KJohnson

Obviously, check your plan document first. I have typically inserted language that mirrors the Uniform Gifts to Minor's Act into the Plan document to resolve such questions. I think a majority of states have adopted the uniform act, but you will have to check. I think there was a precursor uniform act called the uniform transfers to minors act.

I don't think that you would have to wait until 2002 under the new cafeteria plan regs. The recently finalized cafeteria plan regulations state that: "If a plan adds a new benefit package option...the cafeteria plan may permit eligible employees (whether or not they have previously made an election under the cafeteria plan....) to revoke their election under the cafeteria plan and, in lieu thereof, to make an election on a prosective basis for coverage under the new...benefit package option." This is slightly different wording that the proposed regulations, but even if you plan was updated based on the the proposed regs, you probably can allow mid-year changes in elections based on the addition of a new benefit option such as a DCA plan. However, I think the election could only be prospective (not retroactive to 1/1/01) an I don't know if there are any "short year" DCA Plan issues.

Basically, if employeee are offered the choice between cash and a non-taxable benefit, all employees are "deemed" to have selected the cash or are in "constructive receipt" of the cash and will be taxed. In other words, the opportunity to receive cash is, in the IRS's eyes, the same as actually receiving the cash. Therefore if you offer $100 to everyone who "opts out" of health insurance, all employees (obviously those who receive the $100 and not so obviously those who take the health insurance) will be deemed to have received the $100 for taxation purposes. A cafeteria plan, however, is a permissible method of allowing a choice between cash and a non-taxable benefit so that individuals who receive the non-taxable benefit are not deemed to be in "constructive receipt" of the cash.

WESSEX, what was the "Service's informal change in position last year?" I always thought that return of the deferrals and forfeiture of the match was how they wanted this corrected. Also, as to correction by amendment, could you somehow structure your plan amendment to just describe the employees who were erroneously made eligible. Section 2.07(3) of Appendix B is silent on the treatment of "simlarly situated" employees who were properly excluded from participation. For example in one month you let three employees in one department participate on their date of hire. I wonder what the Service would think of an amendment like...."Employees in job category X whose first Hour of Service was in Month Y shall participate upon their first Hour of Service?" To use correction by amendment the employees affected must be "predominantly nonhighly compensated" in any event, so I am not sure what other problems such an amendment would create

If you offer cash to employees for opting out of health insurance you need to have a cafeteria plan in place. Otherwise, you have constructive receipt issues for those employees who select health insurance and do not receive the cash. You might want to look at this thread. http://benefitslink.com/boards/index.php?showtopic=1274

POP Plan provides that an employee will be eligible as soon as they are eligible for health benefits. The employer has a substantial number of 20-25 hour per week employees who will never meet the 30 hour requirement for coverage under an insured plan. Most of these employees would not be excludable under 410(B) coverage testing Would these individual have to be included in a 125 eligiblity test? Could you simply design the Plan to provide for eligibility at the first day of hire? It seems silly to provide for participation in a 125 Plan if the employee can never qualify for non-taxable benefits under the plan.

rcline. Why do you think he would be stuck for 2001? If the Plan has a last day or 1000 hour requirement for a contribution I thought you could amend until someone had "accrued" the benefit for the year?

As to amending the MPP, if it is a calendar year plan, it is probably too late to do anything for 2000. For 2001, you may be able to amend for the entire year if your plan has a last day or 1000 hours of servcie requirement for a contribution. If it doesn't have such a provision you may have a problem although I suppose that you could amend to provide something like 15% for comp through 3/1/01 and 10% thereafter. As to the grounds for disqualification, the IRS would take the position that you already accrued the 15% benefit for 2000 and a plan cannont be retractively amended to reduce an acrued benefit. For MPP there are timing and notice issues regarding reducing the contribution rate and a notice known as a "204(h) notice" must be sent. I haven't looked to see if there is an exception in the regulations for "non Title I" or owner only plans.

Cheryl Morgan also has a good discussion of short year issues in the Summer 2000 issue of the Journal of Pension Benefits (p. 94). She also concludes that you prorate if you define the limitation year as the plan year but would not have to prorate if you define the limitation year as the caledar year ending on or within the plan year.

