Christine Roberts

I seem to recall hearing at a recent ASPA/IRS conference that various proposals were pending to develop a defined benefit plan with a salary deferral feature. Is this true?

Can a former owner of a company make salary deferrals based on compensation received under a non-compete agreement, after his active employment terminates. Presuming the answer is a resounding "no" is there any specific authority for that answer.

Thanks for the information. I will be looking for those cases.

Would it be possible pursuant to a QDRO or otherwise for a former spouse to be designated the beneficiary of a life insurance policy held by a plan, for the life of the partiicpant spouse? I am aware of the following thread: http://benefitslink.com/boards/index.php?showtopic=4395

May a plan document allow a participant to make a one-time opt out of plan participation for all purposes OTHER than salary deferrals? I am looking at a prototype adoption agreement that appears to allow this, but something does not seem right.

Terminated participant elects family coverage under COBRA Later determines premiums are too expensive and wants to drop himself and a son from coverage, outside of open enrollment and not related to any change in status event. Is this permissible? From what I can gather, a COBRA election change (including dropping coverage) is limited to open enrollment and/or a change in status, ala Section 125 plans.

Smaller not-for-profit employer (approx. 100 employees) currently makes one check out per month to 6 different 403(B) provider/vendors, reflecting that month's deferrals/matching contributions. Employer normally has 2 payrolls per month; sometimes 3. This would necessitate 12 to 18 separate checks per month for the small Business Office staff to oversee. Seeking opinions as to whether requiring 2 or 3 separate rounds of checks to the 403(B) vendor/providers is reasonable to expect under the circumstances, or whether the employer can meet the standard with one or two rounds of deposits.

Mike, thanks for the surpassingly prompt reply. This is helpful info.

A profit sharing/401(k) plan elects to meet the nondiscretionary safe harbor contribution rules. Does the safe harbor contribution satisfy the requirement that the PS plan make regularly recurring contributions? In other words, if the employer also elects the discretionary PS contribution feature, must that separate type of PS contribution also be regularly recurring?

Presuming it is possible to restate an individually designed plan on a volume submitter document without any cut-back violations, will the sponsor of an individually designed plan meet their GUST restatement deadline by executing, on or before 2/28/02, a certification of intent to timely adopt the volume submitter document? Also, I believe it was stated by the IRS, perhaps at the last ASPA conference in LA or elsewhere, that a plan that currently is on a prototype or volume submitter document, but that is deemed to be an individually designed plan due to specialized plan language or amendments, can still meet the GUST restatement deadline by executing, on or before Feb. 28, 2002, the certification of intent to restate on a volume submitter or prototype plan document. Does anyone recall who said this, and when?

ERISA 403(B) arrangement is invested entirely in a group annuity contract (GAC). The arrangement includes salary deferrals and employer matching contributions Employer wants to restate document and transfer to a custodial account environment (assume there are no issues related to withdrawal from GAC). Given that in-service withdrawals of matching contributions is allowed under the GAC (and under the existing plan), but is not permitted under a custodial account (see 403(B)(7)(A)(ii)) -- is there any way to move to the custodial account environment without causing a cutback of the in-service withdrawal feature, as it applies to matching contributions, rollovers, etc. Your comments are appreciated.

The relevant facts are set forth below: · DB Plan initially established to benefit business owner as sole participant. Plan excludes collective bargaining unit (“CBU”) members from participation. · The owner’s two sons work in the family business and become members of the applicable union, performing collective bargaining unit work, and participating in union benefit plans. · Six years later, the business owner transfers ownership of the business to the sons, who each receive a 50% interest. · At the same time, the business owner amends the DB Plan so that it will not exclude the sons: specifically, the Plan is amended to include, as eligible participants, employees who are “members of a collective bargaining agreement [sic]” and who receive either a salary or a bonus from the company. Note: when the sons became owners/managers of the business, they by definition dropped out of the CBU. They may have retained Union cards, and may have also remained eligible to participate in the Union benefit plans, most likely as “bargaining unit alumni.” But as owners/managers they were not part of the collective bargaining unit. Therefore, it should not have been necessary to amend the DB Plan to include collective bargaining unit employees, in order for the sons to participate. The amendment, as continued in a later restatement of the DB Plan, requires the Plan to provide benefits on behalf of employees that the business owner never intended to participate in the plan, namely, rank and file employees who receive benefits under the Union benefit plans. It would appear that whoever amended the Plan, did so under the misapprehension that the sons remained members of the collective bargaining unit after they took over ownership and management of the business. This would seem to be a fundamental misunderstanding. Would this be a basis to retroactively correct the DB plan to restore the original exclusion of collective bargaining unit employees?

