Bill Berke

I strongly suggest you review this with your CPA. My first impression is that you have income for the trading of services and a deduction for the fringe benefit of the timeshare use by employees - maybe. Who is trading services - you or your company (the employer)? But,I could be all wet and there must be an easier way to get this done. As I said check with your tax accountant.

To reiterate and emphasize what has been said by everyone above - read the document. You cannot deviate from the written formula. The plan must be operated in accordance with the document. If the current formula doesn't work, then you must amend. It is permitted to amend with two formulas (formulae?) simultaneously - one effective in year x, the other effective in year x + 1.

I am not an actuary, but our actuaries have always funded plans based, mostly, upon future liabiities and there is credited service just a deferral of accrued benefit. Using the permitted accural method merely defers the recognition to the third year when the participant would "pop-up" with three years' accrued benefits. Kinda like cliff vesting. By the way, this is my idea, (I think it has merit naturally) but nowhere have I seen a discussion pro or con and I have not heard anything from IRS (and I'm not going to ask IRS). And it is still at the conjecture/we think it's ok stage. But, two different tax lawyers agreed to let their clients do this - both of them also guessing it's ok.

I agree with everything above regarding forfeitures. But, FIRST READ THE PLAN. The document will tell you what to do with forfeitures. Then you can plan the amount of the employer's contribution accordingly

So if my math is correct, your client is going to contribute/deposit $150,000. This is the amount that must be allocated in accordance with the plan's formula and I suggest you preliminarily allocate this total. If the test allocation doesn't work to the client's satisfaction while complying with 401(a(4), 404 and 415, then you may have to amend the plan's allocation formula if you can still do so under the rules and specific client facts.

The commment "sometimes they work together on the same patient" is a killer. For at least that portion of the respective practices you most likely have an ASG. The question is, is the common patient load suffecient to trap the companies in total. I don't know from the few facts, but I suspect yes. I think that, in addition to the quantity of common patients, how the practices acquired the common patients is among the determining factors, along with proportions of income, time and patient load. But, I could be all wet in this area of all gray. This is one case in which you may want to treat them as an ASG and act accordingly, or go to an ERISA att'y and get the whole situation analylzed. Depending upon the money involved, it may be worth paying for an opinion from competent counsel if the opinion is that this is not an ASG.

You are right, it is never too early to save. Try joining the American Association of Individual Investors (AAII)in Chicago, and on the web. I have found that their monthly magazine is one of the best, accurate and objective money/financial planning teaching publications. And they have lots of great educational materials. It is $49 well spent. And congratulations for your forward thinking.

So, one can invest in collectibles in an individual account if one is willing to pay income tax currently and then do (pay for)the bookkeeping regarding tracking the basis for a future distribution. And the division can be a horror as described above. I have worked around this by (in summary) giving everyone a choice of collectible or cash (or some mix) coupled with a detailed explanation of the ramifications and results of electing to have the collectible in their account instead of 100% cash. Usually only the one(s) who want the collectible so elect but everyone has had the equal opportunity to select whatever so I have satisfied 401(a)(4)in operation. Assuming your client is willing to pay the tax, the real issue is - in EVERY case I have seen - PTs and fiduciary breeches. PTs because, inevitably, one or another of the parties-in-interest gets personal use of the collectible and the fiduciary breech is allowing the PT to take place.

Watch this non-answer!!! It all depends upon your state income tax and business governance rules. Although I have only seen K-1 income generated from Calif LLPs and LLCs. I would guess that you could have W-2 income. I don't know of anyway that you would routinely have Sch C income for the LLC's business. But, check your state's rules

The implication in your facts is that these plans pass 410 and 401(a)(4)separately and properly tested on their own. If this is true, then you have two separate plans with their individual participant count controlling small or large plan status

What do these companies do? At least one of the companies must be providing services and the other, although maybe not a service company, must be working with the first company in providing services to customers. And in the facts you presented, this group clearly passes the ownership test in the ASG rules. My favorite example of a non-service industry (no pun intended) is the banking industry. A service business for IRC purposes is one in which capital is NOT a material income producing factor. Banks need money (deposits) to lend out to make profits - cash is a material income producing factor - banks are not service companies. So, what do your clients do? I teach a rule - if you think it is an ASG, then it probably is.

I think you hit the one exception to 408(p)(2)(D) provided that your new DB plan does not accue any benefits to anyone during 2000 which is permitted under the 411 rules. (A plan does not have to accrue benefits for the first two years - a summary, please read the law).

401(k)(4)(B)(i) says tax-exempts can have 401(k) plan. 401(k) (11)(D)(i) refers to 408(p) in which you find (p)(2)©(i) which says any employer can have SIMPLE if no more than 100 employees had more than $5,000 of comp. Thus, I think a not-for-profit company can have 401(k) SIMPLE or IRA SIMPLE.

I believe an employer can stop a SIMPLE during a year merely by announcing that the plan is terminated and that no further deferrals will be taken from the payroll. However, the employer is on the hook for the matching (or general) contribution from Jan 1 through the termination (deferral cessation) date. The termination notice should probably contain the termination results i.e. the accounts are IRAs and the employees have control and can't lose their accounts, that anyone who has not deferred $2,000 can make up the difference into a traditional IRA and whatever else some bureaucrat or litigator can think of.

