Plan year was 8/1-7/31, but now has a short plan year 8/1-12/31/05 as it changes to calendar year plan. Document says you have to work 1000 hours in the plan year to get a share of PS. Employer wants to make a PS Contribution for the short plan year. Can we pro-rate the hours requirement for the short plan year?

I have a top heavy plan which has deferrals, 3% non-elective safe harbor and integrated profit sharing – entry dates for the safe harbor and deferrals are monthly after one month of service and the profit sharing monthly after twelve months of service.

The employer hired several new employees who were eligible to defer and receive the safe harbor non-elective, but not the profit sharing. Since the plan is top heavy the new employees required an additional contribution for the one month they were held out of the safe harbor contribution.

When I add the tiny additional top heavy minimum employer contribution Datair spits out a special top heavy report stating I am failing the 410(b) minimum coverage test – 401(a)(4) Top Heavy Safe Harbor.

The verbiage on the report is as follows -

Top heavy plans using a 401(a)(4) safe harbor formula (e.g. proportional to salary or integrated) with participants who are not eligible for the employer contribution effectively have two formulas and must pass a special ratio percentage test where those who benefit only form the top heavy minimum are treated as not benefiting.

Is anyone familiar with this report????

I'm wrestling with a question here. Suppose you have the following scenario:

Plan established 12/31/2006 with a beginning of year valuation date (prior to when the proposed regs become effective) The limitation year is calendar year, so 12-31-2006 valuation is based upon 2006 calendar limitation year. The compensation averaging is based on service. The individual has been in business since January 1, 2000 and their high three year average salary was earned in 2000, 2001 and 2002.

Now, the second year valuation comes up - 12/31/07 and the new regs are effective since we are dealing with the 2007 limitation year. When preparing the 12/31/2007 valuation - the compensation averaging would be based on participation rather than service. Do you:

1. Only use compensation for the limitation year 2007, or,

2. Since 364 days of participation from the first plan year were actually in 2007, do you take into account 2006 compensation as "participation comp" since that is the limitation year that applies to the plan year containing, essentially, a year of participation?

Or something else? Originally I was leaning towards #2, but after discussing with some colleagues and letting it percolate overnight, I'm not sure why I originally thought that, and # 1 makes more sense. But I thought I'd toss it out to see if you agree and to see what discussion it generates. Thanks.

I have a plan that is top-heavy, has a 401(k) feature and is cross-tested. The eligibility for 401(k) is entry on the first of the month following date of hire - for the PS portion, participants enter on the first day of the Plan year in which they complete one year of service. To receive a PS contribution, you need to be employed on the last day w/ 1,000 hours.

As it is now, I have about 45 employees - with 3 HCE's. Only 12 of these employees have met the PS requirements and are eligible for the PS portion of the Plan. The 3 HCE's are wanting to maximize their PS - they did not contribute 4k for the year. Do I have to give the 5% gateway minimum to the 33 other employees who are employed but have never worked 1,000 hours and never met PS requirements, regardless of their employment status on the last day of the year?

Any thoughts would be appreciated.

We have a firm that sponsors a 401K and is 100% owned by a husband and wife. The wife works for the company, and takes a salary. The wife also has a side business that is totally unrelated to the firm sponsoring the plan. She has no other employees in this side business. Our question is this: MUST we include her earned income from the side business for plan purposes even though her side company hasn't adopted the plan? If the answer is no, my next question is this: can we? Would it require plan amendment, and can that amendment be retroactive to last year?

A school district is considering allowing employees to act as their own investment advisor and invest their 403(b) deferrals in no-load funds, outside of the approved service provider listing. Does anyone have such a waiver that they would be willing to share?

Thanks!

I have always advised against including non-employees in any ERISA plan, including nonqualified plans. Yet I often see NQDC plans that include outside directors. Any opinions on this?

Thanks.

card

We are considering ASP as we are facing the purchase of a new server. If anyone is using R.A. thru ASP, I am interested in feedback. For example, one ASP user described the process of generating report writer reports as more lengthy. Has this been your experience? What other positive or negative aspects of ASP have you experienced? Thank you.

I know that if a plan has a 1000/LDR provision you can exclude these people from the ACP test because they are not eligible....but what if a nonstandard plan has only a 500 hr requirement (no LDR - don't ask me why they have a NS doc!)? Can you also exclude these people?

A code reference would be greatly appreciated with the answer, if you have it!!!

Vicki

Small company wants to start up a plan that has only 401(k) contributions and safe harbor match contributions. If this is the only money in the plan and it is top heavy, does the employer have to contribute 3% to everyone not receiving the safe harbor match (ie, they are not deferring)?