Thanks for the update, Jeff. The consultant on SB 657 who I reached mentioned that a fix is possible sometime in January or February...let's hope.

Here is the result of some research I recently did on the topic - I welcome all comments/criticism. "Counting EGTRRA Before It’s Hatched: California Legislators Struggle to Bring State Tax Laws Into Conformity With New Federal Deduction Limits In June of last year, Congress passed sweeping legislative changes affecting retirement plans, known as “EGTRRA” (short for the Economic Growth and Tax Relief Reconciliation Act of 2001). Among other significant changes, EGTRRA (a) increased contribution limits (and corresponding deductions under federal income taxes) under IRAs (including Roth IRAs, traditional IRAs, and Education IRAs), (B) increased contribution and deduction limits under qualified retirement plans (including salary deferral limits under Section 401(k), 403(B), and 457 plans), introduced a “catch-up” deferral for individuals aged 50 or older, and increased rollover options among IRAs and qualified plans. Most EGTRRA changes are effective for plan years beginning on or after January 1, 2002. Many of you may have already approved modifications to your retirement plan documents conforming to EGTRRA’s new provisions. Employees who participate in such plans, or who maintain IRAs, have warmly welcomed the increased opportunities for retirement savings under EGTRRA. However, in California and approximately a dozen other states, state income tax laws do not automatically conform to federal standards. As a consequence, employees in these states who participate in retirement arrangements to the maximum extent now permitted under federal law could face state income tax liability on contributions that exceed state tax levels. Conceivably, an employee’s entire retirement savings could be subject to state taxation under such circumstances, but it is unlikely that state taxing authorities would adopt so drastic an approach. A recent article in the Los Angeles Times (January 6, 2002 Business Section) summarized this dilemma and mentioned three pieces of conforming legislation now before the California legislature. The applicable bills are SB 657, sponsored by Senator Jack Scott (D-Pasadena), AB 1744, sponsored by Assembly Member Ellen M. Corbett (D-San Leandro), and AB 1743, sponsored by Assembly Member John Campbell (D-Irvine). Although there are distinctions among the bills, each essentially seeks to conform California’s Revenue and Taxation Code to the new contribution and deduction limits available to both individuals and businesses under EGTRRA (Note: AB 1744 would not allow deductions under state taxes for increased contributions to Education IRAs). Of the three pieces of legislation, Assembly Bills 1743 and 1744 were only just introduced on January 7, 2002, while SB 657 has already been amended and is currently before the Committee on Revenue and Taxation, slated for hearing on January 9, 2002. According to a consultant to the Committee who is assisting Senator Scott on the Bill, it is widely acknowledged in Sacramento that passage of conforming legislation must occur sometime during 2002. That said, the consultant would not acknowledge that passage this year is a “done deal, “ because conforming the state tax laws will cost the state between $40 to $50 million dollars during a year when difficult budget issues are already looming on the horizon. Although the consultant stated that passage of conforming legislation is possible sometime in January or February of 2002, delays are possible in the event the matter gets caught up in the budget approval process. If conforming legislation is not finalized until next year, it is possible that the legislation would allow the filing of amended returns or other tax reporting that would permit employees to catch-up, for state tax purposes, with their federal deferral limits. How does this sum up, for purposes of employee communications? It is safe to say that it is likely that California will enact legislation later this year, to conform to EGTRRA. In the meantime, an employee has two options: (a) defer up to the maximum federal limits in anticipation of timely changes to state law, with the potential of exceeding state income tax deduction limits if state law changes are delayed; and (B) under-defer, for federal purposes, until such time as state law catches up to the EGTRRA standard. In this latter instance, it is possible the employee will miss out on maximum federal deductions if conforming legislation does not pass until 2003, and takes effect on a prospective basis only. For those of you who are interested in tracking the progress of the various Senate and Assembly Bills, contact information for the Senator Scott, and for Assembly Members Corbett and Campbell can be found at http://democrats.assembly.ca.gov/english/index.htm." © Christine P. Roberts, Esq. 2002

Has the IRS just issued new tables for calculating required minimum distributions? If not, are current tables under IRS Section 72 still applicable?

