chris

Assuming attorney won't sign, only alternative is to follow mbozek's advice. The corporate officers should be able to sign off in their official capacities on behalf of the employer (assuming it's a corporation) for the purposes of winding up the business, ie, filing the final 5500 of the employer's plan.

Check the plan document. It will govern when distributions can and cannot be made. If a distribution is made which is not authorized by the plan document, then the plan is not being operated in accordance with the document and qualification issues could result. Ask the participant or participant's CPA to point to the language in the plan document that allows for the distribution.

Depends on what the document says. If the match is discretionary and the doc. limits the match to 4%, etc.... as per Notice 98-52 Vi.B.4.b., then no testing is required.

FIBI and AGC...? I did a little searching on-line and I guess FIBI is Fringe Insurance Benefits, Inc. and AGC is Association of General Contractors of America?? Have you dealt with either group before? The e/er I'm dealing with is a non-profit that employs disabled individuals who provide services at a local military base. Thus, the Service Contract Act controls. Thanks for all your help thus far.

To sum up, there are a number of issues at play: 1) no formal plan document other than gov't contract mandating a certain amount of health benefits per hour worked and possibly corporate minutes briefly outlining operation of how those amounts are accounted for, paid out, etc... 2) taxability of amounts paid out at termination as e/er not issued 1099's nor W-2's for the termnation payments 3) effect of 1) and 2) on the underlying govt. contract. Initially sought to get a document in place prospectively which conforms to operation of the arrangement. Thus, trying to figure out what rules govern the arrangement. As you said, IRS, DOL all apply.... Looks like the course of action would be to: 1) determine if the particular govt. contract allows for the health benefits to be converted and paid out; and 2) if so, get the requisite 125 and 105/106 plan doc's in place on a prospective basis... Thanks for the help.

Rev. Rul. 75-241 squarely addresses the issue of whether cash payments in lieu of health benefits under an arrangement mandated under the Service Contract Act of 1965 (McNamara-O'hara Act) are taxable, ie, not excludible, from the gross income of employees under Sec 105/106. It would appear that the only way the termination payments ($$$ in lieu of healthbenefits) would be excludible would be if they were made to reimburse the e/ee for health ins. costs or paid directly to the insurer. Where does the pre-emption come into play?

what accounts for the difference as to how it is reported, eg, W-2 vs. 1099?

GBURNS: Regarding your post: "If Federal, in general as long as the employee get the required Total $ per hour it does not matter when it is paid as long as paid by the end of the project. It is neither a 105 or 106 issue it is a DBRA and DOL "bona fide" benefits issue." wouldn't IRC §105/106 still apply as to the taxation of the benefits when paid/provided to the participants? Thanks. Also, take a look at Rev Rul 75-241 re taxability issue...

May be missing the point but what's the problem with having the in-service distribution keyed to age 25?

Found the on-line version fo the Service Contract Act of 1965 on the dol website. It has a sub-paragraph describing that the e/er will provide certain fringe benefits as required.... The last sentence of that subparagraph states that "The obligation under this subparagraph may be discharged by furnishing any equivalent combinations of fringe benefits or by making equivalent or differential payments in cash under rules and regulations established by the Secretary." Have yet to find the Regulations, but the cash payment to the e/ee upon termination may not violate the contract terms. However, I'm back to the issue concerning the applicability of 105/106 of the tax code. I'll take a closer look at the Service Contract Act and try to find the Regs. to see if taxation of the benefits is addressed directly....???

Did the plan amendment or corporate resolution restrict distributions until a favorable letter is received from the IRS? I would think that allowing the distribution would be treating the plan as an ongoing plan, ie, never terminated....?? I could see allowing such a distribution if the plan were only frozen and not actually terminated...??

GBURNS: I believe the contract is with the federal government. Thus, it most likely is a Davis-Bacon/Prevailing Wage type plan. Where can I find more info. on Davis-Bacon/Prevailing Wage plans? Assuming it is a Davis-Bacon/Prevailing Wage plan, wouldn't it still be subject to the 105/106 rules? Thanks for the help.

See www.dol.gov/ebsa/faqs/main.html towards the middle of the page at a section entitled Compliance Assistance -- Pension. I second the expressed sentiments. Had an attorney for a former e/ee/participant demand that the E/er's PSP distribute $x out of former participant's account to former participant's ex-spouse-to-be. I responded that the only way ex-spouse was getting anything out of the Plan was pursuant to a proper QDRO. I even forwarded a copy of the Plan's QDRO Checklist so the atty. could be sure to cross all the t's and dot all the i's. Atty. then turns around and helps participant complete in-service distribution paperwork and then demands that the Plan process it ASAP. Nevermind the fact that a QDRO would've yielded no tax (income or penalty) to participant and would've allowed for ex-spouse to rollover her portion to an IRA. I have learned it oftentimes does not matter how many letters a person has behind his/her name b/c they can still be a dumbass...

