Larry Starr

Sure, use 541990. But recognize also that nobody cares and there is no penalty for using the wrong code. Just wanted to point out that this is a trivial issue; we try to get it right but we don't effort over it. FWIW.

I have NEVER seen a SARSEP that was done properly. And I do mean NEVER. They were advertised like the text book: BRAIN SURGERY: SELF TAUGHT!

Anybody in this business and especially dealing with the issues of Who's The Employer (and with PEOs that is a BIG question) needs to own a subscription to Who's The Employer Here is the link: http://www.employerbook.com/ This is written by our own Derrin Watson and, full disclosure, I had a hand in the original drafts and marketing when Derrin was one of my partners in the fabled PIX (Pension Information Exchange) at the early days of the internet.

Tom is absolutely correct, but we have similar situations and a way to accomplish what the owner wants: make the employee pay for the match! That is, instead of paying the employee his full compensation, withhold some of it and make that contribution to the plan (this is NOT a deferral; it is a non-payment of income to the employee). This is most common with professionals hired to work for the the firm, and it is usually accomplished by making sure that the employee knows that his compensation PACKAGE includes any employer contributions to the retirement plan; it might also include other things like health insurance premiums, car allowances, continuing medical education beyond a certain dollar amount, etc. Thus, the employer now no longer really cares how the employee divides up this compensation package, since the total amount doesn't change. If he is given a compensation package of $120k, then his "salary" is what is left after the other items are deducted from that compensation package amount to get to his salary. The result is to treat that professional much as any partner in the firm would be treated. We have this system for many many professionals and semi-professionals (like, high paid office managers of large practices) in our client base. The important thing is to make sure the employee understands the "deal" from the day he or she is hired so there is no fighting about it.

Just to confirm the previous answers, as a "youngster" when I was a home office employee of a major insurance company in CT, I also taught classes after work for the company for employees taking exams in LOMA series leading to the FLMI (Fellow, Life Management Institute). I was paid as an independent contractor for those classes while I was salaried for my regular job in marketing or the pension division. It is perfectly OK to have both W-2 and 1099 from the same employer in the right situation (it has to be the RIGHT situation) and your cleaning example looks just fine for that distinction. Only the W-2 would count for any retirement program.

The employee has additional income BECAUSE his share of the premium was NOT taken out of his paycheck! Now, there are all kinds of legal issues here. Best is to get an agreement with the employee to have some sort of arrangement over the new year to recover the excess payment, but if the employee does not voluntarily agree, there may be substantial legal barriers to the employer trying to recover the money without the state law of impermissible garnishments applying. This is a question for a labor lawyer who knows the particular state laws.

I'm pretty sure I wrote that Q&A answer in 2005 (I was head of the Q&A process). Those were our (my) interpretations and the IRS agreed with them. That's not so say someone else at some other time at some other part of the IRS would have a different opinion, but I stand by those answers. So, a couple of things.... If you are "interpreting" it and trying to use "precedent", I think you are in error. Either an employment relationship is continuing on 12/31 or it is not. If someone is terminated as of 12/30, they are not employed on the last day of the year; period. We have this discussion with clients all the time and it is the client's call to determine what the termination date is. I should point out there are other issues at play: worker's compensation; unemployment benefits, health & welfare benefits, etc. This is NOT a facts and circumstances issue; it is a factual issue and the employer makes the determination. I disagree with my good and old friend Tom on the issue of the strict Christian. Whether he ever worked on Sunday or not, if Sunday is the last day of the year and he QUIT on Saturday, he is not employer on the last day of the year. If he turns in his resignation and says he quits as of 12/31 and the employer doesn't countermand that, then he IS employed on the last day of the year. This is ALWAYS an employer determination, and the question to ask is always: "is there still an employment relationship on 12/31 or has it ended prior to 12/31". Simple question (but I acknowledge not always a simple answer because many clients don't think about it when someone quits on 12/30). On the other hand, my wife and I got MARRIED on 12/30 (many MANY years ago), so we know how important the difference is between the last day of the year and NOT the last day of the year! :-)

Agree with Madison's belief of the correct answer. He gets the TH minimum and for his entire compensation for the year.

