MGB

Nothing new here. You describe a standard cafeteria plan under Section 125. That has been around for over 20 years.

Without something official from the IRS to the contrary, I'd side on caution and follow the letter of the law (Holland's approach). As long as there is disagreement internally at the IRS, we will probably never get anything from them.

How about "illegal"?

Given that the law passed yesterday forbids an auditing firm from providing actuarial services, I would think they need to spin off somewhere. Granted, that is a restriction on services to the same client, but audit clients are where nearly all of their actuarial consulting is focused on.

I thought they had already sold/merged that into Buck.

There is no double taxation on the principle in this example. They have the 1000 loan in cash and the 2014.38 distribution in cash. They have been taxed on 1014.38 and 2014.38. The only extra taxation is on the loan interest (14.38), as previously stated.

Not for ADP testing. However, they must be aggregated for applying the 402(g) limit of $11,000. This is an individual taxpayer limit across all plans that they participate in.

Personally, no.

The results of the Erie county case would not apply to differences between retirees and active employees. It only applies when there is an age-based distinction within the retiree group.

And then there is the other sides to the story not in the IBM announcement... In this era of enhanced scrutiny of auditor independence, one has to wonder about the relationship between IBM and PwC, now that IBM is buying Monday (PwC Consulting). What they don't mention is that PwC is IBM's auditor (although they alude to the fact that the SEC is involved with a no-action letter because of it). Then there is the crazy HWP debacle. Prior to buying Compaq, they were trying to buy PwC Consulting for $18 billion. IBM just bought them for $3.5 billion.

Yes you need EGTRRA amendments in 2002. There are many provisions (eligible plans to accept rollovers from this plan; top heavy provisions, 415 limits, etc.) that affect even frozen plans.

The law doesn't limit prior service credit. Defined benefit plans give more than 5 years quite often (new plans, new purchased groups entering plan, etc.).

Yes, it is (always has been) true for dependent care accounts (accrual basis applies). No, it is not (always been) true for health reimbursement accounts (full amount is available from beginning of year). Your twisting this together with opting out of the health plan may invoke additional issues which would require more knowledge than I have on this.

What do you mean by an annuity fund? Is this a qualified plan? Is it a defined benefit or defined contribution plan? Is this a private employer, a church plan or a governmental plan? You listed this under the defined benefit plan board. However, you use terminology (fund and account) that imply this is a defined contribution plan.

This example is a restriction within the plan limiting the participant's rights. The 100,000 minimum for the specific investment advisor is not a plan provision, nor does it limit anyone in their right to use any plan provision. This example does not apply to the situation given.

If a particular mutual fund required a 100,000 minimum purchase, would it be off limits to the person just because no one else had 100,000 in their account? I don't think so. I don't see any difference in the analysis of using a professional investment manager. It shouldn't be a restriction.

I have a very, very bad feeling about an actuary that used 7.5% in 2001 and 8.5% in 2002 for nondiscrimination testing. The only rational reason for this would be to manipulate results. There is no justification for this change in the current markets.

YES. This problem with these deals has been brought up numerous times and I expect the IRS to invoke the excise taxes on a "test case" sometime in the future.

I had to deal with this on a terminating DB plan. The employer had reported about 400 participants regularly in annual valuations. The compensation data provided was often a rate or an estimate, not usable in actual benefit calculations (we did not do any administration - just actuarial, this was a subsidiary of a Fortune 100 client). When we went to terminate, we required them to provide us with five years or more of correct compensation. When all of the correct information was gathered at the multiple local plants, guess what....there were actually 3800 participants, most of the extras being illegal aliens. The only "fortunate" thing about this is that they were there and could be given cashouts. No need to track anyone down. However, we never did find out if there were terminated vesteds that we similarly didn't know about. Basically, the local management never reported anyone on an ongoing basis that they thought would not become vested. Note that if you fill out an SSA with incorrect SSNs that nothing happens.

The rules being discussed here are only a safe harbor. A plan does not need to suspend contributions to prove that there was a substantial economic hardship. (I have personally been in a plan of a major employer that did not suspend.) However, if the employer wants to make use of the safe harbor approach, then LWilson's reply is correct. In other words, "what do the plan documents say?" Here, both the old and new documents would have an impact. Your description of them having safe harbor language may or may not include the "all plans of the employer" language.

Is there something in the plan that says they must be US citizens to participate? I doubt it. I don't see why they shouldn't be treated the same as anyone else.

412(i) has nothing to do with being able to make use of overfunding. A fully-insured plan cannot be overfunded. Perhaps your question is whether it is advisable to add over-priced insurance contracts to the plan to use up the overfunding?

The new rollover rules have nothing to do with the conversion of a 457 and establishment of a new 401(k) plan.

How can an administrator "require" you to send money? Whether there is a fund set aside should be based on the plan's provisions, not what an outside administrator wants you to do.

A municipality is ineligible for a 401(k) plan unless they had one in the 1980s and were grandfathered.