You have several issues to look at here. First off - the document should tell you how to handle ineligible employee contributions. Usually, they are forfeit and used to reduce future contributions. However in this case, being that the year end has already happened, I'm not sure how you'd want to treat them. For one thing, not only would the employer have to amend his returns, each of those four employees would have to amend their personal returns to reflect the earnings. The other thing you would want to consider is how taking them out of the equation will affect the year end testing.... sound's like your in a predicament here without an easy solution. Any Attorney's out there have some suggestions?

I have a client that is a 501©(3) organization established under federal law as a funding agent to receive and administer grants for research on behalf of a federal agency. I think there's a good chance this makes the 501©(3) organization a "goverment instrumentality" for purposes of ERISA and the tax qualification rules. But....

can this organization have a 401(k) plan? My first reaction was no, because it was a governmental plan, but when I read 401(k) more carefully, I found its prohibition on estabishing 401(k) plans extends only to state and local governments and their agencies and instrumentalities. I believe federal employees have a 401(k) plan, but I think that may have been established before the prohibition was adopted. Does anyone have any information or opinions about whether or not my client can establish a new 401(k) plan?

(If so, it looks like this client may be one of the only employers that could have a 401(k), a 403(B) and a rank-and-file 457 plan! But I'm not recommending they do that.)

I have a 74 yr old male actively participating in a 401(k) plan. He is widowed (about 3 years) and has two children in their mid 40s, who are named as beneficiaries on his 401(k). So far, all money accumulated in the 401(k) has been earned while he was unmarried; however, he will be getting married in late November.

His fiance is also 74 yrs old and widowed, with 3 children also in their 40s.

Since he is still working, he will continue contributing to the 401(k) after marriage. Hence his account at retirement will consist partly of monies earned while he was unmarried, and partly of monies earned while he was married.

At retirement (when he begins minimum distribution) what rights will his future wife, and his children have, respectively, in his 401(k) account. Should he change his beneficiary designation? Does he need some kind of a spousal waiver? Help is greatly appreciated.

Background. QVECs (Qualified Voluntary Employee Contributions) or DECs (Deductible Employee Contributions) were authorized by ERTA '81 to permit employers to allow employees to make deductible IRA contributions to an employer's qualified plan. These arrangements were a hybrid because, for some purposes, the IRA rules apply and for others, such as joint and survivor annuity, the qualified plan rules apply. TRA '86 did not allow future contributions after 1986. The issue is are QVECs subject to the qualified plan required beginning date of the later of 70 1/2 or retirement or the IRA required beginning date of just 70 1/2. The only indication remotely offering a clue is a statement in Notice 82-13 that, except for owner-employees, distributions are not required to begin at 70 1/2 (remember that before TEFRA, there were no required minimum distributions from qualified plans except for owner-employees in a Keogh plan), potentially supporting the application of the qualified plan rule. Any thoughts?

[This message has been edited by sborrow (edited 09-04-98).]

Facts: Profit Sharing Plan - included in participant's account balance are funds that were rolled over from the employer's former DB plan. Life insurance policies were also transferred to the PS plan as a part of the terminated DB plan assets.

A DRO is forthcoming in which the spouse is requesting 50% of the account balance of the participant. The spouse is requesting the life insurance policies in force issued on the life of the participant be a part of her 50% account balance. Spouse wants insurance kept in force on life of participant; spouse is beneficiary--or has right to designate any one she wants as beneficiary. The cash value will be considered as part of the spouse's 50% balance.

The plan document does not allow for distributions for QDROs. Distributions permitted are for death, disability, termination, retirement. Participant is not age 50.

Question-if future premiums are debited from spouse's account balance, is there an incidental death benefits problem? Is all of spouse's account balance considered available to apply the 50% test? Does spouse report future P.S. 58 costs? Does participant have available any means to recover previously reported P.S. 58 costs?

Any other problems we haven't considered? Thanks.

As a recruiter, it appears to me that consulting firms and TPAs are remarkably disinterested in sales, or in retention of good salespeople when they're serious enough about their businesses to have sales professionals.

The sales people they do have are typically very poorly paid, yet are usually very hard-working and reasonably expert, often having risen from serious experience in the trenches. And they're almost invariably sharper in business than their employers. In general they leave after a few too many years, and make twice as much money immediately, working for a package provider.

Some TPAs actually go so far as to hire unemployed family members and failed insurance agents for the purpose, apparently believing the role to be a dreary obligation, rather than an essential part of their businesses.

What gives?

The two plans involved are sponsored by the same employer (daily 401(k) plan and a money purchase plan). The former employee (Terminated June 1997) would like to roll their Money Purchase balance into the 401(k) Plan. The 401(k) plan allows for rollovers from other qualified plans. Is there any reason not to allow for the rollover?

Phil L posted an interesting question on another board concerning loans. There were no repsonses. Since loans are an integral part of 401(k) Plans, I am putting a copy here hoping there will be some response(s):

From Phil L -

From reading the regulations in 401(a)(4), it appears that loans are a benefit, right, or feature that must be offered on a nondiscriminatory basis. The regulations seem to say that nondiscrimination is proved only if loans are currently available and effectively available. If my understanding is correct (and it may very well not be), you could write your plan to allow loans only to active employees, but then you would have to prove nondiscrimination which amounts to a ratio percentage test in which all terminated particpants would be treated as not benefiting. Is this correct or am I misguided? Thanks in advance for your help!

Client discovers participant excluded from profit sharing plan and money purchase pension plan in error and agrees to "make up" the contribution plus earnings under APRSC.