ALL retirement plans are on the accrual basis regardless of the basis of the employer or the basis on which the 5500 is prepared. We prepare all our 5500s on the accrual basis but many platforms do not because they do not want to collect anything other than what they get in hard fact (and accrual is a "concept" that is not a hard fact). So, in order to be able to deduct a contribution made after the end of the fiscal year, all you have to do is TAKE THE DEDUCTION on your tax return (so long as it is made within the accrual period for the business entity, including any extensions). That's the rules. Enjoy!

Stronger statement: absolutely NOT part of a hardship value. He has to be buried; they could stay home (not suggesting that, just explaining the law).

Mike is right (of course!).

Asking the age/sex info is perfectly ok as long as the person is already hired. However, the information collected can also not be used to discriminate against protected classes of employees. Group benefit programs? No problem.

MoJo: Denying the order because you have a problem administering a legal order will subject you/the plan to violation of ERISA. Mike Preston is absolutely correct (I draft and administer many QDROs as well as do court testimony in these cases). The fact that no one has challenged your process doesn't mean you are right and will make no difference to someone who knows their rights. Just hope neither Mike nor I are ever the QDRO experts on the other side! :-) Here is some info for you that is on point:

Rosanne, you are making a fundamental error in your analysis. While the issue is trivial, employees are actually choosing to have their health insurance paid by pre-tax dollars TO THE EXTENT THERE IS ANY PREMIUM. That qualifies as a 125 plan. My original answer stands. As to dependents, here is from the EBIA manual: 2. Spouses and Dependents Cannot Participate in the Employee's Cafeteria Plan, but Employees May Be Able to Elect Coverage for Them on a Tax-Free Basis Spouses and dependents may not participate in a cafeteria plan—they do not have independent rights to elect or purchase benefits offered under the plan (e.g., they cannot sign the election form).However, if the cafeteria plan so provides, employees may elect certain benefits for spouses and dependents, including coverage under an accident or health plan—the regulations approve of this common plan design. Accident and health plans include traditional group health insurance, HMO coverage, self-funded medical reimbursement plans such as health FSAs, and self-funded plans providing major medical benefits.

I am assuming you are doing a manual filing (the question doesn't actually apply to us because we file all client 1099Rs electronically using the FIRE system. So, on a manual filing, you are signing the form under penalty of perjury. I am 90% sure that requires a manual signature. But I would certainly tell anyone who asked that it should be signed manually, not with a stamp.

Tom, I wish you had not done that. Now Robert has to put a contract out on you! We will miss you, my friend!

So Marge, just to make it clear, YOU AGREE WITH ME and not with Mike, right? Larry.

I'm surprised by MoJo's comment that this happens "fairly" often. I draft lots of QDROs for our client plans for the divorce attorneys. The negotiation goes on before it goes to the court, and if it can't be resolved by the parties prior to going to court, then the judge makes the decision. The order is not signed by the court/judge until AFTER the decision is made. We have never had a situation where the order has been rewritten after the judge has signed it; I've had lots of contentious divorces and have been subpoenaed more than once for client situations but never had a signed order revised (and I've been doing it for over 30 years).

Obviously, you're really referring to the two different parts of this Section 125 plan, the premium payment account and the medical expense reimbursement account. They are both part of the 125 plan. As to who wins: the guy who said the employer can have a 125 plan; they can. Larry.

Boy, I'm not sure I agree. You are arguing that the standard grouping provisions are NOT an allocation formula. I think that is arguable. If the plan allocation formula is a separate group for each employee, and each employee was allocated the same dollar amount under that provision (for this example), I sure would think we could argue that the plan qualifies in that year as a safe harbor design based plan. Argument: Putting each person in their own group and making the same contribution to each person is making a contribution under a written allocation procedure in the plan and the result is a design based safe harbor. Interesting. I think the result is non-discriminatory allocation under the terms of the plan.

