J Simmons

Part One: I don't think you have to general test the topping-off TH min contribs as you describe them in Part One if the plan has the language described in Treas Reg 1.401(a)(4)-2(b)(4)(vi)(D)(3): "In the case of a plan that provides the greater of the allocations under two or more formulas, one of which is a top-heavy formula, the top-heavy formula does not fail to be available on the same terms to all employees merely because it is available solely to all non-key employees on the same terms as all the other formulas under the plan." Part Two: I think that the topping-off TH min contrib should be taken into account as you compute your cross-testing of the discretionary contribution. Here, the formula other than the TH min contrib one does not meet a safe habor. You're testing. Also, I think you can only apply the topping-off TH min contribs after all other contributions have been taken into account.

oriecat is correct. There can be no cross-use of one type of flex account balance for the other. Health flex account dollars can only be used for qualifying health expenes; day care flex account dollars can only be used for qualifying day care expenses.

If the employee died before distribution began, then yes there is a 5-year rule. This requires payout by Dec 31 of the 5th calendar year following the employee's death. IRC 401(a)(9)(B)(ii) and (iii). No, this does not apply to the beneficiary if the surviving spouse of the employee. IRC 401(a)(9)(B)(iv). If distribution is not made to the non-spouse beneficiary within the 5-year rule (nor began over the life of the non-spouse beneficiary by Dec 31 of the year following the employee's death), then the minimum required distributions have not been made (IRC 401(a)(9)) and the entire plan may be disqualified. Also, there's a 50% penalty tax per IRC 4974(a).

I'm not aware of any QRP rule that would prohibit an employer from agreeing in advance to a severance payment equal to the amount that the partner will forfeit inside the QRP. Of course, the forfeited amount cannot be paid out of the QRP to the employer, although as a practical matter the employer will be credited in such amount against any otherwise required contribution from the employer for the plan year of reallocation. Before doing so, you ought to also work through and consider the possible consequences under constructive receipt rules and 409A. The substantial risk of forfeiture being that the partner remains employed until topping out the QRP's vesting requirement? Food for thought.

I think you'll need to interpret the plan's language in the context of the requirements for QJSA quite carefully. Particular attention will need to be paid to IRS Reg §1.401(a)-20, Q&A-10(b)(2) and (d). The treasury regulations and code do supercede the plan's language, if in conflict. To the extent there isn't a conflict, then the plan's language must be given a reasonable interpretation (and then that interpretation follwed thereafter). The relevant point in time for the QJSA rules you are asking about is the annuity starting date. That's the first day of the first period for which an amount is payable as an annuity, or the first day on which all events have occurred that entitle the participant to a benefit (such as separation from service or consent to payment). IRC §417(f)(2), ERISA §205(h)(2)(A). I would think if he's single at retirement, but is married--and has been for at least a year--as of his annuity starting date, he may elect a QJSA.

403b annuities may be rolled into a 401k plan. So merger should be conceivable, but I know of no specific authority allowing or prohibiting it. It might be simpler to start a 401k plan, and then terminate the 403b annuity program. The new 401k plan could be designed so that each of the employees could have the option to roll their 403b annuity benefits into the 401k plan.

Thank you, pax. You are correct. The double negative was a typo, and now is gone through the magic of the editing function.

If the employer makes no designation of a different PY, then a contribution applies to the PY in which actually made. If the contribution is intended for a different PY than the one during which the contribution is made, it needs a designation. The contribution could be made after 6/30, by the time that the company's tax return for FY 6/30/07 is timely filed (with or without extension) and yet be claimed as a deduction on that tax return.

Make the contribution before 6/30. If not designated when made for a different PY that overlaps with the FY for which made (such as the prior PY, the one ended 12/31/06), then the contribution is for the PY in which made, PYE 12/31/07. The contribution will be allocated based on the eligibility and wages for the PY, either ending 12/31/06 or 12/31/07, for which the contribution is made. So unless the contribution is designated as for PYE 12/31/06, yes, the contribution would be allocated based on 12/31/07 eligibility and wages. You wouldn't necessarily have to extent the company's tax return beyond 9/15. You could make the contribution by 9/15, but instead of allocating it, place it into a 'suspense' account titled in the name of the plan trustees, and claim the contribution as a deduction on the company's tax return. Then after 12/31/07, when you will know all of the PYE 12/31/07 data, you can determine the allocations and 'sweep' the respective allocation amounts from the suspense account into the individual plan accounts FBO the participants.

Unless by its own terms the plan gives the employee already in pay status this right (doubtful--and the plan you're dealing with is, as you say, silent on this issue), then the plan is not so required to allow the new election sought by the employee. It's the employee's marital status as of the annuity starting date that is determinative. Check out IRC §417(d)(1); ERISA §205(f)(1); Reg. §1.401(a)-20, Q&A-25(b).

Annual plan audit fees? Yes, if the IRS and DoL rulings on the topic of fees being paid out of plan assets have been observed. Consulting fees? Same answer except to the extent that such fees might be for settlor-type services (e.g., plan design, whether to continue the plan, etc.) In individual account plans like a 401k, this can create a logistical challenge if the fees cannot merely be taken out of a required employer contribution before allocated to the individual accounts. If it must be taken out of the individual accounts, you must liquidate a part of each account's investments, and then transfer the funds out of that account. If you have many accounts, this could be overly burdensome.

I agree with leevena regarding the 25% Key Employee concentration test of IRC 125. The other $200/$2,400 the employer is paying towards the premiums is not something the employee has the option, under the plan scenario painted, to take as cash, so it ought not be counted in that concentration test.

