A 401(k) plan has a non-elective component in which the employer makes a 1% of pay contribution to all participants with 10 or more years of service. The result is that out of 250+ plan participants, about 80 receive this contribution, with a mixture of about 30 HCEs and 50 NHCEs getting the contribution. Of the remaining 170 participants who do not get it, 25 are HCEs, the rest are NHCEs. I fail 410(b) but still pass 401(a)(4).

But, because I have NHCEs getting $0.00 non-elective, it would appear that I do not pass the 1/3 gateway allocation mark since I have NHCE's getting 0.00% and HCEs getting 1.00%. Is there an exception for this type of allocation method, which is uniform after so many years of service?

Thanks

An Employer improperly excluded several eligible employees from their 401(k) Plan for part of the year. The employer self corrects and contributes QNEC's for these employees. Should these QNEC's be included in the ADP/ACP testing? If so, do you include the whole QNEC or just the part that was for the missed contribution, and not the 'missed earnings'?

Thanks for any input.

Is a Registered Investment Advisor an ERISA Fiduciary for assets held in a tax qualified profit sharing plan with a single owner/participant?

Company A sponsors a 401(k) plan. On January 1 most of Company A's assets are sold to Company B and former employees of Company A begin working for Company B (same job, same location etc..). Company B adopts Company A's 401(k) plan and the employees of Company B begin participating in Company A's plan again. If Company B eventually terminates the participation agreement with Company A's 401(k) will Company B's employees be able to take a distribution from the plan on the grounds that they had a separation from service with Company A? Keep in mind that they are still working for Company B. Would the distribution be limited to the amount they contributed as Company A employees since they are still working for Company B?

Employer's ADP test failed for 2005 using prior year testing. All employee are eligible to participate on date of hire.

The ADP test would pass if we carved out the otherwise excludable employees in 2004. I understand that if a plan uses prior year testing, the change to disaggregating the otherwise excludables doesn't help the first year because it's treated as a plan coverage change.

My question is since all employees are eligible, can't we just "declare" that disaggregating (for coverage) began in 2003, which would allow us to use the disaggregated 2004 NHCE ADP for 2005 HCE testing?

Coverage passes automatically regardless of whether we disaggregate.

I hope this makes sense to someone.

Employer currently has a MPP. Plan year is 10-1 to 9-30. Employer contribution is 3% to be made at the end of the plan year (9-30-06). Employees have already accrued a right to the allocation formula for the current plan year.

Employer wants to establish a 401(k) plan - let's say 5-1-06 (keep the plan year the same as MPP). .

Can the MPP be amended into a 401(k) plan 5-1-06 and make sure that the 3% contribution previously provided by the "MPP" be carried forward in the 401(k) - perhaps via a 3% safe harbor nonelective? Participants won't lose out on the 3% since that will be required under the 401(k). Or, since the MPP is a pension plan subject to minimum funding etc. the 3% must be contributed to the "pension" plan and not to a PSP?

Is the alternative to keep the MPP though 9-30-06, start up a 401(k) as of 4-1-06 with just 'EE deferrals ('ER can't afford to contribute to both plans) and then merge the MPP into the 401(k) as of the end of 9-30-06?

According to Rev Proc 2005-66, an employer is considered to have timely adopted a discretionary plan amendment if the amendment is adopted by the end of the plan year in which it is effective. However, for minimum funding, Code section 412©(8) permits a retroactive amendment up to 2-1/2 months after the end of the plan year. Has the IRS indicated whether an amendment made during the Code section 412©(8) period will be considered "timely adopted" for purposes of Rev Proc 2005-66?

I am drawing a blank.

The Co. AB plan covered employees of both Co. A & Co. B. Co. A & Co. B were part of a controlled group in 2005. No longer controlled in 2006. Co. B employees are spun off into the Co. B retirement plan. It is my understanding Co. B plan would be successor plan for ADP/ACP purposes, but is it the same for top heavy? Do I determine 2006 top heavy status for the Co. B plan by looking back to the 2005 results for Co. AB plan or this treated as a new plan & look to the end of the first plan year for Co. B plan? I really can't find any clear guidance.

Thanks in advance for any help.

Hi,

In 2005 I added 4000$ to my existing roth IRA in scottrade. My existing roth IRA has 8K all invested in mutual funds. I didn't do anything with the 4K and it just sat there, not earning anything. Now when filing the taxes I realized I can't contribute due to exceeding income limits. I requested withdrawal of the excess of 4K. Scottrade sent me a check for 4666 666 being the earnings. They said during the time the account had grown from 12K to 14K due to gains in mutual funds. So 2K*4/12 = 666 is the earnings on 4K.