If the answer to above is "no", would that answer change if the owner rolls money into this new plan from another employer's plan or IRA, in which case there would now be money in the plan other than 401k and s/h match?

thanks

Can an attorney licensed only in State A review NQDC plan documents for clients in State B in connection with a 409A rewrite, if the review deals only with federal tax and ERISA issues, and anything state related (for example, a rabbi trust document) is provided on a specimen basis only?

(Assume the lawyer has not applied for admission to any federal courts.)

Under Rev Proc 2003-44, it states that " Under this correction

method, a plan may not be treated as two separate plans, one covering otherwise

excludable employees and the other covering all other employees (as permitted in

§ 1.410(b)-6(b)(3)) in order to reduce the amount of QNCs."

If your plan's coverage and adp tests were originally run using the permissive disaggregation, failed adp testing but corrections were never made, does the plan sponsor have to retest the plan without permissive disaggregation and allocate the corrective QNEC to all eligible nhce's? Or since the operational failure is based on original testing results, can the corrective QNEC be allocated to only those that were eligible for the "test" that failed? If the plan had corrected it originally with a QNEC, these would have been the only eligible employees, so I don't understand why the IRS would state that you'd have to include a group of employees who were not included in the original testing poplulation.

Client’s qualified plan account was not flagged as ‘exempt’ in error for a few months during the previous year. as a result, taxes were withheld from some dividends paid to the account. Since these amounts should be tax-deferred, how can employer reclaim the amounts that were withheld?

Account is now flagged as ‘exempt’.

Denise

The gist: I'm unemployed and have been for several months. Savings quickly evaporated and I've been forced to liquidate large portions of my 401K to cover bills (including a big fat mortgage) ....and it's doing very serious damage to my retirement "nest egg." (oh yeah, being single doesn't help, ie no wife to help cover the bills). I am selling my house, but short of another job finally coming along, do I have any options to help "save" my 401K? eg I take it I can't do an equity loan given that I'm unemployed........

Anyone??

Looking over an existing plan right now and have discovered the following:

Plan uses whole life contracts on the 4 participants in the Plan.

Appears that whoever set the plan up was relying on the 50% rule under 74-307 to determine the face amount of insurance purchased, rather than a definite multiple of the projected benefit. Plan document is not specific as to amount of insurance to be purchased.

Fact pattern is the one HCE has a policy of around 130x projected benefit; one NHCE two years older has policy of around 15x projected benefit; two younger NHCEs have face values of around 25-30x projected benefit.

Appears from my reading that although 74-307 is "satisfied", that there are issues with Benefits, Rights, and Features due to the disparity in face purchased. Any comments?

Recently handled a takeover PSP which was on a prototype document. Plan was initially effective Jan. 1, 1989. Amended and restated on a pre-approved volume submitter document with a few language changes. Submitted the plan to the IRS for a determination letter. IRS agent recently requested all plan documents and amendments from 1-1-1989 to present. Was able to find a favorable determination letter that Plan received back in 1991. Prior prototype sponsor also forwarded to me the 2001 prototype doc. approved by the IRS and employer adopted the doc. before the end of the 2001 plan year.

I should not have a problem with persuading the agent to start the review from the most recent FDL, i.e., 1991, however, does anybody know when the proptotype sponsors had to amend their prototype documents for the 401(a)(17) and 401(a)(31) changes? I cannot imagine that the prototype sponsor (a law firm) did not make those amendments in a timely manner, however, if so, they failed to send me those pursuant to my information request. Thanks for any help that can be provided......

An employee elected max 5K for 2006 for dependent care FSA

he is having 1000/mo dedcuted from pay for 1dt 5 months of year

Is this ok or must it be "uniform" over 24 pay periods?

thanks

I have an active participant (age 59 1/2) who wants to take money out of a Safe Harbor 401K. The plan contains 3 different contributions: 1) Safe Harbor 3%, 2) Employee Deferrals, 3) A P/S discretionary from before the plan was a 401K. The only type of in-service withdrawal that the plan document discusses is the "Hardship". There is no mention of an in-service at age 59 1/2.

Am I correct that even though the participant is 59 1/2, she cannot remove her Deferral balance because it is not in the plan document? Also, the plan has a loan provision so would that not have to be used before any "Hardship Withdrawal" could possibly take place?

Any opinions would be greatly appreciated.

Scott

A participant took a loan out of the plan for $50,000 on 2-24-05 but decided he didn't need the loan and returned the check on 3-11-05. The ptp tried to take a loan out in 1-06 but was told he had to wait until

3-12-06 to take a loan out due to the ability to only take 1 loan out in a 12-month period. Even though he returned the check, does he still have to wait a year? Please advise asap. Thanks

I know that Relius calculates how many will be counted in the top 20% for the following year, but does the system actually tell you who gets to be excluded in the ADP test as a HCE? In other words by hand, I know who is included and who is not so is it up to me to code them as an NHCE so they won't show up as a HCE?