1) A Plan has decided to use a 3% NEC safe harbor for the first time in 2000. It sent a notice in late November 1999, as previously required, saying that the 3% NEC will be made for 2000. Can it now send the "maybe" notice? If not, those who "missed the boat" would seem to have flexibility for 2000 while others who complied with prior guidance do not.

2) The remedial amendment period aside, it would appear that a Plan still has to be amended prior to the Plan Year for the matching safe harbor. Are there 411(d)(6) implications for the "out" that the Service is giving? Obviously, there is no last day/1000 hour requirement for the safe harbor match and the IRS has previously said you cannot make a "mid-year" amendment after all requirements for a contribution have been met. Should the safe harbor amendment be drafted with the "right" to take away the match during the year?

This may be a unique situation. I just started with a company with 3 sites in 3 different states. An ee started 11/22, was eligible to sign up for the Health and Dental plans and December 1st, and was fired a month later for poor performance. This particular ee was in charge of filling out Medical and Dental Forms. They did not fill one out for themself and therefore, did not have coverage. How do I offer COBRA to this person or do I? What are the requirements?

Based on the research I have done, it appears that an employee ("X") who works for two different employers ("Y" and "Z")and has in excess of $170,000 in comp from each, can get a 30K DC 415 limit twice - once for each plan. So effectively 60K can be funded - 30K into each plan. Y's plan is a 401k plan, I realize if the 401k deferrals are maxed in Y's plan that no deferrals can occur in Z's plan (because the deferral limit is one 10.5K limit from all employers for the employee for the year). The two employers are not a controlled group. Am I correct about the 60K 415 limit aspect?

Anyone have the recent guidance issued by the IRS with respect to safe-harbor 401(k)'s? If so, what's it say?

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I think a terminating employee has submitted dental expenses for the 2000 plan year that were either:

a - incurred before the plan year began.

b - for service to be rendered after the termination date.

c - not submitted to the insurance company before submission for reimbursement, although the employee has dental coverage on our policy.

How far reaching is my responsibilty and authority to verify my suspicion?

Carole

Outside of the cutbacks permitted by SJBPA, in connection with eliminating in-service distributions pursuant to the new definition of required beginning date, can other RMD options be cut back following a plan merger.

For example, does the new plan need to allow employee to calculate the RMD based on the methods permitted under the old plan (e.g., single vs. joint life expectancies,option to recalculate life expectancy annually, etc.).

I cannot find IRS guidance on this subject and am in the process of merging a number of plans. Any thoughts and citations are appreciated.

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Where an employer provides group life insurance coverage with a conversion option (to an individual policy) upon termination, is there a MANDATED notice that the employer must give to the employees at termination regarding the conversion option, or, is notice of the conversion option sufficient if put in the certificate of coverage provided to the employees when they first become eligible for the Group Life coverage? If there is a mandated notice, what is the authority for such notice? Thanks

[This message has been edited by EMC (edited 01-07-2000).]

I received the following question from a client: An employment agreement calls for an employee to receive a 7% employer bonus, subject to FICA, FUTA & SUTA taxes, but not Federal & State Withholding. It is the employer's intention to allow the employees the opportunity to take the bonus, less taxes, in cash, or to defer it into a 401(k) plan. The bonus will appear on Box 3 of the Form W-2, but not Box 1.

Has anybody run across this? I think it is OK, but would appreciate anyone's opinion on the subject. Thanks.

Appreciate anyone's specific thoughts, with 1.401(k) regulatory cites, on the following scenario: Existing Plan with Employer Contributions (profit sharing) converts to add 401(k) and match features; PYE is 3/31/2000; employees attend enrollment meetings/execute deferral agreements with the employer to have deductions taken effective November 01, 1999; plan document signed to add (k) and match features in January, 2000. Are these elective deferrals and/or match contributions valid? Can they remain in the Plan or do they have to be returned to the Participants? Please provide cites for your position, either way. Thank you.

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Can anyone give me any feedback on prepaid legal services as an employee benefit? Has anyone implemented a program? What company did you use? Do the employees use it? Have you considered it and not implemented it? Both positive and negative comments would be appreciated.

Thanks.

Has anybody eliminated the usual annual open enrollment period and allowed changes throughout the year? What were the some of the issues encountered in doing this?

