Bill Presson

The premiums would just be included in the trust accounting and aren't allocated to the participant accounts any more than the money used to purchase a stock are allocated to participant accounts. Money comes out of the trust and is replaced by a piece of paper representing a value. They are not a deductible contribution because the money is already in the trust.

When you encountered this situation, did you correct the EIN on the current year form? Did you indicate the change in EIN on the current year form? We have had to do this a few times and never got a letter. Yes and we got to do dueling letters. Not saying it doesn't work. Just not for us. We've not given up hope though!

Blinky, I'm not talking about filing the correct 5500 with the correct EIN when the change happens. That's not the "prospective fix" that was discussed above. They were talking about where the EIN actually changed in a prior year, but it only gets changed on the 5500 in the current year. For whatever reason, we get letters generated the couple of times we've tried it. We haven't had problems when filing a 5500 with a new EIN in the actual year that the change occurs. I don't know what triggers the letters. At least not in my case. That's why I signed Schleprock (at least in this situation. The rest of my life is lovely. Really).

I've had this happen a couple of times. In my opinion, you are already in a quagmire, but just haven't realized there's no way out. If you stumble on a way that actually works, PLEASE post it here. I've tried the "prospective" fix and I've tried "refiling" previous returns to correct the issue. Nothing works. Signed, Schleprock

Same here.

Having adjusted this sentence for John's Manic Monday.... this is the interpretation that I'd concur with, based predominantly on the grilling we took from the IRS during audit on some wdrwls that met a similar fact pattern. My take on it is that you limit the hardship to the current deferral balance. So to use the numbers in the OP, only the $13,782 could be withdrawn. This would be regardless of the cause for the shortfall (ie losses or mutual fund loads or plan fees or whatever). I agree with this.

We also ask for an abatement. If we don't get it, we file under DFVCP. Works 100% of the time.

If a 2005 return WAS filed for Pension Plan A, then no DFVC is needed. Just file an amended return. No penalty, no fee.

I've been dealing with this for a long time. Back in 1993, I asked some very specific questions and got General Information response from Jim Holland. Part of that letter dealt with Rollovers. Here it is: "You also asked whether the existence of rollover money from another qualified plan would have any effect on the transaction. Again, any question regarding the income tax effect of such a transaction is beyond the scope of a general information letter. However, we wish to draw your attention to certain considerations that affect the calculation of the level of incidental insurance coverage in such a situation. The requirement that a profit-sharing plan provide for the accumulation of funds for a "fixed number of years" is found in section 1.401-1(b)(1)(ii) of the regulations. In applying the provisions of this section of the regulations to rollover money, the instant plan is considered separate from the prior plan. (See, for example, private letter ruling 8134110, dated may 28, 1981.) Furthermore, under Rev. Rul. 57-213, the amount of premiums that may be used to provide an incidental level of insurance coverage is determined with regard to the "total contributions and forfeitures" allocated to the participant's account. Because rollover money is neither a "contribution" nor a "forefeiture", no portion of the rollover money is taken into consideration when determining the amount of premiums that may be used to provide an incidental level of insurance coverage." I know this isn't a ruling, but it is in writing and I've never seen anything more official to contradict it.

If the report shows shares, it's probably not a balance forward plan, it's probably daily. You would need to see complete transaction history for whatever participant you choose to test. The only way the gain/loss is correct would be for the number of shares purchase to be correct. Obviously, you need to check dividends, if applicable.

Correct.

We do the same. Although I'm sure ours are much lower quality than Ms. Phillips'.

You're focusing on the labels for the sources and not content. If I created a source called "masteff's beer money" but I use it to put non-elective contributions into, then that money is non-elective despite my label. Now, if they call it "ESOP" right now, that's a bit misleading ("future ESOP" might be a bit better), but it's still non-elective contributions and your accounting and 5500 work will reflect them as such... until they actually make the amendment and convert to an ESOP. Question: I'm confused between your two posts... are they amending in the future or have they amended for ESOP already? As of 12/31/08, the 401(k) was in place and had been for a number of years. In April 2009, the 401(k) is amended to add a new source to accept the "earmarked" ESOP contribution. In summer 2009, the new ESOP is going to be created and the $800k will be transferred from 401(k) to ESOP. Then, the $800k will be used to purchase stock. And, fortunately, we aren't doing the TPA work on this plan. That's someone else's fun time. Thanks.

I guess my biggest concern is that they are amending the plan and creating a brand new source after the end of the plan year. They aren't allocating this in the current non-elective source that existed in the plan on 12/31/08.

