A plan amended the definition of compensation as of 1/1/96. An employee terminated in 1997. The plan sponsor interprets the employee's accrued benefit using the new def. of compensation for the years 1993 to 1997. However should the old def. of comp. be used for 1993,4 and 5 compensation, or is it reasonable to use the new def. which results in a lower avg. comp.

i have a client that wants to split a combined 401(k)profit sharing plan into one hourly paid ee plan, and one salary paid ee plan. i always thought these types of plan were tested together, but i was told last week by a lawyer that they can be tested separately. now i'm REALLY confused! can someone clear this up for me?

Is it possible to amend an existing 401K plan to a safe harbor 401k for the calendar year 1999? The notification to the employees prior to the plan year is impossible. If it makes a difference, the safe harbor match would be greater than the match currently in existence.

I converted a $2000 non-deductible Traditional IRA (opened in 98 for tax year 97) to a Roth (converted in 1999). In theory I should only have to pay tax on the earnings-$83 (I converted $2083) when I report the conversion for tax year 1999. When I attempt to complete Form 8606, and try to interpret the instructions, it appears that I will wind up paying tax on at least $2000 because I have other traditional IRAs that are reported on line 6 of Part 1. I wasn't able to determine how to complete the form in accordance with the IRS instructions so that I would wind up with a taxable amount on line 16 of $83. Is there a catch? I opened this IRA in the first place because numerous IRA articles talked about how you would only have to pay tax on the earnings of non-deductible traditional IRAs when you converted to a Roth. Now it seems I have been fooled? Is there an example/interpretation of this?

i have a conventional DB plan with a special minimum:

the benefit provided by a prior account under a money purchase plan, with earnings.

That is, the DB plan is a restatement of the money purchase plan. As you might expect, the conventional DB accrual is often less than the benefit from the account balance. By the way, the account balance is credited annually with actual earnings, no min. or max.

Question: what is the guaranteed benefit for PBGC premium purposes?

Is there a safe harbor design for non contributory 403b plans that enable educational institutions to pass all non discrimination tersting such as Minimum Participation, Minimum Coverage, and General Non discrimination?

Please advise.

Thank you.

We have a SARSEP IRA to which the employer contributes 3% to meet top heavy and HCE requirements. What is the maximum salary reduction that can be contributed by the employee? It would seem to be straightforward, however, everythme I read Form 5305A-SEP and Publication 590, I get more and more confused.

For instance:

Publication 590 says on page 52, under Limits on Deferrals, "..the total income you can defer under a salary reduction agreement... is limited to 10,000. This limit applies only to the amounts that represent a reduction from your salary, not to any contributions from employer funds."

But then underOverall Limits on SEP Contributions, it says: Contributions, including elective deferrals (salary reductions), made by your employer to the SEP-IRA are subject to the overall limit of 15% of your compensation or $30,000, whichever is less."

I interpret this to mean that in the case of Joe, who earns $70,000 a year, is eligible to defer the maximum of $10,000 (70000 x .15 = 10500) max is 10000, that is what he can defer. The employer then makes a total contribution of $2100.

Am I interpreting this correctly? What if the employer wants to increas his percentage to 5%? Is that permitted? Please advise.

Regards,

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Darlene

My (S-Corp) company (11 employees, 4 of which are owners/employees) would like to know what options are available to start a retirement plan whereupon large contributions may be made by the employer. It would also be nice if employee contributions were accepted as well, but not required. We already have a SARSEP IRA to which the company contributes 3% of compensation. Most employees max their contributions to that as well. Please advise.

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Darlene

I think the question is best asked with an example. 1995 and 1996 there was a matching contribution and an ACP test performed. For the 1997 plan year, matching contributions were not made, t hus no ACP test performed. For 1998, a match was made and the ACP test performed. The 1998 ADP test is failing and would pass using prior year %'s. (Please note the plan is on a prototype document that prohibits us from mixing prior and current results for ADP/ACP testing).

From reading notices issued by the IRS, if an ACP test had never been performed, I could rely on the 3% default for the year. However, there has been ACP tests in prior years. Do you agree that the 3% default is not available?

Can I use prior year ADP and use current year ACP since there arent' ACP results available from the prior year?

Is there any recent guidance issued by the IRS regarding the above issue.

Thanks

During the course of the 1998 plan year, 2 HCEs terminated and took distributions from the plan. One did a direct rollover and the other took a cash distribution. Now it appears that the plan fails its ADP test for 1998 and that these employees should have received distributions of excess contributions. Any thoughts or guidance on how to resolve this? Additionally, does this mean that HCEs can't take distributions during the plan year? In this situation, HCEs were advised to not defer to this level because they wouldn't pass the test but some continued to defer anyways. A further complication, the plan has now terminated.