As noted, a participant CANNOT open up a SIMPLE IRA unless the employer has ADOPTED a SIMPLE IRA PLAN (IRS 5304 or 5305 SIMPLE). And a SIMPLE cannot be established if another plan exists (which the 403(b) is). So, no contribution can be legitimately made to this IRA (no matter how it got set up) to meet the 403(b) requirements. The error is only the company's; it put money into the wrong account. It needed to put the withheld employee deferral into the 403(b) and it did not. It still needs to do that and make the match to the 403(b). The employee is entitled to that money which he deferred under the terms of the 403(b) and it is not the employee who screwed up (I assume the employer told him to set u the IRA, but that really doesn't matter anyway). One possible fix is to re characterize the $1800 as W-2 compensation to the employee and the employee to treat it as an $1800 contribution to an IRA subject to the normal IRA rules. Yes, it ends up costing the employer an EXTRA $1800 (plus SS taxes) to fix it, but that's the cost of being an idiot and not seeking professional advice. Larry.

What you wanted to know is if it is OK to give the 3% for the entire year when the safe harbor provision is added to the plan at a point during the plan year. The answer is ABSOLUTELY YES. In fact, that's the way we do it in all of our plans. Of course, make sure your document provisions are properly selected/executed to match this scenario since most documents allow multiple choices.

Who wrote this plan document? What kind of employer is it? Is there a law firm involved? Are you administering this plan? Did you look at it before you took it on? Can you talk to the people who did write it? Biggest question: WHY WAS IT DONE THIS WAY AND BY WHOM? PLEASE: our business is no complex that we really need much more data on most questions before we can give adequate responses. It is a waste of everyone's time to try to reply to questions where much of the background info is missing. Our business is one of nuances where small differences in the data make major differences in the answer. All, just FWIW.

We have handled church plans for nuns who ran a retirement home for the aged sisters and the plan (a DB plan) covered the lay employees of the nursing home. You need a lawyer who is very versed in the ERISA Church Plan stuff; most "good" ERISA attorneys are NOT good Church Plan attorneys. Our sisters are represented by a law firm that represents almost all of the Catholic church issues in our area. We met with them and were extremely impressed that they really did know what they were doing and know how we had to modify our regular ERISA document to appropriately handle the church plan exclusion. So, call the local church headquarters of the church your are dealing with and ask them who is the legal counsel and take it from there. That would be my first step. They might have the answer as to firms they work with that understand the church plan exemption and could handle this case together. FWIW.

Mike, we don't disagree generally , but here the account statement shows certain numbers over the years (which the plan now claims were wrong). Assume the participant disagrees that there was an error (I had a case like this where we fought the employer on their request for return of money and we won!). The plan may even be estopped from claiming the error (that's for the lawyers). Suppose the plan reports a smaller rollover and some part of it as taxable income. And if there is a 1040 mismatch because of the plan reporting, the participant gets a correspondence audit and here's what he says: "Dear IRS: Here is a copy of my account statements for the last several years; here is a copy of my distribution which was rolled over to an IRA which was equal to my account statement; here is a copy of my 1099R which was prepared by the plan and incorrectly shows the amount of the rollover with some amount as a taxable distribution. That is an error; I have done nothing wrong and have properly reported the rollover!" The IRS will almost definitely accept that. In fact, the word "forfeiture" has been incorrectly used to describe this situation. Assuming the plan is right, it was not a forfeiture but an incorrect allocation OVER A NUMBER OF YEARS that was not properly calculated due to the employer utilizing the wrong maximum compensation limit. The participant has a good chance of making the claim for the amounts stick! I know, because I have had the exact case and we won it. FWIW.