Dawn Hafner

I agree. You need two 5500s. One for the health insurance benefit (welfare plan) and one for the cafeteria benefit (fringe). On Sch F I would report only the 25% premiums, although there are some people that report all of the premiums. The instructions clearly state contributions "under the cafeteria plan" and the 75% has nothing to do with the cafeteria plan. Note that if your cafeteria plan and health insurance plan are contained in one docuemnt you may file one combined 5500.

Can these excess assets from the DB plan be used in the ESOP for debt service?

From my reference materials, the use of a spouse or child as a broker on either a self-directed IRA or a self-directed brokerage account in a qualified plan would be a prohibited transaction. I think PTCE 97-11 might make this situation OK for an IRA or self-employed plan, but what are the reduced cost services? Can any fees be charged in this situation? This plan is not a self-employed plan and it allows self-directed brokerage accounts. An employee who is a stockholder in a C corp wants to move his account to his son who is a broker. As far as I can see this is at least a prohibited transaction under self-dealing. Does anyone have any good cites for this situation?

I agree. Line 4(d) should be used for one portion and lines 4(e) should list other portions of the plan. Note that on 4(e) you are simply entering your ratio % and there are no numbers entered to calculate to that percentage like in 4©. Also, previously we would fill out a separate question 21 for the nonelective portion indicating "no HCE benefits" if there was not a nonelective contribution. Since only one Schedule T is to be filed, how do we report this? They are only letting us indicate the ratio %. How are other people handling this? Are you only reporting those portions with a current year benefit?

I agree. The form is subject to public discosure. The last thing I want is individual participants to be calling me directly. Also, I don't know how this information will be used. The possibility that a problem with one of my client's 5500's could stem an audit for all of the 5500s I prepare is enough of a reason for me.

OK, here are my final questions after researching. 1) I have excess ADP amounts for a SARSEP year ended 06/30/00. We must notify paricipants no later than 8/15/00 to avoid the 10% excise. Are these includible in their income for 1999 since this is the earliest that these amounts could have been deferred? 2) I also have an individual that exceeds the 15% of compensation limit based on plan year end 06/30/00. Is this limit applied based on plan year or on calendar year? (the IRA Answer Book refers to the calendar year, but I don't see that in the 402(h) section) Since both the employer contributions and the SARSEP contributions contribute to the excess, which year are the amounts includibe? The total excess is $2,000, of which $1,500 is employer contribution. The employer contributions are not allocated until 6/30/00, , so is the excess income for 2000? But of the portion that is employee money, part of it was deferred in 1999, so it is includible for 1999? If the employer contribution is not deposited until 8/15/00 can we just calculate earnings from 8/15/00 until the date of withdrawal? Any comments appreciated. [This message has been edited by Dawn Hafner (edited 06-26-2000).]

I found an example in BNA to show that the 15% is calculated on an individual basis, and after subtracting SARSEP contributions. I assume this still stands even after the 415 limit changes because when I reveiw 415©(3) it includes deferrals, but only 402(g), 125 and 457, so it looks like SARSEPs are still excluded when determining the comp to use. This client has a 6/30/00 year end for the SARSEP. Which year will the excess be taxable? 2000? or 1999?

How does the 15% limitation affect a SARSEP? My reference material states that the 404 deduction limit applies to SEPs on an individual basis rather than on an aggregate basis as in a profit sharing plan. I have a SARSEP in which a participant deferred 15% and the employer SEP contribution is 4.5%. In aggregate the 404 15% limit is fine. What are the consequences to this participant?

The way I understand the requirements we will be required to incorporate the final regulations in our docs no later than January 1, 2001. Our prototype document provider does not know when they will be coming out with the updated document yet.

For this 25% limit (the 415 limit) it may be that the amount you see allocated on your ESOP statement is not the amount actually taken into acount for the 25% test. Some ESOPs will not have to count forfeitures or contributions used to service interest on ESOP debt, plus the earnings on the stock released in your account are not includible for 415. Ask your employer if your 401(k) contributions are causing you to hit the 415 limit when testing both plans. With an ESOP its usually not as simple as the amount shown on your statement. [This message has been edited by Dawn Hafner (edited 06-20-2000).]

A controlled group has an ownership change so that it is no longer a controlled group. The transition rules for 410(B) should apply as this is a disposition. How is the plan affected if this is a prototype document? Is there a transition period to complete the plan spin off and establishment of a separate plan, or is the plan automatically a multiple employer plan on the date it ceased to be a controlled group? Any cites are appreciated.

A controlled group has an ownership change so that it is no longer a controlled group. The transition rules for 410(B) should apply as this is a disposition. How is the plan affected if this is a prototype document? Is there a transition period to complete the plan spin off and establishment of a separate plan, or is the plan automatically a multiple employer plan on the date it ceased to be a controlled group? Any cites are appreciated. [This message has been edited by Dawn Hafner (edited 06-15-2000).]

In this case there will likley be participant elections to some extent, so if there are participant elections and/or 401(k) funds involved and the sale is from the shareholder selling under 1042 are there any registration exemtpions? If the stock is sold from the employer to the plan and there are participant elections Rule 701 works, but without the sale coming from the issuer I don't see an exemption.

