I looked to see if there was another thread on this topic and did not find one. So here goes.

Any thoughts or ideas on this one and any cite I can take to management.

This is a small ESOP.

PYE is 2/28

In the PYE 2009 the company had to put more money into the plan to pay distributions than they could deduct. The excess was reclassified as a 0% loan to the plan from the employer. Their ERISA attorney signed off on the idea, and made up the needed loan paperwork. There is a PT exemption for these kinds of loans. Although in my mind it is implied, but not actually stated these are suppose to be short term loans to cover cash flow needs for expenses.

The loan doesn’t get paid back until 12/2010. So at 2/28/2009 and 2/28/2010 we put the shares related to the loan in suspense like you would if you had an Exempt Loan.

There was cash in the plan as of 2/28/2010 that could have paid off the loan. They did not pay the loan off even though they could have at that point.

They put a contribution in the plan for 2/28/2011 pye in October 2010.

So now the question is how to allocate the share release.

It seems like there would be three methods.

1) Allocate on the current year’s contribution like you would tend to do with an Exempt Loan. In fact the document demands only current and/or prior year contributions less previous loan payments be used to pay an Exempt Loan.

2) Use some combination of cash on hand (less distribution from beg bal) plus current contribution.

3) Use the cash that was on hand less the distributions like #2 with no reference to the current year contribution.

Maybe there is a combination of the #1 and #2 I am not thinking through.

My guess the answer is-- like all documents this one gives the Administrator broad discretion to decide what to do when the document and/or law doesn’t give a specific answer. And as long as that discretion is used in a reasonable manner and doesn’t discriminate the Administrator is fine. And for what it is worth I favor #1 above.

But I wouldn’t mind a sounding board on this one

who is the client - the plan or the plan sponsor/employer for purposes of service agreements?

I am filing a VCP application for a couple of failures. The client also did not issue Forms 1099R for any distributions made in 2008 or 2009. Is this something I can cover in the application? Does anyone have any experience with this?

I'm not sure I fully understand the safe harbor hardship reason that allows withdrawals to pay for expenses for the repair of damage to the Participant's principal residence that would qualify for the casualty deduction under Code Section 165. I tried reading the code, but was hoping someone could explain in a more understandable way. A participant that has flood damage to their basement, but no flood insurance - would that be considered a hardship for which they could withdraw? Code section 165 talks about federally declared disasters. Must the residence be located in a disaster area or can anyone who incurs a bad rain storm that results in a flooded basement request a hardship? Any clarification is appreciated. Thanks!

Hello all. We have been working diligently on all the engagement letter/disclosure materials for plan sponsors per ERISA 408(b)(2), and the new levels of detail in participant statements. A question came up today that stopped me in my tracks: should the fee/return information (that will be disclosed on participant statements) be included in the investment information on enrollment materials? We generate forms for the plan sponsor that include all the funds available for investment election. My common sense self says that a new enrollee probably would appreciate the fees/return information; my eyerolling "how to explain this to the sponsor and/or employee" self says it is not needed. Any thoughts out there? All I know for sure is that if the disclosures and benchmarks and so on are required on enrollment forms, each form will be many many pages long....Thanks.

Client has many (over 2,000 employees). They have no age limit/12 month/1000 hour eligibility with dual entry dates. They do not want to change any of the above. It is a fast food chain so they have a lot of terms and rehires with about 900 eligible. They have requested a plan design that would help with the testing situation. Of course, we have offered auto enroll and safe harbor but they turned that down. The situation is that most of the employess only make minimum wage or a little more so participation is small. They have deferral and match refunds every year but since the economy has went down it is worse. Any plan design suggestions? All help is appreciated.

Hello everyone! I have a situation here and I'd like some guidance from the ESOP experts.

We are a privately-held C-corporation based out of Arizona. Currently we're capitalized with 10,000,000 authorized shares of common stock, of which 8,500,000 are issued and outstanding. Of the issued/outstanding shares, 75% are owned by our parent-company, 15% are in our ESOP, and the remaining 10% are owned by top management or are in treasury stock.

We are considering issuing the remaining 1,500,000 authorized shares in order to provide additional capital for operations, acquisitions, etc. Our most recent ESOP appraisal valued each share of common stock at $1.75, however we are considering offering the shares at $1.00 each in order to ensure we sell all 1,500,000 shares.

