Moe Howard

Under the leased employee rules, the lessee (the SEP employer in this discussion), must treat the contribution made by the leasing organization (for the leased employee) as if the lessee paid it..... when the lessee computes the IRC 415 limits on contributions. If the lessee's inclusion of the leasing company's contribution (for the leased employee) causes the 415 limits to be exceeded by the lessee.... then the lessee can reduce (offset) it's own contribution (for the leased employe) by the amount of the leasing organization's contribution, and thus force 415 compliance. However, this ability to "offset" must be specifically allowed in the plan document of the lessee. So, if your plan document does not state that you may reduce/offset your contribution (for the leased employee) by the leasing organization's contribution (for the leased employee) .... then you (the lessee) cannot offset. This applies to all qualified plans. A SEP is a qualified plan. Even without the 415 failure issue, the plan document can profide that offset is allowed.

Yes. If the employee meets the IRS's "leased employee" requirements .... and meets the SEP's eligibility requirements, then he must be allowed to participate in the SEP. However, an exception does exist. He can't participate in the SEP if all three of the following are true. 1) Leased employees represent less than 20% of the SEP employer's work force. 2)He is qualified to participate in the leasing company's plan. 3) The leasing company's plan is a money purchase pension that allows immediate participation, full immediate vesting, non-integrated, and rate of at least 10%. Also, Yes the SEP employer can reduce his SEP allocation by the amount that leasing company contributes for the leased employee (to the leasing company's plan). So, the SEP employer is at the mercy of the leasing company to furnish the SEP employer with deatils about the leasing company's plan.

Sole proprietor started his business on 11/20/01. He will probably have net profit of $15,000 between 11/20/01 - 12/31/01. He has no employees. He wants to establish a Simple-IRA for calendar year 2001, within the next few days. MY QUESTIONS: 1) Can he contribute a max of $ 6,950 to his new Simple-IRA account for year 2001 (if he does in fact have $15,000 net profit from 11/20/01 - 12/31/01) ..... comprised as follows ? $6,500 elective deferral + $450 [3% match on $15,000 income] = $ 6,950 2) By what deadline must he contribute the $6,500 elective deferral ? 3) By what deadline must he contribute the $ 450 match ? 4) For next year (2002) ... must he contribute his elective deferrals monthly ? ... or can he wait and make one big lump contribution for the whole year 2002 ? 5) Since he gets no salary check from his business (remember he is a sole-proprietor) ... are the words "elective deferals" & "match" the proper terms to use when discussing his contributions.

Shelton - True. A SEP participant's account addition was not increased to 25% for year 2002. It was increased to the lower of 100% of his eligible compensation or $ 40,000. (Which means that much more can be deposited to his SEP account for year 2002, than he can exclude for year 2002). See IRC 408(j) and IRC 415©(1)(A) as amended for years beginning after 12/31/01. What am I missing here ? I realize that what I'm saying defies logic .... but IRC 408(j) says the lower of 100% or $40,000 can go into his account, but he can only exclude a max of 15 % according to IRC 402(h)(2).

[ Yes, see Moderator's comments and discussion later.--gsl ] At the present time, any SEP participant in year 2002 will only be allowed to EXCLUDE (from his year 2002 taxable income), his year 2002 SEP contribution up to a maximum of 15% of his eligible year 2002 compensation. Reason: Because EGTRRA (the Economic Growth Tax relief Reconciliation Act of 2001) ... never amended IRC 402(h)(2). In other words ... the maximum exclusion is still 15% for year 2002. EGTRRA did amend IRC 404(h))(1)© and IRC 415©(1)(A), to allow the SEP's employer to deduct 25% for year 2002 (up from 15% for year 2001) .... and .... to allow a SEP participant's year 2002 SEP account to have 25% of his year 2002 eligible compensation put into it. A lot of people have said that they feel sure that IRC 402(h)(2) will soon be amended to allow exclusion of 25% .... but so far I have seen nothing on this matter by the IRS. Has the IRS addressed this matter yet ? Where might I read what the IRS has to say about it

Question regarding a partnership's Profit Sharing Plan. Facts: a) Only discretionary contributions are made to the PSP. b) The plan has 8 participants ...(3 are partners & 5 are regular employees). c) The plan year end is 12/31/00. d) No contributions are made during year 2000. e) In January 2001, the contribution $amount for year 2000 is determined ($ 8,500). Also, its allocation among the 8 participants is properly computed ($ 2,000 for each partner and $500 for each regular employee). [3 @ $2000 = $6000 and 5 @ $500 = $2500]. QUESTION (concerning the payment of the contribution). Can the partnership contribute $2500 to the plan trust in January 2001 for the 5 regular employees .... and then in March 2001 each of the partners write a personal check for $2000 to the plan trust ? (In other words: Can a partner fund his Keogh with a personal check ....or must an employer check be used ?). Anyone know of a tax code or reg that addresses this issue?

