I have a client who did a ROBS (rollover business start up). His entire retirement savings is now invested in a company that is on the brink of bankruptcy. 

If the company files for bankruptcy, what happens?

Facts:  Company X and Y form a controlled group.  X has a 401(k) plan,  Y does not. 

To pass coverage for the Co. X 401(k) plan, the RPT passes by disaggregating otherwise excludible employees of both companies while treating employees of Co. Y as not benefitting. 

Question:  When performing ADP test for Co X 401(k) plan am I required to carve out the otherwise excludible employees or can I run an aggregated test including all eligible employees of Co. X?

Thanks!

If a participant works as a physician in a medical office and he/she is not a partner, can the firm require that the ER safe harbor match and profit sharing reduces the W-2 compensation of the participant? Would the answer change if it is a safe harbor non-elective? The firm is not related to any government entity. To be clear, this provision is written in the employment contract, not in the plan document. 

This seems like a blatant attempt to either: 1. circumvent 402(g) limits, or 2. find a way to make employees pay for ER contributions. Participants would be less likely to make deferrals if they knew the related match would come directly from their paycheck. 

Corp A. and Corp B are a controlled group. They have separate plans. Corp A's plan passes all coverage/nondiscrimination testing. Corp B's plan does not.

Is Corp A's plan subject to disqualification, or only Corp. B's?  Seems like the latter, but I'm not certain.

Happy birthday to Dave Baker -- 29 (again) today!

Congratulations, Mike Preston, for receiving the Edward E. Burrows Distinguished Achievement Award from the ASPPA College of Pension Actuaries (ACOPA)!

From the ASPPA web site: "The Edward E. Burrows Distinguished Achievement Award is presented annually to a pension actuary who has gone above and beyond in forwarding ethics, education, beneficial legislation or regulations that enhance the private pension system or the professionalism of enrolled actuaries within the private pension system."

Here's more: http://www.asppa.org/News/Article/ArticleID/8969

Mike is an active and long-time user of the BenefitsLink message boards since 2001, having posted over 4,800 messages! His participation here on BenefitsLink has helped so many people in our industry. On behalf of them, THANKS, Mike!

Plan counts prevailing wage in the ADP test up to the applicable limits.

Immediate entry for prevailing wage, but one year wait for employee deferrals. 

Can plan include the those employees who received a prevailing wage contribution, but who are not eligible to make deferrals in the ADP test?  I don't think so, but I could be wrong. 

Thanks in advance for any guidance.

We have a terminating plan with one deceased participant. There is a valid beneficiary designation naming the spouse. The account balance is in the 5 figure range. The spouse is not responding to requests for distribution instructions. The plan requires full distribution within 5 years of the death. I'm checking to see if the 2006 termination date in our files is the date of death, or if he actually terminated and passed at a later date.

The record keeper claims that IRS regulations prohibit forcing out the account of a death beneficiary and the plan must stay open until she eventually decides to withdraw the balance. I've never heard of such a rule. Is that correct?

Is an H2A agricultural employee an excludable employee for qualified plan purposes?

So far, all I know is that these employees work 9 months per year in the US. 

Are there other questions that need to be asked and answered in order to determine if they need to be included for coverage testing?

Thanks.

Good morning! I have an ERISA 403(b) plan who used forfeitures to offset one payroll.  The payroll, however, included deferrals, profit sharing, disc match, and loan repayments.  Total allocation was $6847.96 and it was offset by $4610.39 from the forfeiture account.  They do their profit sharing and matching contributions each payroll.  What's the fix?

Thanks in advance!

I tell many clients and friends that the only dumb question is the one you didn’t ask.  And for myself I think it’s better to reveal my ignorance than pretend knowledge I don’t have.  I’ve never seen an individual health insurance contract, so this is my naïve question.

To meet tax-law conditions for a qualified small employer health reimbursement arrangement within the meaning of Internal Revenue Code § 9831(d)(2), a plan must provide its reimbursement only for medical care and only after the employee furnishes proof of minimum essential coverage.

Further, imagine a QSEHRA plan that reimburses only purchases of individual health insurance, not other medical expenses.

Following this, to be reimbursable the insurance contract must meet two conditions:  it must include (i) minimum essential coverage within the meaning of IRC § 5000A(f)(C) and (ii) no coverage beyond medical care within the meaning of IRC § 213(d).

If a small-business employer puts in a decent effort to apply those conditions, how does one discern that a contract meets them?

Does a contract that provides minimum essential coverage recite that it does?  If so, where in the contract would one expect to see that language?

If there is no such recital, what language clues would one look for to find that a contract includes minimum essential coverage?

Without reading the whole contract, what shortcut might one use to form a reasonable belief that a contract insures nothing beyond medical care?

A glitch caused one participant's deferral to be missed for one payroll cycle.  The issue was caught within 30 days.  Under the new rules client issues notice to employee with no corrective contribution.  The plan does not offer match so no missed match.

The question is in regards to missed earnings - do we have to determine or track if the employee decides to make a catchup contribution for the missed deferral?  Then provide missed earnings. The amount is very small, but the issue in my mind is how would you determine if that the change of salary deferral is a catch up or just a move to save more??

How are other handling this?

Hi All,

This forum seems by far the most well educated on the subject of cafeteria plans. Would you read my letter to my employer and suggest changes or point out discrepancies? Right now my employer pays all health employee health insurance premiums, 50% of spouse and dependents, and remaining premium is paid after tax as a payroll deduction by the employee. I happen to live in the state with the highest premiums in the US, so these are significant costs for us. 

