to IRS." What are others having clients do?

A participant in a qualified plan has who has an account balance of $200,000 has $21,000 of after-tax money and is age 70 when the MRD payments begin. The employee will recove $100 tax free ($21,000 divided by 210). When the participant is 72 he request a $10,000 distribution. At this time the after-tax contributions have been reduced to $17,500 and due to great investment performance the account value is $225,000.

How is the taxation of the $10,000 handled - is any of it treated as after-tax. Maybe 10,000 divided by 225,000 times 17,700?

Can a DB or DC plan established in 1997 have the following provisions for active employees (non-5% owners) over age 70-1/2?

A. Assuming they are still actively employed, they must start taking their distribution by age 70-1/2 (actually the April 1st, etc.) as if they were 5% owners.

B. Assuming they are still actively employed, they must wait to take their distribution until they terminate employment. (No problem here, right)

C. Assuming they are still actively employed, they are given THE CHOICE of taking their minimum distribution by age 70-1/2 (and each succeeding year) or waiting until they actually terminate employment to receive their distribution. (Any issues of contructive receipt here?)

Any differences between DB and DC Plans?

Any differences between plans in effect prior to SBJPA and those established after SBJPA?

Thanks.

Question: Can an individual who is eligibile to participate in a 401(k) plan but chooses not to do so contribute to a deductible IRA?

An individual earning above a certain dollar level cannot contribute to a deductible IRA if he is a participant in a qualified plan.

In a profit sharing plan, to "participate" means to receive an allocation of contribution or forfeiture.

Also, an employee cannot "waive" participation in a plan to become eligibile for a deductible IRA.

So, what about a 401(k) Plan? If an employee is eligibile for the 401(k) plan and doesn't elect to defer, can he make a deductible IRA contribution? Does it matter whether or not there is a match?

Thanks.

An individual terminated employment from Company X, and rolled his DC balance into a rollover IRA.

He is now employed with Company Y which maintains a DC plan. This DC Plan accepts IRA rollovers.

He would like to roll over PART BUT NOT ALL of his IRA account into Company Y's DC plan.

Does the IRS allow him to do so?

I'm a TPA who works exclusively with Qualified Plans.

Occasionally, we do POP plans for our clients and the 5500s.

One of my clients asked me about premium only plans, flexible spending accounts and medical spending accounts, as of they were one thing.

I don't know anything about MSAs or FSAs and must get educated rather quickly or someone else will get the business.

Where can I go for help. I tried to view those FSA IRS audit guidelines, but quite obviously, they want you to buy their service to get the full view.

Any assistance is helpful.

Steve

Some administration firms use unit accounting pools in which cash is pooled with the ESOP stock. Therefore, diversification becomes problematic because diversification must either occur in units or the units must be converted to shares prior to diversification.

I recently became aware that in the early 90's the diversification/unit accounting issue did receive some fairly widespread consideration in the ESOP community. Can anyone provide further information on whether diversification of units rather than shares is deemed a proper practice by the IRS?

An individual is under 59-1/2, has 2 IRAs and wants to take substantially equal payments. Can the individual determine the amount of the substantially equal payments based on the value of only one of those accounts or must both accounts be aggregated to determine the amount he must take?

To complicate this. If employer adopted the the SARSEP on form 5035A-SEP this would preclude sponsoring another qualfied retirement plan. Would adopting the QRP effective 1/1/99 invalidate (disqualify) the SEP for 1999. What are the ramifications of this? Is there a work around? It think one option might be to restate on a Master Proto-type or individually designed document. ANy thoughts?

Is there any way to pay deferred compensation to nonhighly compensated employees who terminate after age 61? A company would like to pay them until death and does not want to purchase an annuity. Please provide cites.

An employer is considering allowing eligible employees to sell a portion of his/her annual vacaction days to purchase benefits under a Section 125 plan. For example, an employer provides an employee with 3 weeks of vacation each year and permits the employee to use 1 week of vacation days (designated vacation days) to purchase additional Section 125 benefits.

If the employer implements this program, does it convert the designated vacation days into elective vacation days? If so, must the designated vacation days be used or cashed in by the end of the year or can the designated vacation days be carried over to the next year?

Could anybody tell me what they use to determine the interest rate on loans from 401(k) plans? I know that the plan doc says that a "reasonable rate of interest" must be charged, but I've heard of a couple of ways to determine the interest rate. (i.e. prime + 1%). Any information would be appreciated.