See page 10 of the Form 5500 instructions. Generally you would file the controlled group on one 5500, but if "the benefits in which the funds attributable to each employer are available to pay benefits only for that employer's employees" -- separate 5500s must be filed even though it is a single plan for one controlled group. I think you need to look at your document. As long as it doesn't contain language that specifies that only part A of the trust is to be used to pay benefits to company A and part B of the trust is used only to pay benefits to company B I would file one 5500. It doesn't matter that the contributions are being allocated on a per employer basis as long as the plan doesn't contain this separate benefit language.

So, are there any exemptions from SEC registration that would apply to a 1042 transaction? I read the exemptions to only apply on sales from the "issuer", or is the issuer involved as the fiduciary (employer) of the plan. I am concerned that a transaction that would normally fall under a exemption could lose the exemption because the sale is from the 1042 seller, not the issuer.

I agree that the sale is to the plan, but within the plan the participants will be given the opportunity to elect to invest in some of the employer securities. My understanding of the SEC's position is that voluntary investment in a contributory plan (401(k)/ESOP) subjects the transaction to registration absent an exemption.

Under the commonly used registration exemptions the sale from an employer to participants is exempt from registration. How does a 1042 transaction fit into this? Is this considered a sale directly from the selling shareholder to the participants and therefore not eligible for an exemption? Or is the employer considered to be offering the securities to the plan by permitting the 1042 sale? Can the selling shareholder sell to the employer who in turn sells to the ESOP and still be eligible for 1042 and the exemption?

Does anyone know of a stand alone system that prepares illustrations for participants showing them their different potential account balances at retirement based on different savings rates. I would want it to take into account any employer matching, current account balance, age, marital status, exemptions, compensation inflation, and possibly different rates of return. Thanks.

Does anyone know of a stand alone system that prepares illustrations for participants showing them their different potential account balances at retirement based on different savings rates. I would want it to take into account any employer matching, current account balance, age, marital status, exemptions, compensation inflation, and possibly different rates of return. Thanks.

No, it is not a safe harbor or integrated. Increasing benefits to all participants is another option being considered. The early retirement reduction has always seemed excessive to the sponsor and they wanted to eliminate this if funding allows.

I do not think you could make a true-up match based on projected compensation, but doing the true up as the compensation is earned should be acceptable. Just because the compensation used is annual that doesn't mean you must make the deposit annually. Does you plan specify dates at which the matching contribution will be calculated and deposited? Many pension software programs will allow for a match to be calculated based on YTD comp minus prior match so that the true up is constantly done each matching calculation. You also need to make sure that these true-ups are done at the same time for participants that need a true-up for reasons other than hitting the $10,500 such as hardship participants or participants varying their percentages widley. [This message has been edited by Dawn Hafner (edited 05-23-2000).]

DB is significantly overfunded. They want to freeze and/or termate the plan. Considerations are the following: 1) NRA = 65. Plan currently has a 50% reduction in benefits at ERA of 55, a 33% reduction in benefits at ERA of 60. What issues should we consider if they want to eliminate these reductions and allow full benefits at age 55 or 60 with a certain number of years of service - say 20 or 25? They have considered this previous to the freeze/terminate issue. I assume we would have to prove that this amendment was nondiscriminatory. How is this done? Just examine affected participants at the time of the amendment. If we freeze the plan will that eliminate further service accruals? What about someone who is age 54 with 25 years of service and then next year while the plan is frozen they reach age 55. I assume they will get the unreduced benefits. So how is nondiscimination measured if the number of affected participants is changing. 2) Considering using a 401(h) account to use part of the overfunded amount. Assume we would just have to freeze for now to allow for the 5 year window. 3) Considering adding a lump sum payout option for balances over $5,000. How will this affect the overfuneded status as most participants will choose to take lump sum and rollover to 401(k). 4) Timing of GUST amendments with amendment to termiate. Does it really matter which comes first. I have always done GUST amendments before amendment to terminate, can they be done after? Any other thoughts I am missing.

Assuming no HCEs benefit under the plan there will not be any discrimination issues. The classes of NHCEs that they want to exlude can be named as excluded classes on a protoype document. Are these office employees of the temp agency, so that they don't work for other companies? Are the HCEs covered under another plan?

Does anyone know of fund companies that do the daily recordkeeping, have 1-800 and/or Internet, and offer downloads to TPAs? I know MFS and Kemper do. On the insurance side Nationwide, Manulife and Aetna I think do, but I would prefer to stay away from the annuity products. Any other suggestions? I like these arrangements because it leaves the work that we do best to us - compliance, consulting and 5500 work, but not many fund families offer this type of arrangement.

Is anyone using Quantech with the Datalynx (First Trust) investment module? I would be interested in any feedback you have on how this works. Also, Corbel told me I would have to upgrade my Quantech to the Professional Daily product? Is this true? The current system is capable of daily and appears to allow for the investment links if purchased. Why would I need to upgrade? I think we would enter full blown daily step by step, first taking phone calls directly and transfer instructions by fax, but I want the trading directions and settlements to be automatic from Quantech to the funds. Then later on we can add VRU and Internet. Any suggestions?