billfgrady

We represent a C corporation that has two highly-compensated employees, both of whom are shareholders. We are considering setting up either a Flexible Spending Account or a Health Reimbursement Arrangement. Given the ability to roll unused funds from one plan year to the next (and the freedom from the prohibitions of Section 125), I'm inclined to go with an HRA. I am not aware, however, whether there are any limits in terms of compensation or contribution/reimbursement amounts that we will need to take into account, under Sections 105, 105 or elsewhere. Can anyone shed light on this?

I need to contact the Service's Retirement Plans department with a qualified plan question. I seem to recall a more direct line than the 1-800-829-1040 or the 1-800-829-4933 numbers, where you have wade through a seemingly endless stream of options. Anyone have a more direct route?

Employer A and Employer B both sponsor profit sharing plans which permit self-directed investment by plan participants. Employee A, while a participant of Employer A's Plan A, purchased a life insurance policy on his own life, which was held as an asset of Plan A. Vested portions of Employee A's Plan A self-directed account were used to pay the premiums on this whole life policy (all within deductibility limits for PSPs and permitted by Plan A). Employee A terminated employment with Employer, was employed by Employer B and is now a participant in Plan B. Plan B does not permit rollovers of any kind. Plan B does permit the Plan to hold life insurance as a Plan asset (although the Employer discourages this). Employee wants to know whether he may roll the life insurance policy and funds into his Plan B account. It is clear that the non-life insurance funds held by the Plan may be rolled over into an IRA since Plan B does not permit rollovers. However, the funds attributable to the life insurance policy may not be rolled into the IRA. Employee A is younger than the ERD or NRD for both Plan A and Plan B. The cash surrender value of the life insurance policy is significant (250,000+). The question is, what to do with these funds to avoid a taxable distribution? My understanding is that, if Employee A pays to Plan A out of his own personal funds (i.e., no Plan A or Plan B funds) the cash surrender value of the life insurance policy prior to rolling the funds into the IRA, there should be no taxable event and Employee A can own the policy outside of the plan. Correct? Any other ways about this?

I am referring to the GUST amendment and restatement and the fact that, as of that same date, the surviving profit sharing plan eliminates the joint and survivor annuity rules (except with respect to plan assets subject to the money purchase pension plan).

An employer sponsors a profit sharing plan and a money purchase pension plan, both of which have plan years beginning May 1 and ending April 30. The employer merged the money purchase pension plan into the profit sharing plan on September 30, 2003 and amended and restated the surviving profit sharing plan as of the same date. The question is, what is the effective date of the amendment and restatement? Can it be effective beginning May 1, 2003? My understanding is that, because there was a money purchase pension plan involved, the effective date cannot be retroactive. If this is the case, the amended and restated profit sharing plan would be effective as of September 30, 2003 and the employer would file a final 5500 for the plan year ending April 1, 2004. Depending on the Plan language, the Employer might also need to make a contribution to its employee under the terms of the money purchase plan, too.

bump

Is there a requirement as to how much notice a trustee must give an employer when resigning as trustee? Although the standard Sungard Corbel language allows for some flexibility here--"Unless otherwise agreed to by both the Trustee and the Employer, a Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of resignation."--I'm wondering if there is a regulation or other source speaking to this issue. Assuming there is not, we should be able to permit a trustee to resign effective immediately upon delivery of a written notice to the employer. Thoughts?

We have been asked to assist with a situation where, through misunderstanding or oversight, a plan administrator filed two 5500s for a number of years for one plan. The facts are as follows. Prior to 1997, the employer sponsored a profit sharing plan and a money purchase pension plan. The employee accounts under both of these plans were with Investment Broker A. In 1997, the employer terminated the money purchase pension plan and restated the profit sharing plan as a 401(k) profit sharing plan. At this time, new accounts were opened with Investment Broker B. Accounts also remained with Investment Broker A. The upshot of this was that each employee employed at that time had two investment accounts but was a participant in only one plan. This in and of itself is obviously fine. However, the plan administrator filed two 5500s for 1997-present. Although the 5500s reflected the same plan name, the three digit plan number was different. Otherwise, the underlying information was identical. We need to correct this mistake and are looking for guidance on how to do so. Obviously, filing one 5500 is a start but we are concerned about what the reaction of the Service will be. I'm going to start by putting an anonymous call into them.