I know the P/S contribution is deductible to the extent there is room under the 15% cap and to the extent that you don't exceed the 25% overall limit between the two plans.

My poor ol' search engine doesn't provide me with the answers I need, so could someone direct me to a cite as to whether the "make-up" earnings are also deductible?

Thanks.

With the recent changes in the 70 1/2 Minimum Distribution laws I understand they no longer HAVE TO take a distribution but I am questioning whether an individual over the age of 70 1/2 that has no ownership and is still working CAN take a distribution from their plan? If so, can they take the full amount, partial or only the minimum distribution?

about 9 months ago we were asked by a

new venture/spinoff to design/implement a benefit plan which would attract and be competitive for the best people in their industry. One of their parameters turned out to be a health and dental plan which required no contribution on the part of the employee (100% paid by employer). At the present time the employees are asking for a vision plan. The employer is considering making the vision plan optional and 100% paid for by the employee through the section 125. My thoughts are that eventually all benefit plans should be contributory and therefore the vision benefit should be added to the health plan paid for by the employer and at the same time requiring the employee to make a contribution to the total plan. The employer thinks that the medical costs being paid should be frozen at the current dollar amount and future increases passed on to the employee therefore makeing the plan contributory. So, the real question is what is the easiest method to change a 100% paid by employer plan to one which requires contributions by the employees. Of course what fundamentally underlies this question is the philosophy of employee benefit design. Any ideas would be helpful. I can be contacted here or directly at wex4@slip.net Thanks and regards.

Okay - so - I have a potential client. They have subsidiary corporations, and the two subs are going to merge into one new plan under the parent corp. The problem is, one of the subs maintains an ESOP (posibly a KSOP), the other a 401(k). One of the plans is currently in VCR.

My problem is - I don't want the new plan to carry-over any defects that maybe found while in VCR. Question is - if something is found and corrected in VCR - what will that do to the merged plans?

Rather than merging - should we term and distribute with mandatory rollover to the new plan? Any suggestions or war stories would be helpful. Thanks

I understand that most severance payments are treated as dismissal payments subject to FICA and FUTA withholding. Is this the case even if the parties mutually agreed to the payments under an employment agreement? Are these payments considered wages and are they reported on a W-2 even though employment relationship is terminated. Any thoughts? Thanks

I have a "situation" with a DB plan that only allows lump-sum payments if a participant's accrued benefit is less than $10,000. Recently, an IRA rollover was made for retiring participant with a $40,000+ benefit. Obviously, this is a failure to follow the terms of the plan and perhaps a violation of the exclusive benefit rule (at least according to the IRS).

I assume that this can be corrected under APRSC but my primary question is how best to accomplish this if the participant does not want to return the money. I dont think that the plan has any recourse against the participant (or any leverage- ie. the threat of taxes or penalties). If there are any potential pitfalls for the participant I think that the plan has a "duty" to point them out, so if anyone can think of some- please let me know.

Any thoughts would be appriciated!

This is a duplicate of a posting on the Small Business board.

As an alternative to a qualified plan some planners have recommended a "private pension plan" using life insurance products. I have several cases where nothing: integrated, age weighted, cross tested, ageless etc., "works" but the owners need and want to start setting money aside. An article touting the "private pension" in lieu of a qualified plan caught my eye.

The Business Journal of San Jose carried an article entitled "Plan wisely for retirement" "Small business may benefit from private pension plans" by David Burros, CPA, CFP. The URL is http://www.amcity.com/sanjose/stories/0427...98/smallb1.html

Life insurance policies in Texas enjoy the same creditor protection as a qualified plan and everywhere insurance enjoys income tax deferral. However the consumer press reported many sales presentations have been marginally within the law. In response Texas passed strict rules requiring clear labeling of illustrations as being life insurance policies.

I'd be interested in seeing what other planners think of the technique and what alternatives are available.

As an alternative to a qualified plan some planners have recommended a "private pension plan" using life insurance products. I have several cases where nothing: integrated, age weighted, cross tested, ageless etc., "works" but the owners need and want to start setting money aside. An article touting the "private pension" in lieu of a qualified plan caught my eye.

The Business Journal of San Jose carried an article entitled "Plan wisely for retirement" "Small business may benefit from private pension plans" by David Burros, CPA, CFP. The URL is http://www.amcity.com/sanjose/stories/0427...98/smallb1.html

Life insurance policies in Texas enjoy the same creditor protection as a qualified plan and everywhere insurance enjoys income tax deferral. However the consumer press reported many sales presentations have been marginally within the law. In response Texas passed strict rules requiring clear labeling of illustrations as being life insurance policies.

I'd be interested in seeing what other planners think of the technique and what alternatives are available.

Has anyone heard anything as to when the IRS will open up the submission of ongoing plans on restatement or when documents will be available for generation (i.e., Corbel?)

I am looking for some recomendations on administration software. I would prefer software written for windows vs dos software. If you wouldn't mind letting me know what you use,why you like it and how I can contact the company marketing it, please let me know. My email address is CDS@Willmar.com

Does anyone use language in the FMLA policy that states that the organization may designate a leave of absence as FMLA leave? Example: the employee is out on Worker's Comp and employer wants to run FMLA leave and WC concurrently. If you do, would you send a copy of your language to me at my email address?

Is anybody starting to market and/or comment in the national mass or industry media on the new (1/1/99) safe harbor 401(k)? I would appreciate any news, web page cites, and opinions. Thanks.