Thanks everyone. MWeddell: Would you like me to overnight the sandwich to you?

I thought that VEBA trusts were strictly for funded self-insured welfare benefit plans ... and that fidelity bonding was required under ERISA for such a plan.

I'll buy anyone, who reads this message, a large ham po-boy sandwich from the best sandwich shop in New Orleans - if they can show me any place in Benefits Link which says that ... the only highly compensated employees & the only non-highly compensated employees that are considered when performing the ADP, ACP, and mutiple use tests are those HCEs & NHCEs that meet the eligibility requirements of the plan being tested. (For example: If employer has 10 HCE and 30 NHCE ... but only 2 of the HCE & 5 of the NHCE meet the 1 year of service & age 21 requirement per the plan documnet ... then the ADP, ACP, & Mutiple Use tests are only performed on the 2 HCE & 5 NHCE). Why is something so basic not mentioned in any message or Q&A in Benefits Link ?

A business has a SEP plan which allows employees to contribute through payroll withholdings. The employer's fat bookkeper withheld the proper amounts from employees for a whole year... but she never deposited any of the amounts withheld into the employees' SEP accounts. The employer says that she stole the money and that there is nothing that he can do. The employees intend to sue the employer in state court for breach of contract .... However .... .... MY QUESTION: Are there any IRS or ERISA penalties that the employer is subject to, for failure to deposit the withholdings (timely) ? I realize that a SEP is not a qualified plan under ERISA. If anyone can direct me to any specific IRS or ERISA code sections which explain what the employer penalties (criminal or $monitary) might be regarding a SEP ... I'd appreciate it.

40 unrelated employers (that practice in the same industry), form a association in order get reasonable medical insurance premium rates for their employees. The "association" contracts with a national insurance company for group coverage and the association hires a professional TPA to process claims & deal directly with the insurance company. All 40 employers send their medical premium payments to the TPA each month. MY QUESTION: Each of the 40 employers is the "fiduciary administrator" of its company's medical plan. But none of the 40 employers has a direct policy with the insurance company (There is only one insurance policy contract that the insurance company has in this matter .... namely: the policy is between the insurance company and the "association"). If the TPA refuses to process or pay a claim for a participant ... who can the participant hold legally responsible ? I would think that he could NOT hold his employer/administrator responsible (even though the administrator is a fiduciary of his plan) because the employer has NO contract with either the TPA nor the insurance company ? Also: Although the TPA gave all participants a copy of the medical plan booklet ...the booklet says that it "is NOT a summary plan description".

Does the US Tax Code specify that $contributions to Sec 529 college tuition plans (paid by a business) are deductible by the business .... if the beneficiaries of the tuition plans are the children of the business' employees ? My client (a LLC), wants to start making contributions to the Sec 529 tuition plans of its employees' children .... and deduct those payments as a tax-free fringe benefit to it's employees. Can it be done ? If that won't work .... Can the business establish a Sec 125 plan and have the Sec 529 tuition plans as one of the pre-tax benefits of the Sec 125 plan ?

Every welfare benefit plan with more than 100 participants must be audited .... Except the following (that have more than 100 participants) don't have to be audited: 1. Any plan that is fully insured, unfunded .... or a combination of fully insured & unfunded.

Jeanine: How can a self-insured medical plan be a separate legal entity ... if a legal trust does not exist ? There are two kinds of self-insured plans ... unfunded and self-funded. A legal trust does not exist for an unfunded plan, and therefore the employer must bear the full liabilty. All claims are paid from the employer's assets. Only the employer can be sued. A legal trust does exist for a self-funded plan, and therefore this type of self insured plan is a separate legal entity, and thus .. this type plan can be sued. (Only the employer or trust can sue a service provider. A plan participant can never sue a service provider. Am I correct ???)

GBurns: I understand your point that the self-insured plan is not a legal entity and that the service providers are (ie: TPA, claims administrator ...etc). But isn't it true that a service provider can only make recommendations to the employer regarding "denial of a claim" and thus, only the employer has legal liability to the participant regarding claim denial ? In-other-words, a participant has no contractual agreement with any service provider of the employer ... and as a result the participant can never sue the service provider. But a participant can sue the employer if the employer stands by the improper recommendation of claim denial furnished by the service provider. Can the participant ever sue the employer in State Court ?