Thanks for the thorough reply. This is an owner only MPP plan and the contribution was reduced to 0% of compensation in 1995 Prior DB plan was a multiemployer plan and I believe employer withdrew - not even sure if owners ever participated.

Can an employer repeal 415(e) for a MPP plan frozen in 1995 (employer has DB plan in its past). Repeal would be for purposes of GUST amendment for terminating MPP plan.

May a 403(B) arrangement that makes a variety of annuity fund and custodial account providers available to employees, prohibit employees from switching deferrals from one annuity provider to another, in the course of the plan year? (I.e., stopping deferrals to original provider and making new deferrals to different provider.) Does it make a difference if the plan is subject to ERISA?

Is it true that some states will not recognize, as deductions from state income taxes, the full amount of the new EGTRRA contribution limits? Wouldn't ERISA preempt any contrary state income tax laws??

I have read somewhere that timing your good faith EGTRRA amendment may raise cutback issues with regard to top-heavy contributions, if the amendment allowing use of matching contributions to satisfy top-heavy rules takes effect prior to the last day of the 2002 plan year. Can anyone clarify?

Section 403(B) arrangement subject to ERISA intends to "terminate." Plan maintains a group annuity and includes employer matching contributions as well as deferrals. Is a "distributable event" other than "termination" of the arrangement necessary for each participant to roll out of the group annuity and into an individual annuity or custodial account? If so, is the employer obligated to continue filing Form 5500 Return/Reports until the last participant in the arrangement experiences a "distributable event" and moves his or her money to an individual annuity? OR can each participant make a trustee to trustee transfer out of the group annuity, to an individual annuity, irrespective of plan termination or any distributable event? (Hence allowing employer to cease reporting duties much sooner.)

Kip, thanks for the input. What you are talking about is tip splitting which is an accepted way to report tips, but different from what this taxpayer is doing. I have referred them to a local CPA who specializes in restaurants.

These are helpful replies. Thank you. One issue that I did not originally mention is ERISA Section 404© compliance. One thought would be to notify each TDA issuer, in writing, of the inception of an ERISA plan, and request that the issuer explain, also in writing, what its procedures are for notifying account holders of investment information (e.g., forwarding mutual fund prospectuses (sp?)), its timing in executing investment changes, and the like. Of course if the account issuers do not respond, or respond in a way that indicates they cannot keep up with 404©'s complicated compliance scheme, then the employer must make other arrangements (through a TPA, perhaps?) for 404© fulfillment. Any comments??

Employer properly includes all cash & charged tip income in compensation paid to wait staff, for purposes of FICA, FUTA, and income tax. However, wait staff has practice of forwarding some of the after-tax tip money to the sub-wait staff, such as busboys, dishwashers, etc. Presumably, the sub-wait staff would report this forwarded tip income on their individual 1040 returns. However, how should transmission of the forwarded tip income be reported? Via 1099 from wait staff to sub-wait staff? Any comments welcome.

Private not-for-profit employer with a non-ERISA 403(B) arrangement wants to add employer matching and discretionary contributions, and thus needs ERISA plan document. But, employer wants new contributions to go to existing TDAs. I.e., no group annuity contract or other group investment account for the plan. Is this kosher? When it comes to defining distribution, loan, and hardship withdrawal terms for the plan, should it not simply defer to the language of the applicable TDA? And what about Form 5500 reporting? If the employer hires an employee with an existing TDA balance of $30,000 from prior employment, and begins contributing to this TDA under the plan, does the employee's entire balance count for purposes of the plan's Form 5500 reporting, or does the employee get a zero balance upon joining the employer? Any and all comments are welcome.