mbozek

EF: Why not share the report with us. You may be confusing T/C's ability to track service with a prior employer with the discretionary provisions that allow an employer to count service with a predecessor employer under its plan. FWIW 403(b) plans are only subject to the 410(b) requirements of the IRC (nondiscriminatory coverage), not 410(a) requirements for eligibility (age 21 and 1 yr of service).

See IRS pub 502 P 18 for taxation of reimbursements

The max penalty for underpayment of tax withholding during the year is 500 which is rarely enforced as long as an employee withholds 100% of the tax liability for the year by 12/31. Employees increase withholding at the end of the year as a way to avoid penalties for underpayment of estimated taxes during the year (e.g. cap gains) by increasing w/holding due by 12/31 to cover 100% of taxes due. The IRS does not review w-4 forms unless the taxpayer claims an outrageous amount of exemptions (e.g. 99) because of a lack of staff.

Q. Why do you want to do anything now that the plan has been made whole? If the participant does not have to return the excess isn't it a distribution from the plan which can be rolled over? If he is not entitled to the distribution then it must be returned to the plan because a fiduciary can only pay benefits to a participant. The plan cannot make a payment which is not a distribution from the plan so I dont know how you would code the excess on a 1099-r as an impemissible payment that is not eligible for a rollover. Code 1 applies to a distribution under the plan not to impermissible payments received by a participant.

There is an 800 number at the IRS which can be used to search for FDL. All you need is the name of the sponsor and the tax ID no. The IRS will do a search and send the fdl to the sponsor's representative. I dont know that plan docs are available from the IRS because of taxpayer confidentiality. At one time the sponsor could file a request for a copy of the plan doc with the IRS district office that issued the fdl and the IRS would search for the doc. dont know if this is still available. If the plan has assets there will be periodic reports from the financial institution

I dont understand what you are asking. Plan participation requirements for 403B annuities are set by the employer not T/C. An employer can provide for immediate participation in its plans on a nondiscriminatory basis. Considering that few NP employees earn over 95k there is very little likelihood of discrimination in favor of HCEs. T/C only provides the investments used to pay benefits. What kind of eligibility requirements imposed on investment products are you referring to?

IRC 125 provides that a cafe plan cannot discriminate in favor of HCEs in contributions or benefits. Under prop. 125 regs Q-19 this is determined on a facts and circumstances basis which means there are no fixed rules. Requiring nhces to pay for pay plan benefits but not the HCEs would be discriminatory. Why not pay the Docs the amount that is in excess of the other ee contributions as comp and then provide that Docs must pay 100% of their premium? This will make the plan non discriminatory and cost neutral to docs and employer.

Normally I avoid responding to personal opinions but this is an exception. I dont know what Forms is referring to and VEBA is a very helpful and knowledgeable contributor.

What does the plan document require as the procedure for termination? Corps usually terminate by a resolution similar to one used to terminate a Q plan unless the plan can be terminated by direction of a corp officer. Plan may need an amendment to include provisions required by 409A. Participants will have to complete distribution forms. Some sponsors file a termination notice with DOL. There may be additional requirements for transferring certain types of assets, e.g. LI.

How can a plan cashout assets upon termination when participants refuse to elect a distributon other than through immediate distributions which are eligible rollover distributions? Only other way I know of is to forfeit plan assets.

There are vendors who accept automatic rollovers- check the posts on the distributions board.

Dont know how you can have automatic IRA rollover upon terminaton for benefits that must be paid as J & S annuity. Other benefits not subject to J &S would be subject to automatic rollover requirement if plan provides for distribution of assets upon termination instead of using wasting trust. Use of automatic rollover will permit timely distributions at year end to IRA to terminate plan for 5500 purposes without waiting for check to be cashed by participants.

A mandatory rollover to an IRA cannot be required where the benefits must be paid in the form of a J & S annuity under IRC 401(a)(11). Other benefits which can be paid as a LS upon termination are not immediatley distributable w/in the meaning of A31Bii because benefits can be paid under the terms of the plan as a wasting trust. But why would a plan object to a mandatory rollover of non J&S benefits to an IRA since the participants accounts can be assessed for the cost of the transfer and there would be no delay in cashing checks which would hold up a year end termination of the plan.

Instruction to 1040 form P 19: "Excess salary deferrals. The amount deferred should be shown on Form w-2, box 12 and the Retirement plan box on box 13 should be checked. If the total amount you deferred for 2004 under all plans was more than $13,000 (excluding catchups) include the excess on line 7 (wages)". The IRS does not mention the procedure to withdraw the excess by 4/15. The taxpayer needs to file an amended return for 03 with the excess added to wages in line 7.

