chris

I received a fee estimate of 1000 to 1500 to draft the cafeteria plan document for a 20 e/ee e/er. The options initially would include a flexible spending arrangement with health ins. and dependent care assistance as benefit options. Is the fee estimate out of line??? Thanks.

Three doc's are three of the four e/ee's of a medical practice. They are interested in a cafeteria plan. It appears to me that they would immediately run into a non-discrimination issue just based on the demographics and that a cafeteria plan would not benefit them from the tax standpoint, i.e., flunking the non-discrminiation tests causes benefits to become taxable to the HCE's. If I'm correct, it seems that the non-discrimination rules effectively prohibit small employers from utilizing cafeteria plans. Any suggestions??

I am assuming all issues have been handled re the new entity adopting the old entity's plan....... As to your questions, 1. an amendment would be sufficient; 2. it would have to be adopted prior to the end of the short year (7/1/02 - 12/31/02); 3. effective date could be 7/1/02.

Profit sharing plan provides that participant must be employed on the last day of the plan year to receive an allocation. Plan is cross-tested. Advisor is telling employer that e/ee's who terminate with less than 500 hours must receive an allocation, otherwise, the amount of the contribution going to NHCE's would have to be increased...???? Any idea what he may be talking about??? I thought that as long as you satisfied the lesser of either 5% or 1/3 of the HCE's you were OK.... Thanks.

At one time cross-testing was not available in a prototype document. Is that still the case? Employer has a prototype safe harbor 401(k) PSP with a cal yr end currently in place and e/er is considering amending for cross-testing. The prototype doc is standardized such that terminated participants with > 500 hours are due an allocation under the current allocation formula. Also, part's terminating b/c of death, retirement and disability are entitled to an allocation regardless of hours of service. With that said, would the easiest thing to do be to amend and restate effective 1/1/03 the plan using a volume submitter document allowing for cross-testing. I am assuming there have been terminees with > 500 hours.... If not, then there shouldn't be a problem with amending and restating using a vol submitter doc effective 1/1/02. Any suggestions?? Thanks.

In the midst of amending and restating and ran across a recent new client who's current plan has a four-tier allocation formula. We use Corbel V-S language and a four-tier allocation formula is not provided for in their V-S language. I assume the super integrated formula in Corbel's V-S would be the closest I could get to the four-tier formula. Would it just be matter of working with the numbers in the super integrated formula to try to get them to the same place allocation-wise as the four tier formula? Also, from an allocation perspective, would there be any advantage to using Corbel's V-S document, but amending the allocation formula to provide for a four tier formula and submitting the plan to the IRS for a determination letter? Thanks for your help....

In the midst of amending and restating and ran across a recent new client who's current plan has a four-tier allocation formula. We use Corbel V-S language and a four-tier allocation formula is not provided for in their V-S language. I assume the super integrated formula in Corbel's V-S would be the closest I could get to the four-tier formula. Would it just be matter of working with the numbers in the super integrated formula to try to get them to the same place allocation-wise as the four tier formula? Also, from an allocation perspective, would there be any advantage to using Corbel's V-S document, but amending the allocation formula to provide for a four tier formula and submitting the plan to the IRS for a determination letter? Thanks for your help....

Won't most adopters (assuming below the e/ee # threshhold) of volume submitter plans qualify for the exemption from the user fee requirement since the remedial amendment period has been extended to at least 9/30/03?

Will amending a MPPP to a 0% of compensation allocation formula cause participants to be 100% vested? 411(d)(3) discontinuance of contributions appears to only apply to PSP's and not MPPP's. Also, Rev Rul 2002-42 holds that 100% vesting is not required where MPPP merges into a PSP. Big picture seems to be the same...... going from a required contribution to a discretionary contribution. Client has both a MPPP and a PSP. Client wants to freeze the MPPP and just utilize the PSP going forward.

Have the assets been distributed or is distribution contingent on getting a determination letter? Also, in the past I had an occasion where the plan was amended as of date of termination, but one provision was overlooked. In that instance, the IRS pointed out that they wanted that provision to be added to the plan language prior to issuance of a determination letter. Also, Some time back the IRS would provide model amendments for employers to adopt after the plan had been terminated, i.e., corporate resolution adopted to terminate plan as of date 1, plan submitted to IRS on date 2, and IRS forwarded model amendments to be adopted on date 3 effective as of date 1 at their direction. Maybe with all of the GUST hoopla they are being more stringent??? I would agree with your take on 2002-6.

Any guidance on whether or not the freezing of a MPPP (e.g., contribution formula amended to 0% of compensation) triggers full vesting? Despite the forfeitures issue, I had always thought that it would not cause full vesting. I don't know if there's anything in Rev Rul 2002-42 that helps or not......