What I'd like to know is what all we need to be thinking about in terms of the ESOP with respects to issuing these new shares and with respects to issuing them at a price well below the appraised value. Is there any risk to the trustee in terms of selling the shares below the ESOP appraisal value? Do we need to obtain votes from the ESOP? Do we need to offer any of these shares to the ESOP?

Any additional information would be helpful. I also realize that there are federal and state securities laws and regulations we need to consider, which I'll have to research separately (but if you have any info on federal/state securities laws that you'd like to share - I'd appreciate it too).

Thanks!

A plan has a funding deficiency for 2009 of $1,500 as of the val date 12/31/2009. Sponsor deposits $2,000 on 10/1/2010. The minimum required contribution for 2010 is $1,500 as of 1/1/2010 (without regard to the prior year unpaid). The plan is subject to quarterlies for 2009 & 2010. Valuation date changed from EOY 2009 to BOY 2010.

Two things that I want to confirm:

1. Is the portion of the 10/1/2010 contribution that covers the 2009 unpaid minimum discounted based on the 2009 effective rate plus the 5% penalty?

2. When determining the 2010 required quarterly amount, does the 90% of current year MRC exlude the unpaid portion from the prior year?

I've searched through the Code and the Regs and can't find an answer that directly addresses this. Is is possible to include a provision in a stock option grant qualifying under 409A that would require the Employer/Service Recipient to make a payment to the Employee/Service Provider equal to the amount of taxes owed by the Employee? Thanks!

say a plan has a MRC for 2008 and 2009 of $0.

In 2010 the:

MRC = 1,000,000

Max deduction is 1,300,000

Say plan sponsor contributes 1,000,000 by 9/15/11 to meet 2010 MRC. However, they are one year behind with tax deduction so they intend to deduct in 2011 (we'll get back to that).

When preparing the 2011 valuation the 2010 contribution is included as a plan asset for 2011 valuation.

My understanding is that the 2011 max deduction is computed as the greater of:

1) cushion calculation

2) sum of 430 MRCs calculation

The cushion calculation is only 200,000 since the sponsor made that 1,000,000 contribution for 2010 plan year.

So if that were the maximum the outcome would be that sponsor would only deduct 200,000 of 1,000,000 contribution in 2011.

Under the sum of MRCs under 430 my understanding is that computation is:

= 2008MRC + 2009MRC +2010MRC +2011MRC less deductions taken through 2010 ($0 in this case)

this would be = 0 + 0 + 1,000,000 + 0 = 1,000,000

2011 MRC = 0 as shown above.

So conceptually the max deduction for 2011 would be computed as 1,000,000 which is the amount contributed in 2011 for 2010 min funding.

So in the example above, the conclusion is that sponsor made 2010 MRC of 1,000,000 timely and then deducted that amount for 2011 instead of 2010.

Does the above seem to apply the post PPA max tax calculation properly?

As a final footnote:

A practioner believes that as a general rule if a max tax deduction is say 300k for say 2009 that contribution can be used as a 2009 contribution to meet min funding but can be deducted in 2010 if desired.

My feeling of the above sentence is that pre PPA it was probably true but post PPA I don't think such statement applies. That is, a plan contribution to meet MRC for 2009 is part of plan assets for 2010 and thus the cushion max tax will be lower as that contribution is now an asset for 404 purposes and pre PPA 404 assets could be different from 412 assets. Comments?

Thanks much.

Takeover plan (we hope ) Prior "data processing" provider made them a Safe Harbor Plan effective January 31 2011, but the Plan was not safe harbor in 2010, so clearly not correct.

So now what? The document has been signed, so tehcnically the matching contribuion is due. But now my document does not include the ADP test. It seems to me that I have no means of doign the right thing here. Is VCP the only option?

I am looking for a 401(k) plan platform provider willing to service micro plans - i.e., 50 or fewer participants - and willing to work with a Plan's TPA.

I am familiar with ASPire, Employee Fiduciary and First Mercantile.

Can anyone recommend any other micro plan platform provider that I should check out?

Thanks!

