mbozek

Perhaps an alternate designation would be acceptable, e.g., John Jones, as trustee of the Shelton.... Family trust or just the Shelton Family Trust . You could also ask the bank for acceptable language as to the titling of the fiduciary who is the owner of the assets of the trust.

Are any of the new IRS rules for plan loans which are effective 1/1/02 required to be added to plan documents?

Your response indicated why the best advice to clients is permit salary reduction for all employees, except students, without regard to the number of hours worked so as to avoid the uncertainty of who normally works 20 hours a week. The failure of a HHA to provide protection is the result of poor negotiation. The purpose of the HHA is to provide a pool of funds to reimburse the SD for its costs which result from the actions of vendor which offsets the SD liability to the IRS.

The answer depends on several factors: 1.Is the plan subject to ERISA? Non ERISA plans are not subject to any requirement for written documents and plan provisons can be kept to a miniumum. Plans subject to ERISA can contain provisions required by IRC and ERISA. 2. Does the plan provide for employer contributions? Plans with employer contributions need additional provisions stating the method for making contributions. Plans with salary reduction need only have provisons for making employee contributions. 3. Type of funding. 403(B) plans can be funded by either annuities or mutual funds. There are different plan provisions for each. Mutual funds usually have a custodial agreement to hold the assets. A plan for church employees can be funded by a retirement trust. 4. Type of plan. Most 403(B) plans are designed as money purchase pension plans if they provide for employer contributions. However, some plans provide for discretionary employer contributions and can be treated as a profit sharing plan. There is no simple answer. One place to look is the IRS audit guidelines which lists all of the potential IRS provisons applicable to 403(B) plans. The audit guidelines should be on the IRS web site. One comment: from your thread it appers that the documentation for your plans was limited to an employee election for salary reduction and purchase of an annuity.

My comments were based on a statement in the IRS audit guidelines for 403(B) plans that there can be no age or 1 year of service reqirement for salary reduction contributions. The only exclusions are the ones explicitly stated in 403(B)(12). The way to avoid IRS reviews is to permit all employees except students to make salary reduction contirbutions. The exclusion of part time employees will be determined by the normal number of hours they are to work each week which should not be difficult since they will be paid on an hourly basis required under state labor law or the terms of a union agreement. Teaching positions are usually budgeted by full time or pro rata basis with reference to full time teaching or state laws. Besides most school districts are required under state law to get a hold harmless/indemnification agreement from a vendor to prevent the payment of penalities because of mitakes in administering 403(B) plans.

STL: I am confused. The equivalency rule is only applicable to plans subject to ERISA and school districts are exempt from ERISA. This question also comes up in academic institutions where instructors teach part time without a fixed number of work hours. The only applicable rule is the 20 hour requirement in 403(B)(12), not any equivalency rule or elapsed time method. Indeed the statute can be intrepretated to mean that an employee does not have to work a fixed number of hours but only needs to have normal work week of 20 hours. I think the statute should be interpretated to make salary reduction available to all employee who normally work 20 hours, e.g., are scheduled to 20 hours a week, regardless of the number of hours actually worked. Most school districts have requirements as to regular work hours and pay on an hourly or pro rata basis e.g., 1/2 time, since positions have to be budgeted. If this is problem why not permit all employees, except students, to make salary reduction contributions to avoid engaging in such a time wasting activity.

It seems that you have a stock bonus plan with a 401(k) option. I don't know why you need to change. The plan can continue as is without being terminated because it will receive continuing contributions. Freezing the plan does not change anything. If you remove the ESOP options what will happen to the employees right to diversify assets /put the stock to the plan?

There is no legal restiction on changing options since investment options are not protected benefits under IRC 411(d)(6). Secondly, employer can alway change investment options when fund families are substituted, e.g, adoption of a new plan because the fund trasfer has to be mapped. There may be a problem if a fund has some deferred charges,e.g., variable annuity, which will be incurred if account balances are removed before some end of a specified period. Otherwise, the only question is what do the plan documents say about changing/eliminating funds-- is it a decision within the discretion of the plan fiduciary/ investment committee or is it necessary to amend the plan?

Kirk: I think that is true for mp and DB plans which are required to make contributions under IRC 412 within 8 1/2mos after end of plan year. In a DB plan a TH contribution would not be required if the plan met the minimum funding standards. But what about PS plans not subject to the funding standards? Kocak: Why isnt deductiblity an issue? Is it because the a non profit sponsors the plan or because the employer will have a tax loss for the year?

My comments were directed to the fact that the gain on debt financed property is subject to taxation at the rate for trusts in the year the gain in excess of $1000 is recognized (i.e., 39% on a gain over $8900) which makes it difficult to obtain a market rate of return after the finance charges are subtracted. There is nothing illegal per se in a qualified plan or IRA in using borrowed money for investment purposes.

