DTH

Thanks. I'm looking at a resource that shows the following formula: ((IRS max limit - existing loan balance - (highest outstanding loan in last 12 months - existing loan balance)) = maximum loan participant can take. $50,000 = Max IRS limit allowed to this participant -20,000 = Current outstanding loan $30,000 -10,000 = ($30,000 highest loan - $20,000 existing loan) $20,000 = maximum loan amount Archimage you said they could have $30,000, this formula says they can have $20,000. What am I missing? Thanks.

My colleges and I are having a disagreement on the following example: Participant has an account balance of over $200,000 at all times during this period. 3/1/05, Participant takes a loan of $30,000 12/5/05, Participant repays the $30,000 loan balance 12/6/05, Participant takes a loan for $20,000 12/15/05, Participant requests another loan. What is the maximum loan amount he can have? 1. Since the highest amount a participant can have in a 12 month period is $50,000 he cannot receive another loan until 12/16/06. 2. On 12/15/05 he can take a loan of $30,000. Please let us know which one is correct. Thanks.

My plan is allowing Roth 401(k) contributions begining in 2006. Can I also make a contribution to my Roth IRA in 2006? I meet the Roth IRA AGI limitations.

There have been many posts on this topic since 2001 but not many answers. Hopefully since time has gone by someone has had more experience. A particiapnt died with an account balance in a DC plan and the court has been brought in to interplead several claims against the death benefit. We were requested to pay the benefit to the court. Questions: 1. Is the plan required to tax report the payment to the court? I assume no, that until the court decides who is to receive the death benefit that it is still held in trust. 2. Once the court decides who gets the death benefit how does the plan withhold taxes and tax report? 3. If the plan allows a form of benefit other than a lump sum, does the plan need to offer the other forms to the court appointed beneficiary? 4. How do the MRD rules apply. In this case the participant was 40 and the plan allows the designated beneficiary to elect the 5-Year or Life Expectancy Rule. 5. How does this affect Form 5500 reporting? 6. Why allow the dollars out of the plan at all unless the MRD or plan provisions force it out? Why not wait until the court makes its decision? Thanks!

The final 1.408-8 MRD regulations require an IRA custodian to report certain information to affected IRA owners for MRD purposes. Could you please tell me when this must occur and where I can find the guidance (e.g., revenue ruling, notice, etc.). Thanks.

Saabraa, the transition rule is in the 7/27/87 proposed regulations. Q&A B-2 A.(b). The pre-TEFRA 242(b) elections were also part of the transitional rules. Don't you just love them? crosseyetester, you are correct. If the plan does not allow in-service withdrawals - no MRD or withdrawal. The new rules are the same as the old transtional rules. The SBJPA changed the required beginning date back to the pre-TRA rules, do no difference for him. Assuming this is a DC plan, the plan could be amended to allow employer who continue to work past the plan's normal retirement date the ability to request an in-service withdrawal (these would not be MRDs).

Treasury regulation 1.402©-2 provides that an MRD is not eligible for rollover. Q&A 7, provides that the MRD must be paid from the plan first. The plan should have paid the MRD first before distributing the rest of the money from the plan (the participant cannot defer the MRD to 12/31 or, if applicable 4/1). The IRS' reasoning is the accepting institution will not have the prior year 12/31 account balance to determine the MRD for the distribution calendar year. Many participants try to convince the distributing plan that they will give the prior year 12/31 account balance information to the IRA or other eligible employer plan to extend the MRD for one more year. Additionally, the Form 1099-R instructions require the MRD to be reported as income. Refer to the 2005 1099-R instructions page R-8: Corrected Form 1099-R If you filed a Form 1099-R with the IRS and later discover that there is an error on it, you must correct it as soon as possible. For example, if you transmit a direct rollover and file a Form 1099-R with the IRS reporting that none of the direct rollover is taxable by entering 0 (zero) in box 2a, and you then discover that part of the direct rollover consists of required minimum distributions under section 401(a)(9), you must file a corrected Form 1099-R.