Our client has a 12/31 cash balance plan and makes deposits monthly. Each partner is in his own allocation group by name, with his dollar amount specified in the document, and non-partners are in the rank and file group, getting a percentage of comp that is specified in the document. As of Dec 1, 2011, one partner will no longer be a partner but will be in the rank and file group.

He has accrued the benefit for the year (1000 hours). Is there any way he can jump to the staff group for one month of 2011 and get the staff percentage for that one-twelfth of the year? The client is willing to make this effective January 1, 2012, but asked that we check to see if the change can be made Dec 1.

I've never dealt with this question and will probably end up with the January 1, 2012, date, but appreciate any thoughts. We will also need the 204(h) Notice.

Thanks.

This one gets me every time. A 401k plan provides a year-end match. But in order to get a match, you have to defer a minimum of $500 during the year. As long as you've deferred $500, you'll get a match equal to 75% up to 8% of pay.

George only deferred $350 for the year, and therefore doesn't get a match. He is still an active employee - he just decided early in the year that he no longer wanted to defer.

Would George be included on the ACP test? I think the regulations say that you're included on the ACP test if you were eligible for the 401(m) portion of the plan. If there was an hours requirement on the match and George didn't work the required number of hours, then he would be left off the ACP. But I'm not sure about this situation. He had the ability to defer more than $500 - so does that make him eligible for the 401(m) portion of the plan?

My client has maintained a cross-tested profit sharing plan for many years, Under the plan, each participant is assigned to his own allocation group. I selected this design feature figuring that it would provide the most flexibility. Despite using this design for many years, the plan has always made the same contribution percentage to everyone except the owner, who was provided a favored contribution. In recent years, everyone received a 3% allocation and the owner received 9%.

The sponsor is a distributor. The plan covers about 40 employees, almost one-half of whom are salesmen who make over $110K. The "Top Paid Group" election is in effect so as to limit the number of HCEs (employees making over $110K are not HCEs unless their comp is in the top 20%). The plan is not top heavy.

Early in 2011, 7 of the salesmen left the company to start a competing business. Two of them are HCEs and the other 5 are NHCEs (again, when the top paid group rules are applied).

I am currently in the process of running my testing calculations for the 2010 plan year and presenting different contribution scenarios to my client. Not surprisingly, the client would like NOT to have to make a contribution for 2010 to those who left.

To my way of thinking, the minimum gateway requirement will require that the same 3% contribution be given to the NHCEs who left in order for the owner to be able to receive 9%.

However, the plan document seems to permit the flexibility to provide zero allocations to the 2 HCEs who left. This would not violate the minimum gateway requirement and assuming that the cross-testing calculations pass, does this get me home free? By taking this course of action, are there other problems I need to be aware of?

Thanks in advance for your thoughts and guidance.

Is there a write-up somehwre on the paid preparer rules?

Client wants to use gain from transfer of stable value account to fund account for plan expenses. The stable value fund is only one of a number of plan investment options. To me this does not pass the smell test because one asset is disporptionately burdend with plan expenses, but I am looking for some authority to back me up. Does anybody know if the Department of Labor or the courts have addressed this issue?

If not, I would guess the participant, if possible, could roll their funds over into another plan

Just processed the 2009 filing (YE November 2010, not late) for a plan using electronic filing. Plan year as defined in the document ends on the last Friday of November. Plan has been filing 5500s since the 1979 year. This generated an error message since the plan year indicated on the forms isn't exactly 365 days long and we didn't check "short plan year" (which it isn't, and at some point under the calendar would have to check a box entitled "long plan year" given this logic). Anyone else run into this situation and how was it resolved? As a side note, hopefully they get this coding fixed before 2012 rolls around.

a high school has a 403(b), in order to receive the match the SPD states"you will have met the service requirement when you have completed 24 months of service" and that was what was elected in the AA. the SPD further states that "you will have completed the required number of months if you are employed by us at any time after you have completed that number of months measured from your initial employement commencement date" which I am interpreting that if you quit after 12 months and come back, you can be eligible for the match after an additional 12 months of service.

This means that any employee, regardless of hours worked, can be eligible for the plan match, after 24 months of service, correct? Full time and part time. However, the plan excludes employees who normally work less than 20 hours per week and are aliens, so basically they would have to work just over 1000 hours a year to be eligible for the match.