Employer fails ADP test.

Employer issues excess contribution refunds to HCE's.

Refund checks have been cashed.

The employer now wants to use the QNEC provision in their plan document to raise the NHCE average to pass the test. They use the current year testing method. Is this an option if refund checks have already been cashed? Can the HCE's send that money back to the plan?

Due to growth (ie now over 25 employees), the client is no longer able to allow contributions to their SARSEP. They are working towards establishing a 401(k).

Q1 - Can deferral elections for the SARSEP be automatically carried over to the 401(k) or must the client get each employee to make a new election?

Q2 - If the 401(k) is retroactively established (say in April) back to January 1st, can amounts already withheld from 2007 payrolls (ie Jan & Feb) be treated as contributions to the 401(k)? Does the answer change if Jan contribs have been funded to the SARSEP but Feb contribs have not?

Q3 - Can amounts already withheld (and funded) from 2007 payrolls be treated by the employees as contributions to a traditional IRA (treating them similar to "disallowed deferrals" (see form 5305A-SEP pg 4)), subject to the limits on traditional IRA contributions?

I have a plan that we took over from another TPA. It looks like the PS plan was merged into the MP plan, although I see no documentation to support this (and there should be, right?). However, there is a "profit sharing rollover" source with a vesting schedule attached to it (not 100% vested). Participant with 20% vested PS rollover $ has 5 yr BIS and so the non-vested $ is forfeited. The document states that forfeitures are used to reduce ER contribution, but there are no PS contributions to reduce. The ER is only making MP contributions. Can the PS forfeiture be used to reduce the MP contribution?

An employer maintains an ESOP plan as well as a 401(k) plan. Deferrals are made to the 401(k) plan and the ADP test passes. However, the contributions made to the ESOP fail the ACP test. Both plans have the same plan year and they both use the current year testing method.

Can deferrals to the 401(k) plan be shifted to the ACP portion of the ESOP plan? I read through the ERISA Outline book and it didn't describe the situation of 2 separate plans. And there doesn't seem to be any mention of this in the regulations.

Any idea's if this is permissible?

An employer has a Cafeteria Plan that allows them to salary reduce an employees pay on a pretax basis their cost of the health insurance. The employer realizes that they had been salary reducing the incorrect amount for 2006, and now want to charge the participants the difference. What type of issues will this present? Can it be done through the Cafeteria Plan? Any assistance would be appreciated. Thanks.

I want to buy a 2006 DC-1 Book from someone please email me at lray@vanfin.com

1) Particpant dies in 2005

2) Plan provides for life expectancy rule.

3) Non-spouse beneficary takes distribuiton purusant to life expectancy rule in 2006.

Do you agree that the non-spouse beneficiary can rollover the remaining amounts in 2007 (after taking the 2007 life expectancy distribution)? It seems to me that there is no need for any "transition relief" in this case (which based on an article today in BenefitsLink it doesn't appear the IRS is going to provide):

3/14/2007: No Transitional Relief for Rollover to Nonspouse, IRS Official Says (The Bureau of National Affairs, Inc.)

Excerpt: "The Internal Revenue Service made the decision not to provide transitional relief under Section 829 of the Pension Protection Act for years prior to 2006 regarding nonspouse beneficiary rollovers, an Internal Revenue Service official said March 9."

I know the plan will need to be amended to provide for non-spouse rollovers, but what is the amendment deadline. Is it 2009 with other PPA amendments with just operational compliance until then?

TPA failed to pay 77 year-old participant any of her RMDs.

As I understand, the correction method would be to pay her the amount owed plus interest and then get her current for 2007.

Would I be correct in thinking that she would not get relief for reasonable cause when she has to file Form 5329? And would any liability attach to the TPA (I am sure the participant will be upset when she learns she has to pay a 50% excise tax for the past 5 1/2 years).

How have any of you handled this?

Have a client that is asking whether they can declare a match for the 2006 plan year (ending 12/31) by 3/15 (tomorrow), have us post this as an accrual, then actually fund at a later time? Is this possible? If so, what is the latest they can fund the match?

Facts: Married couple

Income: Husband's earned income over $4000 under $8000

Wife's earned income $0

Question: Can a husband make a contribution to a Roth IRA of maximum amount (therefore $8000) for both him and his wife, even if his earned income less then $8000?

Thank you.

Yulia.

Would be interested in opinions regarding the correct "ordering" for a plan that fails an ADP Test which then results in the need to forfeit some matching contributions to the HCEs who get refunds of deferrals due to the failed test. The real question is how to properly run the ACP test in that instance.