I believe that there are some exceptions to the spousal attribution rule, have you verified that you do not qualify for the exception?

Bruce you don't see the following statement is 1.408-8 Q&A 5 as a change in the IRS's position on a spouse treating an IRA as his or her own in the situation where a trust is a named beneficiary? In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdrawal rights from the IRA. This requirement is not satisfied if a trust is an named beneficiary of the IRA even if the spouse is the sole beneficiary of the trust."

What is the feeling regarding the new 401(a)(9) regs where IRA beneficiary is the estate and the surviving spouse is the estate's sole executor and a residuary beneficiary with the power to allocate estate assets. Do the proposed regs change PLR 200032044 with regard to the spouse "inheriting" the IRA. 1) Proposed regs only specifically mention trusts rather than estates, but the regs do say that the spouse must be the "sole beneficiary" of the IRA. Does the trust rule apply to estates as well? 2) If the proposed regs apply to an estate as beneficiary as well, what do you think the risk is of a spouse inheriting" an IRA through an estate in 2001 given facts identical to prior PLRS? Since the only thing out there previously were PLRs with no precedential value, and since the proposed regs are the first formal "guidance" in this area, do you think there is a risk associated with such a trnasaction in 2001 even though the new proposed regs provide that distributions in 2001 can be under the old proposed regs?

The IRS has just released its Notice 2001-14, which (1) provides that, in the case of any statutory option exercised before January 1, 2003, the Service will not assess FICA tax or FUTA tax upon the exercise of the option and will not treat the disposition of stock acquired by an employee pursuant to the exercise of the option as subject to income tax withholding; (2) concludes that Rev. Rul. 71-52 is obsolete and that the holding of Rev. Rul. 71-52 does not apply to the exercise of statutory options or to the disposition of stock acquired pursuant to the exercise of statutory options; and (3) announces the intent to issue further administrative guidance to clarify current law with respect to FICA tax and FUTA tax on statutory options and to address the issue of whether the disposition of stock acquired by an employee pursuant to the exercise of a statutory option will be subject to income tax withholding.

Every now and again, plans I work with receive claim forms for class action securities settlements. Recoveries are often small. How do you treat thse settlement payments? Do you simply include them with earnings for the year received, or is there an oblgation to ascertain the period that the applicable security was held by the Plan and make allocations on that basis? If the latter, is there any obligation with regard to participants who have received distributions prior to receipt of the settlement payment?

I haven't gone back and looked at the regs, but I think thatthe service could be disregarded for benefit accrual purpose under 411 even if you have to consider it for vesting. Also, I don't think you would have to offer a repayment option since they received 100% of their accrued benefit at the partial termination.

Thanks, So (assuming you pass ACP) the fact that no NHCE's received the 50% match because they did not defer over 3% is irrelevant, because the level of match on their deferrals was 100%. In other words, you don't look at what was the effective availability of the 50% match for deferrals over 3%. Rather, you look to whether NHCE's received a 50% match or better on the deferrals that they did make. That makes sense to me--thanks.

You may want to look at DOL Reg 2510.3-102. Sections (f)(2) and f(3) deal with employers with multiple payroll centers. I have dealt with this issue for a multiemployer 401(k) Plan where checks and payroll reports came in at all times of the month. My read is that the DOL plan asset regs only require segregation from the employer's assets into the trust. When those segregated amounts are applied to a participant's account is probably a general fiduciary question rather than a plan asset reg question. The solution that we used was to have all employer checks deposited into an interest bearing checking account in the trust's name. Then, once a month amounts were allocated to participants accounts when the recordkeeper verified employer reports against contributions submitted. The written agreement with the recordkeeper was that the "float" on the checking account would be used as partial payment for the recordkeeper's fee.

For a discretionary match, if the employer wants a "tiered match" such as 100% for the first 3% deferred and 50% for the next 2% deferred, do you have to perform a benefits rights and features test for each level of match, or does the fact that all ellgible participants could have deferred 5% satisfy this test. If you are making the match after the end of the year, do you really have an "effective availability" problem? As a follow up, how "loose" do you think you can be in the plan document regarding a discretionary match and still have a "definite predetermined formula"? If you are going to use a tiered match do you think that needs to be stated in the document?