I'm hoping someone can help with this one; my expected unfunded liability is -50 for the prior year & my actual unfunded from the current valuation is -100; do I set up an experience loss base of 0( by setting both to 0 ) or 50 (by only setting the actual to 0) ? Full Funding has never applied and there's no credit balance; I seem to remember from some notes in the past that expecteds can be less than 0 & only actuals have to be set to 0 (Rev.Ruling 81-213).

A correction of a request by a plan participant resulted in a gain of $48,000. The employer claims this windfall should be used to pay plan expenses, not allocated to remaining active employees. What is the law regarding money gained in this way? Who is entitled to it? I know the trustee cannot benefit from administrative mistakes in their favor, but can the employer?

It has always been my understanding that if you offer an employee cash to opt out of health insurance because the employee had coverage elsewhere, this could only be done under a Section 125 cafeteria plan. Also, IRS had stated to do so causes everyone to have taxable income, ie. the cost of insurance premiums. The purpose of the opt out is obviously to save money because the cash payout was always less than the employer's share of the premium. Am I correct in this assumption and if so what code, reg or notice references are there?

Can an employment contract provide that the money purchase plan contribution that is made by a company on behalf of an employee will be repaid by the employee to the company? This bothers me though I am not sure if it is disallowed or if there are any rulings, etc. on the issue.

Assuming the foregoing is allowable, what if such employee decides that it does not want to repay the company so the employee elects not to participate in the plan at least thirty (30) days prior to the beginning of the plan year. (The MP Plan is a Corbel plan that allows participants to "voluntarily" elect not to participate so long as the election is at least thiry days prior to the beginning of a plan year). Would such an election be "voluntary" given that the employee is only making such an election due to the contractual obligation to repay. Any thoughts would be greatly appreciated.

We work with a client that sponsors a leveraged ESOP with a loan term in excess of 10 years. The client erroneously directed the trustee to release suspense account shares based on the principal-only method. The loan is a fixed principal plus interest loan which obviously would have front-loaded the release of shares. We are contemplating a VCR submission to address this issue. However, we are concerned about the implications of this operational violation under the prohibited transaction rules since arguably the violation may have caused the loan to lose its exempt loan status. Does anyone have experience with a similar situation, particulary in the context of VCR?

Must the claim payor for a 125 plan obtain proof that an employee has actually paid the deductible amount or co-pay amount to the provider before reimbursing the employee? Alternatively, is an explanation of benefits form showing the benefit plan's payment and the various amounts not paid sufficient? The concern is that the provider may accept the benefit plan's payment as payment in full and not require the employee to pay the provider the amount of the deductible or co-pay. In this case it seems the employee would be receiving "tax free" money for his pocket.

A second question on this topic involves the use of a so-called debit card. The program uses a Visa card and the employeeuses the card to be "instantly reimbursed for copays, prescription glasses and other items not covered by the employees benefit plan. Supposedly the card will only be useable for certain merchant category codes (23 out of more than 500). The concern is that the card may permit the employee to access his funds for items not permitted under Sec. 125. The regulations appear to require a written statement from the employee that an expense is not and has not been reimbursed under any other health plan coverage.

Last year, our VCR examiner agreed that the corrective distributions we made from our 401(k) plan should not be subject to the 10% excise tax penalty. (we were instructed to distribute the entire ee deferral account w/ earnings) Unfortunately, we do not have this in writing, however, assume this is okay; what code would you use on the 1099R to exempt a participant from the 10% premature distribution penalty? Thanks in advance.

A large employer client has a number of self insured plans that we are having to test under 1.105-11. It would appear that for purposes of determining HCEs we must first subtract the excludable employees from the total employees and then multiply by 25%. Also, for this purpose we do not exclude anyone who is participating in any self insured plan or HMO maintained by the employer even if that person is otherwise excludable. See 1.105-11(d)(3). Once we determine our HCEs we find we must use the classification test to pass because we don't pass either percentage test. To pass the classification test we look to the rules under 1.410(B)-4. To run the nondiscriminatory classification test under 1.410(B)-4© do we exclude all excludable employees set forth in 1.105-11©(2)(iii) or only those excludables who are not participating in any self insured plan maintained by the employer? I don't believe the 105 regs are clear on this point so you ought to be able to do it either way. This makes a big difference in our test results. Would appreciate any comments.

How are distributions from these plans treated? Is there mandatory 20% tax withholding at the time of distribution?

Are these distributions reported on tax form W2 or 1099?

Any reference material you can refer me to would be appreciated.