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.

Client has an after tax value of $121,000 in employer stock. This amount is a portion of his 401(k) account. Can the shares be rolled into a Roth IRA or only the liquidated amount?

On November 30, 2016 plan sponsor decides they want to change the safe harbor match formula from plan year to pay period effective January 1, 2017. They call the vendor, vendor says no way it is too late as the safe harbor notice is due the next day. 

Plan sponsor decides to hand write on the document crossing out plan year and writing in pay period. Required signatures and dates are written in to the margin as well as the execution page making it clear their intent. Plan sponsor changes the safe harbor notice by typing the notice and just changing plan year to pay period.  Plan sponsor delivers the safe harbor notice timely with pay period wording. 

Plan sponsor sends the hand-written amendment and signatures to the vendor. Vendor refuses to honor the hand-written changes. 

Thoughts? Are hand written amendments acceptable? 

Thank you.

W have a client, dentist, who is selling his practice as an asset sale.  He intends to start a new practice in a different part of his state (not actually his state but the state where he practices).  He maintains a cash balance plan which he intends to continue to maintain in his new practice after he pays out the four participants who will terminate from his corporation at the time of the sale and go to work for the acquiring corporation.

In the year of the sale, he would like to contribute $500,000 which will put his plan assets $500,000 over the value of all cash balance accounts which consist, likely, of just his account.

Are there any issues I should be worried about?  415 is not an issue.  What lurks in my mind is that if the plan is terminated with excess assets reallocated within some time limit of the sale of the old practice, that the old practice employees should be included in the allocation of excess  assets.

Does anyone have any experience/success with the DOL in narrowing the scope of a national office request for a global review of 408(b)(2) disclosures?

Does anyone have any experience/success with the DOL in narrowing the scope of a national office request for a global review of 408(b)(2) disclosures?

Plan has SH3% non-elective, discretionary match and an excess- integrated PS contribution formula.  Plan is top heavy.   Working with a McKay Hochman document and Relius software

My understanding is that;

• the SHNEC satisfies the top heavy requirement for the plan but it cannot be used to satisfy permitted disparity.  
• the Discretionary Match contribution can be used to satisfy the 1st tier of the Excess Integrated Allocation Formula.  

In Relius,  I ran  Deferrals, SHNEC, Discretionary and  Match contributions.  All but two participants deferred at least 6%.  Those two participants did not defer a all during 2016. and were employed as of 12/31.  Ran a PS contribution, expecting to see that first  3%  of PS contribution was allocated to the two participants who did not defer but that didn't happen.  It appears that Relius used the 3% SHNEC to satisfy the first step of the excess integrated PS formula.   Those with earnings over the taxable wage base received the appropriate allocations and  the remaining PS contribution was pro-rata.    Shouldn't those two employees have received 3% first,  according to the formula. 

I used the top-heavy first, not top-heavy skim method for allocating the PS contribution.

Is my understanding of how the SHNEC can be used incorrect or have I coded the Relius specs incorrectly or is there a limitation in the Relius software that won't permit this transaction without a work-around?  

Help!

Hey Y'all!

Quick question for my fellow practitioners.

I am studying the DC-2 book to eventually get my QKA and I came across a sentence saying that corrective distributions (ADP & ACP corrections) are subject to 10% withholding unless the participant completes a Form W-4P. 

I was wondering who all was practicing this? I don't recall ever seeing a corrective distribution with any withholding applied in my short tenure.  

Thanks in advance!!

Have fun and keep those eyes safe.   I live in an area in the path of totality so I am geeking out today. 

My son says we need to watch the Avatar the Last Airbender episode where they attack the Fire Nation during the total solar eclipse to honor the day as true geeks. 

My chameleon suddenly was unable to change colors.

I took him to the vet and he diagnosed it as a reptile dysfunction.

In a PBGC plan termination, to qualify for standard termination, benefits needs to be fully funded.  To accomplish this, under 4041.21(b)(2), an owner of 50% or more can make an election to forego benefits.  Is anyone aware of the definition of majority owner being reconsidered?  It seems like if a partner of say 10% should be allowed to make a similar election; no staff is harmed and the IRS gets an extra tax dollar assuming the deduction is not taken on fully funding the benefit.

Second question: If the plan is not covered by the PBGC, what then?

Employee deferred in 2016 & 2017, rolled over large amount ($182k), then terminated in 06/2017 and rolled over all money to an IRA.  She wasn't eligible until 07/01/17.  Will look into retroactive amendment to make her (and others?) eligible; alternatively I am thinking:

• $182k rolled into plan ended up back in an IRA so net result is same as if had never gone into plan
• $1,136 deferrals were in 2016 and $4,498 were in 2017 and both ended up in an IRA.  Since she was withing IRA limits for each year (assuming she didn't have other IRA contributions), net result again is same as if she had just put into IRA and not into plan

Given above, we should just be able to document all this and consider issue self-corrected.

Thoughts?

Im horrible at searching and finding previous posts on a subject.  Forgive me if this has been answered before...

A CPA I work with asked me what should be done... here is the situation -

His client works for a small company and has been deferring from his paycheck.  He was on track to defer around $13K for 2017.  After looking at his account he became concerned that the deferral deposits are not adding up. Significant discrepancy.  Come to find out the deferrals have been withheld BUT they were not being deposited.  In fact the company was using his (and maybe other participants) deferrals to cover some cash flow problems.  Not good.

I have never had this kind of problem.  What do people suggest the proper steps he should take? 

Thanks