We set up a 401(k) plan effective 1/1/2004, filed a 2004 Form 5500 and Schedules (showing $0 assets at begininng and end of year), and filed a 2005 Form 5500 (also showing $0 assets at the beginning and end of year). There were 10 eligible participants, all of which worked more than 1,000 hours in each of those years.

It is our understanding that you are supposed to file, even if there were $0 assets, so we did.

We got a letter from the DOL on the 2005 filing asking for "clarification" (why was the "Trust" box checked on page 2 of the Form 5500, and please check your math on the Schedule I). We sent them a letter back explaining that there are no assets, but that there are plan participants. They sent back another letter asking for further clarification.

Has anyone ever run into this?

Any input would be greatly appreciated.

Thanks ;-)

Are you able to utilize non-prototype amendments with prototype plans? Let me explain: We took over an existing plan with a prototype document from the prior TPA (TPA changed; investment co. didn't). Client no longer receives amendments from prototype provider. Many of our clients are on a volume submitter plan with well-known national company (provided to client via us). We purchased the amendment from vol sub provider to use with our clients (not adopted at sponsor level; each employer must sign). Can this amendment also be used for our new prototype client? Assumptions: prototype doc has no language restricting use by other TPAs/we understand we cannot rely on the prototype's determination letter. Thanks.

If all employees are covered by both plans, what minimum benefit must be provided by the Cash Balance plan?

I have heard if you are doing a percentage of pay, then 3% is considered a meaningful benefit.

I have heard that if you are doing a flat dollar, then $1,000 is a menaningful benefit.

I have seen cash balance proposals that are allocating only a 2% of pay contribution to the rank and file employees with a 3.5% allocation to a profit sharing plan. (by the way I beleive this proposal didn't pass the gateway test)

I have been told there is an actuarial firm in California that will design a $100 flat cash balance benefit with the remaining required contributions coming in the form of profit sharing allocations.

I am concerned about 401(a)(26).

In the plan I am desgining, the owner is receiving a large enough allocation that I need to give at least 7.5% to the employees for the gateway, but i would rather give the majority in the form of profit sharing contributions to eliminate as much of the hypothetical interest credits as possible.

We will be drafting a new individually designed profit sharing plan for an employer with an EIN ending in "1" early next year. The plan will not be signed until March, 2007. When should this plan be submitted?

Must it be submitted off-cycle or can it wait until the next Cycle A years down the road?

Thanks for any help.

Hello Everyone!

This is my first post here, so thanks for having me. I used the search engine before posting this, and was able to come up with a few names of different software, and how certain people like them. A lot of the info I found was outdated though, and I really would like to know what people are thinking right now.

I don't want to just put their name out there, but we've been using software from a company for about five years or so, and up until maybe six months ago, they were great. The support was great, the program worked very well. I'm not sure if something happened internally there, but now we seem to be having almost daily problems with them. We're spending a LOT of manhours on the phone with them, and their tech people don't seem to know the programs as well as they should. There are about 5 modules of the the software that we are using, and they don't all blend seemlessly (as you would hope they would). They update the programs monthly, and it doesn't seem like the updates are beta tested before releasing them to the TPAs.

Anyway needless to say we're getting a bit frustrated, as the bottom line is, our clients are not as happy as we would like them to be. We feel like we work tirelessly to get things right and do a great job, but with the current issues we're having, it's becoming increasingly difficult.

So I'm wondering what you're using, and if you're happy with it.

We're a company that does Full Flex plans, offer debit cards to the participants, etc.

Thanks so much for your time and help! Happy Holidays!

JD

If a participant has a 5 year loan to be paid back quarterly, can he prepay the year's payments in January? (i.e $250 payment per quarter of 2007 but pays $1000 in January 2007, then doesn't make another payment until January 2008).

I recently came across a 401(k) plan that, in addition to allowing employee deferrals, provides that "each year, the Employer shall make Nonelective Employer Contributions to the Trust for each eligible Active Participant in an amount equal to 4% of such Active Participant’s Compensation." The plan contains no language designating itself as either a profit sharing plan or a money purchase plan. It contains none of the required provisions of a money purchase plan (QJSA, etc.), so the sponsor is apparently taking the position that it is a profit sharing plan. It has received a favorable determination letter.

I have always understood the basic difference between a profit sharing plan and a money purchase plan to be that a profit sharing plan provides for discretionary employer contributions and a money purchase plan provides for mandatory contributions computed as a fixed percentage of compensation. If my understanding is correct, why wouldn't the plan described above be a money purchase plan?

I know for a NC Rate group you don't include match or nonelective 401(k) contributions... but do you include them in the rate group for the dc part of a dc/db rate group?

Rollover_Memo_to_ee__s__pre_1107.docAnybody see anything wrong with the attached example of a memo to the employees regarding the new rollover option?

Thanks!

Owner A owns 100% of Corporation XXX and 85% of Corporation YYY.

Owner B owns 0% of Corporation XXX and 15% of Corporation YYY.

Does a controlled group exist? I would say yes given Owner A's ownership percentages in both companies. But with Owner B owning 0% of Corporation XXX, I am not sure that the 50% identical ownership test is satisfied.

