Official cite: IRS Announcement 99-57

I have a company that has filed their taxes for 1998, but now wants to make a Profit Sharing Contribution to their 401(k) plan. May they still make this contribution, and if so, can they ammend their tax return to reflect the contribution?

A new business is established on January 1, 1998. The firm wants to implement a SEP for 1998. Must this SEP have immediate eligibility (i.e. age 21 and 0 out of the last 5 yrs employment) or can eligibility still be conditioned on age 21 and working 3 out of the last 5 years for the employer with the understanding that everyone is eligible for 1998 since the company did not exist prior to 1998? Also, in any case, wouldn't everyone age 21 with $400 in comp for 1998 need to be included in the 1998 allocation, even those hired during 1998 but after January 1, 1998?

Thanks,

Mike

Can you borrow against either a ROTH or Standard IRA? If not, can you make withdrawals prior to age 59 1/2 without penalties?

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We are a private company whose stock is valued by the Board of Directors at quarterly intervals. We added a company match to our 401k plan in 1998. The match is in the form of company stock only. (Employees can invest their own contributions in 14 different funds managed by Fidelity.)

When we were setting up this plan we were trying to determine whether or not we would need an independent valuation of the stock. Our attorneys told us this:

"An employer contributing non-publicly traded stock in the form of a match to the employer sponsored 401(k) is not subject to the ERISA section 406 prohibited transaction rules. Specifically, section 406 refers only to "acquisitions" of employer securities. A contribution of employer securities is not an acquisition of securities for purposes of section 406.

Due to the fact that a contribution of employer stock in the form of a match to the 401(k) plan is not subject to the prohibited transaction rules, ERISA does not require an independent valuation of the stock. Valuation by an independent appraiser or independent valuator as required under the ERISA adequate consideration rules is not required in this situation."

We concluded that we did not need an independent valuation of the stock and implemented the plan. All seemed fine and dandy until our annual 401(k) audit. Our auditors are telling us that we do need to get an independent valuation.

Our company does NOT want to have to get an independent valuation of the stock.

Any of you wise and wonderful 401(k) experts have an opinion on whether or not we really need one? Any ideas will be appreciated.

Thanks,

Marie

I have a client who has announced that there will be a layoff in the near future. Many participants are looking to go to school to learn new skills before they are laid off. Several have expressed that they want to go to Truck Driver Training. Does this seem to reasonably fit the definition of post-secondary education?

Here's the scenario: You have an error in a participants' investments. In order to correct it you (the TPA, plan sponsor, trustee, advisor, whoever was responsible) make up the money difference to make the participant whole. On the other hand, let's say that making the participant whole results in a "profit" for you. How do you reclaim that from the trust? Doesn't seem right that you can't. Any ideas and cites?

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Richard

If a top heavy db plan is converted to a cash balance plan, does anyone know of minimum required accruals for such a situation? I have not seen this addressed anywhere.

My spouse and I are both employed. His health plan is secondary to mine, and his pays secondary (coordinates) benefits with my medical plan. They will not, however, pay secondary on prescription coverage. Is this legal, as they do not have it stated in their spd that they will not pay secondary on prescriptions? One other note, I asked their benefits manager about this issue and she responded that "it is not in writing, but we don't pay secondary on prescriptions". I am thinking about filing an ERISA claim, but don't know if it is worth it....espicially since my spouse still works there. My ERISA claim would be that they have to provide employees with written details of the plan, etc. I received an SPD, but it indicates that prescriptions are covered, and I was issued a prescription card. Any advice from anyone?

I have an employer, the sole trustee, who wants to have successor trustees to the plan -- he wants to do this by corporate resolution. This is new to me -- has anyone ever heard of using successor trustees on a QRP? Thanks.

Has any one heard if the new tables to compute imputed income for group term life insurance will go into effect as planned July 1 or will the IRS delay the effective date?

W/ the IRS ruling 98-30 approving Neg Election in the use of 401k plans; can the states use their power to dis-allow the use of Neg Election in a 401k?

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Wm Orr

I’m searching for the federal regulations that explain health insurance discrimination. For example, can an employer establish separate classes of employees and provide one class with health insurance and not the other? I think this is more of a discrimination issue but is it covered by ERISA or the IRS? If it is a discrimination issue where is it addressed?