Rll: My comments on privately held ESOPs was based upon notes from other persons on the lack of disclosure available to ESOP participants in non publicly held companies. Secondly, as any investor knows diversification of investment is the best means of maximizing return by minimizing risk as Harry Markowitz discovered almost 50 years ago. According to recent news reports almost 60% of the assets in the Enron 401(k) plan were invested in Company stock which was publicly traded. The reason that publicly held companies cannot achieve 15-30% returns over a prolonged period is because the accounting rules for publicly held companies require eventual disclosure of the bad news. As Enron/Global Crossings just proved, a publicly held company cannot hide its losses forever--- they must be disclosed eventually with appropriate fianancial consequences. This is not true with privately held companies which are subject to different standards. In NJ there was a recent bankruptcy of a company that was touted for years as having great prospects by analyists but was misstating earnings until it filed for bankruptcy. For non professional investors the best investment strategy is diversification of assets among different classes of investments.

Need more Facts: What kind of policy coverage was this: health, retirement? Why was refund issued to employees if employer paid for permiums? Generally in demutualization, surplus goes to policyholder of record. Was this coverage for individual health insurance insurance paid by employer? There maybe issues under state labor law (OH?). While employer must pay wages to employee, employer could alway change employees rate of pay if there is no written contract.

What does the plan say? I though that the failure of an employer to make a contribution as required under the terms of the plan is a prohibited transaction because it is a loan of plan assets to the employer. PTs carry 15% excise tax penalty which can increase to 100%.

pzaul: please explain distinction between Keogh and psp contributions for self employed persons for some of us.

Like many other things that occur in practice there are no IRS provisons that cover the spining off of assets in a cafeteria plan. IRS position is to do whats right. Seriously, since the accounts of the participants are employer assets usually there is a transfer of funds in assets sales that approximate the amount of the transferred employee's accounts in the seller's plan which becomes the opening account balance in buyer's cafeteria plan. In stock sales the employee's account balances are assets of the employer which should be tranferred as the equity of the employer in the ongoing cafteria plan. You need to consult with counsel to make sure that the proper language is contained the the purchase agreements.

The last time anyone used the term guaranteed in connection with a 401(k) plan were insurers who issued guaranteed investment contracts and participants learned the limitation of the word 'guarantee' the hard way. Some employers already provide a DB-k in cash balance plans that allow employees to select investments in mutual funds.

You could back out the rollover on the grounds that the employee never had the right to the money under the claim of right doctrine (because there was no approval from the pa) and issue a revised 1099. O r u could treat the transfer as a trustee to trustee transfer (providing that there is a provision in the plan) and issue a revised 1009 r. Also the MPP money would be subject to restrictions on retirement plans, e.g., no inservice transfer until retirement age and and annuity as normal form. The change of NRA is the last option to consider because it is an area subject to IRS discretion.

The income from the speeches would be income of an separate business which is 100% owned by the Dr and SEP plan would have to be aggregated with the ps plan of the medical business if a Dr controls more than 50% of the medical practice under the congroup rules. Also under the current law only 15% of participant's compensaton can be excluded from participant's income in SEP even though employer can deduct 25% of compensaton. Excess contributons are subject to a 10% tax. Congress is expected to fix this glitch. Every sep participant must receive a 5303-Sep.

I dont understand what you mean by over diversfiied? Secondly IRC 401(a)(28) requires only diversification of a minimum % of the participants account -- there is no penalty for the diversification in excess of the minimum amount, e.g., 25% of the account, into assets other than employer stock. The participants are probably better off with more diversification since this is a privately held company.

The determination of whether a plan is for a church is a complex question and requires review by tax counsel. Most of the answers on church plans come from private letter rulings issued by the IRS under IRC 414(e). Some activities such as hospitals may be considered church plans if operated by a religious organization as part of its religious activities or mission.

The DOL has issued rulings on this issue holding that actual time spent by employees in plan administration as well as related costs, phone calls, postage etc. can be charged to the plan provided that the employer keeps detailed records of the activities and the costs. Most employers cannot comply with the detailed recordkeeping. I dont know if cost spent on professional meetings can be charged to the plan because the DOL might say that it really benefits the employer. Need to review Dol rulings on this issue at the DOL web site.

I think this is a matter for the attorneys and tax lawyers to resolve.

b2kates not true. See EGTRRA sect 612(A) effective 1/12/02

the following issues trouble me: In this case the benefits have already started and I do not believe that the plan options include an annuity to 2 persons at the same time based upon one persons life expectancy. Second providing an annuity to the spouse based upon her life expectancy after benefits commence would increase the cost to the plan. Third I don't know if the court retained jurisdiction over the plan retirement benefits after the divorce decreee was issued.

Given all of the above problems why would an individual investor want to put RE in an IRA?