I need some help understanding a transaction that has been proposed to a client of the accounting firm that I work for. We don't do any TPA for this client at all. The following is a description of the transaction from the plan's ERISA counsel. The transaction has been recommended by a firm that specializes in ESOP's. This transaction began last week (April 7, 2009). It just doesn't seem kosher to me, but everybody seems to have signed off on it. What am I missing? Thanks in advance for any comments. The Transaction. - ABC sponsors a 401(k) profit sharing plan. It has been in place for many years. - ABC is considering an ESOP. It has not yet been drafted. - ABC has approximately $800,000 of income which it would like to offset with a deduction. - The idea is for ABC to make a $800,000 contribution to the 401(k) plan for the 2008 plan year and take a 2008 deduction for this amount. At the time of the contribution, the $800,000 would be allocated among the participants (which may result in a disproportionate allocation in favor of the non-highly compensated workforce due to the highly compensated employees possibly being close to maxing out on annual additions prior to this contribution). This contribution would be "earmarked" or "designated" for later transfer to the ESOP that is to be formed. I believe the 401(k) needs to be amended to reflect allow this transfer. I have not been involved with this sort of transfer before, but the ESOP person that ABC has been working with seems to think it is not an issue. - After receiving the transfer of the $800,000, the ESOP would use that money to purchase ABC stock from the current shareholders. The 401(k) Plan. - The 401(k) allows the employer to make discretionary non-elective contributions. - The amount of the contribution appears to be limited only by the deductibility limits (basically 25% of payroll). A contribution of $800,000 would be well under this limit. - The 401(k) looks like a 404© plan, thus the participants have control over the investments of amounts allocated to their respective accounts. To effectuate the transfer from the 401(k) to the ESOP, I believe we would have to amend the plan to give a named fiduciary or plan administrator the authority to direct the investment of that contribution. Of course, the fiduciary or plan administrator would then have to make a call as to the prudence of moving from whatever investments are available under the 401(k) plan to the company stock that is the only/primary investment in the ESOP.

The fee probably covers things like notices, 1099's etc. Who does that if you work outside the process?

On page 6 of the instructions, under Part II, says make the check payable to "United States Treasury".

Well, we are denying the claim for lack of documentation but also saying it is too late to resubmit because of the deadline. The question is, is the deadline for the initial submission. for the complete claim or is it up to the Administrator? The Accudraft document that we use says the date is "to submit". So if you deny, then you are under the appeal process just like oriecat says. If you don't want the runout to be that long, then amend the plan and make it 30 days.