Can an employer amend a profit sharing plan mid-way through a given plan year to add a last day of the year requirement as a condition for receiving a profit sharing contribution? In other words, can this be retroactively effective within a given year? Ordinarily, I would assume the answer would be no, but what if the "employees" in a given setting are actually affiliated employers responsible for making their own profit sharing contributions, the employee is terminating service prior to the end of the year and does not want to make a contribution. Any advice or cites on this?

An employer who sponsors a 401(k) Profit Sharing Plan failed its ADP test and distributed excess contributions and any income earned on the contributions to participants within 2 1/2 months after the end of the plan year. I'm not certain whether the employer is required to file Form 5330 in this setting. Although the instructions to Form 5330 are clear that there is no excise tax liability if the excess contributions are distributed within the requisite time period, the instructions are not entirely clear whether such employer must file. The "Who Must File" Section states that a Form 5330 must be filed by: "9. Any employer who is liable for the tax under section 4979 on excess contributions to plans with a cash or deferred arrangement." This leads me to believe that the answer is that there is probably not a filing requirement. Anyone have any experience with Form 5330?

I'm sorry: I should have been more specific. I've thoroughly read the instructions to Schedule R, Section 412 of the Code and ERISA Section 302. However, although I know that Section 412(h) of the Code exempts profit sharing plans from the minimum funding requirements under Section 412 of the Code, I haven't been able to determine whether a profit sharing plan is subject to the ERISA Section 302 requirement. Does the definition of "employee pension benefit plan" under ERISA Section 3(3) sweep in profit sharing plans? I would think not.

Does Schedule R apply to a profit sharing plan? What if the plan is top heavy for the year?

Blinky, you have correctly stated that, for an M&P or volume submitter plan to be granted the extension to the remedial amendment period, the plan document restatement must be a word-for-word version (i.e., no changes to the standard document language) or MUST be submitted to the IRS. However, I think the operative date is 2/28/02. In other words, as long as you adopt (even if not word-for-word)prior to 2/28/02, you get the benefit of the 1/31/04 extended RAP. Correct?

I've read Rev. Proc. 2003-72 several times now and I am not certain as to whether the extended RAP deadline of 01/31/04 applies to employers who actually amended and restated, as opposed to those who simply adopted (but did not amend and restate), a volume submitter plan, prior to 2/28/02. I suppose this uncertainty could extend to the 9/30/03 extended RAP deadline as well. In other words, although it is not required to do so, if such an employer decides to submit for a GUST determination letter, was/is there a deadline to do so under this fact pattern?

Perhaps I wasn't clear or I'm not reading your post correctly. My understanding has always been that participation in a Cafteria Plan does not always end as of the employee's termination date. In fact, we rely on Sungard Corbel's Cafeteria Plan V.10 language, which permits the following with respect to termination of employment: "With regard to the Health Care Reimbursement Plan, the Participant's participation in the Plan shall continue for the remainder of the Plan year in which such termination occurs. The Participant may continue to seek reimbursement from the Health Care Reimbursement Fund and shall be required to make contributions to the fund based on the elections made prior to the beginning of the Plan Year. However, such contributions after termination of employment shall be with after-tax dollars instead of Salary Redirections." Does anyone know how this will work in a situation where the termination employee changes his election pursuant to Reg. s. 1.125-4© and elects "0" as the amount of salary redirections? Reading the above Plan language, is the employee required to continue to contribute with after-tax dollars?

Interestingly, I just got off the phone with an IRS employee on the Employee Plans help line who stressed that a new determination letter overrides an old determination letter. However, he was unable to cite to anything to support this view.

Does one determination letter over-ride another obtained earlier with respect to the same plan? Is there any guidance out there on this subject?

