bzorc

Because there were 27 bi-weekly pay periods for a client of mine in 1999, a person who wanted $5,000 withheld for dependent care expenses has a W-2 that shows $5,192 withheld? What is the procedure for refunding and reporting the excess withholding? Any answers would be appreciated. Thanks!

In my experience, the new trustee should have gathered investment elections for new contributions. During the blackout, the contributions should have been invested per participant elections. As a former daily valuation recordkeeper, this procedure was normal protocol. The placing of the money in an interest bearing "plan" account, to me, is highly unusual, and could open the trustee/recordkeeper to liability issues, especially with the market moving up and down in wide swings. Hope this helps.

The trustee did not put the money into the plan, our firm did. I agree it looks like a contribution, but it was explained and document as an "earnings correction", which passed muster with the auditors on the plan. I have also had the client put the money into the plan to cover the shortfall, have the transaction described as above, and a future invoice reduced. You are correct in taking your position. It is one I wish my former firm had taken! [This message has been edited by bzorc (edited 01-13-2000).]

To answer the questions posed after my posting: The solution is to post two trades, as I mentioned earlier. It takes a lot of manual fudging to accomplish this, but allowed the person both an expense transaction and the transfer. Second, the participant was paid for the error. A check for the lost earnings was cut to the trustee, and additional shares of the fund that the person transferred to were purchased. Third, the firm paid strictly for client retention (my recommendation was not to pay the money). And finally, if the person avoided a loss because of a timing issue like this, the participant simply was allowed the benefit. The best of both worlds for the client and their employees, and the worst (financially and PRwise) for the recordkeeper. A major reason I got out of daily recordkeeping and back into consulting (for small clients and plans) about 6 months ago!!!!!

Sorry to be a downer, but this was communicated to a client of mine, and to their employees. We posted an expense, and waited to the next day to post a transfer. Market swing cost the participant $1,500. Even though communicated to, agreed upon and understood by the employees, our firm had to pay!

I agree with Carol's suggestion, it makes things nice and clean. However, with as much market volitility that there is today, do you see a problem holding a person out of a transfer or a distribution for a day when the market takes a 5% swing? Are there liability issues? In my experience, I have been burned and held liable (by clients)for gains not received by holding a person out of a transfer for a day, and the market makes a significant change.

In the extreme, the participant would have to come up with $9,500 worth of collateral in addition to his or her account balance. I actually saw this occur once, with the collateral being a baby grand piano, with a value far in excess of the amount being loaned. Thankfully, the loan was repaid...

I would generate the trade for the $20 fee before the transfer is generated. Then the transfer is net of the fee.

I received the following question from a client: An employment agreement calls for an employee to receive a 7% employer bonus, subject to FICA, FUTA & SUTA taxes, but not Federal & State Withholding. It is the employer's intention to allow the employees the opportunity to take the bonus, less taxes, in cash, or to defer it into a 401(k) plan. The bonus will appear on Box 3 of the Form W-2, but not Box 1. Has anybody run across this? I think it is OK, but would appreciate anyone's opinion on the subject. Thanks.

In my experience, if the mistake results in a gain, or a benefit to the participants, the gain is given to the people. If the mistake results in a loss, than the party making the mistake (TPA, trustee, etc.) is responsible for making the participants whole. This is especially true in daily valued plans, where a miskeyed form could result in major liability! However, it also applies to a traditional balance forward plan as well, as employers become more aware of mistakes with the major changes in the stock market.

I agree, and here is a quick story to confirm. Participant is in jail, convicted of a felony. The attorney of the harmed party had the participant's distribution check delivered to the jail, made out in the name of the participant, so that it could be signed over to the attorney to cover damages in the suit that had been filed.

Lisa, my question strictly relates to day camps, not overnight camps. The question I have directly relates to a client who sends her under age 13 son to a "day camp", while she is at work. We suggested she call the facility where her son goes, to see if they would tell her whether their expenses qualify for reimbursement under Section 125. I have not heard an answer as of today, but if I do, I will post the answer here. Thanks for all the comments!

