Company A has had a SIMPLE IRA for a number of years. Deferrals for January and February of 2007 have been deposited. The company now wants to establish a 401(k) plan for 2007. The way I read the commentary, there are two options:

1) Don't do it!

2) Freeze the SIMPLE and establish the 401(k). The SIMPLE is now invalidated for 2007. It looks like there are three correction methods:

-Reurn the 2007 deferrals to plan participants by the due date of the employees' tax return, pursuant

to IRC section 408(d)(4). While there is no guidance, it looks like the 25% the 6% excess

funding penalties do not apply. I don't think that Form 1099 has a box for this. Does anyone know? Is

the failure insignificant as required for self-correction?

-For the weak-hearted, request relief from the IRS by filing under EPCRS. As I read EPCRS, there are

two approaches.

a) The filing can be done as an employer eligibility failure, which, if approved by the IRS, would

treat contributions already submitted for 2007 as contributed to a proper SIMPLE. Since the

violation would not be "accidential", I probably would not recommend this approach. Any

thoughts?

b) File to correct as the contribution of excess amounts under section 6.10 of EPCRS.

Am I making any sense? Has anyone done any of the above? Thanks.

I have a client that is looking to start up a 457(b) and 457(f) plan. They will have maybe 20-30 people

in the b and 1 person in the f plan.

They are a non-for-profit enitity and have both a 403(b) and a 401(k). We will look at their 403(b) provider, but their 401(k) provider does not do non-qualified plans.

I have checked with a few firms and most have said no. So far Principal has said yes.

Please let me know if you aware of a non-qual administration firm who will do these start up plans?

Thanking you in advance!!!!

willow

Big Corp. owns 100% of Small Corp. Small Corp. sponsors a 401(k) plan. Big Corp. does not sponsor a retirement plan of any type. Mary is employed by both companies. She is paid $100,000 a year from Big Corp. and is paid $15,000 a year from Small Corp. She defers the enter $15,000 she receives from Small Corp. into the 401(k) plan.

Is Mary a Small Corp. HCE? I think the answer is "yes" if her combined pay exceeds the applicable HCE pay threshold. Let's assume it does.

Is Mary's ADR in the Small Corp. 401(k) plan (1) 100% (i.e., $15,000/$15,000) or (2) 13% (i.e., $15,000/$115,000)?

A colleague directed me to Code Sec. 414(b) and showed me that there is no reference in that Code Section to Code Sec. 414(s). He has concluded, as a result, that Mary's ADR in the Small Corp. 401(k) plan is 100%. He would also conclude that since Code Sec. 414(b) does not reference Code Sec. 414(q) that Mary is not an HCE with Small Corp.

I am not satisfied with these two answers although I can understand his logic. Any thoughts? My inclination is that Mary is an HCE and that her ADR in the Small Corp. 401(k) plan is 13%. I need something to back-up my inclination, though. Any help would be appreciated!!!

An investment management firm has published a detailed 'fact check' of Tuesday's testimony to the House committee looking into disclosure to participants of fees charged on investments of 401(k) (basically, self-directed defined contribution) plans. Here's the text of the description and the hypertext link, from today's Benefits in the News page here on BenefitsLink.com:

Opinion: 'Fact Check' Needed for Testimony Given to House Committee on 401(k) Fee Disclosure (PDF)

11 pages. Mr. Eisen provides comments on each key point presented by four witnesses at the March 6, 2007 hearing, and explains why he agrees or disagrees with each point. (Ron Eisen of Investment Management Consultants, Inc.)

Comments?

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We have a client that has been making required tax payments under IRC Section 7519 because they were not 100% owned S Corporation ESOP and maintained a 9/30 year end. The ESOP recently purchased the remaining ownership of the S Corporation and they are now 100% owned by the ESOP. They have been making the required payments under IRC Section 7519 but it seems ridiculous that they will have to continue to make required payments when there is no tax deferral for the shareholder since the ESOP pays no taxes. It looks like the regs under 7519 haven't been updated for S corporations to be owned by ESOPs and so they would have to continue to make the required payments. Any thoughts or has someone else dealt with this?

Plan Sponsor rolls out a 401(k) with 2% auto enrollment and a match, but the only salary deferrals actually contributed are for the employees that completed forms to have a greater amount withheld.

The participants who made no election have had no salary deferrals and thus no match.

I have not found any self correction procedures for auto enroll. What's the best course of action to correct?

There is a severance fund. The trustees and administrators of the fund are also participants in it.

If the trustees and administrators vote to deny somebody benefits, it may look like a conflict of interest, because granting the benefit would diminish the trustees' and administrators' benefits.

There is no reason to believe that the trustees and administrators are acting arbitrarily or capriciously, and there are safeguards set up in the fund. There are certain procedures which must be followed, including appealing to the entire board of trustees if a person's benefits are denied.

What safeguards have you used or do you know of which would help eliminate this problem? Thank you.

A 401(k) plan excludes consultants from participating in the Plan. The plan has no coverage issues but regarding ADP testing, can you exclude this class from the ADP test?

Someone already posted a similar question but I can't find the thread, so forgive my duplication.

I read Rev. Proc. 2004-13 re how a plan that is courting top heavy status can make safe harbor contributions and avoid application of 416's rules.

