Due to computer system glitch, many of a client's HCEs (no non-HCEs were affected) were not given their full matching contributions as prescribed by the plan. Upon investigation, this problem goes back quite a few years. The client now proposes to make corrective matching contributions to the HCEs who were "shorted" but desires to know whether non-discrimination testing will have to be performed for each year. We've already explored 415 and 404 issues, but any helpful comments would still be appreciated.

My firm handles marketing and administration of 401(k) plans, currently offering a selection of nine funds to our participants. The funds are not publicly traded. We are considering the addition of some publicly traded mutual funds. Can anyone offer some guidance on the different areas we should concern ourselves with during the planning phase? Of course, I understand that we will now have to comply with requirements regarding prospectus availability, but what about required certifications or licensing for any of our staff? Also, if we replace an existing bond fund with a new bond fund, what kind of notification and disclosure requirements are we looking at? Are there compliance issues that I should consider when eliminating a fund option and moving all assets from the eliminated fund into a newly selected, similiar, but not identical, fund. Any references suggested would be extremely appreciated.

I am struggling with what appears to be an issue not addressed under 457 or the regulations thereunder. Specifically, how do you value an ineligible non-account (defined benefit) plan for FIT purposes when plan benefits are no longer subject to a substantial risk of forfeiture and where such benefits are not "reasonably acertainable" as the final benefit is based upon final pay and years of service with the sponsoring employer. There is a delayed accounting rule for FICA and FUTA purposes set forth in Reg. 31.3121(v)(2)-1(e)(4) which provides that benefits are subject to FICA or FUTA until they are "Reasonably acertainable." Unfortunately, there is no counterpart for FIT purposes. Any ideas?

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Tom

Under a cafeteria plan if part-time employees are eligible but the major medical coverage excludes part-time employees, can the part-time employees pre-tax any other benefit for which they may be eligible.

I understand there is a senior citizen ID card that I qualify for at age 60 but have been unable to obtain any information on how to get it. Any info on this will be very much appreciated.

Thank you in advance for your replies

my e-mail is... breeze@usmo.com

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Frank

An Employer want to shut down their DB Plan. It is currently underfunded by 75,000. Current 412 deductible limit is 40,000. Can the Employer fund the plan with 75,000 take deduction for 40,000 and close the plan? Is there any carryforward deduction of the additional 35,000? Any other thoughts.

I'm trying to analyze the 7 factors under Rev. Proc. 98-22 that determine whether an operational failure is insignificant for purposes of APRSC. Two of the factors focus on the number of participants "affected" by the failure.

Here's the issue: Because of an error in payroll processing, certain items were erroneously excluded from compensation for purposes of calculating accrued benefits under a defined benefit plan. As a result, a number of participants' accrued benefits were less than they should have been. Of those participants:

(1) some terminated and received distributions before the error was discovered;

(2) some terminated without a vested benefit before the error was discovered;

(3) some terminated before the error was discovered, but the error was discovered while processing their distributions, and they received the correct amount;

(4) some are still active, and their accrued benefits will be adjusted to reflect the correct amount; and

(5) some are still active, but the period of time during which the failure occurred would not constitute their "high 3-years pay," so their compensation for that period would not be considered under the benefit formula, and thus would not affect their accrued benefits.

The question is, which of these groups of participants is "affected" by the operational failure? Would it be all of them, since the failure affected the determination of compensation for everyone? Would it be only those who received an erroneous distribution? Or would it be something in between?

My thought is that group (1) is clearly affected, while groups (2) and (5) are not. Groups (3) and (4) are somewhat iffy. These groups may have been technically affected because their accrued benefits were wrong for a time, but the failure has not caused them any harm because they have received (or will receive) the correct amount.

I would be very interested in feedback from TPA's re recent DOL investigations. Thanks for any input about your experiences.

Our company has been purchased --- we have been advised that our existing 401k program will go dormant and be managed by a trustee of the takeover company.

Under the takeover any new contributions will go into a new 401k fund within the takeover company. Is there a way for a employee to gain control of the funds in the dormant account. Can a written request be made to the IRS? What would be the process to have the dormant account funds placed into a self directed IRA account.

A plan purchases stock in an LLC. Is the income from the LLC subject to UBTI?