There was a transition rule when the required beginning date changed with TRA '86. TRA '86 required all participants who turned 70-1/2 to begin taking MRDs. Prior to TRA, an actively employed non-5% owner did not have to begin MRDs until the later of the year they turn 70-1/2 or retired. The transition rule back then was ... Participants who attained age 70-1/2 before 1/1/1988 (i.e., date of birth before 7/1/1917) and is an actively employed non-5% owner, did not have to begin MRDs until 4/1 of the calendar year following the later of the year they turned 70-1/2 or retired. Your participant falls into this category. The question to ask is, was he ever a 5% owner? If no, since he is still actively employed, he is not required by law to begin MRDs. You will need to look at the plan document to determine if he can get some other in-service distribution. If he was a 5% owner, he should have begun payments in the year he became a 5% owner. (Once a 5% owner, always considered a 5% owner for MRD purposes.)

I'm wondering if 1.401(a)(9)-6, Q&A 12 applies in this scenario. A DC plan uses a variable annuity contract and is considered an individual account plan that is annuitized. The contract provides for a stepped-up death benefit where a designated beneficiary will receive the greater of: 1. the participant's vested account balance 2. the participant's remaining principal (contributions - distributions) 3. the maximum anniversary value (anniversary value for each anniversary of the deceased participant's birthday prior to the participant attaining a specified age) It appears that the contract is guaranteeing that there will be no loss of remaining principal. Has the benefit already accrued or is making up for a loss an additional accrual, thus Q&A 12 applies. Thanks!

Can a grandfathered governmental 401(k) plan merge into a 457 plan?

I'm just taking a poll. A participant goes over the 402(g) limit in 2003 and the excess deferral is not distributed by 4/15/04. The individual will need to include the excess amount as income in the 2003 tax year by virtue of the amount reported on the individual's 2003 W-2. The excess deferral will be taxed again when it is actually distributed from the plan. If the excess deferral is processed after 4/15 as a plan operational defect under EPCRS, the "excess deferral operational defect" distribution is tax reported in the year corrected. The correction was made on 12/15/04. The operation defect is tax reported on the 1099-R as taxable in 2004 (Code 8). The taxpayer should have also included the excess when they filed their 1040 for 2003. Is anyone also tax reporting the excess deferral on a separate 1099-R as taxable in 2003? So in the tax year the operational defect is corrected the individual gets two 1099-Rs (1) operational defect excess deferral + earnings (Code 8) and (2) excess deferral contribution (Code P)? Neither the 1099-R instructions nor Notices 89-32 or 88-33 require double tax reporting after the 4/15 deadline. I know of one organization that is doing this. Thanks!!!

If a distributing plan has grandfathered and non-grandfathered after tax contributions and the accepting plan only has non-grandfathered dollars (e.g., original effective date of the plan was after 5/5/86), does the accepting plan need to mirror the distributing plan? If yes, the accepting plan must account for the pre-87 and post-86 after-tax contributions and permit the distribution of the grandfathered dollars first. If no, all the after-tax dollars would be subject to the basis recovery rules. Usually rollovers come into a plan clean, but the roll over of after-tax dollars are a direct trustee-to-trustee transfer. Does anyone have experience on how to recordkeeping the rolled over after-tax contributions? Thanks!

I have heard that the DOL will be issuing new rules this summer on the timing of depositing employee contributions and loan repayments. It is rumored that the new rules will contain a deposit safe harbor. It is almost the end of the summer and I have not seen anything from the DOL. Does anyone know when the DOL will be publishing the new rules? Thanks.

My company was bought though a stock acquisition on 4/15/05. As an incentive to stay, the new company is giving my company's employees a signing bonus, some of which are as much as $65,000. In order to receive the signing bonus employees must be employed on 4/15/05 though 4/15/07. The purchaser has a 401(k) plan (Plan A) and so do we (Plan B). The plans will eventually merge sometime in 2007. We would like to put the signing bonus into one of the 401(k) plans and have a 2-year cliff vesting schedule so that employees cannot have access to the money until 4/15/07. I know that we cannot put the money in our plan because we must count service with our company towards vesting. Could the money be put into Plan A and not count the service with our company? Can you have a cliff vesting schedule that runs from 4/15/05 - 4/15/07? I know not all employee incentive bonus dollars can be contributed in one year because of the 415 limits. The formula we are proposing to use is the 415 limit minus the elective deferral limit (our plan is an EE Payall). If there is any money left it would be put into the Plan A in the next limitation year. I think this formula passes the 401(a)(4) test. I know the Plan A will also need to pass coverage. (I assume that this also would not allow us to use the coverage transition period.) Does anyone have any other ideas as to how we can put the dollars into one of the 401(k) plans? We do not want to maintain a nonqualified plan. Thanks!