It was my understanding that fully-insured medical plans are governed by State Law ... and that self-insured medical plans are governed by ERISA. Can a participant (whose medical claim is denied by his employer's "self-insured medical plan") ever sue his employer/ plan sponsor in State Court? ... or is he only allowed to sue in Federal Court ?

The self-employed person's deferrals & contributions (to his own participant account) ... are never allowed to be deducted in arriving at his SE income. However, deferrals & contributions made to the participant accounts of his employees will be deducted in arriving at his SE income.

All welfare benefit plans do not have the same eligibility requirements. For example: An employer might offer fully insured medical and fully insured disability to its employees. These are two separate welfare benefit plans that are offered (by employer) to employees on a pre-tax basis. Combining these two separate welfare benefit plans into one single "plan document" does not result in one plan, for purposes of completing line 7 of Form 5500. (ie: 20 employees might meet the eligibility requirements of the medical plan ... while 50 employees might meet the eligibility requirements of the disability plan. This would require two separate Forms 5500). If each of your welfare benefit plans have the same eligibility requirements, then you are correct in thinking that you can file one Form 5500 for both plans and one single Schedule F (if all the benefit plans are pre-tax).

I would think that your main problem is not going to be how to cram all the Sec 125 & separate welfare benefit plan contents into one plan document .... but rather how are you going to enter on "one" page 2 Form 5500 - lines 6, 7a, 7b, 7c, and 7d numbers of participants in different plans. Such a problem will exist when the employer has more than one welfare benefit plan and each plan has a different number of participants. Remember that Form 5500 is now machine read and handwritten notations in the margins (to DOL or IRS) to explain things are not allowed anymore.

Actually a Sch A does have to be filed in such a situation if the plan is an ERISA plan and a Form 5500 is required for the plan. Since a self-insured plan (by it's nature) is never fully funded, then some benefits will always be paid from the general assets of the employer.

When the Canadian was working in the foreign country ... was she still employed by the plan's sponsor ? If yes: then of course she will remain an active participant in the plan. When she is later transferred to Canada ... is she still employed by the plan's sponsor ? If yes: then she will remain an active participant in the plan. However, if she becomes an employee of a Canadian corporation that is a subsidiary of her former US employer (the plan's sponsor)... then she will not be a participant in her former US employer's plan. And now your last question: Does the IRS allow tax free rollovers of US based retirement plans to Canadian based retirement plans? I have no idea.

There is no problem. What you describe is very common. The IRS allows the plan's sponsor (employer) to deduct the administrative fees that it pays for and on behalf of the trust. If the sponsor wanted to, it could order the trust to pay the fees directly to the service provider by taking funds from each participant's account. Neither is there any DOL requirement that fees for services provided to the trust cannot be paid by the plan's sponsor (employer).

Yes, I know what the employer has to do. It has to correct its error. The error which you describe is referred to in IRS Rev Procedure 98-92, as a "insignificant operational failure". The employer is required to correct the error by contributing additional funds to the participant's account now. The contribution must take into account both the neglected match $amount (over the neglected years) and also the $earnings that those neglected matches would have earned for the participant. This required method of error correction is known as "self-correction, under the IRS's Administrative Policy of Self-Correction". The error you describe (although small) is an operational failure, which could disqualify the entire plan (if not corrected timely by the employer) .... because it shows that the plan is not being operated in accordance with its terms. The participant has no responsibility to catch the payroll department's error. The employer has the responsibility to correct the error as explained above.

What do you mean by "the portion of their salary paid by the S-Corp" ? Your initial question says that the two entities will not constitute an affiliated service group ... which means that the degree to which they will share employees is not sufficient to force the status of a affiliated service group. Each entity will have to give it's employees a W-2. Since only the S-Corp has a plan and since the two employers do not constitute an affilited service group ... then of course - only the the employees' S-Corp salary will be eligible for the S-Corp's plan purposes.

What specific requirements must a priest meet in order to "retire" ? The answer to the above question will solve your question (regarding the disassociated priest). If the disassociated priest does not meet your church's retirement requirements ... then he is not retired, and therefore he cannot exclude his free housing form being taxable. I assume that he still provides some service for the church. If he provides no service in return for the housing ... then the housing is not earned income and therefore not taxable for that reason.