david rigby

Is it possible that the original post has somehow confused "key employee", which is defined (for the most part) with respect to the top-heavy rules of IRC 416, with "key-man" insurance, in which the employer is usually the beneficiary?

If it helps to have more than one reply, MGB is (as usual) correct.

Perhaps. This issue might require a very close reading of the plan document. For example, if may be that the document should be specific on this point. Not sure. Continued review of IRC 411 and regs is in order. Have you checked the Gray Book to see if this is addressed?

You might have two late contributions, which would lead to needing two 5330's. The contribution on 9/18/2000 becomes a contribution for the 2000 plan year, but there might also be an additional contribution requirement for that year.

I disagree. I think the employee is 100% vested in the benefit accrued immediately prior to the termination of employment. It may be that the regular vesting schedule will apply for accruals after the rehire date. I'll have to think about that though.

The original post stated two facts: partial termination, and assignment of 100% vesting to all employees who terminated during the year (emphasis added). I'm not sure those are the same group of participants. For example, suppose one person terminates on Feb. 1. No partial termination. Then 20 participants terminate (such as a layoff) on November 1 of the same year, resulting in a partial termination and 100% vesting for these 20 participants. Does the Feb. 1 terminee get 100% vesting? The answer (as always) depends on the facts and circumstances, but there is no default that says "yes". I don't understand what you mean by "...upon re-hire the past service would be credited - not necessarily the 100% vested status."

My understanding is that "late" is late. I am not familiar with any circumstances under which the IRS will grant a short extension. If it is late, then that means it was not made for the appropriate plan year. Sounds like a funding deficiency to me, which automatically becomes part of the next year's funding requirements. And yes, that means that a Form 5330 is required. BTW, expect the IRS to assess penalty (and interest) for the late filing. You can download the 5330 and instructions here: http://www.irs.gov/forms_pubs/forms.html

The latter. The plan is limited in owning stock of its sponsor. Here is the text of the applicable ERISA section. http://www4.law.cornell.edu/uscode/29/1107.html. Subsection (B)(1) points out that this restriction does not apply to an individual account plan.

Not sure if this is what you want, but here is the link to DOL regs. http://www.dol.gov/dol/allcfr/Title_29/Par...rt_2550/toc.htm Try subsection 407d-5.

First, it is not true that "all employees who were terminated in 2001" should be awarded 100% vesting. A partial termination should give 100% vesting only to "affected participants." Second, a rehire does not change a participant's vesting percent.

Why not do it the right way? Why would you want to do this in a manner that would create doubt about exactly what transaction took place? Why create a "muddy" situation that you have to explain to everybody every time?

Interesting points made by pmacduff and Appleby. I wonder, if this were a (presumably non-electing) church plan, whether the irrevocable requirement for a waiver would still apply. Any ideas? Regardless, I do agree with pineapple's comment that the plan document should permit a revocation.

I think a waiver, if elected, has to be irrevocable. That probably should be included in a "waiver documentation. That said, I don't know if the plan must permit such a waiver. The employer might want to ask him/her self if an employee who refuses free money has the necessary intellectual capacity to be an employee.

Sounds like one plan has a "payable" and the other has a "receivable".

http://www.benefitslink.com/IRS/ann2001-12.shtml

I think Q2 is an answer to Q1. ERISA preempts state laws as they propose to regulate employee benefit plans otherwise covered by ERISA, but it does not preempt state laws which determine income taxable for state purposes.

I think the merger is not what triggers a 204(h) notice, but a change in the rate of future employer contributions. This might occur on merger, but it may have already occurred if the plan was frozen earlier. If so, one hopes that the notice was given then.

In addition, have any participants been paid out with values assuming the existence of the accrued contribution? If there had been no contribution, would that have changed the results of any top-heavy test?

I don't think anything prohibits it. Happened to a client of ours that was about 700% funded. But the primary discouragement is the tax, both income and excise. In addition to the 20% excise tax, the plan sponsor must include the reversion in current year income (federal and state purposes) so the total tax bill could be pretty steep.

The 401(k) is not really "under" the cafeteria plan, but it is linked. The purpose is to permit the employee to save extra dollars (typically not matched). It is usually not relevant in a 125 plan that is "premium only."

... and you should fix your payroll system to avoid this problem in the future.

You can get to that reg. here: http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html But a more basic question. Why terminate? Why not merge the plans? Avoid the expense of termination. Having more money in one trust might give more options in offering investments.

I helped a client prepare a waiver about 3 months ago. We advised them on several points: - it is not guaranteed, - the purpose of a waiver is for temporary financial hardship, and - if the IRS views it as more than temporary, then it is likely the IRS will deny the request. (I'm skeptical about whether this client can recover.) The client made the application anyway. No response from the IRS yet.

May be unlikely that any employer can deduct from a paycheck without proper authorization. Perhaps your state agency can help. http://wagehour.bes.state.oh.us/w3/webwh.nsf

Huh? Each state has its own withholding rules and effective date(s).