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Company X maintains a 401(k) plan for its employees (Plan Y) under shich employees are permitted to make 401(k) contributions and X provides a matching contribution equal to a percentage of a participant's 401(k) contributions but not exceeding a specified percentage of compensation (which is defined in the Plan as including the specified elements of compensation only). During 2006, Participant M earned a bonus called N which was not mentioned in Y's definition of compensation. A 401(k) contribution was made from N and a matching contribution was based on such 401(k) contribution. What options does X have to correct this error?

As you may know, when a participant in a medical plan (including a health FSA) goes on a military leave, s/he has the right to continue coverage under USERRA for up to 24 months on a COBRA-like basis. Under COBRA, there is a special exception on the duration of COBRA coverage for health FSAs which satisfy certain rules, including that the health FSA meets a HIPAA exemption (which would usually be met if the FSA contains only employee salary reduction contributions) and depending on the balance in the FSA and the amount remaining to be contributed for the remainder of the year at the time of the qualifying event. The upshot of this exemption is that the health FSA is either not subject to COBRA continuation, only subject to COBRA continuation until the end of the calendar year of the qualifying event or also subject to COBRA for the calendar year following the calendar year of the qualifying event. I had hoped that the final USERRA regulations would provide more information on the duration of the continuation period as applied to health FSAs and whether the employer would tie that duration in to the IRS COBRA regulations. That being said, does anyone have any thoughts on how long health FSA coverage should be provided with respect to an employee going on military leave in order to comply with USERRA?

That notification due date has been liberalized based on IRS regulations and updated in the plan document. We initially changed it from March 1 to April 5 and then to the date prescribed by the Plan Administrator.

Help! Company A maintains a 401(k) plan for its employees on a calendar year plan year. Participant M was employed by Company A during 2005. In a letter date stamped April 6, 2006 but delivered to the appropriate people on April 13, Participant M notified the Company A plan administrator that s/he had an excess deferral during 2005 and requesting a timely correction of the appropriate amount plus earnings. The plan administrator was advised to process the change this afternoon (since there is no extension to the 4/15 date to the next business day in the case of a weekend). In addition, the stock market is closed for Good Friday tomorrow so if the trade order is received late the participant will not be timely corrected. This would result in the participant being taxed in both 2005 (the year of the excess deferral) and 2006 (the year of the corrective distribution). Any suggestions on how this can be corrected and the double taxation and 4979 excise tax avoided? (Participant M is 37 so recharacterizing the excess as a catch-up contribution doesn't work).

A company sponsors a 401(k) plan for its participants. The plan is intended to comply with ERISA Section 404© and offers a number of funds as part of the plan's core funds for which the company's investment committee is responsible for selecting fund managers and monitoring their performance and a self-directed brokerage window, through which participants may choose from a universe of several thousand mutual funds. A participant has written to the plan administrator requesting information on whether any of the plan's existing core funds or any of the mutual funds available through the brokerage window are designed to comply with Islamic law. According to the participant, a fund would be in compliance with Islamic law if it did not include investments in any business manufacturing or serving alcoholic beverages, providing pornography or charging or collecting interest, among other criteria. Does anyone know of any Islamic based funds or any type of mutual fund that would otherwise satisfy the requirements of Islamic law?

Company X maintains a US qualified 401(k) plan for tens of thousands US employees and less than a handful of Puerto Rico-resident employees. This plan has never been filed in Puerto Rico for a determination letter. What are the tax consequences to Puerto Rico residents under Perto Rico's tax law if the plan is not registered? Are the before-tax contributions treated as after-tax contributions? If the plan is subseuqently registered, do these employees obtain a basis in the after-tax contributions prior to registration and a separate source for pre-tax contributions post-registration? It is my understanding that unless a separate Puerto-Rico based plan is established, Puerto Rico residents will be subject to US tax to the extent they receive earnings on plan distribution. Even though the Puerto Rico law has not been amended to recognize Roth 401(k) contributions, if Puerto Rico residencts make future contributions as all Roth 401(k) contributions and receive qualified distributions, doesn't this effectively put an end run around being subject to US tax on distributions of earnings?

