Alf

The description of a 105 "reimbursement" plan in the intial post is wrong. These self-insured medical plans are just like insurance from the participants stand point. It is not use it or lose it, just lose it. If you pay premiums for coverage under a 105 plan, the money is gone, just like an insurance premium. If your health expenses are twice what you paid in premiums, the excess is made up from other participant's premiums or from stop-loss insurance coverage that the plan sponsor purchases.

I agree, although I don't think that the conduit nature of the IRA is affected. The after-tax money is not really "in" the IRA, so she should still be able to treat it as a conduit IRA and roll the money into another plan if she wishes.

I think that you are on the right track with the match, but there are still things to watch out for. If the match is made at the end of the year, it will be much less effective in increasing particpation because the employees will not recognize the benefit. Try and make sure that the match is allocated on a payroll period basis so that the employees really get to see the benefit immediately. If it were a 401(k) plan, I would recommend the negative election approach (all of my clients are doing it), but I don't think that the IRS will let you do it for a 403(b)plan.

Actually, they are both on the calendar year. The difference is that the conversion counts for the year of conversion (2000) and the contribution counts for the year it is designated (1999 or 2000, whatever you want). It is not really a fiscal year, but just a rule that lets you designate a contribution made in 2000 as a contribution for 1999.

It is worth repeating that you have to look at the terms of the plan. Each plan is different. Specifically, check the definition of compensation for purposes of the deferral elections - the bonus may already be subject to the participants existing election. If not, once the bonus is payable (the period that the services are to be performed is complete), it is too late to get another deferral election. Also, there is no limit on the percentage that can be deferred into a plan except for the 10500 and 25% of compensation rules. So, if the plan permits the employee to defer 100% of a bonus, that is ok.

I don't see how the failure to remit contributions is a PT. It clearly is a fiduciary breach and a qualification defect because the plan terms were not followed. I would be interested in hearing the logic regarding a PT. I also agree about 415. The correction will (probably - see above post) be an annual addition, but not for the year of correction. The 415 test for the year of the failure will have to be re-run.

It sounds like the contributions were withheld from the participants pay, but never remitted to the plan. Is this the point? You are going to have to pay up to the DOL including interest and the penalty. I have always thought that the "annual addition" tag was pretty hard to avoid (the only way to avoid it is by making restorative contributions to settle fiduciary breach claims - which might just fit the bill here). You are also going to have to track down the ex employee and contribute the missing funds to their accounts.

Yes.

It may be possible to have the employer pay the fee directly. Read the contract with the investment company and see if it can be done. An employer can pay plan expenses directly without impacting the deduction / allocation limits.

There is no answer. See the IRS request for comments on the issue of HCEs in M&As in Sec. V of Notice 2000-3. I have heard two answers from the IRS at conferences. One said that the comp. history carries over in both stock and asset deals. The other thought that the comp. history only carries over in an asset deal. In practice, I suspect that most employers are treating the employees as new employees, but that really sounds abusive to me, especially in the context of an asset sale.

Of course, you'll need to carefully review the plan document for specifics, but the general rule is that the individual will be eligible upon return to employment. As for deferrals without pay, again, check the plan terms because they always have to be followed. The plan should provide that deferrals can only be elected from compensation paid by the employer. Also, there may be problems with the IRS if your plan permits participants to defer from amounts that aren't compensation from the employer.

Wessex is right on. You should always send in any documents that are not covered by a previous letter. In AP's case, the IRS will almost certainly require it because the plan does not have a previous determination letter.

The cash out rules are optional, but they have to be in your plan document in order to use them. Code section 411(a)(11) contains the requirement that a participant must consent to any distribution if her account balance exceeds 5,000. So the rule is not that an involuntary cash out can be made at less than 5,000, but that an involuntary cash out can't be made above 5,000. 401(a)(7) requires the plan to meet 411.

How frequently is the match funded? I have seen participation increase when employers change from funding matching contributions on an annual basis to funding them each pay period. I guess that employees are more aware of the match when it hits their accounts each pay period.

Employees must have a right to receive their distributions in stock, whether the distributions are at the time of termination or five years later. You can't automatically buy back the shares unless the participants exercise their put rights. Until the distributions are actually made, their accounts will have to be kept in stock, so I don't think that you can convert their accounts to cash.