Steelerfan, I take your comments to be that the ex-spouse can't first be designated as the 'surviving spouse' after a new spouse acquires survivor rights, as mjb's comment points out. Before that time, before a new spouse acquires such rights, it seems the statute does contemplate that the ex-spouse could be granted the 'surviving spouse' status despite the marriage ending (IRC sec 414(p)(5)) and thus a later spouse would not become the 'surviving spouse' as to any benefits the ex-spouse was previously so designated, including those retained by the employee.

FormsRstillmylife, Why would merger have to wait until midnight on 7/31/2007? Granted, there will be a MPP benefit accrual if year end employment isn't a requirement and he's already hit whatever the hours-in-current-year requirement is, but if he takes action now to merge the MPPP into the PSP, terminating the MPP formula, and gives a 204h notice, can't the required benefit accrual be stopped as to earned income after 15 days from giving the 204h notice?

fiona1, I think you're on the right track now.

A-15. Section 402©(11) provides that a direct rollover of a distribution by a nonspouse beneficiary is a rollover of an eligible rollover distribution only for purposes of §402©. Accordingly, the distribution is not subject to the direct rollover requirements of §401(a)(31), the notice requirements of §402(f), or the mandatory withholding requirements of §3405©. If an amount distributed from a plan is received by a nonspouse beneficiary, the distribution is not eligible for rollover. Notice 2007-7, Q&A-15 The right that other distributees of eligible rollover distributions to have part of the benefits directly rolled over and part not, if the benefits payable exceed $500, is due to regulations under 401(a)(31). IRS Reg. §1.401(a)(31)-1, Q&A-9. Thus, the plan if it allows direct rollovers to non-spouse beneficiaries may require it to be 'all or nothing'. Does it need to be spelled out in the document one way or the other? I think it would only need to be mentioned if a split out (part to be rolled over and part not) is to be allowed. If the documents do not address the issue of whether the non-spouse beneficiary would have the split-out option, I would think if it would be 'all or nothing'.

"Handling" plan funds? DoL Reg §2580.412-6(a)(2) provides in relevant part: "... a given duty or relationship to funds or other property shall not be considered 'handling,' and bonding is not required, where it occurs under conditions and circumstances in which the risk that a loss will occur through fraud or dishonesty is negligible. This may be the case where the risk of mishandling is precluded by the nature of the funds or other property (e.g., checks, securities or title papers which can not be negotiated by the persons performing duties with respect to them). It may also be the case where significant risk of mishandling in the performance of duties of an essentially clerical character is precluded by fiscal controls." DoL Reg §2580.412-6(a)(2) also provides: "Physical contact with cash, checks or similar property generally constitutes 'handling.' However, persons who from time to time perform counting, packaging, tabulating, messenger or similar duties of an essentially clerical character involving physical contact with funds or other property would not be 'handling' when they perform these duties under conditions and circumstances where risk of loss is negligible because of factors such as close supervision and control or the nature of the property." The OP described the consultant's involvement as: "the first check is sent from the bank to a retirement (non-actuary) consultant, who then sends that check directly to the participant, with a letter indicating that all future checks will come directly from the bank." To me, this seems to fall in the category of 'messenger or similar duties of an essentially clerical character', and not 'handling'.

I think that a VCP application requesting permission to adopt a conforming amendment retroactive to the date of the first such 2nd loan is likely the correct procedure. If those allowed 2nd loans were HCEs and the 1 loan rule was enforced against any NHCE, you might have a discrimination problem as well.

You do need to be married, legally under state law, for your companion to be your 'dependent' so that the value of the insurance coverage provided by your employer is not taxable income to you. On this point, federal law defers to state law. The parent company's policies and procedures re health coverage benefits for employees might only permit those that would so qualify for tax-free treatment being covered under the parent company's plan. Louisiana is a civil law jurisdiction, and I don't know if there exists under Louisiana law a corrollary to common-law marriage (which is being legislated away in common law states).

You might also want to ask your employer for special, on-the-job accommodations for your conditions. It's been a long time since I researched what the definition of 'disability' is for the Americans with Disabilities Act, but it might be possible. If you do ask for accommodations, you need to be very specific of what they would be.

I think your analysis is solid. The reasons under 105 and 125 for tax year that the plan year ends ought to apply by analogy to Dependent Care FSAs too, in the absence of a specific rule to the contrary. I cannot think of any reason that Dependent Care FSAs ought to be treated differently.

I think you'd be out of the safe harbor and into general testing. IRS Reg. §§1.401(a)(4)-1©(3) and §1.401(a)(4)-2(b)(2)

IRC 403(b)(12)(A)(i) deals with employer contributions to a 403b annuity. IRC 403(b)(12)(A)(i) refers to, among other provisions, IRC 401(m). IRC 401(m) imposes a nondiscrimination requirement on employer matching contributions. It is referred to as the ACP test. It is described in Treas Reg 1.401(m)-2.

Here are four recent court decisions that would be worth reading on the topic: Atwood v. Swire Coca-Cola USA, D. Utah, No. 2:03-cv-1014 TC, 1/19/07 Tennant v Swor, E.D. Texas, No. 4:05-cv-294, 4/3/2006 Negley v Breads of the World, 10th Cir., No. 05-1415, 3/2/2007 Green v ExxonMobil, 1st Cir., No. 06-1452, 12/8/2006

I don't know of a specific ruling. However, if the 403b annuity is from work for a public school district, then ERISA Title I and its anti-alienation provision would not apply. Applicable state law might be of some help, though. If the 403b annuity is from work for a 501c3, then ERISA Title I and its anti-alienation provision ought to apply, just as it would to IRA benefits that are from a SEP or SIMPLE IRA plan, where there are per-employee funding vehicles.