Maybe it's a matter of interpretation but I don't follow your comment. If an e/ee has been there since the beginning of the contract period, e.g., 2000, and the e/ee terminates employment, then the e/ee receives the total amount of health benefit $ sitting in his account, e.g., $.25/hour (x) 2,080 hours/year (x) 4 years = $2,080.00. ??? I guess you're asking whether its permissible under the contract to pay out the $$$$ to the e/ee upon termination???

REgarding the January 31 deadline for "late" amenders, I believe the IRS published guidance recently that stated that determination letter applications postmarked Feb. 2 would be considered timely. In the case of an employer that adopted a volume submitter document with no changes who just wanted to get a det. ltr for comfort's sake I would think the 5307 should be submitted as soon as reasonably feasible to get it prepared and submitted. Otherwise, if a plan was adopted, e/er took deductions for contributions, and the 5307 was submitted 3 years later and the IRS for whatever reason found a problem with the plan, then there would be a number of issues to work out....???

Did employer actually do an amendment allowing for increase in the deferral limitation? If so, sounds like employer may have technically failed to withhold the deferrals and a correction of some type is in order....?? I read the original post very closely didn't I..??? If the document says deferrals are limited from 1% to 15% then I think those are the limits. Don't see how the participants can defer compensation they've already earned. Also, if participants deferred the full amounts under EGTRRA, but there's no corresponding plan amendment changing the " 1% to 15%" language, then there are excess deferrals that need to be distributed....

Employer who got government contract some time back was required to provide $.25 of health benefits for every 1 hour of work performed by its employees. Thus each employee has $X of health benefit dollars. E/er has been allowing for reimbursements for medical expenses out of the said $x set aside for each employee. Employer has been allowing said amounts to be cumulative on an annual basis. Thus, no "use-it-or-lose-it" rule. Employer has also been allowing employees to take the cumulative amount of $$ in their "account" upon termination of employment. E/er has no written plan document and has been operating as described above for some time. Tax-wise, there's no requirement that the plan be in writing assuming it were a straight 105/106 plan although ERISA would require a written plan doc. Given the ability of the e/ee to take the cash on termination of employment it would seem that the issue of whether or not the arrangement involves a cafeteria plan arises. I believe that a cafeteria plan is required to have a written plan doc. for tax purposes..... Any suggestions on how to cure this thing going forward, e.g., get rid of e/ee's ability to take cash, and get a document in place for prospective benefits....?

Safe harbor 401(k) to be added to current PSP. Effective date of 401(k) portion/deferrals is to be 2/1/04. Would it be allowable to draft document such that all e/ee's employed on Jan. 1, 2004 are eligible for and enter the 401(k) portion of the plan as of Jan. 1, 2004 even though the effective date is 2/1/04? Doesn't make much sense, but thought I'd ask..... Will probably have to draft document such that e/ee's employed as of 2/1/04 are eligible and add special language regarding 2/1/04 being an entry date for 2004 plan year only.....? Any suggestions?.... Thanks.

Additional issue.... any problem with having all employees employed on 1/1/04 be eligible for the 401(k) portion even though it is not effective until 2/1/04? Since the plan has to be submitted to the IRS anyway b/c of a weird vesting schedule (non-pre-approved in the volume submitter doc.) I guess the better approach would be to have all e/ee's employed on 2/1/04 be eligible and have 2/1/04 be an entry date for the initial plan year only......??? Thanks again...

Appears correct since catch-up's are not subject to 415 limit.

E/er currently maintains no qualified plan but wants to put a 401(k) with safe harbor provisions in place. The approach would be to have the PSP portion effective 1/1/04 and the deferrals effective 2/1/04. The safe harbor notice specifying the 3% non-elective contribution will be distributed prior to 2/1/04. My understanding is that even though the deferrals would not start until 2/1/04 the 3% NEC can still be based on comp.from 1/1/04 to 12/31/04. Can anybody confirm? Thanks.

Is the advice to terminate well-founded, e.g., are the annual admin costs outweighing the overall benefit to participants......? Termination of the PSP and participants' rolling over to the SIMPLE plan would be allowable. I would just think twice before the PSP was scrapped.....

See Rev. Ruls. 94-76 and 2002-42.

Correct, WDIK....

Yes, it's a defined contribution plan. The participant is actually a co-trustee as well but b/c of unrelated litigation b/t the participant and one of the principal shareholders of the e/er, the participant's attorney is apparently just trying to get to the principal shareholder.