Can anyone point to a good source for statistics on how plan sponsors are complying with their ADP tests? For example, what percentage of sponsor meet the ADP test by posing a dollar or percentage limit on HCEs in the beginning of the year? What percentage wait 'til the end of the year to give HCEs back their deferrals that are in excess of the ADP limit? What percentage cut back during the middle of the year (in October restrict HCEs who are contributing above a certain ADP from deferring any more through the end of the year.

Two companies have a 401(k) plan. They then merge into one company. Which plan does the new company adopt? Or, does the new company keep both plans? The plans have minor differences as far as matching, etc. is concerned. If both plans are kept, which plan do the new employees go into? Please advise as to advantages and disadvantages of each.

Plan has an investment "program" where participant completes a questionnaire, identifying his/her investment goals and objectives. Investment manager actively manages account for participant. Can this qualify for 404© protection? How are accounts reported on plan audits? Do all investments have to be identified separately on financial statements or can this "arrangement" be considered one investment? Does your answer change if participant completes questionnaire, investment manager makes recommendation for investments, but participant ultimately chooses his/her own investments (either the recommended funds or funds of his/her own choice)? Any other compliance or audit-related issues to address?

We amended plan for OBRA 93 for $150 cap (indexed for inflation) and are using the extended wear away method to calculate benefits upon retirement or termination. Fresh start date is 1/1/94. Best method is frozen benefit accrual until 1/1/94 plus current year benefit accrual for benefits after 1/1/94. Assuming we can calculate frozen accrual, does the second part of calculation requires us to treat as if ee started over on 1/1/94?

The Internal Revenue Service has finalized its regulations on the 15-day advance notice requirement of ERISA 204(h), which affects sponsors of pension plans (but not profit sharing, stock bonus or ESOP plans) who wish to lower, freeze or terminate the continued accrual of benefits for covered participants.

The regulations are online at:

http://www.benefitslink.com/taxregs/1.411d-6.shtml

The regulations basically restate the proposed version issued in 1995, but a few new items are significant:

* First-class mailing of a notice is sufficient, and the date of mailing is considered to be the date on which the notice is provided to that employee

* An example has been added to show how a defined benefit plan sponsor can run into trouble if the plan is subject to PBGC termination procedures but the PBGC rejects the proposed termination date. The standard PBGC-required notice of intent to terminate does not provide enough information to be a 204(h) notice if the PBGC rejects the termination date, but it is sufficient if the PBGC approves the proposed termination date. Lesson: adopt a special amendment freezing benefits as of the proposed termination date, and separately describe that amendment in the notice to interested parties.

* The notice can be given by the end of the 15th day before the effective date of an accrual freeze or reduction. For an amendment reducing accruals effective as of December 1, notice could be delivered by making a first-class mailing on November 16, which is the 15th day before December 1. Hence it appears that an amendment that is effective December 31, 1998, such an amendment that reduces or eliminates the plan's promised benefit for 1998 under a calendar year money purchase plan, would need to be provided on or before December 16, 1998 (tomorrow). (Some practitioners believe such an amendment is permitted, if the plan contains a last-day employment requirement, such that no protected right to a benefit accrual would arise until the end of the day on December 31.)

[This message has been edited by Dave Baker (edited 12-15-98).]

What is a claim for benefits? If HCE complains that he was cut back in ADP testing, is this a claim? What are consequences if we do not follow plan procedures in answer?

If I convert a $200,000 IRA to a Roth IRA can I contribute to an Education IRA if I have an AGI of $75,000 before the conversion?

Does anyone have, or know where to find, information concerning the percentage of DB plans that offer lump sum distribution options?

If I roll over a large IRA now, and use the 4-year tax payment option, I am concerned that the increased gross income for each year will be counted as "real" income by the college financial aid offices, and threfore reduce dramatically the amount of financial aid my daughter may be able to get (when she begins college (no idea which one) in 2 years, even though our need remains the same (worse, since we're paying taxes on the rollover). I haven't been able to find a good answer, or even guidance anywhere on this, but I need to act by end of this year. Any suggestions? What's the current thinking? There's bound to be thousands of people in our situation.

The majority of the roth conversion calculators request that you input marginal tax rate for conversion years and distribution years. The marginal rate is accurate for conversion years since conversion amount will be in addition to AGI. My problem is that in distrbution years the marginal tax rate will overstate total taxes since there will be no additional earned income. Wouldn't it be more accurate to use effective tax rate at distribution?