In addition to the UBTI issue (yes, there is taxable income if the net is over $1,000) and the possible PT, there are the fiduciary issues of whether or not margin accounts are appropriate, can/did each participant make an informed investment decision and is the fiduciary liable for permitting an option which could/did result in unusual losses (given the circumstances)or a negative balance. I rarely see pension trusts use margin accounts and have never seen a large plan use margin as part of its investment routine. If, as has been my experience, the use of margin is uncommon then the fiduciary standard may be set. Headaches galore - ergo I agree no margin accounts. [This message has been edited by Bill Berke (edited 06-15-2000).] [This message has been edited by Bill Berke (edited 06-15-2000).]

This sounds like a prohibited transaction. I would get advice and counsel from competent lawyer before doing anything.

Are you still employed? Are you over the NRA defined in your current plan? Does the plan permit NRA in-service distributions?To "rollover" you must have a distributable triggering event, which revolve around employment termination or attaining certain specified ages. I would doubt that your plan permits investing into a variable annuity while maintaining the American Funds as the choices. But, as Michael Devault said above, check with your plan administrator. Once you have incurred a distribution triggering event, you could then direct the trustee to pay your account balance(s) to the met life contract. Of course, we didn't get to why anyone would ever invest in annuity. But that's a different discussion. You may want to look at the SEC's web-site (SEC.gov) to see that agency's consumer alert regarding varable annuities. Or you could look at the LA Times website financial section for that newpaper's alerts regrarding variable life and variable annuity policies.

You are right, each separate business has its own 15% limit regarding its own participating employee. The integrated excess would come from the business that does not employ the physicians because, it is presumed, that the toal contribution for the other employees would be less than the 15% limit. Sort of like legally "robbing Peter to pay Paul", but this is the process in a controlled or affiliated group situation. Inasmuch as this appears to be an affiliated group situation, I have presumed one plan for all companies. Don't confuse deduction limits with allocation rules. They are separate legal issues with allocations looked at on a plan wide scale and the deductions looked at per each contributing employer co-sponsor. [This message has been edited by Bill Berke (edited 06-15-2000).] [This message has been edited by Bill Berke (edited 06-15-2000).]

ASPA has two good sources for its members (and non-members). You may want to check with the Wash. D.C. office to get names and phone numbers.

You are reguired to explain all the options - per the Treas. Regs. We have a place on our forms for the participant to direct us to the insurance company of their choice if they want an annuity type payment. Otherwise the annuity selection is a fiduciary act by the employer and you or your client should read all the DOL stuff on that point. I hope and believe that getting the insurance company selection from the participant is analogous to 404©limited protection for my client - maybe. Your insurance company prototype may have some restrictions in it, but my attitude is once I see lump sum as an option, the participant can do anything (distribution) he/she wants under the law and with any company. My experience is that no one will take an annuity if they can get cash or rollover to an IRA if this is explained in the distribution election forms. [This message has been edited by Bill Berke (edited 06-14-2000).]

I always believed and operated under the interpretation that the rule of parity applies to and reflects each plan in accordance with that plan's eligibilty service rules. Thus in your example that person would start over because thay weren't a participant upon termnation and they were gone longer than employed. If the plan's eligiblity was one year, then rule of parity looks at one year period not employed. Also, month should be defined in plan document e.g. 83 hours of service in calendar month to get creditfor the month. If there is no definition, then get plan administrator to put memo in file detailing its operating defintion to follow when crediting service. Does 15 days worked mean credit for that month? Memo must define all and tell how to credit under the various possiblities. Suggestion: keep it simple and clear - which usually means using an hours worked standard - but I think that an hours worked standard must be in document. [This message has been edited by Bill Berke (edited 06-13-2000).]

AS I remember, if the fee is included with the premium, the whole thing is counted as part of the plan's deduction and contribution which must comply with 404 and 415. It is okay if the employer pays the fees directly to the insurance company via a second check clearly marked for the expense. Then the fee is deductible.

Gary is correct. You may want to review the DOL's recently announced VFC program. That proposal contains the fiduciary corrections required by the DOL in this situation. It will give you the correction method path to follow to protect the fiduciaries of the plan and to make the participants whole. [This message has been edited by Bill Berke (edited 06-02-2000).]

First, you are not dealing with a 401(a) plan. You are dealing with IRAs. Thus, the correction, I think, must be done by refunding the excess(and related earnings) in the year of deferral and appropriately adjust the employee's W-2. What is not known is whether the failure will be treated as an impermissible contribution to an IRA generating the 6% penalty tax. Of course, if the IRS follows this logic, then the employee has until 4/15 of the following year to withdraw excess and related earnings. But, somewhere in the law or reg's, I beleive this is covered (at least for SIMPLE IRAs). I hope that the same rule applies to SIMPLE 401(k). Which gets to a different issue. As Fred Reish, "notorious" ERISA lawyer, once said "Anyone recommending a SIMPLE 401(k) is committing malpractice." And he is 100% correct when you compare the SIMPLE IRA rules with the SIMPLE 401(k) rules

You didn't say if the new plan is also a 401(k) plan, which could affect the fiduciary issue implied in your question. Transferring plan assets isn't necessarily a termination, as others have already said. There are no rules on the "black-out" period when tranferring assets between vendors or plans. The fiduciary rules require that the transfer happen as quickly as reasonably possible. I've seen black-out periods from 2 weeks to 6 months. It would be the particular facts and circumstances which would determine if there was a fiduciary breech regarding the length of the black-out period. But, there are no rulings, opinions or cases that I am aware of.