However, is it possible for a plan that was top heavy in, for example, 2005 and in 2006 to use the safe harbor contributions for PYE 2006 and avoid 416 for that plan year? I know that top heavy status is determined on a year-to-year basis but can you use 2004-13 in a subsequent year without having first corrected a prior top heavy year?

thanks for any insight.

If a plan made corrective QNECs to eligible participants who were inadvertantly ommitted--assuming the QNEC was made during the same plan year as the ommission--can the QNEC amounts be included in the ADP test? I've searched the ERISA Outline Book, and haven't found anything.

I'm a partner in a small s-corp (4 ee), and we terminated a 401K plan in 2004. Unfortunately, our plan management firm didn't make clear to us (or we just missed it) that if someone covered in the plan kept funds in their account, we would need to file a 5500 for each year funds remained. We just learned of this requirement thanks to a "Request for Information About Your Form 5500" letter from the IRS, requesting a reason and/or filing of our 2004 5500. We're also, then, deliquent in filing the 2005 5500.

Here's my question, which I can't seem to get an answer on from the few CPA's we've contacted. The lack of 04/05 filings was due our misunderstanding of what "terminated plan" meant and our total lack of experience in retirement plans, so it was completely benign and unintended. If we state this in a letter accompanying our response, can we expect leniency from the IRS and DOL? Or, are we better off just filing using the protection of DFVCP and just swallowing the $1,500 max penalty that triggers? And if we use DFVCP, can we be reasonably assured that the IRS won't pursue additional penalties?

Input from anyone who's had a similar experience would be hugely appreciated.

It looks like this might be the 1st year we are required to use an accountant's opinion. Can anyone detail out what the accountant is looking for and if they look at the previous year as well?

Thanks Much!

Plan sponsor is changing from a C-corp to an S-Corp causing his fiscal year end to switch from 6/30 to 12/31. Their profit sharing plan also has a June year end and the pros and cons of also changing the plan year to a December year end are being considered.

They would like to make a contribution and take a deduction for the resulting 6-month shortened fiscal year ending 12/31/06. If the plan year is not changed, I guess the limitation year definition in the plan document would have to be amended to the fiscal year ending within the plan year, and the total contribution for the PYE 6/30/07 would be whatever was contributed/deducted for the short FYE 12/31/06? In this scenario, it would seem that the limits on annual additions and compensation would be unreduced as there would still be a 12-month plan year.

If the plan year definition was also changed to coincide with the calendar year fiscal, it seems that the limits would have to prorated to 50% of the maximum for the resulting short plan year. Are these choices accurate and are there any other aspects to be considered? All help is appreciated.

What is the last day on which a Sole Proprietor can deposit his or her "salary deferral" to a 401(k) plan? I understood that this is not the standard timing as used for employees. Is it 2 1/2 months after the plan year ends, provided that it is from income of that period, and a written election for the deferral was filed before the close of the plan year?

Two unrelated sub-s corporations have merged and formed a new company effective 1/1/2007. One company sponsored a SIMPLE and one company sponsored a non safe harbor 401k plan. The new company wants to sponsor a safe harbor 401k plan.

Does the fact that one of the companies had a non safe harbor plan create problems for the safe harbor arrangement in 2007? No contributions have been made to either plan in 2007, if that is relevant.

And if the 401k assets of the old plan are transferred over, does that create issue relative to the safe harbor status for 2007?

Are there any firms with SEP prototypes that can be used by an employer in addition to their defined benefit plan?

thanks,

Jim

Non-J&S, plan and SPD silent. Can we allow a participant to specify a dollar amount to a beneficiary with the remainder to another beneficiary.

It sounds unusual, but is it legally permitted?

I am over 50 and an active employee. I was told I need to double the amount of my total monies in a new Roth Ira (approx. $2,100) and send it to the IRS by 4/17/07, so the amount would be allowable for sure. Is this true? I thought there was no yearly minimum deposit. Also, can one still put monies into a Roth Ira if they retire early, until they desire to take them out? (after the 5 yr. non-distribution period of course)

[Found on the net:]

A group of alumni, highly established in their careers, got together to visit their old university professor. Conversation soon turned into complaints about stress in work and life. Offering his guests coffee, the professor went to the kitchen and returned with a large pot of coffee and an assortment of cups - porcelain, plastic, glass, crystal, some plain looking, some expensive, some exquisite - telling them to help themselves to the coffee.

When all the students had a cup of coffee in hand, the professor said: "If you noticed, all the nice looking expensive cups were taken up, leaving behind the plain and cheap ones. While it is but normal for you to want only the best for yourselves, that is the source of your problems and stress. Be assured that the cup itself, adds no quality to the coffee in most cases, just more expensive and in some cases even hides what we drink.

"What all of you really wanted was coffee, not the cup, but you consciously went for the best cups... and then began eyeing each other's cups.

"Now consider this: Life is the coffee, and the jobs, money and position in society are the cups. They are just tools to hold and contain Life, and the type of cup we have does not define, nor change the quality of life we live. Sometimes, by concentrating only on the cup, we fail to enjoy the coffee God has provided us."

God brews the coffee, not the cups... enjoy your coffee.

We're starting to do quite a few DOL plans, and need to find a competent check-writing software to make the production of monthly benefit checks easier.

Participants need to be maintained within each plan, summary/detail reports available for each check run, etc.

Storage & printing of a digital signature would be a nice feature.

Can anyone recommend a good software (or, conversely, recommend a software to avoid) for this purpose?

Thanks!

Mark