I don't think this is right. The 8K would have earned 2K whether or not I had put in the 4K. The 4K didn't earn anything, so shouldnt I just be getting 4K?

I spoke to IRS on their phone line and they agreed, but scottrade is not convinced. What should I do? Who is right?

The kicker here is overall I am still at a loss of $100 in my IRA, so don't want to pay taxes on 666$ and accumulate 766$ loss in my IRA! I am thinking of just withdrawing everything so that I dont have to pay any taxes, but somehow think maybe thats not such a good idea, there has to be a better way. Such a huge penalty for being a dedicated investor setting aside a small amount for roth ira?

thanks

I converted a traditional IRA to a Roth in 1999, invested in tech stocks, and still have a paper loss of more than $5000. I want to take an un-qualified distribution, and subsequent tax loss. I understand that I must close out all Roth IRAs. Do I need to close my non Roth accounts? How do I close my Roth accounts so the statements reflect my loss, not an un-qualified taxable distribution? Thanks for your help, bob

I'm looking at a case that had a standard Safe Harbor Match (SHMAT) for 2005. That is, the plan was to match deferrals dollar for dollar up to 3%, and then, 50 cents on the dollar on the next two percent.

The sponsor misunderstood the match formula. They thought the formula was dollar for dollar up to 4% of pay.

Wouldn't you know it - almost all of the employees deferred exactly 4%. The employer made a 4% match, even though these participants should only have gotten a 3.5% match.

This kind of error must happen all of the time. Does any one know of (a) IRS sanctioned self - correction , or (b) practical suggestions?

Thanks very much.

If you have stocks in a roth ira and you sell them and make a profit how long do the proceeds have to remain in the account? Does the five year rule come into play?

I filed my tax returns and did not include my early withdrawl form of $10,500, which was sent to me after i had already filed my taxes for the year, what will happen now. I took the money out as a loan and it went into default, and didnt report it? what will happen please help, I though in the letter they sent me that i had to report it at the end of 2006, not 2005

My wife created a ROTH IRA account at Ameritrade for 2005, and deposited the maximum amount $4,000, In the meantime it has grown to $6,500. However, for tax purposes, I would like to have that contribution go towards a Traditional IRA in 2005 so that we may deduct the contribution from our gross income. This is the last year we can use the Traditional to qualify for a deduction for her since 2006 is the first year she will have a retirement plan available to her at work and from now on we will simply send the maximum to her ROTH. So, the question is: can we withdraw just the contribution without any tax consequences, and then use the funds to max out a Traditional for 2005? This will leave the 2500 in earnings in the ROTH, which if we wait till her retirement age will never be taxed. Is this correct?

We have a missing participant who should have received her first minimum required distribution last year. We have not had any luck locating the individual through the suggested search methods (certified mail, letter forwarding programs etc...). The failure to distribute a MRD seems to be an operational failure. Then again we are technically following the terms of the plan in attempting to locate this individual so that we can make the distributions. If we do have a failure how can we possibly correct it while the individual is still missing in action?

There are no plans to terminate the plan any time soon. Any suggestions on how to deal with this (other than suggesting additional search methods)? Thanks.

Kind of a simple question but we have a difference of opinion on the following allocation method:

Normal Retirement Age is defined as "the date the Participant attains age 65" and the allocation conditions have a last day requirement except if the "Participant incurs a Separation from Service during the Plan Year on account of Normal Retirement Age"

If a participant turns 65 on 07/01/05 and terminates 04/30/05, would they receive a contribution for 2005?

Thanks!

I am doing coverage and ADP/ACP testing for a Plan that has 60 day eligibility for full time employees and 1 year (1,000 hrs) of service for part-timers. I reviewed previous posts and see that this is a fairly common Plan Design. I did the coverage test using the 60 day requirements and considered part-timers with more than 60 days but less than 1 year of service as not benefitting. If the Plan failed using this method is it OK to disaggregate into otherwise excludible testing? That would guarantee passing. Is any other testing necessary? Benefits Rights and Features? Sorry for my ignorance - it just seems too easy and I want to make sure I am not missing something.

Sorry, but I didn't mean to post this message.

Plan terminates and there are deferred sales charges applied to participant accounts. Is there any way the employer can make the particpants whole without the money being counted as a "contribution" subject to allocation formula which would not be allocated to each participant in the same amount as the deferred sales charge.

Is it true that dividends passed through a qualified plan are no longer qualified or eligible for rollover to another qualified plan?