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)?

------------------

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.

[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?