F.Y.I. - I established my Roths at an online brokerage firm. It was as easy as opening any account and I have been very pleased.

The full benefit must be payable at normal retirement age, but the union has a lot of discretion to develop a benefit formula. Any provision for payment prior to normal retirement age is optional and can be structured as you describe.

Each rate of matching contribuiton is a benefit, right, or feature that must be tested under Code Section 401(a)(4). If the deferrals are based on different compensation amounts than the matching contributions, then wouldn't there be a potentially unlimited number of matching contribution rates to test? If there are any HCEs in the plan, this could be a problem.

I think it is important to clarify whether you are talking about a true "rollover" (in which a participant receives a distribution from a prior plan and contributes it to a new plan) or a transfer or merger (in which there was no distribution from the prior plan, but the trustee sent accounts to the new plan). If it is a rollover, it is a contribution that is subject to whatever rules the NEW plan provides for rollover contributions and rollover accounts (it is free of the old plan's rules because there was a distribution to a participant). If it is a transfer, it is subject to the rules of the old plan and the new plan. Confusing, huh?

You need to read your plan's document very carefully and make sure you know whether bonuses and other extraordinary compensation are to be included as "compensation" for various purposes under the plan. If they are, it is improper to pay bonuses without the deductions. It seems like it would still be a technical violation of the plan even if it was made up on the next pay check.

We charge a $75 set-up fee and $50 a year service fee. These are set at a pretty high level to help disuade participants from taking loans of small amounts.

There is no answer. See the IRS request for comments on the issue of HCEs in M&As in Sec. V of Notice 2000-3. I have heard two answers from the IRS at conferences. One said that the comp. history carries over in both stock and asset deals. The other thought that the comp. history only carries over in an asset deal. In practice, I suspect that most employers are treating the employees as new employees, but that really sounds abusive to me, especially in the context of an asset sale.

FYI - The problem can also occur in a plan that calculates and allocates matching contributions on a payroll (or monthly or quarterly) basis if an employee changes deferral elections during the year from an amount that is over the plan's match limit on deferrals to an amount below that limit. For example, if the plan matches deferrals of up to 3% of comp. and an employee deferrs 4% of comp. for Jan-June and then changes his election to 2% of comp. he deferred a total of 3% of comp. for the year and should have received a match on all of it, but he only got a match on 5% of compensation. Both examples (10,500 cap and changes in elections) involve front-loading deferrals during the year and can usually be solved by providing employees with examples or explanations along with their deferral election forms.

Two questions: 1) Does the plan require the matching contribution, or is it discretionary. If the contribution in required and participants have satisfied all of the requirements to recieve an allocation, it it too late to amend the plan document and the plan will be disqualified if the matchint contribution isn't made. 2) If the match is discretionary, the participants don't have a right to it until the money is allocated to their account. I doubt that including the money on their statement is enough to prevent it from being taken away. Of course, I would want to correct the disclosure issue as soon as possible, but if the money has not been allocated to the participant's accounts, a discretionary contribuiton can still be taken away. You may, however, face some type of reliance claims from the participants. I don't think the employer's deduction should control. If the pension rules permit the contribution to be skipped, the corporate tax return should just be amended. tching contribution is requeithe plan document can't be ame

The key is to determine how your plan reads. Does the 15% deferral limit apply to compensation each payroll or month (probably not) or is it really an overall annual limit. You will only have a problem if the limit is literally imposed on a payroll or monthly basis. If so, I don't see how you can allow a participant to violate that rule by deferring more than 20% unless you simply look the other way (it still would be a violation of the terms of the plan document that is no better than the original excusion of the employee). If the 15% limit is imposed on an annual basis, Rev. Proc. 2000-16, Sec 2.02(1)(a)(ii) contains a special correction rule (or non correction rule in this case) that can be used for brief (<3 months) exclusions from participation. However, it sounds like it will only work for you if the employee makes at least 84,000 (the employee must be able to defer the same maximum in the remaining period (10 months in your case) that he could have for the entire 12 month period so if 15% of 70,000 for 12 months =10,500, 15% of 84,000 for 10 months = 10,500).