Plan provides for a discretionary match. At the plan's inception there was a Board of Director's resolution limiting the match of 50% of deferrals up to 5% of comp. The match formula is also disclosed to EEs every year in the company newsletter. In 2004 payroll did not cap the 5% of comp. This affects HCEs and NHCEs. Is this considered an operational defect where the affected Ps will loose the match or can you give the additional match because the plan provides for a discretionary match? (See message board Q&A from March 9, 2002 - Correction of Error in computing Matching Contribution.) Additionally, someone one suggested running a 401(a)(4) availability test. If it passes it would be okay to leave the additional match contribution in plan. I never heard of using this in an operational defect situation. Anyone ever heard of this? Thanks!

Yes this is a 401(k) plan. The client has bi-yearly entry, but asked a "theoretical" question. Assume they want to come up with an entry date that will keep employees out of the plan as long as the regs. will let them. Thanks!

Eligibility requirements are age 21 with 1 year of service. The regs. state "no later than" the earlier of (1) 1st day of the PY after meeting eligibility requirements or (2) the date 6 months after the date the employee met the eligibility requirements. I assume that the date can be a different date than the first day of the plan year since the regs. say "no later than". Just wanted to know if anyone has had a client ask for an entry date(s) that does not include the first day of the plan year (e.g., 1/1 plan year with a 12/31 entry date). Thanks!

Must an on-going plan always have one of its entry dates as the first day of the plan year? Thanks.

I have a plan that failed ADP testing and corrections will be distributed after the 2-1/2 month cut-off. Some of the ADP excess contribuions had attributable to matching (ATMs) dollars that need to be forfeited. Are the ATMs also subject to the 10% excise tax imposed on the plan sponsor? I think not since they are not distributed and will be used by the plan to offset future contributions or reduce fees. If they are subject to the excise tax, could you provide me with a Code cite. Thanks!

Thanks Steve! Just to make sure I understand. If the plan is fully insured, the insurance company (covered entity) can give claims information using the full five digit ZIP code to the group health plan (also covered entity, but not subject to full blown HIPAA Privacy). The claims information is not PHI and the group health plan then can give the claims information to the employer or broker to obtain premium bids and not worry about HIPAA Privacy. However, if the claims information is in an electronic form, it would be considered ePHI and subject to the Security Rule.

A group health plan that provides benefits though an contract with insurance issuer or HMO is still a covered entity but is exempt from most HIPAA Privacy rules if it only receives summary health information or enrollment/disenrollment information. Use of a ZIP code would be considered summary health information if the first three digits of a ZIP code according to current publicly available data from the Bureau of Census: (a) the geographic unit formed by combining all ZIP codes with the same three initial digits contain more than 20,000 people; and (b) the initial three digits of a ZIP Code for all such geographic units containing 20,000 or less people is changed to 000. If carriers wanted to use 5 digit ZIP code ids for evaluating claims experience for marketing (getting bids from other carriers at renewal time) is that information subject to Privacy and Security? If yes, I assume the Privacy/Security rules will apply to the health plan and also filter down to a broker. if involved.

I would like to confirm my understanding about PHI. A group health plan that provides benefits though an contract with insurance issuer or HMO is still a covered entity but is exempt from most HIPAA Privacy rules if it only receives summary health information or enrollment/disenrollment information. If a participant comes to the "plan administrator" with a claims dispute: 1. The information the participant gives the plan administrator is not PHI. 2. When the plan administrator calls the insurance company to discuss the claim, it then becomes PHI because the information is coming from one covered entity (the plan) to another covered entity (the insurance company). If yes, is the plan then subject to all HIPAA Privacy rules? I think yes unless the plan administrator gets an authorization from the participant to discuss the claim with the insurer. Please let me know your thoughts.

Is the group health plan required to disclose this?

Does anyone have a copy of the last two DOL FMLA Opinion Letters. In the letter dated 10/4/04, the DOL found that an employer's sick leave poilcy that required employees absent due to illness to provide proof of illness in order to receive paid sick leave was acceptable. In the other letter dated 10/25/04, the DOL confirmed that an employer can request a drug test for employees returning from FMLA leave. Thanks.

When active employees turn age 65, are group health plans required to have them elect to either stay in the group health plan (with Medicare as secondary payer) or opt out of the group health plan and enroll in Medicare? Also, I recall that if an individual who is eligible for Medicare but does not enroll in it that they are assessed a Medicare premium penalty (10%??) once they actually enroll. Becuase of this penalty, are there any disclosure rules that apply? Thanks!