Client maintains 401(k) plan. Company x (unrelated to Client)maintains 401(k) plan as well. Client calls and says Client acquired ALL of e/ee's of Company x as of y date. Client and company x say no assets changed hands and no stock changed hands, but that all e/ee's terminated employment with Company x and began working for Client. On its face, it ooks like Company x's 401(k) plan is de facto terminated and Client's 401(k) just has to deal with counting/not counting prior service of Company x's e/ee's????? Another example of clients' doing things first and not letting you know until after the fact............. Suggestions/comments?? Thanks for any help.

Is it permissible to define the classes in a cross-tested PSP as follows: Group A is all highly compensated employees. Group B is all other employees. ??? I was in the midst of amending and restating a PSP and found that the TPA had drafted the above amendment some time back. I typically define the classes somewhat such as.... Group A is all employees who are licensed to practice medicine and who are shareholders of Employer. Group B " " who are not shareholders of the Employer. Group C is all other employees. Thanks for your help

Any pro's and con's of whether the definition of plan compensation should/should not include salary reductions pursuant to 125, 401(k), etc....... other than the fact that including will yield a greater contribution and excluding will yield a smaller contribution? Employer maintains a PSP and a welfare benefit plan (health/dental).

....as long as you don't live in a state within the 2d. Circuit?

Th 2d Circuit case referred to above held that the language in the Reg. "and the participant has a court order to such effect" applied to both legally separated and to the abandonment under local law. The court stated that if the intent was to require a court order only as to the abandonment prong then the court order language would've been enclosed within the parenthesis..... Granted, domestic/family law is a state law issue.....???

That's basically what I thought. I found a 2nd Circuit case on point which gave a grammar lesson on that Q & A in the Reg..... The case is [The Board of Trustees of the Equity-League Pension Trust Fund v. Royce, 2001 U.S. App. LEXIS 561 (2d Cir. 2001)] For a copy: https://www.tourolaw.edu/FTP/SecondCircuit/...y01/99-9123.rtf

Participant in a PSP recently got separated from spouse. A separation agreement was signed and other spouse relinquished all rights,..., in participant's PSP benefits. Participant now wants to change the beneficiary designation. I looked at Reg 1.401(a)(20), Q & A 27, which states in part ..."if the spouse is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise." Does the "court order" language apply to the separation or to the abandonment, or both?? Also, I guess one would need to look at what "legally separated" means with respect to any one state's domestic law.....????

Client has a safe harbor 401(k) with the 3% nonelective contribution. Due to business downturn, client can't handle the required 3% contribution next year. The safe-harbor 401(k) is top heavy. Almost none of the employees have deferred. Potential alternative is to convert to a simple 401(k). Doing so would cut out the top heavy contribution and if matching contribution is chosen, the employer match should be minimal given the history of no deferrals. Any issues???

Nothing undisclosed.... Doctors just tend to do crazy things sometimes.

Backing up a step, clearly the Plan could continue to pay the premiums on the life insurance (whole life) policy in a year where the employer made no contributions to the Plan. The 50% is based on the aggregate contributions under the Plan not just contributions for a particular year. Thus, it would seem mathematically determinable, depending on premium amounts, as to when the aggregate premiums will exceed 50% of the aggregate contributions??

Couldn't contributions from prior years (more than two years) (see Rev Rul 60-83) be used to pay the premiums going forward without regard to the incidental benefit rule? I am assuming the Plan would need to have a provision allowing distributions of contributions accumulated for at least two years in order for the distribution to be inaccordance with the Plan document? Given that a distribution would take place in the form of the premium payment another issue would be the taxability of the premium payment to the participant?? Alternatively, if the Plan provides for a pre-retirement distribution and if the participant satisfies the requirements for the same, maybe the Plan should distribute the policy to the participant?? All questions and no answers.......

Plan participant executed an election not to participate going forward effective 1/1/03 (beginning of plan year). Turns out that the Plan has a life insurance policy on the same participant. Since the participant will no longer be participating in the plan, it would seem that the Plan will have to pay the premiums from the participant's account balance going forward given that no contributions will made on the participant's behalf. Does this present any problems going forward?

But the spouse's consent will be necessary to waive the QJSA option with respect to the MPPP distribution. It is unlikely the spouse will consent.

Kids are adults, but the business is a dental practice. The main objective is to get qual plan monies going forward to the kids and not to the second spouse (by way of the pre-retirement survivor annuity rules). The restrictions/differences b/t the SEP-IRA arrangement and the current MPPP may be acceptable given the objective.