For example a $75,000 annual distribution would have a marginal rate of 28% but an effective rate of 21% for an individual filling married/jointly. Utilizing the effective tax rate on the distribution yeilds a much different answer in the conversion calculations.

In a general analysis why would it be advantageous to pay 28% taxes now rather than 21% later?

posted 12-14-98 03:51 PM ET (US)            

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Query: Employer has an existing 401k plan. Approx 12 participants. He wants to terminaet the plan because he is sick of the high costs and wants to start a simple ira. in 1999. I see a problem due to reg 1.401(k)-1(d)(6) rules applicable to distributions upon plan termination. If the Employer terminates the plan (which is considered a distribution event) and makes a distribution he will be prohibited from starting a simple ira for the 12 months following the distribution. My research has led me to the possibility of coverting the 401k to a simple 401k, creating a SEP, or waiting a year to start the simple IRA. Bottomline my clients wants to save money. Do you see any way around the 12 month prohibition and immediately starting a simple ira? One more question. If the Employer does start a simple IRA, one year later, can you rollover into a simple IRA from a SEP or simple 401k? Thanks for any help you can provide.

This is not a specific 401k Q, but, I have a new client with 5,000+ employees and they would like for the employees to make better personal financial mgt choices, thereby reducing loans, hardwhip withdrawels, garnishments, etc. They are willing to provide Employee Financial Education Workshops.

I am looking for "off the shelf" tools to use at the workshops, ie, workbooks, overheads, etc. etc. We invision a 6 - 9 hour workshop over 2 -3 meetings.

Anybody know of such tools??

To assist in tracking nondeductible IRA contribution, these were transferred to Roth. Is this a nontaxable event? Do earnings on these nondeductible contributions have to be transferred?

If I have an employee who was injured on the job and is on workers comp, should I place them on FMLA leave as well?

Can anyone direct me to a fairly recent article (e.g., CCH, BNA, RIA, ASPA) on responding to an IRS audit of a qualified plan? Any other recommended resources? Thanks.

Any input would be helpful. Creative ERISA tax attorney asking about the creation of new DC or DB plan to accept $5,000,000 rollover. A private annuity would be created for older participant. Upon death of participant, funds would be used to either fund DB or DC. Goal is to avoid probate of this major asset. Any observations, methods, etc. would be greatly appreciated. I am drawing blanks. My feeling is NO CAN DO.

I've had an IRA for 5 yrs. If I convert to Roth and want to withdraw $$$ under special provisions (say school, or 1st time house buying), do I have to wait another 5-yrs from date of conversion?

If yes, is it more beneficial to stay in IRA and be able to redeem a.s.a. needed, although having to pay taxes on redemption?

How are TPA's handling plan forfeitures for daily plans that allow for immediate distributions?

We have just converted our daily plans from Trustmark to Quantech. In Trustmark, there was a Mr. Forfeiture in each plan with the social of 999-99-9999, however it was not a relational database so this was not a problem. After a distribution, we would transfer all nonvested $ to Mr. Forfeiture and allocate once a year.

We are debating over the following 2 options:

1. Leaving the forfeitures in the participants account until the end of the year. Does the fact that the participant still has voice response access and can make changes cause a problem ? And I believe we would need to do a transfer from the participant elections to a balanced strategy? Also, we are doing quarterly statements and we don't want terminated participants with nonvested balances to receive statements. In a big plan it would be a pain to have to manually take out the statements of terminated non-vested participants.

2. Setting up "fake" social security #s. I know this can cause a significant problem in Quantech. If we opted to do this, obviously each plan would have a unique social for Mr. Forfeiture and we would maintain a master list of any "fake" socials. As far as how to get the money from the participant to Mr. Forfeiture, could we just forfeit the terminated participant as if going into suspense and post a forfeiture to Mr. Forfeiture only ?

We are wondering how other TPA's who use Quantech are handling this. Any input would be helpful.

Judy Diamond is a service that provides basic information about DB Pension Plans and the plan sponsors. Does anyone know of a less expensive way to obtain this type of information . i.e. plan name, contact person, funding level, plan liabilities, etc.

As most of you know, my Employee Benefits Legal Resource site contains resources for everything from updated lists of section 415 and other inflation-adjusted limits to how to find out whether participants you cannot locate have died. For anyone who is interested, I have just added a new feature which enables visitors to take a tour of the site.