Doesn't the above answer presuppose that the plan document provides for participation in the plan to cease upon termination of employment? What of the situation where participation in the plan terminates on the last day of the plan year regardless of an employee's termination date? For instance, assume that an employee in such a plan has been completely reimbursed for the amount of his election as of August 1, and then terminates employment and makes a new election such that he won't have to contribute any further funds for the year. Does the plan language or the election control? In other words, can the employer dink the employee's last check for the overage?

Company A is purchased in a stock transaction by Company B. Both Company A and Company B maintain 401(k) Profit Sharing Plans. The documents indicate that Company A's Plan will terminate "contemporaneously" with the closing of the transaction. This makes me a little nervous given that Treas. Reg. 1.401(k)-1(d)(3) applies the term employer "as of the date of the plan termination." Any help with the timing on this one?

Has the IRS moved on Notice 2000-3? It appears that Treas. Reg. s. 1.401(m)-4 is still pending. Anyone know the status of this stuff? Is there any other guidance in the meantime?

Ok, I follow you. But how long after July 1, 2003 could the election concievably be made? How about August 1, 2003?

Can anyone speak to when such an irrevocable one-time election must be made? Treas. Reg. Section 1.401(k)-1(a)(3)(iv) suggests that this must be made "upon an employee's commencement of employment with the employer or upon the employee's first becoming eligible under any plan of the employer." What I'm looking for is an interpretation of what an "employee's first becoming eligible" means in the following setting. An employee is hired on June 10, 2002, completes a year of service and satisifies all other eligibility requirements. Accordingly, she is eligible to participate in the employer's plan as of the first dual entry date (i.e., July 1, 2003). Does she "first become eligible" on June 10 or July 1. In other words, does this election need to be made prior to the entry date? What if no profit sharing contributions have been made on her behalf yet?

Blinky, Just want to make sure I understand you: 1. Because an employer amended and restated prior to 2/28/02 (and this is EVEN IF it made numerous changes to volume submitter plan language), it is not REQUIRED to submit for a determination letter regarding the amendment and restatement. 2. If an employer wanted to submit for a determination letter speaking to the amendment and restatement anyway, it would be under no obligation to do so on or before 9/30/03. 3. An employer who submitted for a determination letter using Form 5300 and requesting that the IRS make a determination as to ASG status when the Plan was adopted would not necessarily need to use Form 5300 if it decided to submit for a letter with respect to the amendment and restatement, provided that there were not "too many" changes to the volume submitter language. My concern with #3 is that my firm determined that a 5300 was necessary as of the initial adoption of the Plan. We're making the same changes now. Even if I do decide to use a Form 5307 now (and the instructions to the Form 5307 are clear that the IRS will not make a determination as to the ASG issue), can the employer rely on its pre-amendment and restatement determination letter it received (which addresses ASG status) if ASG status is later challenged? I would think not. Any suggestions here?

Yes, we made the same changes when we amended and restated for GUST that we did when we initially drafted the plan. Most of this language is additional language with respect to particular nuances of the affiliated service group rules.

I'm a bit new to the determination letter process and am wondering if anyone can provide me with some advice. All of the employers that we represent adopted Corbel's volume submitter plan in the mid-to-late 1990s, and we made modifications to the volume submitter language. These employers all submitted for determination letters on Form 5300 subsequent to the adoption of their plans. The 5300 was used because we wanted the IRS to make a determination as to affiliated service group status, as this is critical to the way the plans operate. All of these plans were amended and restated for GUST and EGTRRA prior to February 28, 2002 but we haven't submitted for determination letters yet. Everything I've read and everyone I've spoken to is in agreement that we need to submit for a determination letter with respect to the amendment and restatement and cannot rely on the Corbel letter. But I am not certain as to whether we need to submit our request prior to the end of extended remedial amendment period, September 30, 2003. Anyone have any advice here? Also, do I need to use the Form 5300 again or can I use a Form 5307? I don't think the amendment and restatement affected the affiliated service group status at all. Plus, we still have the earlier determination letters indicating the employers are a member of an affiliated service group. What would any of you do here?