Mr. Lesser, I appreciate very much your reply to my question on improper deferrals. At this point we are trying to decide the best way to "clean up" the situation. The employer has been making a uniform contribution to all eligible employees. The improper salary deferrals are more properly characterized as voluntary employee IRA contributions which have been subject to FICA/Medicare but not income tax. Some of these voluntary EE IRA contributions are in excess of the annual $2,000 limit. The most logical solution and the most time consuming would be to amend the W-2's and personal tax returns of the employees for 1997 and 1998. Their ability to deduct the IRA contribution would then be dependent on their individual income levels and any excess contributions over the annual limit would be subject to the 6% excise tax and need to be refunded.

The most expedient method, if permissable, would be to distribute all of the employee IRA voluntary contributions in 1999 and subject the payment to ordinary income and the 10% penalty, if applicable, in 1999.

Question: Are both of the above methods available without disqualifying the SEP arrangement? Can you recommend a third party administrator for a 457 plan which would permit an independent broker to handle the investment side.

A new employer was added to a mutiple employer plan. This is the employer's first plan year. Currently the other employers in the plan are filing a 5500 R. Since this is the employer's first plan year should a 5500 C be filed for the new employer?

A large plan has surplus assets. Can they transfer part of the surplus out of plan to cover retiree healthcare costs? Where is this addressed in the law? What notfication or other requirements exist or where can they be found? Look forward to comments.

This plan is not being terminated, but they plan on vesting all participants at the time of transfer.

I have not seen our client's plan, but is there a specific rule that requires consent? If so, are there options if spouse refuses to consent?

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Eva F. Stein, Raleigh, NC

Can we allow employees to make changes to their pre-tax medical plan with us if there is a change in coverage due to spouse's open enrollment? I know the regs indicate this is not a reason for adding to our plan (e.g., spouse didn't lose employment for instance). But CAN we be more liberal?

2 questions:

1) Is it clear that compensation under 404 includes compensation for the full taxable year, even if compensation is limited to amounts after mid-year entry date for other purposes?

2) Does anyone know if there has been further guidance (since the last posts on the topic if February) on whether compensation for a participant eligible to defer, but not actually deferring, is counted under 404

If an employer makes the 3% QNEC under a safe harbor plan, I understand that ADP testing is not required, but that ACP testing is if there is a match that does not meet the safe harbor formula. If the safe harbor matching formula is selected, does the plan also automatically pass the ADP test? Thanks.

When calculating a benefit for accruals beyond NRA, and then adjusting downward the newly calculated benefit for distributions already received due to Required Minimum Distributions, is there a floor equal to last year's accrued benefit?...or can the current year "net" accrued benefit (after reductions for cumulative 70 1/2 distributions) fall below last year's accrued benefit level?

Participant is 100% vested in $5,500 account balance. Wants to borrow $1,000. She is married and Plan is subject to J&S requirements. Must spousal consent be obtained? or is it unneccesary because loan is less than $5,000?

If all Plan investments are directed by participants, is there any change in the requirement to distribute the Summary Annual Report? In very small Plans, the SAR effectively discloses the key EE's account balance, and I am getting increased resistance from the key EE on doing this. Any similar reaction, any solution?

Our client is negotiating to acquire the stock of the founder's widow (90% ownership - 12M annual sales). Our client is President of the company, he was brought in after the founder's death -- after obtaining control he wishes to set up an Esop. I mentioned, that I've heard of the concept of an ESOP used on the front-end to acquire the stock. Any viability? I'm concerned as to how one would establish the same ownership % to our client through an ESOP. Thanks for the help,

Bill Carlson

Hi, a good question was posed to me today regarding HIPPA noices that I hadn't thought about. I have an employee who terminated from my company on 4/10/99. As part of a severance agreement, however, my company agreed to pick up the cost of COBRA until 10/10/99. This former employee has now requested a HIPPA notice. Shoud we use the coverage end date of 04/10/99 or 10/10/99?

Thanks in advance!

I am looking to implement within my small organization (10 ppl) a benefit which many large orgs offer -- reimbursement of child care costs for business travel. Interested in learning of policies re. this type of benefit (e.g., administration of, maximum allowances, who qualifies as child care provider for purposes of reimbursement).

I'm looking for a website that may contain historical information on Moody's Aa bond yield rates. Any suggestions?

Section 3.04 of Rev. Proc 99-23 under Notice 98-52 states that an existing 401k plan may be amended by the last day of the 2000 plan year retroactive to the first day of the 1999 plan year to satisfy the safe harbor requirements. I am trying to figure out how notification fits into this. If a plan begins on 10-1-99 with a 12-31 plan y.e., is this amendment allowable for this plan for '99? Do you see any downside for amending without meeting the notification requirements?

When a plan owns life insurance for individuals that has cash value, do you report the cash value as "other assets" on the Form 5500. I was under the assumption that you do but am being told by a plan's agent that you report the value as "$1".

I looked in the 5500 instructions and various other locations and cannot find a definite cite. Help!

Thanks,

Bob

I seem to recall that employers can prohibit employees with outstanding 401(k)loans and/or(?) who have taken hardship withdrawals from making additional elective contributions. Can anyone clarify when the elective contribution freeze can apply and where to find the legal/reg. provisions that allow employers to impose them?

We're closed on both Friday 12/31 and Monday 1/3, however, key IS personnel will be required to work over that 4-day weekend.

We've been kicking around various compensation ideas for that weekend but would like to hear how other folks are handling this situation. Both exempts and non-exempts will be working; the non-exempts are a relatively easy answer. Suggestions have ranged from comp time (how much?) to premium pay (again, how much?).

Any thoughts are appreciated.

The IRS permits/requires a plan to be amended within 9 1/2 months after a PYE in which the coverage requirements of 410(B) are failed. The retroactive amendment must permit the plan to meet the coverage and nondiscrimination requirements under 401(a)(4). If the plan is a 401(k) plan with a match and it also has a profit sharing feature, would you agree with the following conclusions:

1. The retroactive amendment will permit the previously excluded employees to share in all the features of the plan. They will receive profit sharing contributions and this will enable the P-S feature to pass coverage.

2. The employer need NOT restore salary deferrals for the employees that are included retroactively.

3. Because these retroactively included employees didn't have any salary deferrals for the year, the employer would have no matching contributions to restore.

4. Because the hourly employees are retroactively included, the ADP and ACP tests would still be performed without these hourly employees under the rule in the 401(k) regs that says you only include those eligible employees that actually had an opportunity to make salary deferrals. If this is true, it really makes the retroactive eligibility sort of a myth for the k and m portions of the plan.

Anyway, your thoughts and references are greatly appreciated.

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Client will adopt 401(k) plan effective January 1, 2000. Client will be using the safe harbor rules as per Notice 98-52. Could client wait and submit plan for a determination letter re 401(k) as well as the safe harbor provisions closer to December 31, 2000? (This assumes the IRS would've approved safe harbor language by then.) Otherwise, client would need to get a determination letter re qualification under 401(k) and then get another one re safe harbor provisions. That would probably be the more conservative approach although, if possible, it would be easier to do it all at once. Any comments?

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