Inclusion of COBRA continuation rights in the SPD is standard practice, so you're fine.

Karen:

Without much detail about the nature of your claims problems, I'll have to address the general areas in which I've seen difficulties in the past.

First, every claim system has a table that compares the "procedure code" of the medical service performed against the "diagnosis code" that the doctor or facility provides as part of the claim. If the system does not recognize a procedure as being a valid one given the diagnosis (for instance, a tonsilectomy on a patient with heart disease), the claim will be denied.

Second, we see problems arise due to "unbundling." Modern provider contracts often feature "case rates," which provide a fixed fee for the treatment of a particular diagnosis, and rate structures that incorporate a number of different procedures under one payment code. For example, a carrier may, under a procedure code for tonsilectomy, write in the contract that the payment for the tonsilectomy includes all charges for anethesia. If the provider then bills separately for the anethesia (or "unbundles" it), that service is denied.

Finally, there is a problem peculiar to point of service plans, particularly capitated ones. We have found that if a patient self-refers to a physician who is a member of the same medical group that the patient is enrolled with, the claim is returned to the medical group by the carrier. The reason for this is that, in the carrier's reasoning, the member may have been referred by his or her primary care provider to that specialist, in which case the specialist should be paid by the medical group, and not the carrier. If I had a dollar for every time this happened, I could probably retire. What is required is that the specialist make sure that the claim form is clearly marked that there was no HMO referral involved, then *maybe* it will go through without a hitch. Maybe.

Hope this helps. -Kevin

I don't know who to ask so I'm hoping somene can help me understand. I signed a prenuptial agreement in October 1997 and married in October 1998. I signed away all my rights as a spouse when it came to his money. I was not marrying him for his money so it didn't matter. I have had a hard time with his family, they didn't want their widowed father (10 years) to marry me a widow (23years). I raised my boys by myself and put myself through school. After we were married he told me to put $860 a month in a joint account to pay expenses. I live in his house. He has property and investments and is 29 years older than me. He still works full time at age 77.

He gave me a paper to sign from his daughter the lawyer. It gives them permission to determine the beneficiaries of his pension plan to be his 2 daughters and their families. The property and cars etc. will also go to them, that's fine. But what I don't understand is why after a year of marriage I have to sign it again! Is there something I need to know? I told him I wouldn't sign anymore papers because I feel his family is testing me further and I feel this is a nasty way of trying to break us up. Is there a reason I need to sign it again?

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Diane

Employer maintains a SEP. Only has himself and one employee. Can he only make the employer contribution to the employee (NHCE) and not give himself one (HCE)?

I made a partial conversion to a Roth in 1998. Am paying off all the federal tax due to a low AGI in 1998 (illness). Is it true that CA is forcing us to pay it off over 4 years??? (They don't want the money now if we offer it??) If true must one do this on the CA adjustments? Just subtract 75% from the Federal amount? Thanks, Lee

Do loans from 401(k) plans legally require spousal consent? Thanks!

Can someone tell me or give me a site where to find which fund families require no minimum deposit when setting up a Roth with automatic deposit? I wanted to set one up with Vanguard until I found out they required a $1000 min.

Thanks, Stoughton

How does an employer determine the cost basis, to the plan, of an annual match made in the form of employer securities after the plan year has closed? For example, an employer contributes shares as a match on 4/30/99 for the plan year ended 12/31/98. Is the plan's cost basis based on the fmv of the shares as of the date contributed (in this case, 4/30/99), or can the employer use the fmv of the shares as of 12/31/98? Would the answer vary if the shares being contributed are treasury stock, rather than shares purchased on the market by the employer and then contributed to the plan? Finally, if each participant's interest in the stock is tracked on the basis of "units" rather than "shares," how is net unrealized appreciation determined (i.e., does unitization mean the shares have not been allocated to participant accounts for purposes of determining net unrealized appreciation?)

I am new to investing and I converted my Traditional IRA to a ROTH. Do I have to pay taxes on the amount it increased or on the total value? Please advise. Thank you in advance.

A young investor.

Anthony

I have a client who would like to offer to his retirees who have attained age 60 and have 5 years of service the opportunity to continue coverage under the company's group medical plan from age 60 to age 65. Officers whould enter into a co-pay arrangement with the company. Non-officers whould have to pick up the entire cost of the coverage. Does this arrangement produce any non-discrimination or tax problems? If so, are there any ways around these problems?

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