Company X maintains a 401(k) plan permitting employees to contribute on an after-tax, pre-tax 401(k) or Roth 401(k) basis from 3% to 40% of compensation to the plan, except that HCEs cannot elect to contribute more than 10% on a pre-tax 401(k)/Roth 401(k) basis and up to an additional 3% on an after-tax basis. If an employee contributes a minimum of 3%, the company provides a matching contribution of 4%. Finally, if the employee's pre-tax 401(k)/Roth 401(k) contributions reach the 402(g) limit during the year, the employee is deemed to have elected to contribute after-tax contributions for the remainder of the plan year. I have read the series of posts dealing with the application of the annual compensation limit on 401(k) and matching contributions. My question deals with after-tax contributions. Are they subject to the annual compensation or are they treated like 401(k) contributions? For example, let's say Executive A elects to contribute 3% of her compensation to Company X's 401(k) plan on a pre-tax basis and during 2006, her compensation is equal to $1 million. Once the employee's compensation reaches $500,000, she will have reached the 402(g) limit and all remaining contributions will be made on an after-tax basis. Can A contribute an additional $15,000 on an after-tax basis? Assuming that Executive B earns $2 million during 2006 and elects to contribute 3% of his compensation on a pre-tax 401(k) basis. Once B's compensation reaches $500,000, he will reach the 402(g) limit of $15,000. Can B make after-tax contributions on the remaining $1.5 million up to $20,200 (15,000 + 8,800 + 20,200 = $44,000)?

A good overview should suffice for my purposes. I could try to obtain more "country-specific" information as and when the need arises.

I have researched the webite of the IFEBP and found that there is a certificate program in Global Benefits Management which is being held this year in Chicago from May 1 - 5, 2006. I printed out the program brochure and it states that it covers different regions of the world on different days. Therefore, it does not appear to be limited to Canada.

I mean both benefits for employees of US companies who are assigned to locations in other countries and who are US nationals as well as benefits for high-level employees of subsidiaries of US companies operating in other countries who are not US nationals but who could be nationals of still another country whether or not the US company has a subsidiary operating in the country in which the high-level employee is a national.

I have been advised that I am to become the point person on international benefits. The problem is that while I know a little about the topic, I do not feel comfortable becoming "the expert" overnight. Can anyone tell me the name of a comprehensive reference work or a seminar I can attend so I can become substantially more knowledgeable about this area? H-E-L-P!!!!!!!

Company X maintains a defined benefit plan and a 401(k) plan for its employees and for the employees of a number of subsidiaries. Two other subsidiaries, Y and Z, (which are both subs of X) maintain their own plans and do not participate in X's plans. Company H is the parent organization and is merely a holding company with no employees. Section 10.06 permits the parent of a parent-sub controlled group to elect to file all of the plans under the remedial amendment period cycle determined by the last digit of the parent's EIN. Can X, Y and Z treat X as the parent for this purpose and have X make this election?

Company X has a commissioned sales force to sell its products. Historically, Company X has maintained one self-funded medical plan with several options for all of its employees, which has been funded in part by a VEBA. In 2005, to induce greater productivity among its commissioned sales force, Company X has proposed to peg its subsidy of the commissioned employee's medical benefits upon reaching certain minimum sales goals based on the employee's level withint the Company. To comply with self-funded medical plan nondiscrimination testing, Company X has placed their medical benefits (other than prescription drugs) into an insured arrangement providing substantially similar coverages (other than state mandates) to that provided to salaried employees. In addition, Company X has establised a separate 125 plan for the commissioned employees. As a result of these changes, the Company's account limit for commissioned employees is limited to the incurred but not paid claims for prescription drugs and dental coverage. In order to have these changes respected, Company X is considering whether it needs to either (a) place its liability for incurred but not paid claims for prescription drug and dental benefits attributable to commissioned employees into a separate VEBA or (b) establish subaccounts under the existing VEBA for the saleried employees versus the commissioned employees. What are the pros and cons of each approach and which approach do you consider more likely to result in treatment as separate plans and/or funds?

Employer X maintains a qualified defined benefit plan and a qualified defined contribution plan. As part of the defined benefit plan, Employer X provides a voluntary deductible employee contributions ("VDEC") arrangement, under which up to $2,000 could be contributed on a tax-deductible basis between 1982 and 1986. In order to modernize the administrationv of the VDEC, Employer X proposes to transfer the VDEC from the defined benefit to the defined contribution plan. Are there any required filings or disclosures to the IRS, DOL or PBGC or participants with respect to the transfer of the VDEC from the defined benefit plan to the defined contribution plan?

Plan X is a 401(k) plan covering the employees of a large employer and many of its controlled group members. Plan X provides that forfeitures are used to reduce the amount of the employer's matching contributions. A routine internal audit discovers that forfeited matching contributions have been paid out of the plan to the contributing employer. What relief is available under the IRS correction programs?

MBozek, In general, I agree. However, reps and warranties are only as good as the financial stability of the entity giving them and often there could be problems arising after the statute of limitations. For anyone who has done due diligence, you often don't get all the info you ask for, you have a limited time in which to do it, even if you ask for additional information, the go-to person doesn't get back to you or doesn't supply all the relevant info, the deal gets closed and all you have to rely upon are the reps and warranties and an indemnification. Also doing a compliance audit is expensive and it is unlikely the other side will agree to it if you are only buying a small block of business.