If for my 401(m) portion of the Plan they are covering 100% of all NHCE's under the more liberal eligibility provisions and only NHCEs are "otherwise excludable" then I should still have 100% NHCE coverage in both groups and should be fine with disaggregating otherwise excludables. Right? If the Plan then used current year for both ADP and ACP testing in 2001 (they have now convicned number of NHCES to defer when they realized their problem for 2000), there should be no coverage change problem because this only applies to prior year testing. Also, because they are still in the RAP they should be able to change between current year and prior year with no consequences (other than being stuck with using current year prospectively assuming no further extension of the RAP). Yes?

Tom, thanks for taking the time to read such a long question. The Plan doesn't pass using current year ADP. As to the dual entry dates, I was going by the IRS response in Q&A 76 at the 1999 ASPA conference which seemed to state that you can use the dual entry dates for restructuring under the "old rule" but not the new rule. (I realize this is not official guidance). Any thoughts about D and E? Can you restructure ACP without restructuring ADP? Can you use restructuring on a year to year "as needed" basis?

1) Calendar year individually designed 401(k) Plan has an entry date of the January 1st following an hour of service. 2) There are a number of eligible participants in the Plan hired after 7/1/99 who chose not to defer for 2000. 3)Plan has been in existence for a number of years but 2000 is the first year that the Employer has made a match. 4) 1999 ADP for NHCE's is much better than 2000. What do y'all think of the following regarding 2000 testing: A) It appears that I cannot use a first year ACP of 3% since while this is the first year that a match is being made, this is not the first year that the Plan has contained provisions allowing a match. b) Since this is an individually designed plan I can use current year for ACP and prior year for ADP. C) I can restructure under the "old rules" for the ACP test using dual entry dates. Therefore, any Participant hired after 7/1/99 could be in a separate testing group since their satutorily required entry date would not have been until 1/1/2001. I could not use "new rule" restructuring because all of these individuals would have a year of service before 12/31/2000. D) I can resturcture ACP without restructuring ADP (If this is incorrect, how do you restructure on prior year testing). E) Are there any "consistency rules" requiring restructuring in the future? Any thoughts or comments would be appreciated.

I would think that this means that all employees should have been covered under both plans. You may want to look at the following at Q&As 101-106 which contain a detailed discussion ans some practical advice about fixing" plans in similar circumstances. http://www.benefitslink.com/qa_columns/pla...cts/index.shtml

I can't put my hands on any surveys, but I seem to recall that roughly 70% or more of plans use prime or prime plus one as an interest rate for plan loans. A local savings and loan is quoting prime minus one for a loan secured by a savings account balance. Given this "local rate" what do you feel the exposure, if any, would be if such a rate were used for a plan loan secured by a plan account balance?

Derrin, do you think there is a specific interplay between 415 and 368 as a whole, or do you only run into problems under 368(a)(1)(F)? Do you even think you look to 368 on this issue or is it more of a 414(a) PLR 7742003, 8050283 predecessor plan issue? If it is a predecessor plan issue do you think that, given the absence of regs, there are any definite rules to follow other than your examples of the incorporation of a sole proprietorship or a partnership?

I agree with the comp issue, I think for DC plans you would have to have $140,000 of Comp in each entity if you wanted to put $70,000 away for the year. However, I wonder about the application of 368 to 415 employer aggregation. Section 368(a)(1) is a "statutory merger" which appears to be what happened in the PLR cited above. If all corporate reorganizations under 368 are considered the same company for 415 purposes then I think there is a problem with the PLR. As an aside, this has always struck me as an issue for the "successor rule" for 401(k) Plans. The conventional wisdom is that if you terminate a 401(k) Plan before a statutory merger and then the merged entity adopts a new 401(k) Plan you have not run afoul of the successor plan rule. The stated reason is "controlled group timing" similar to that discussed above regarding 415. This appears to work in a stock sale where the target and the acquiring company retain a separate existence (and of course in an asset sale). However, under 368, it would appear that in a statutory merger, the merged entity is really the same "corporation" as its pre-merger components and you would therefore have a violation of the successor plan rule. That said, I have flagged this "statutory meger" issue in cover letters to the IRS seeking a determination letter on a termination of 401(k) plans and have had no problem as yet.