Also, assume a CG exists between XXX and YYY. XXX has only 2 employees (Owner A and Owner A's wife) and both are in the XXX Profit Sharing Plan. YYY has 22 employees (Owner A, Owner B, and 20 NHCEs), all of whom are in the YYY 401(k) Plan. Am I correct that both plans have to be tested as 1 employer for plan testing purposes? If so, would it be true that XXX could not provide a high allocation to the owner and spouse, while providing for only a 3% safe harbor contribution in the YYY Plan?

Thanks

According to the an article I saw earlier today (web link: aishealth article), one of WalMart's medical plan for 2007 (called "Freedom Plan 2") is a high deductible health plan with a family deductible of $6,000. As you know, this exceeds the maximum permitted deductible for HSA compatible plans, which is $5,650. I am hoping that the plan description in the article is incorrect.

However, in case the deductible is indeed too high, someone with a contact at WalMart may want to warn them that HSA contributions would generally not be permitted for any participant that elected Plan 2 for next year (unless the deductible is changed to not exceed the $5,650 threshhold).

So PPA 2006 requires full vesting within 3 years on new cash-balance plans.

Does that mean if we permissively aggregate a new cash-balance plan with an existing profit sharing plan, and the HCEs are the ones primarily benefiting under the cash-balance plan that we're likely to have to make the profit sharing plan vesting schedule match the cash balance's vesting schedule ? Seems like we would need to but I'd love an out. Any thoughts ??

If an organization has both a 403(b) plan (to which contributions are made by employees only) and a Defined Contribution (Money Purchase) plan (to which only the employer contributes), is an employee subject to a specified overall aggregate contribution limit for both plans combined? Or may the employee contribute up to the maximum allowed contribution for each plan considered separately?

Thank you.

A participant in a qualified plan died in 2004. The beneficiary is a nonspouse. The plan states that all beneficiaries must receive their balance within 5 years. The beneficiary elected to defer receiving the balance as long as possible and has not yet taken any distributions. May the beneficiary roll the balance over to an "Inherited IRA" in 2007? Or, since she has not taken the RMD in 2005 and 2006, is she ineligible for the rollover?

A small employer with say an owner and 5 employees wishes to implement a combination DB/DC plan and intends to pass non discrimination by using cross testing.

The owner sees he can get a lot of mileage out of a DB plan since he has many years of past service as compared to the employees (no other employees previously worked in company other than the current five), and is older than the 5 employees.

Say the employer implements a DB plan with a unit credit accrual of 2% per year for him and 1% per year for the employees and by implementing a DC plan and using cross testing and combining plans he intends to pass 401a4.

So what happens is the owner enters the DB plan with an AB of 20% of comp due to his past service, subject to 415.

The question is can the owner be deemed to have an accrual of 2% on the annual accrual method or do we need to base the accrual on the fact that it is a new plan and he had $0 at start of year and now has an AB of say $15,000 at end of year due to past service leverage.

So based on one method his accrual is 2% and say his compensation is $75,000 then his accrual would be 20% based on the change in AB from $0 to $15,000.

Any thoughts? Obviously a key technique re: ND testing.

Thanks.

A participant wants a 90-24 transfer of assets from one ROTH 403(b) institution to another. If the participant has a basis of $10,000 and a loss of $500, the receiving institution will only recieve $9,500. Does the receiving instituion record $10,000 in basis and a loss of $500 or only record the actual money received?

A 401(k) plan that provides a 3% safe harbor nonelective contribution is also a cross tested plan. In order to receive the profit sharing contribution, you have to be employed on the last day of the plan year. A terminated participant receives the 3% safe harbor nonelective contribution. Would he also have to receive a 2% profit sharing contribution to pass the gateway test even though he terminated employment?

What are the options when a participant has underspent the health fsa account. elects COBRA and period runs beyond run-out period?

New to this and need some assistance - thanks!

I hope this is a simple question for you 125 Gurus.

A plan (FSA) allows, but does not require an individual to "pre-pay" her entire annual election. Say, for example, the plan allows a maximum election of $5000. The "premium" may be paid in one payment, out of the first plan year pay or in installments, regular or scheduled (e.g. monthly pay [$5000/12], or, by way of further example, One in January and one in July. Another option, for purposes of discussion might be in 6 installments-Jan through June, and then stop. Conceptually, I think any of therse payment options will work. However, I'm a little troubled with the one time up-front payment. Her is why. Reg 1-125-2 says the following:

A health FSA will not qualify for tax-favored treatment under Sections 105 and 106 of the Code if the effect of the reimbursement arrangement eliminates all, or substantially all, risk of loss to the employer maintaining the plan or other insurer.

Does anyone else think that the one time payment option, at least when it is only offered at the beginning of the year, runs afoul of this proscription?

Is it allowable to amend a cross tested plan to allow owners (through family attribution rules) to opt out of participating in the plan, so as to allow higher allocation rates for those remaining? If so, what are the operational requirements (signed opt out forms, etc.)? Any cites also appreciated.