I am new to employee benefits, and I have some foundational questions.

1. If an organization gives its retired workers lifetime retirement pay when they retire, is that retirement benefit required to be a qualified plan or a nonqualified plan? In other words, can an employer give its retired employees lifetime retirement pay without that retirement pay being considered a qualified plan or a nonqualified plan and without that retirement pay being subject to the rules and requirements of each type of plan?

2. As a related question, what is a "plan"? Not what is an employee welfare benefit "plan" or an employee pension benefit "plan", etc? All of those terms use the word "plan" to define them. Rather, I want to know what a "plan", as used in those terms, is. It seems to me that ERISA is the law of employee benefit "plans", not the law of employee benefits. Therefore, if a retirement benefit is not considered a "plan", it seems to me that it would not be subject to any ERISA requirements.

3. How does the employer report the payment of the retirement benefits to the retiree? I'm not talking about the "ERISA reporting requirements", I am talking about how the payments to the retiree are reported by the employer. Can a 1099MISC be used, or do those payments have to be reported on a W-2 or 1099R? Does it make a difference if the retirement benefits are not considered a retirement "plan", and if considered a "plan", does the reporting of the payments differ it the plan is qualified or nonqualified?

4. What are the withholding (income tax, FICA, FUTA) requirements for (1)a retirement benefit that is not a plan, (2) a qualified plan and (3) a nonqualified plan. There has been no deferral of income in this case; so, I don't think that withholding prior to actual payment is an issue here. I may be wrong.

I would sincerely appreciate citations of authority and sources for your answers, if practicable. I hope that these questions are so foundational that those of you who are well versed in this area can answer these questions off the top of your heads. I would appreciate any feedback anyone could give. Please do not feel compelled to answer all of my questions. Any information will be helpful.

Sincerely,

Jeff Moore

Is it correct that when you receive a RMD, you can choose the amount of withholding or no withholding at all since an RMD is not an eligible Rollover Distribution? Further, is this also the case for any 457 - Deferred Compensation distribution since any distribution from a 457 plan is not an Eligible Rollover Distribution?

Has anyone run into these situations with HCEs in multiple (k) plans?

(1) HCEs 1 & 2 in Plan A both contribute $10,000. HCE3 in Plan B contributes $10,000. For the last few months of the year, HCE3 in Plan B becomes eligible for Plan A. With their deferrals included in A's ADP Test, Plan A fails and requires $3,000 in distributions. How is this handled? HCE3 made no actual deferrals to Plan A.

(2) Same basic premise as above, except all 3 HCEs make deferrals to Plan B, none to Plan A. Since they are eligible for both plans, deferrals are tested in both. Plan B passes, while Plan A fails. Sponsor does not want to aggregate. Are any distributions required? The HCEs made no actual contributions to the plan that failed.

Any PLRs or other cites appreciated!

I would like to know how administrators are handling adoption agreements for a 401k safe harbor. My client wants to provide the 3% minimum in another plan (his MPPP) that will actually provide a 4.25% contribution. The ER wants to provide 100% vesting for only the 3% safe harbor contribution. The remaining 1.25% contribution will be subject to a graded vesting schedule. How can I do this on a prototype adoption agreement? What are others doing with this issue?

Any comments are appreciated.

I'm trying to determine what is a tax exempt organization for 401(k) plan purposes. I only see them generalize the tax exempt organization. What is considered a tax exempt organization under pension simplification? I know that a 501©(3) can adopt a 401(k) Plan. Can a 501©(4) sponsor a 401(k) Plan?

Participant in 401(k) terminates employment and completes rollover forms to roll money into an IRA. Participant dies two weeks later before rollover to IRA is made. Beneficiary designation under 401(k) plan names A as the beneficiary. Beneficiary designation under IRA names B as the beneficiary. Who gets the money? The clear intent of the participant is for B to get the money, but the rollover had not yet occurred. It seems to me that A gets the money since there was not actually an IRA with money in it at the time of the participant's death (ie, the money was in the plan at the time of the participant's death, such that the 401(k) designation controls). How much weight, if any, is given to the clear intent of the participant?

Once and for all what is everybody doing about 04#s for new Plans? Some Providers and TPAs tell me you need them,some Providers and TPAs say you don't! I stopped about 6 months ago but now I'm not so sure. Any help?

Thanks.

We have a medical practice in which all of the nhces are leased employees. The leasing company has a 401(k) plan to which many of the employees make salary deferrals. The medical practice also has a 401(k) plan. we are exploring the possibility of counting the deferral made in the leasing company plan as deferrals in the medical practice plan and making a safe harbor matching contribution in the medical practice plan. Any opinions about doing this?

If preliminary testing makes it clear that the ADP test for 1999 will fail, is it possible to do anything currently to change the outcome?