It seems that some folks believe that you run the ACP Test without netting out any forfeited match and if it fails and if the refunds due to the failure exceed the amount of match to be forfeited due to the ADP Test refunds, then you are done. I believe that, as per the 401k regs, you must run the ACP Test net of the forfeited match and then, if it fails, make your refunds as necessary. The difference is in the amount of match that the HCE will ultimately receive either in the plan or as a taxable refund.

I also believe that if the match has not yet been made at the time the ADP test is run, you must calculate the employer match based on the deferrals NET of any refund required due to a failed ADP Test.

Do others agree with this procedure?

We have had a safe harbor 401k since 2004. At the time the plan was written, very late December 2004, it was inteneded that the one employee who was highly compensated not be included, at least not to the degree his compensation would dictate. We are trying to cut down the match for him.

The plan is not top heavy as the sole owner is third or fourth on the compensation list. We believe we can cut his match by re-defining compensation to exclude commission which is the bulk, but not all, of his compensation.

Questions are...

Can this amendement be done?

What form of notice needs to be executed?

What time lag between notice and amendment effective date must there be?

Thanks

If a QNEC for ADP/ACP failure is made by the employer's extended tax filing deadline, is the contribution tax deductible? Or must it be made by the original filing deadline without extensions?

A company has ceased doing business for all intents and purposes and one employee that terminated employment has requested an immediate distribution. Is an immediate distribution required? The trustee would like to wait until the expiration of one year before making any distributions in order to ascertain the employees' exact interest in the plan.

I began working for a small law firm June 2005 and was promised benefits after 90 days. The firm doesn't have a group plan and each individual needs to get benefits on their own. Well, being that I had surgery 3 years ago no insurance plan would pick me up. I explained this to the firm and they said they'd look into a group plan. Well, fast forward 20 months. I'm still without benefits and everyone here has been given benefits except me. I don't think this is fair. They told me that going to a group plan is just way too expensive and right now they can't afford it. Is it legal to provide everyone in the company benefits, except 1 employee? I don't want to jump and say it's discrimination, however, I don't feel it's fair. Any advice on this issue would be greatly appreciated as we have no HR person in the firm for me to go to. I've come to the realization I may be working for a shady firm.

I have a client that has an S-corp that he is the sole employee and shareholder (100%) and he also is a 77.5% shareholder of a C-corp that has 25 employees. Does this constitute a brother-sister group under common control?

I don't believe it does because the C-corp has a minority stockholder of 22.5% and no ownership in the S-corp, and he doesn't own 80% of the C-corp.

He would like to initiate a SEP or SIMPLE plan in the S-corp and not have to contribute for the employees in the C-corp. His accountant has told him he would have to include the employees of the C-corp.

Thanks for your help.

Regarding Q&A 8 of Notice 2007-28, from what I read the following example would apply:

Total Comp = 500,000

DB MRC = 100,000

PS Contribution = 50,000

6% of Pay = 500,000 x .06 = 30,000

25% of Pay = 500,000 x .25 = 125,000

The 404 deductible limit would not be exceeded because 100,000 + 50,000 - 30,000 = 120,000 which is less than 125,000 (25% of Pay). The actual 404 limit would be a total DB + PS of 155,000.

Agree or Disagree?

I think there was some uncertainty amongst practitioners (or maybe just me) before this guideance. I had thought that the consensus on this board was that the limit was the DB min + 6%, but if 6% was exceeded then the 25% applied (no "free" 6%). In that case, in the example above, the limit would be 130,000.

I notice that throughout Notice 2007-28, the author (Jim Holland) uses the phrase "6% of compensation of participants in those plans" everywhere except at the end of the last sentence in A-8 where he says "6% of compensation of participants in defined contribution plans". .......Hmmm.

When is the latest than a non-profit has to make an employer contribution (403(b) Plan) for the 2006 plan year? Is it 3/15 (unextended) like for profits or something else?

Thanks

Could someone clarify this issue for me?

I set up a Roth IRA for my 12-year old who receives income for delivering papers and refereeing soccer. His total income for 2006 was about $1200 . I happily "matched" this amount and placed $1200 in a Roth in his name. This is obviously well within Roth limits.

It turns out that he needs submit a 2006 tax return since both "jobs" classify him as self-employed and no taxes were paid on his income. So, he will have a tax bill of ~15% hit to cover FICA & Medicare (poor kid!).

So did I make a mistake putting the full $1200 in the Roth? Or should it have been 15% less than that? Presumably I have until April 17 to remove 15% if $1200 was too much.

Thanks for clarifying

Dave

In general, I understand the due date for the final 401k regulations amendment is the employer's tax return date for calendar year plans. On the other hand, plans are required to amend by end of plan year if the amendment is discretionary.

Would the election of the additional safe harbor reasons for hardship withdrawals be considered a "discretionary" amendment? If a client's final 401k amendment contains these new reasons, is that piece of the amendment considered late?