I did a search and it looks like my part of the question was discussed a few years ago on here: jvanheydeApr 19 2006, 04:16 PM I'm having a discussion with our new HR director and we have a difference of opinion on the amount to which a participant in a Section 125 Plan FSA is entitled to if and when the participant terminates employment. Don't worry about COBRA for these purposes. Assume Participant ("P") elects $2,400 of coverage on day one (January 1) of the plan year and will have $200 of compensation withheld from his paycheck on the last day of each month. As of March 31, P has had $600 of compensation withheld, and incurred no claims. On April 17, P got very ill because he owed so much in taxes, and incurred the full $2,400 of medical claims. Assume the claims will not be submitted until May. Now, here is where I'm having a dispute or difference of opinion. My HR director agrees that if P continues to work for the employer and submits the claims for the April 17 services in May, the employer must reimburse the full $2,400 even though at the time of the claims submission in May, only $800 has been withheld. However, the HR director says that if P terminates employment on April 20 and then submits the claim in May, the employer "must" only reimburse the sum total of the year to date withholding ($600 - 3 months @ $200). Her position is that you can treat a terminated participant different than an active participant with respect to a claim that was clearly incurred while P was an active participant, if the claim is submitted after the termination of employment. Her position draws a distinction as to when the claim is presented (i.e., while employed or after termination), even though the claim was incurred while P was an active participant in the plan. This evidently is the position of a national section 125 administrator. To me, it guts out the concept of a risk shift if the employer's potential liability is mitigated in this manner when the employee terminates. To me, it seems that all that matters is when the claim was incurred, and it does not matter if P was an active participant or terminated participant when the claim is submitted. QDROphileApr 19 2006, 05:18 PM If you are reporting correctly and I am reading you correctly, your HR director is wrong. You are correct that it would make mincemeat of the uniform coverage rule. I would say something unkind about the national administrator, but I have doubts that it agrees with your HR director. oriecatApr 19 2006, 05:30 PM I agree with you and QDROphile. GBurnsApr 19 2006, 11:34 PM I also agree. As long as the eligible expense in incurred while covered it cannot be treated differently and must be reimbursed to the full $2400 regardless of how much was contributed by the employee. jgarberJul 6 2007, 03:14 PM I hate to resurrect this issue, but in this case where the employee terminated, would you withhold the remaining election ($1,800) from the employee's final paycheck? GBurnsJul 6 2007, 04:25 PM No. What would give the employer the right to withhold an amount in excess of the "per pay period" amount stated on the Salary Reduction Agreement? LRDGJul 6 2007, 05:01 PM The PD can be written in such a way as to allow the ER to minimize the risk of loss by withholding the remaining balance due for COBRA from the final paycheck. Assuming no conflict with state/local laws with respect to payroll withholdings. It is impossible for the ER to eliminate 100% the risk of loss in the Medical FSA. It is the intent of the regs for the ER/plan to bare some risk of loss. If the risk is eliminated, the plan does not comply. The size of the organization administering the plan bares no relationship to compliance. Some of the big players administer 125's in a way that eliminates the risk referred to in the regs and are never the less out of compliance. Not everyone plays by the rules. Some believe they're above the rules. GBurnsJul 8 2007, 04:12 PM How can the employer withhold for COBRA if the employee has not elected COBRA? LRDGJul 9 2007, 01:55 AM When the cobra election is made the 3 payment options for Medical FSA are 1. withhold from the final paycheck 2. allow cobra participant to issue a personal check or a combination of 1 & 2 the two 3. pay monthly FSA cobra payments Without the option to withhold from the final paycheck, the tax savings benefit is lost, which is the sole benefit participation in the FSA provides. It provides incentive to continue participation on a post employment basis while maintaining tax savings. The option reduces the incentive to spend the annual elected amount before termination, helps avoid forfeiture for those with expenses after termination, while maintaining the tax savings benefit. How can the employer withhold for COBRA if the employee has not elected COBRA? Cobra election by the participant/EE is voluntary. Participant/EE can waive coverage under COBRA. Cobra compliance by the plan/ER is mandatory. It must be offered to terminating participants/EEs. GBurnsJul 10 2007, 03:47 PM I know very well the procedures involved. The OP clearly stated " Don't worry about COBRA for these purposes.". In any case, outlining the options is irrelevant to this thread. The issue is not withholding for post termination participation in the FSA. The issues are : 1. The applicable cut off date for filing claims. 2. Recovering any amount over reimbursed by deducting from the final paycheck.

That run out likely began 1/1/2009 even though his employment ended 5/20/08, at least most of the documents I've seen don't specify the run out to begin on a mid-year termination at that time. March 31 was the 90th day, if that is what the plan specifies. The plan documents do need to be checked to make sure Bill's concerns are vetted. I agree that the run out likely started 1/1/09, even though I didn't say it. So let's assume it was timely submitted. I still don't think anyone has actually addressed the question. QDRO and Burns continue to act like children, so I'm just going to ignore them. Please assume the deductions happened like they were supposed to and the participant actually had $418 withheld before he quit. If he submits the claim AFTER he terminates, is the plan still obligated to pay him the full $988?

I'm a bit confused about a couple of things, so please bear with me. 1. Participant elects to have $38 per pay period withheld for 2008. 2. Participant quits 5/20/08 so he has probably completed 11 of the 26 pay periods and had $418 withheld. 3. I think we are all in agreement that if he turns in $988 of claims on March 31, 2008, the company/plan would have to pay the full amount. 4. The OP says that he comes in and submits the claim on March 31 and I am assuming it is 2009. Questions: 1. With this scenario now laid out (assuming I'm accurate), does everyone still agree that he is eligible to receive the full $988? 2. What is the "run out" period? I'm guessing 3 months/90 days, but just want to make sure he didn't miss a deadline.

The only test is how many people were eligible to participate on January 1. That includes any employees that became eligible on January 1, so it's not the same number as December 31, 2007. It also includes terminated participants with account balances. Now, assuming the plan was effective in a year before 2008, that number would have to be more than 120 to be required to have an audit.

The majority of our plans are cross tested physician plans. We have almost every plan set to have forfeitures to reduce. When we're trying to target the contributions for various groups, I don't want to have to worry that we need to consider $47.53 for each person as a forfeiture to get them to the needed number. We just do the calculation and then subtract the forfeitures from the amount that gets ACH'd. Seems much cleaner to me.

Sorry I missed part of the rules. I should have known better than to comment on IRA's.

That's where you are wrong. To be tax free they still have to be a "qualified distribution".