The facts of my example assumed plan to plan transfers or elective transfers. In your replies, you are referring to rollovers. I am aware of the regulations and that they allow you to disgorge the tainted plan's assets with earnings within a reasonable time of discovering the problems with the transferor plan. In light of EGTRRA, these rules need to be expanded to cover rollovers from 403(B)s and governmental 457(B)s. But back to the crux of my question, what protection, if any, does the recipient of a plan to plan transfer or an elective transfer have? To me, this area shoudl be the focus of reform!

COLI would involve the purchase of whole, universal life or variable life policies by the employer as owner and beneficiary on the lives of either all the participants of the ESOP (at the time the policies are obtained) or the key employees of the employer. Death benefits could either be applied to pay repurchase liability or reinvested in the policy. If there are no death benefits available when the employer has repurchase liability, the employer could either borrow against the cash value of the policies or make withdrawals of the cash value to pay the repurchase liability. I am assuming you would know how repurchase liability arises. I hope this helps.

Protection of Plan Receiving Assets from Other Plan in Merger or Spin-off Assume that Company A, a Fortune 500 Company, is in the process of making a number of acquisitions. Company A maintains Plan X, a 401 (k) plan. What are people doing in each of the following situations to protect the qualification of Plan X: (a) Company A buys Company B and merges its Plan Y into Plan X; (B) Company A buys the assets of a trade or business of Company C, another Fortune 500 Company, where the trade or business employs 75 employees; © Company A transfers 30 employees of Company A's subsidiary, A-1, and wants to transfer their account balances under Company A-1's plan, Plan Z, into Plan X. Company A-1 has taken a number of aggressive positions on a number of issues involving Plan Z; and (d) assume the same facts as in example ©, except that Company A-1's CEO is transferred to Company A and only her account balance under Plan Z is spun off into Plan X.

Protection of Plan Receiving Assets from Other Plan in Merger or Spin-off Assume that Company A, a Fortune 500 Company, is in the process of making a number of acquisitions. Company A maintains Plan X, a 401 (k) plan. What are people doing in each of the following situations to protect the qualification of Plan X: (a) Company A buys Company B and merges its Plan Y into Plan X; (B) Company A buys the assets of a trade or business of Company C, another Fortune 500 Company, where the trade or business employs 75 employees; © Company A transfers 30 employees of Company A's subsidiary, A-1, and wants to transfer their account balances under Company A-1's plan, Plan Z, into Plan X. Company A-1 has taken a number of aggressive positions on a number of issues involving Plan Z; and (d) assume the same facts as in example ©, except that Company A-1's CEO is transferred to Company A and only her account balance under Plan Z is spun off into Plan X.

Ms. XEC receives $1,000 per year in consulting fees and has an IRA with $3 million in assets. In 2002, Ms. XEC establishes Plan M, a profit sharing plan. Ms. XEC then rolls over $2 million from the IRA into Plan M and makes a contribution of $180 to Plan M. She then wants to purchase life insurance on her life. Under the incidental benefit rule applicable to life insurance under a qualifeid plan, is Ms. XEC able to pay premiums of (a) $500,000 + or (B) $45?

Employer X is privately held and sponsors ESOP M. If Employer X purchases COLI to fund its repurchase liability, (a) is the inside buildup on the COLI and/or (B) any death benefits on the COLI, subject to the alternative minimum tax?

I would agree with the others that the compensation is not reduced by the elective deferrals. However, to the extent of any "employer" contributions, the self-employed definition of earned income requires that the earned income be determined after the deduction for employer contributions. Thus you would look at Schedule C net income minus the one-half of SECA tax deduction times 20%.

In reply to Pax, I would agree with your interpretation. In fact the Code as amended specifically exempts catch-up contributions from 415. Thus, it would be possible for a participant in 2002 to have a total allocation of $41,000 (the $40,000 in annual additions) plus the $1,000 catch-up for age 50 and over. In reply to Disco Stu, I would disagree. The IRS Regulations at Section 1.401(a)(17)-1(B) clearly provide that the compensation limit is used to determine plan allocations. Since elective deferrals are allocations, I fail to understand how you could say that 401(a)(17) restricts deferrals, unless the method I described in a previous post is used.

Further clarifying a point I intended for JEP, Code Section 414(v) and the proposed regs allow catch-up contributions to ignore many qualification requirements, such as 415. 401(a)(17) is not enumerated in the list of qualification requirements that can be ignored. Thus unless the plan were redesigned to permit participants to make deferrals at a lower percentage throughout the year (e.g., a participant earning $300,000 makes deferrals at the rate of 4% of pay up to the 402(g) limit), those eligible participants who had earned more than $200,000 before catch-up contributions were introduced would be out of luck.