For example, would it be acceptable to return deferrals in 1999 and adjust the 1999 W-2 earnings to reflect the return? Would it be acceptable to leave the deferrals in the plan, reduce future deposits of deferrals by a certain amount, and have the plan sponsor pay that amount as salary, changing the accounting for the deferrals appropriately? If either of these would be acceptable, how would earnings be treated?

Or is the only acceptable course of action to be sure that the affected HCEs do not defer any more, and wait to return the excess contributions until an actual ADP test can be completed?

Scenario: Employee A is a particpant in a 403(B) plan and a eligible 457 plan with two separate employers in 1999. Employee A defers $8,000 into the 457 plan, thus reducing his combined elective deferral limit for the 403(B) and 457 plans to $8,000 in 1999.Employee A also receives an employer discretionary (non-salary reduction) to the 403(B) of $5,000.

I know that the employee cannot make any deferrals into the 403(B) and, depending on the other limitations, may have better off not deferring at all into the 457, since he/ she would have had a greater 402(g)limit of $10,000 on elective deferrals to the 403(B).

My problem is with the 403(B) employer contribution. 1.457-1(B)(2)(B), Example 6, seems to imply that the employer contribution of $5,000 would be an excess, since the 457©(1) $8,000 limit would apply to the combined amount of deferrals to the 457 and 403(B) plans, as well as employer contributions to the 403(B).

In fact, the 403(B) Answer Book, Section 3:73, expressly states that "if an individual is participating in a Section 403(B) contract and a Section 457(a) plan and makes an $8,000 (beginning January 1, 1998) deferral contribution (the individual's applicable Section 457 limit for that year) to the Section 457(a) plan, neither the individual nor the employer may make any contributions (elective or nonelective) to the Section 403(B) contract for that year."

However, this logic seems to fly in the face of the fact that the 402(g) limit is an elective deferral limit, and that the reduction in that limit to $8,000 under 457©(2) would logically apply only to elective deferrals, not employer contributions to the 403(B) (though I do realize that it would apply to employer contributions to the 457, since all contributions to the 457 are considered to be "deferrals" of compensation).

Do 403(B) employer nonelective contributions reduce, dollar for dollar, the $8,000 limit on combined deferrals for an employee who is a particpant in a 457 and a 403(B) plan? Or is the 403(B) Answer Book incorrect on this point? Or am I missing something entirely (certainly a possibility)?

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Mike W.

At beginning of Plan Year, Company A is sponsor of 401(k) plan with other 2 member companies of controlled group as participating employers. Company goes public mid year and, due to new ownership makeup, is no longer part of controlled group with other two companies.

My question is: How much time do these companies have to separate plans and make adjustments necessary to comply with rules and regs? Do they have the same time frame afforded companies that are involved in merger situations (end of plan year following date of merger, or in this case, divestiture).

What can and can't a plan sponsor do regarding suspending distributions from a defined contribution plan when the plan termination is submitted to the IRS? Can distributions be stopped (pending IRS approval) as of the date of plan termination, as of the date the 5310 is filed, or any date the plan sponsor chooses? Can a plan sponsor refuse to pay the distribution until IRS approval to a participant that terminates employment after the suspension of distributions (does this depend on the document)? Does a plan sponsor have to adopt a plan amendment and/or a written policy in order to suspend deferrals? If all participants terminated employment due to the business closing down and the plan document contained a provision calling for distribution as soon as practicable after termination of employment, can the plan sponsor suspend distributions until IRS approval is obtained? Are there any other issues a plan sponsor should consider prior to deciding to suspend distributions until IRS approval is obtained?

I have an active HCE over 70 1/2 with a 20% vested accrued benefit. The plan started 2 yrs ago and NRA is 5 YOP. The normal form is a life annuity. The plan has j&s and lump sum options. Is it possible to pay out this years 70 1/2 dist based on the "account balance" method? If not, does using a j&s ben lock him into taking his nrb in the j&s form? Does a life annuity 70 1/2 dist require spousal consent? Thanks.

A 55 year old woman is offered early retirement, in accordance with the corp's DB plan document (these details are a little sketchy). She accepts the offer, and receives a reduced annual pension of $18k.

Neither her company nor her accountant informed her of any penalties or tax consequences as a result of taking the money, instead of 'rolling' it (if that was even an option). The IRS has billed her approx. $1,600 in penalties for 1999. Her birthdate is 12/29/1938. What's the penalty, and will this 'charge' be an annual event? Is her company liable for not providing her with a tax notice explaining her options? Does any of this have to do with the "Rule of 72t"? These are the only details that I have, and any help or ideas would greatly help me help her. Thanks.

I know there is a law specifying the details but I can't seem to find it. An employee and the spouse both have dependent care spending account available thru their employers. I am sure they can not both sign up for $5,000 thru each employer with $10,000 pre-tax for the year, but are the limits? Can someone help me find the regs on this?

Thanx,

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.