Traditional IRA naming an estate as beneficiary. At death the dollars are paid out to the estate. If the estate pays the spouse, can the spouse rollover the dollars to his/her own IRA? Is there a 60 day time frame? What about for a non spouse? What are the payout options since they can not roll the money? (Before and after RBD date on last question).

A client is considering a policy in which non-smokers pay less for health care than smokers. I am interested in the experiences of other employers that have done this and possibly some sample policies. One element of interest is how "smoking" is defined. Antother is how to police the program where an employee claims to be a smoker but it appears that he is smoking. Any help would be appreciated.

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Charlie Stevens

Michael Best & Friedrich LLP

We have a new healthcare FSA plan and are offering COBRA to those who lose the coverage. I have spoken to two large COBRA TPAs who say they only allow beneficiaries to continue the FSA until the end of the plan year following the qualifying event date. I know that new COBRA regs say you can do this effective January 1, 2000, but the TPAs say they have always done. We want to do this way too. Any problems with this?

Our active employees are allowed to elect, cancel or change medical/dental benefits during each open enrollment period. So for example, if I only have dental coverage and I want to add medical, I can do so during open enrollment. Everything I have read about COBRA participants says they have to be treated the same as active beneficiaries. So we allow them during open enrollment to elect benefits they may not have had when their qualifying event occurred. Now I am reading through some notes from a seminar that says that "you do not have to allow COBRA participants to enroll in a plan during open enrollment which they did not have at qualifying event." Any comments? Are we required to offer the other plans? It would be much easier and less costly not to allow them to add new plans.

I read that some EAPs are subject to COBRA. We are starting an EAP for some of our employees in which they can receive free counseling. If inpatient counseling is needed, it will most likely be coordinated with our health plan benefits. Are we required to provide COBRA for free, outpatient counseling sessions?

I attended a seminar back in April and want to confirm what I thought the instructor said about partial COBRA payments. I am familiar with the short payment rule (ours is $20 - if payment is short by that amount we accept and send deficient premium letter - participant has 30 days to make up premium). At the seminar, the instructor did say that if the employee doesn't make rest of payment, we can term, but we can't refund payment - we must accept and prorate coverage - for example, the employee never pays the remainder of the premium and we cancel the participant's coverage, are we required to carry the participant's coverage through the date he/she paid? Or do we refund? We have refunded in the past, but the instructor implied that by law, we must accept whatever payment was made and prorate coverage. Any thoughts out there?

We have a plan sponsored by a Credit Union (CU). The CU has a new subsidiary which is a credit union service organizaiton (CUSO). 50% of the CUSO is owned by the CU. The CUSO will do work for the CU as well as for other entities. It doesn't appear that we have a controlled group. Do we have an affiliated service group? Both are not-for profits, and I think that may make some difference. Do you need more information? Please advise.

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I have encountered a practitioner who is interpreting the special rule under Reg.54.4975-7(B)(8)(ii) as being available only in situations where interest and principal are paid only once a year. The practictioner is pointing to the requirement that "...the loan must provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for 10 years.

Any ESOP loan I have been involved with had monthly payments, but I do not know that any of them uses this special rule for releasing of shares. Any authority for using principal only even if there are quarterly interest payments and annual principal payments?

When a company decides to leave Administaff and set up their own benefits there are a couple of issues regarding 401k I am unsure of:

1. Are distributions from Administaff eligible for cash dostribution or rollover to an IRA or should they be rolled into the new 401k based on "same desk" rule?

2. There have been some adverse rulings from IRS regarding the qualification of the Administaff plan. Some attorney's I work with advise against accepting Administaff rollovers as they may "taint" the new 401k plan. Any thoughts or opinions on this issue?

A 401(k) Plan has serveral participants with small balances (less than $25.00 for prior PS forfeitures)who are not contributing to the 401(k) portion of the Plan. Is there any way to either cash these people out of forfeit their account balances without a severence of service? The Employers does not want to continue to pay a participante charge for non-contributing employyees. Could the plan establish an administrative proceedure that would require participant fees to to taken from the account balances of non-contributing participants? This would clear these small accounts. Because there are several participants who are contributing small amounts to the plan ( $5 & $10 a pay check )the employer does not want to charge fees to all participants.