katieinny

A client who is well over the age of 70 1/2 and retired has not been taking distributions from the Kodak 401(k) Plan -- otherwise known as the Kodak SIP. Does anyone know if the Kodak plan is exempt from the RMD rules?

Deferrals were impropertly made to a plan based on ineligible compensation, and the employer made matching contributions on those deferrals. The participants involved have since terminated employment and taken lump sum distributions. The dollar amounts are not large. How would corrections be handled in this case?

Thank you, Vebaguru. We're having the agent check with the insurance company's legal department to determine whether there is a discrimination issue. They've written the policy to say that prior service will not be considered in the case of rehired employees.

Frankly, I was assuming that someone else (the insurance agent?) confirmed that there isn't a discrimination issue a long time ago when this was set up. So, I wasn't concerned with the difference in benefits -- only whether they have to offer the higher benefit to the rehired employee. I'll see what I can find out about who checked out the issue way back when, but I'm getting the idea that you think something may be amuck here. My understanding was that the employer pays for the coverage up to $50,000 for employees with less than 15 years of service and $75,000 for employees with over 15 years. But since that wasn't my focus, I might not have the facts right.

An employer has set up the plan to permit a greater death benefit for long term than for shorter term employees. If an employee terminates service and is then reemployed 3 years later, would the prior service count so that he gets the higher death benefit, or would he have to start accumulating years of service again before getting the higher benefit?

I believe that a contribution can be made into a Keogh plan or a SEP plan on behalf of a deceased owner based on income earned before he died. I'm trying to find something that confirms that for me, but I'm not having any luck. Any ideas --or am I wrong.

My apologies for my delayed response. I've been on vacation, but back in the real world now. Blinky was correct -- the distribution took place after the valuation date, but before the work was done, so they used the numbers from the prior valuation. The employer is upset with the TPA for not alerting him to the issue. Of course, now that this has happened, the employer is taking steps to make sure it doesn't happen again, but in the meantime, we're saying that he needs to make the plan whole.

A retirement plan permits retirees to take distributions immediately after retirement rather than waiting for the next valuation date. We usually recommend that less than 100% of the balance based on the prior valuation be distributed just in case there are losses. However, this client permitted 100% of the balance to be distributed based on the prior valuation. Now the next valuation has been completed and they discovered that there was a substantial loss. Naturally, the participant is not going to return the money. Is the employer obligated to make the plan whole?

Boilerburm -- You're right, the salaried employees are working closer to 3,000 hours. I'm just wondering if they're ever going to have to prove it. I haven't heard that it's been an audit issue. One practitioner told me that their agent simply used equivalencies for the salaried people when the plan was audited, even though the plan said actual hours.

Are state laws regarding withholding preempted by ERISA? I understand that New York State does not permit withholding without consent, which precludes the option of selecting the negative election option in a NYS 401(k) plan. Has anyone challenged this, or does it even need challenging if ERISA preempts the state law?

There must be a million violations! Most small employers don't track the owner's time and that of their HCE staff or even middle management people, and I doubt that large employers do either. Can you give me some examples of how it might be done without going with one of the equivalencies?

A plan uses actual hours to meet the 1000 hours requirement for a year of service. There are several salaried employees on staff, which means that no one keeps track of their hours. Should there be something specifically listed in the employees salary package indicating that he or she is considered a full time employee?

An employer is leasing some employees who are covered by the leasing organization's plan. The employer's plan has a slightly better contribution formula than the leasing organization's plan, so the employer will give the leased employees the difference. Does the employer also have to be concerned about meeting a benefits, rights and features test for the leased employees? In other words, does he have to compare his plan to the leasing organization's plan to make sure there's no discrimination for provisions other than the contribution formula? For example, distribution options?

This plan has been around awhile. It was written back in the early 80's with the language that says a lump sum can be paid at retirement or termination of service, or to beneficiaries or the estate at the participant's death. It received an IRS letter in 1983. I don't know if there was any consideration back then that participants might not use the plan for its primary purpose, but rather as deferred compensation or as a death benefit for their heirs.

My concern is that some teachers are using the plan as a deferred compensation plan rather than a medical reimbursement plan. The plan document says that a lump sum payment can be paid at retirement or termination of service (taxable, of course). I read that only a de minimus amount can be used for anything other than the primary purpose of the plan (medical expenses) without putting the plan's tax exempt status in jeopardy. Any remaining plan balance can and should be paid to beneficiaries or the participant's estate. But providing a death benefit isn't the plan's primary purpose. The majority of the participants are using the plan for medical expense reimbursements. Only a handful are letting their balances accumulate without making any medical claims. Am I right to be concerned, or am getting carried away?

When I read the Form 5500 instructions, I don't see an exemption for 457 plans, but something in the back of my mind says that they don't need to file a 5500. Can someone confirm that for me?

A public school teacher's association has a VEBA for medical expense reimbursements. The plan is funded by the school district as part of the union contract. Some teachers are letting the assets accumulate in the plan under the assumption that the balance will simply be distributed to their heirs or the estate at death. To my way of thinking, the VEBA wasn't established to provide a death benefit to heirs. Is this permissible? If not, is there a regulation I can refer to?

So, if I understand you correctly, as long as he applies the excess as a 2004 contribution by October 15, the 6% penalty will not apply. (He did file his return by April 15.)

A client was just told by his financial institution that he overcontributed to his Roth IRA for 2003. It is past his tax filing date. I understand that he can apply the excess as a contribution for 2004, but is the 6% excise tax still applicable?

Thank you for pointing me in the right direction. I think that Advisory Opinion is exactly what I was looking for.

The plan is titled the XYZ Teachers' Association Medical Expense Reimbursement Plan and was signed by a ranking member of the teachers' association. The public school district makes the contributions.

The teachers' association wants to know if they need to file a 5500 for their VEBA. Since it's a public school, I'm thinking that they meet the government plan exemption for filing 5500s. Can anyone point me to a site that will help to determine what meets the criteria for "government plan?"

What I really need to know is this -- because the plan is for public school teachers, does that make it a government plan and therefore exempt from filing a 5500?

The VEBA is administered by a teacher's association at a public school. It's a funding vehicle for paying participants' out-of-pocket medical expenses. I understand that they are required to file a Form 990, but is a 5500 also required?

Thank you both for your input. My research this morning indicates that any remaining assets cannot revert to the employer and must be distributed in a nondiscriminatory fashion to the participants. So, the 100% excise tax is probably right.