IRC 402(g)(2)(A)(ii) does not require that a plan allow a participant to remove excess contributions to multiple plans to avoid double taxation. Under 402(g)(2)(A)it is the employee's responsibility to request the removal of the excess contributions by 3/1 since the employers will not know if the 402(g) amount has been exceeded. The separate contributions are reported on the employee's W-2s. There is no disqualfication issue for each plan since the deferral limit under 401(a)(30) has not been exceeded, only the participant's limit under 402(g). If the excess amounts are not removed by 4/15 the excess contributions are taxed as income in the year of deferral (402(g)(1)) as well as when distributed but there is no penalty for excess contributions. After 4/15 the excess can only be removed if a distribution event under 401k occurs. In this case the employee will be assessed income tax on the excess contributions for 2003 but there is no operational failure of the plan.

There is no requirement that existing benefits be continued in a stock deal since the acquiror can change the benefit programs of the acquired company after the sale to conform to benefits provided to its employees. Terms of the sale usually provide that "comparable" benefits will be provided to seller's employees or that existing benefits will be continued for a period of time, e.g. 12 months after the sale. The terms asset sale and stock sale have different meanings to corporate lawyers than to benefits lawyers. A sale of a 100% of the stock of a sub in the corp world is regarded as an asset sale because the sub is an asset of the parent even though for benefits purposes it is a stock sale in which the benefit programs sponsored by the sub are transferred to the acquiror. The acquisition of a parent by another parent, e.g. ,ATT by SBC is a merger or stock swap.

A stupid Q- Does the purchase agreement contain a provision regarding how the employees of the acquired company are to be treated for benefits? If necessary consult with counsel or an executive who was involved in the purchase to determine what benefits were to be provided and then review the terms of the welfare benefits to determine when benefits will be provided to the new employees. If benefits issues were not negotiated as part of the purchase then you need direction from the HR dept or executives on what to do.

Has anyone thought this proposal through? Why would congress want to tax Sal. reduction for Cafeteria plans only and not tax other employer contributions for health care and other welfare benefits which are exempt from FICA tax. Employee contributions to health ins could be avoided by making health plans non contributory and adjusting employee comp. Second, there is a fundimential difference between welfare and retirement benefits in that contributions to retirement benefits generate tax deferred assets which are not subject to FICA tax when paid but contributions to welfare benefits are consumed in the year contributed, e.g use it or lose it rule without any future benefit to the employee. Taxing welfare benefit contributions for FICA will increase SS benefits to employees with fica wages below 90k (about 95% of all workers). Imposing FICA taxes on employee contributions to welfare plans runs counter to the administration's position that it will not increase FICA taxes to save the SS system and will not generate a significant amount of revenue. The easiest way to gain revenue would be to increase the FICA wage base from 90 to 140k which would raise about 1/3 of the amount needed to eliminate the SS deficit.

But there is no free lunch with automatic IRA rollovers which will cost plan sponsors a one time set up fee and a per head charge which will be more than the PBGC annual head tax (even if it is raised to $30 a year). According to one post the per head charge for automatic rollovers of one vendor is $50. Given the hassles of establishing the procedures for automatic rollover and the cost why should funds be transfered to an IRA?

I am assuming that the 20% withdrawal fee refers to the 20% tax witholding that would apply and not to any back end load charge for the withdrawal which would be imposed by the fund provider. If your total income for 05 is about 36k or less you will be in the 15% bracket and will have to pay 10% penalty tax for a total tax of $350. This means that you will have $1050 left (before state income tax) which will be good if it gets you out of debt and saves interest charges.

Distributions from NP 457 plans are taxed as wages subject to income tax withholding. RR 82-46. See instructions to W-4 form. I though there can only be 1 w-4 form per employer.

The provisions for board approval in documents prepared by vendors does not control how a plan can be adopted by an employer. Adoption is effected by following the employer's business practice for taking corporate action and very few employers require board approval of welfare plan docs. Also the 125 regs only require a written doc not a signed document. Notice 2002-58 requires adoption of the plan before benefits paid can be excluded from the employee's income but does not state what consitutes adoption so the employer can rely on its practice for taking corporate action and the effective date.

The IRS permits exclusion of benefits from taxation only for expenses incurred after the plan is adopted or established. See RR 2002-58. However the IRS does not determine what constitutes corporate action necessary to adopt or establish any plan. The employer is responsible for adopting the plan in accordance with its procedures for corporate action.

I dont think its productive to meet with clients at this time - they will not feel too confident in your inability to answer their questions. The best thing to do is advise clients of the existance of 409A and ask them to identify programs that may be subject to 409A such as employment contracts, severance agreements, confidentialty agreements, 457(f) plans, director plans, etc. so that you can review them when further guidance is issued. You should also advise clients not to make any changes to the existing programs before contacting you.

You should avoid a direct payment to a minor under 18 becuase of the need for a guardian to be appointed before payament can be made. The beneficary designation should permit payment to a person who is qualfied to act as the guardian of a child or the custodial parent to hold in trust.