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.

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 (I believe the term is "Class C.") 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 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.

participant received his distribution from a 457 plan and rolled the balance into an IRA. We now discovered this problem, what are our options? what do we do with the money?

TAKING OVER DR'S OFFICE WHO HAS CALENDAR YEAR MP AND PS PLANS. VIA RESOLUTION, MP PLAN FROZEN 12/31/98, MERGED INTO PS 1/1/99. FINAL REQ'D MP CONTRIB FOR 98 WAS MADE IN 99. PS PLAN AMENDED FROM PROTOTYPE TO INDIV DESIGNED NEW COMP EFFECTIVE 1/1/99 (DOCUMENT INCLUDED LANGUAGE INDICATING MERGER). PRIOR ADMINISTRATOR FINISHED 98 ADMIN TODAY. WE WANNA MOVE ON THE MERGER.

1. IS THE PROCEDURE OK?

2. IF INDIV. ACCOUNTS, CAN THEY JUST BE RETITLED UNDER PS PLAN AND FINAL 5500 FILED FOR 99?

3. IF POOLED ACCOUNTS, IS A FINAL ALLOCATION REQUIRED LIKE IN A PLAN TERMINATION, THEN MONEY TRANSFERRED INTO PS PLAN UNDER INDIV. ACCOUNTS?

4. ANYTHING ELSE I NEED TO CONSIDER?

THANKS IN ADVANCE FOR YOUR RESPONSE!

Is "Includible compensation" for purposes of the 403(B)(2) exclusion allowance limited to the 401(a)(17) compensation cap (currently $160,000)? Example 20 of the updated IRS Examination Guidelines for 403(b)plans indicates that "Compensation" for 415 limit purposes is limited to $160,000, but is seemingly silent with regard to 403(B)(2).

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Mike W.

An employee worked for her employer from 10/1/96 to 9/30/97 and was laid off due to a cut in funding. She was never a "participant" due to the fact that entry dates are 7/1 and 1/1. She has just been rehired. Am I correct in telling the employer that she must wait a full year again before becoming eligible because she had a break in service -- even though she did not quit and wasn't fired?

In Section 13.5.1.2.1 of the updated Examination Guidelines for 403(B) Plans, it is stated that, in theory, an employee who has completed 15 years of service with a qualified organization other than the one at which he/she is currently employed could use the full amount of the 15-year "catch up" election under 402(g)(8) with respect to the current organization. This seems to contradict 402(g)(8) and at least one well-known 403(B) publication, which indicate that the 15-year "catch up" election can only be utilized at the employer for which the 15 years of service had been performed. Which interpretation is correct?

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Mike W.

Am I correct in understanding that an employer can change the dollar amount that they match at any time if they have a "discretionary match"? More specifically, this employer's plan doc says that the employer will make a discretionary match not to exceed $520 per year (which equals $10.00 per week). They would like to increase it to $15.00 per week which would be $780 maximum for a full year. Can this be changed any time?