E as in ERISA

Do you also have a 5500 for the master trust -- and then you can point him the master trust instructions?

If no one answers, try looking at this page (or others on IRS site). http://www.irs.gov/newsroom/article/0,,id=147085,00.html

Look at the example in the refinancing regulation. Question 20. http://a257.g.akamaitech.net/7/257/2422/12...fr1.72(p)-1.htm I think that the answer is that you have to decide whether you want to get around the amount rule or the 5-year rule. You can only take advantage of the special rule for amount on refinancing if you then make sure that the original amount is still amortized over the original five years. Can't use the full five years starting from the date of the new loan. If both the old and new fit within the amount limit, then you can go out a full five years on the total loan.

I think that there are exceptions in the law where SSNs are used by retirement plans (e.g, for statements, etc.) consistent with federal privacy rules. But also agree that many are moving to masking due to all the complexities of privacy laws and what exceptions apply.

Can't read all those posts to understand what MEGA and KLAATU are.... Can you explain?

What is the most common name of -- the guy in the bushes? Russell The guy in the hot-tub? Bob The guy in the ditch? Phil

If you need to prove it to someone, look at Answer 9 on the proposed 402A-1 regulations where they describe a situation where the Roth rollover is in a separate account from the other Roth contributions just so that you can preserve your ability to distribute it whenever you want. (Because if you commingle money with elective contributions, you generally subject the other money to the distribution rules to which the elective contributions are subject).

I'm not aware of any operational tests that they are reviewing. Last time I heard that question asked and answered there was no activity. But that was a while ago. But your original question is "what tax issue can they audit." And I'm saying that they are not necessarily looking for a tax issue in the 125 plan other than no document or forms. The answer I'm proposing is that they are building a case for saying there are tax issues on the participant's side. If there was no plan document and no forms, then there was no 125 plan. So the premiums or benefits should have been included in the employee's income.

Are you familiar with how the IRS has run 403(b) audits in the past? They do an audit at the employer level. But those are tax exempt entities and there is no trust, so even if the 403(b) plan is not run right there isn't tax risk at the entity level. But they find problems there and then threaten to perform individual audits of all the employees tax returns if the employer doesn't clean up the plan and run it the way they should. I imagined the same could be true of 125's. I know that they've found that a lot of employers are just doing pre-tax deductions on medical insurance etc without any kind of documentation of a plan or irrevocable elections from employees that they want to have premiums taken out all year pre-tax. If they're not getting good reaction from employers, I assume that they'll use the technique they use with 403(b)'s. Gather years of information and threaten to audit individual employees if the employer doesn't clean up their act.

At first I thought I'd missed the first question -- something like "what do you call the guy sitting under the woodpile?"

The advantage of filing is that it protects you from penalties. If you follow their methods but don't file, then you will pay penalties on the excess if they later audit you and find you should have done more corrections. If you don't file, you're still fairly protected on whatever you did correct; but not protected on what you missed

The statute of limitations on assessing additional taxes generally runs out 3 years after filing of the tax return. There are exceptions. Can't remember precisely. But I think they can go back another 3 for an understatement of income by more than 25%. And longer for fraud. So they can potentially look at older files, but they generally can't do anything about a problem if it's more than 3 years old unless one of the exceptions applied. Maybe they're finding a special opportunity with certain 125 plans. Because if the 125 plan isn't valid, then the taxability of the benefits could change. And that could result in a 25% understatement. So maybe they could threaten to assess additional taxes on an HCE who received benefits in a self-insured plan funded through a 125. And use that as leverage to get the employer to make changes they want.

Proposed regulations 1.408A-10 #5

What does the corporate transaction look like? Subs spun off -- but still owned by the same parties that originally owned the parent? Or sold to unrelated parties? And did you read a little further? 1.401(k))-1(d)(5)(iv) on transferor plans.

Loan is offset -- similar to deemed distribution -- but it's after a distributable event -- so it's treated as an actual distribution of the $10,000. But the bene didn't get that $10,000...

I don't know the technical answer. But I think I'd want it to go to the participant or their estate. If this person had a lot of money and they have an executor or administrator, I'd like that person to consider that debt in distribution of assets. If there is a house or car or other property that the loan was used to purchase, then I'd like the taxes to be applied against who ever has that property. Or even better, I'd like the loan to be re-paid and the beneficiary of the plan get another $10,000 (and then get the 1099 and taxes on that). But that is probably not the case.

Can be done either way. Both plans technically survive in a merger -- just in a new combined form. And you can change the terms at the time of the merger. But who's going to be the sponsor of the merged plan? A or B? If A, it's easiest from a reporting standpoint to use A's name and sponsorship and EIN, etc. But you can still amend the plan at that point to incorporate some of B's terms.

I agree with mbozek that the idea for pairing is to let the HCEs use the 401(k) and pass ADP -- because you get to exclude all the employees eligible for the 403(b) from testing on the qualified plan.

Maybe he's just talking about a SEP. That's not technically a "qualified plan" or 401(k). But if he's not trying to deduct more than about 15% of net compensation, that may be what he's thinking about. IRA-based plans -- including SEPs -- are the only ones that you can generally set up after plan year end.

The issue with orphan matches is you potentiallly have a higher rate of match for the HCE. That's a discriminatory benefit, right or feature. To keep it simple, assume that the HCE in your example earns $10,000 a month (and defers $100 all year and gets a match of $50 each of first six months). An NHCE earns $5,000 a month and defers $50 and gets a match of $25. Going in to test, HCE's rate of match was 25%. NHCE's the same. After refund of $300, HCE's rate of match is 33-1/3% ($300 match on $900 contribution). But NHCEs match is still only 25%. Better to be conservative when discrimination is involved. But I don't see why first in, first out isn't a reasonable method.

Note mjb's comments about the "contributions" potentially being allocated on a discriminatory basis. So be careful about what the plan currently says as to how those forfeitures will used. How they will be allocated.

See the ABN AMRO opinion letter and the Frost and Aetna letters cited within for discussion of what can be done with 12b-1 fees. ABN AMRO http://www.dol.gov/ebsa/regs/aos/ao2003-09a.html Frost and Aetna are 97-15 and 97-16.

My point is that simply rounding up the contribution and over-depositing it -- with the idea in mind that it can be used later as a contribution -- does not by itself require the rounding to be characterized as a contribution. It's only if you add other facts -- e.g., a resolution, deposit in something other than some sort of general suspense account, communicate to employees, allocation -- that will cement that conclusion.

Was there in fact any documentation that actually characterized it as such? I'm assuming no resolution in re to it being a contribuiton? No communication to participants? And it wasn't allocated? So it was just extra dollars put into a cash suspense account with the intent that at a LATER date it would be characterized as a contribution? So, if before that happens, they decide to characterize it as reimbursement of expenses instead (and plan allows that), what's the problem?

I don't think I'd do it as a direct offset in pay. That is potentially a choice between cash and a nontaxable benefit. And the choice of cash makes that amount includible in income under constructive receipt or one of those rules -- unless it goes through a cafeteria plan. But the employer can pay directly for the family coverage if it wants. And it can pay for it out of the pool it will use for salary increases for HCEs or bonus pool or something.