Why it’s in Company X's best interest to use a section 125 SIMPLE cafeteria plan to compete with benefits offered by larger organizations and optimize company cashflow.

Section 125 of IRS code establishes an employer plan document which allows non-owner level employees earning less than 120,000 / year (special rules for those over that threshold) to pay for employer sponsored benefits in a way that is excluded from their gross income.

Qualified benefits already being offered by Company X which would qualify for the cafeteria plan include:

• Employee paid group health insurance premiums
• Employee paid group term life insurance premiums (excluding coverage for spouse and dependents)
• AD&D employee paid insurance premiums (excluding coverage for spouse and dependents)

It is highly desirable for employees to pay for these benefits on a pre-tax (or excludable) basis as it can reduce their costs by for example 32.65% (25% marginal income tax rate plus 7.65% payroll tax). It is also highly desirable for an employer to enact such a benefit plan as these are before payroll tax, and a 7.65% savings can be realized as well. Being able to offer these benefits on a pre-tax (or excludable) basis can also be used to increase participation and lower rates. Minimum employer contributions to the SIMPLE cafeteria plan are 2% of an employee’s compensation, which the employee can elect to either convert to cash or use towards employer sponsored benefits.

Other qualified benefits which can be included in such a plan include:

• Healthcare Flexible Spending Account ($2600/year)
• Dependent Care Flexible Spending Account ($5000/year)
• Employer Sponsored 401(k)

For example: Company X establishes a section 125 SIMPLE cafeteria plan paying 5% of an employee’s compensation. 25 employees at Company X qualify and are able to utilize 80% of the benefits offered, the average employee compensation is 70,000/year (66,500 pay, $3,500 cafeteria benefits/cash). This equals $70,000 in employee paid benefits. The employees would save $914.20 each and Company X will save $5,355 per year in payroll tax. I acknowledge this is a small sum, but if there’s room to grow the benefits utilized by Company X employees, at our current scale of employment I estimate Company X would save $1,000 per percentage point of benefit utilization (this can be either employee or employer contributions).

Personally, I utilize 12% of my gross income towards employee paid health insurance premiums, so I could elect to contribute 10% towards these premiums and utilize 2% of employer contributions to save $3,183 per year in taxes on premiums while saving Company X $746 in payroll taxes. If 25 employees were to follow this same strategy at the 12% level, it would save Company X $18,650 in payroll taxes.

Thank you!

I had 2 loans from my 401K plan.  My department was contracted out to another employer.  I had to repay my loans, with my 401K money before they rolled over my money into another 401K (different company).  I entered all the information correctly from the 1099R on my 2015 taxes, now the IRS has come back and states that I owe them money.  They are stating "early distribution".  Please help!

Angie

large MPP plan, single employer - sponsor has 52/23 week fiscal year ending Saturday closest to 11/30. 

The plan document has had the same fiscal year as the sponsor.  The 2014 Form 5500 was filed for PYE 11/28/2015.

Plan sponsor changed TPAs; new TPA amended the plan to be 11/30 year end, although plan sponsor still has 52/53 week fiscal year. 

2015 Form 5500 prepared by new TPA shows plan year dates 12/1/2015 - 11/30/2016. 

What happens to the two days between the end of the 2014 plan year and the beginning of the 2015 plan year?  Should the 5500 just cover those days and state the plan year is 11/29/15 - 11/30/16? 

Same question for audited financial statements.

Thanks.

A governmental money purchase plan (which did not permit in-service withdrawals) is merging into a grandfathered 401(k) plan, which permit hardship withdrawals.  Following the merger, does the money purchase monies have to be segregated to retain the in-service withdrawal restriction OR can participants take hardship withdrawals of these dollars?

A dentist was part of an affiliated service group that sponsors a 401k plan (still ongoing). She was paid through her own entity and her staff was paid by a partnership under which she had partial ownership with two other dentists (who were set up in the same vein).

In 2016 she sold her interest in the partnership and pulled the staff that had been working at her location from payroll under the partnership to payroll under her entity (former A-Org). Is there a severance of employment here? Can she and her staff take a distribution of deferrals from the 401k plan that the partnership she sold out of sponsors?

She’s wanting to start her own 401k plan now and we were planning on spinning it off but we found out that distributions had been processed for her and her staff from the plan she formerly participated in as a related employer. I believe the first paragraph of Section III of Notice 2002-4 states that these distributions were okay but I’m getting mixed opinions with some of my colleagues. Some believe that since her entity was formerly a member of the ASG the only options are to leave the funds in the plan of the ASG or create a spin-off plan. So, do you believe that they’ve violated distribution restrictions?

A 401(k) participant wants to treat her RMD for the year as a qualified charitable distribution.  She is eligible for an in-service distribution, so since these rules apply only to IRA's we could transfer her money to an IRA first and she could make the charitable distribution from there.  However, isn't the RMD required before the rollover to the IRA?  Is there any way around this hiccup?

Plan has over $250,000, initial return.  Obviously participants at beginning of year is not "0".  Won't this spark an IRS letter or notice??

5 individual real estate brokers have left an existing business  A and are going to work with new Company B (a national firm with offices in 35+ other cities).  Each of the 5 are establishing their own LLC and will receive a 1099 from Company B for commissions.   Each is responsible for their own expenses.  The 5 will not own any of Company B.

Company B (a national firm) will have an office and staff with 3 administrative type employees.  These employees will be eligible for Company B's retirement plan.

One of the LLC members wants to establish a plan for her and not include any of the other LLCs or the 3 employees of Company B.  It is common in the real estate business for the brokers to be independent.

After a review of the management service group rules I do not see a problem.  

Any thoughts would be appreciated.