Steve

I have a 2 plan situation DB/DC where the top heavy minimum has been provided in the DB; I want to change this & provide the safe harbor 5% allocation under the DC only. My question- for non-keys who have a plan accrued DB benefit well in excess of the DB minimum, do I have to still give them a 5% DC allocation for the switch year? An answer with a cite would be appreciated.Thanks in advance!!

Plan fails 414(s), so it is now non safe harbor. There is no 'nondisrim' test by rate groups like for profit sharing contributions. The closest you can come is to run your ADP test using a safe harbor definition of compensation (despite the fact ees weren't able to defer on some comp)

This may cause plan to fail, and therefore require a QNEC /or refund.

Note: according to the ERISA Outline Book, some IRS agents hold that a de minimis standard can be 3% - though even that is stioll a facts and circumstance issue.

possible cite would be 1.414(s)-1(a)(2)

...even though a definition of compensation permitted under 414(s) MUST be used in determining whether the contributions (in your case, deferrals) satisfy a certain applicable provision (in your case ADP test), the plan is not required to use a definition of compensation that satisfies 414(s) in calculating the amount of contributions...

Since you failed 414(s) you are violating the MUST listed above.

Under IRC s. 415©(4), University (and certain other) employees may elect one of three alternative limits in place of the general limit for 403(B) plans. The third of these allows the employee to bypass the MEA limit and just use the 415© limit of 25% of compensation (or $30,000, but in voluntary plans that amount is often irrelevant due to the $10,000 elective deferral limit). All plans of the employer must be aggregated under this alternative limit: if the employee also has a defined benefit plan there is a complex calculation to determine the "defined benefit fraction" and "defined contribution fraction." The calculation is described in s. 415(e), which is to be repealed effective 12/31/99.

Does anyone know how the alternative limit in s. 415©(4)© will work after this repeal? Consider two scenarios: the employer maintains a defined contribution plan plus a voluntary 403(B) plan; or, the employer maintains a defined benefit plan plus a voluntary 403(B) plan.

Calendar year profit sharing plan. All employees are terminated toward the end of 1998. Business has filed for bankruptcy.

Profit sharing plan will terminate in June 1999, and file with IRS for determination. Client would like to hold off on distributing benefits until end of 1999, when favorable IRS determination letter is expected to be received.

Problem -- plan provides that benefits are paid at the end of the plan year in which the employee terminates employment. In practice, benefits have been paid early in the following year (between March and May), when the asset results are known and the allocation is performed.

Can the plan sponsor choose to delay payments until IRS determination letter is received?

If all employees elect to receive their benefits now and are paid their benefits now, there would be no assets or participants included in the determination letter filing.)

Under Code Section 127, educational reimbursement amounts for graduate level courses were taxable to the employee before 1991. From 1991 to June 30, 1996, such reimbursement amounts were not taxable. As a result of SBJPA, educational reimbursement amounts for graduate level courses under Code Section 127 became taxable again.

Notice 96-68 defines graduate level courses as any course taken by an employee who: (1) has a bachelor's degree; OR (2) is receiving credit toward a more advanced degree, if the particular course can be taken for credit by any individual in a program leading to a law, business, medical, or other advanced academic or professional degree. Paragraph (2) is in the Code but (1) is not. Under (1) appears to preclude anyone with a bachelors degree from receiving NON-taxable tuition reimbursement. The effective date of this was June 30, 1996.

Every employer I've talked to about their 127 plan does not restrict non-taxable education reimbursements to employees who do not have a bachelors degree. Employees who have bachelors degrees are getting reimbursed unless they are taking a graduate level course under condition (1) above.

Am I misunderstanding 96-68? Is the IRS wrong and there is a case as authority? If I'm right, is this news to anyone?

If a Simple IRA is Adopted effective 7/1/99 is compensation for purposes of the matching contribution based on the full calandar year or only from 7/1/99?

Is there a cite for this?

Conversely, could you make the plan effective 1/1/99 and extend the 60 day period to include 7/1/99?

Sometime during the past 2 days this IRA Message Board saw its 1000th posting!

I particiapte in several BBS's in several topic areas and this one ranks right up there with the best.

Thank you to all for your interest and

participation over the past months. Your IRA expertise is appreciated by many, including those who read but do not post actively.

1000 postings---quite a milestone!

Cordially;

David Hammond-SRS

Your Humble Moderator