Joe, thanks for the answer. Is there a cite in the IRC for this, for my future reference? Thanks.

Just about any bank, insurance company, stock broker or mutual fund company will offer Roth IRA's. If you contact any of these institutions, they will be able to tell you all you want to know about Roths!

Does payment to a summer "day camp" qualify as an eligible expense that can be reimbursed through a Section 125 plan? I know that overnight camp does not qualify, but what about a day camp? Opinions I have heard vary greatly. Thanks!

Here is a unique spin on a Section 410(b)cross-testing issue: Client wishes to benefit his department heads across a controlled-group set of employers. The various department heads will receive a certain percentage of pay, based on their title. None of these department heads, as of now, are considered "highly compensated". The employer DOES NOT wish to benefit any rank-and-file employees; only the department heads. My question is would this fly under IRC 410(B), under the "no highly compensated employee benefits" scenario? The attorney who is drafting this plan says he does this all the time, and no testing is necessary, as no HCE benefits. Does this arrangement fly? Any opinions would be appreciated! Thanks.

A lot of mutual fund companies will do this subaccounting on an individual basis. American Century and Kemper (through the KemFlex product)come to mind. I can't say I remember the costs, though.

How often do you receive a statement of your account? If it is once a year, the employer may have been valuing the plan only once a year. In that instance, paying you your 9/30/98 balance plus contributions, unfortunately, would be appropriate. Do you have a Summary Plan Description? If not, try requesting one from your former employer. It may tell you how often the plan is valued. If this plan has been in existence for a while, it is quite possible it is valued only once a year. In that case, you are getting a correct value. This is a major drawback of plans, but, within the employer's right to run it that way. Hope this helps.

I agree. Thanks for your answer!

Husband and wife each have an IRA. Both are over age 70 1/2. Husband is using straight life calculation, while wife is using JSA table with recalculation. Husband dies in 1997. The 1998 distributions, based on 1997 balances, are calculated from each IRA as in the past. In 1998, however, the wife combines the husband's IRA with her own, so that at 12/31/98 there is only one IRA. Two children are now the beneficiaries. For 1999, what life expectancy would I use? I am leaning towards straight life, using the life expectancy of the spouse. Am I on the right track? Thanks!

I think the answer lies on what year the compensation (and contribution)is going to be reported on the W-2. If it's in 1999, it's a 1999 contribution, and if it's in 2000, than 2000. Hope this helps!

I encountered a situation as follows: Participant an active participant in a 401(k) plan, past age 70 1/2. She had received an initial MRD, and then deferred, because she was still employed. Now she has retired in 1999 and wishes to leave her money in the plan. When does the MRD have to resume? By 12/31/99? We called the provider, who said 4/1/2000. Which is correct? Thanks!

Was the plan terminated in some way? If not, your plan is subject to excise taxes for failure to meet minimum funding standards. I would think that the contributions should be made up ASAP!

A question that has been probably been asked many times, but I need help/clarification: Item 6 of Schedule F asks for total costs of the fringe benefit plan for the year. The instructions (note) then indicates to "enter the amount of the salary reductions and other employer contributions... Nonelective contributions...are the employer's portion of the cost or premium contributed as employer-provided coverage under a cafeteria plan arrangement." Therefore, for the premium coverage under a cafeteria plan, do the costs include both the employee portion of the coverage (paid on a pre-tax basis), as well as the employer paid portion of the coverage? The rest of the costs (Reimbursement, Dependent care coverage) are not at issue here. Thanks much!

I would think that you would still do only one 1099-R. The entire distribution is taxable, but only a part of it is now subject to the mandatory 20% withholding. Therefore, the distribution amount is still shown as the total distribution, the whole distribution is taxable, and the appropriate amount of withholding would be shown. The distribution code would remain "1", I believe. Hope this helps!