I have a situation where an employer has a profit sharing plan for salaried employees only and a separate 401(k) plan for everyone. The allocation formlua is compensation to total compensation. Assume they can pass 410(b).

1. Is this a design based safe harbor or do they have to run the general test?

2. If it is the general test, I am assuming they will have to include all employees regardless of whether or not they are salaried. Correct?

3. If the plan is top heavy, do all employees get the top heavy minimum?

4. Would you answer to 3 above be different if the 401(k) plan was not in existence?

Any cites would be appreciated.

Thanks

The sole owner of a small business is the only participant to make any contributions this year (2004) to the Simple IRA plan.

The company would like to fund a profit sharing plan rather than continue the Simple.

If they start the profit sharing plan for 2004 can the amount contributed to the simple be distributed as a return of excess contributions, since the exclusivity rules will be violated? If the distribution is done before the tax return is due is there still a penalty?

Would the prior year contributions be effected? Is this even possible?

Thanks!

When paying out non-spousal beneficiaries, is a code of "4" always used on the 1099-R? (401(k)/profit sharing plan)

I know that when a lump sum payment is issued, code "4" is used, but I am unsure how to code the 1099-R when the non-spousal elects the life expectancy option. I would assume it should be the same code, but you know what assuming gets you.

It seems odd that you could have a 35 year old beneficiary receiving payments for 35+ years coded as a death distribution.

How are you dealing with a startup company in which everyone employed by the company is making over $90,000? There is no lookback data to determine if they are highly compensated. Should I just use the same rationale as a person that is hired during the year and is highly compensated? That would mean that all of the non owner employees are non highly compensated for the first year.

I've talked to a colleague that said the 2 companies he has worked for in the past has used curent compensation for the first year of a company's existence. He did say he didn't know if that was right or not, but it's what they did.

I was talking to my Fidelity representative about SEP IRAs, SIMPLE IRAs, and self-employed 401(k)s, and he mentioned that there would be a new kind of retirement plan coming into effect in 2006 that will be much to my (and others') benefit: the Roth 401(k).

I've done some searching on the internet, and have found some useful websites, most notably Roth401k.com, which is a sister site of LifeTimeSavingsAccount.com, which is a sister site of RothIRA.com. I'd suggest everyone check it out. It will be a very beneficial plan.

It appears that essentially what will happen is it will be possible for employees to contribute after-tax dollars to a Roth 401(k), which would grow tax-free (instead of tax-deferred, where you pay at the income-tax rate upon withdrawal in retirement). However, employer's won't have to allow their employees to contribute to a Roth 401(K), so talk to your employer's about it, and those you work with. The university I work for hasn't even implemented Health Savings Accounts yet.

Any thoughts, articles, or comments are appreciated.

Our CPA firm does plan administration on DC plans only. We have been asked by a tax client about setting up a DB plan.

Can anyone recommend a good DB consulting/actuarial firm in Indiana? The only one I am familiar with is McCready & Keene, which I believe is very good. Any other suggestions? Thanks.

we are a large self-funded ERISA-exempt health plan. we've read about the results some large employers and government entities have had with full scale dependent eligibility audits. and we have questions.

1) does anyone know what action those employers took when the employee failed to submit the requested documentation of their dependent's eligibility? (essentially ignoring the request as opposed to responding that the dependent cannot be documented.)

2) do employees who enroll ineligible dependents and who don't take advantage of amnesty periods lose the right to continue any and all coverage under the plan when the employer becomes aware?

3) does anyone know what action employers take when the employee terminates employment before the dependent benefits have been fully recouped?

4) how do fully-insured plans react to the discovery of ineligible dependents?

5) are there other legal processes or penalties are imposed?

thanks in advance for your input!!

Can a welfare plan borrow money from a pension plan?

This is probably too easy, but for payroll purposes, when an individual makes a 401(k) contribution, is that 401(k) amount subject to FICA? Does it make a difference if the 401(k) amount is made from a company bonus as opposed to regular payroll?

For a safe harbor hardship withdrawal format, is “proof of need” required (eg: eviction notice, college bill) or merely advisable? The plan document doesn’t specify.

Is the election to use the Top Paid group an administrative election or does it have to be in the plan document.

I use the PPD/Corbel doc and the appendix A asks for an election. Would it take a plan amendment to change that for a future year.

And, what would be the timing on that amendment (I fugure that would be like the timing on a current to prior change - open to discussion).

Thank you.

I have a top heavy plan that passes gateway using "smoothly increasing" bands. The allocation rates range from 21% of comp down to 3%. The plan fails the average benefits percentage test to the point that the lower allocation groups need to be increased to the 8% range. I also have a few active participants that have not met the hours requirement for the 8% allocation, but must receive a 3% top heavy allocation. My question is if i have to increase the allocation rate for some of the bands to 8% does that prevent the plan from using the "smoothly increasing" method to pass the gateway?? Must i then give 5% to the Top Heavy only participants?? Thanks.

Even though bottom-up QNEC's are on their last legs given the July 17, 2003 proposed 401(k) regulations, I've always felt that bottom-up QNEC's are still permissible until those regulations become final and effective.

However, how does the IRS' new guidance on discriminatory practices (October 22, 2004 memo from Carol Gold) effect bottom-up QNEC's used to cure failing ADP or ACP tests? Do people think that bottom-up QNEC's are still permissible?

The adoption agreements for our prototype plan have a section entitled "Service for Predecessor Employers." A plan sponsor can then list any such predecessors. But the plan document nowhere defines just what a "predecessor employer" is.

Our clients are all employers in the same industry and they are in competition for business. It often happens that an employer will hire away certain preferred employees from a rival. The employer wants to usher the new employees into its plan and bypass the eligibility and vesting requirements that apply to other hires, so they utilize this section of the adoption agreement to name the other employer as a predecessor employer.

But is this OK? We don't have guidelines as to what is and is not permissible in this situation. The Code is a bit vague.

Reg. 1.411(a)-5(b)(3)(iv)(A) Predecessor employers states: "Service with a predecessor employer who maintained the plan of the current employer is treated as service with the current employer (see section 414(a)(1) and the regulations thereunder), and certain service with a predecessor employer who did not maintain the plan of the current employer is treated as service with the current employer (see section 414(a)(2) and the regulations thereunder."

Sec. 414(a)(2) Service for Predecessor Employer states: "in any case in which the employer maintains a plan which is not the plan maintained by the predecessor employer, service for such predecessor shall, to the extent provided in regulations prescribed by the Secretary, be treated as service for the employer."

I don't see that the Secretary ever deemed the issue sufficiently important to prescribe regulations. (On the other hand, my copy of the Code is pretty old.) Is this issue addressed elsewhere?

a participant has 2 403(b) arrangements from 2 different employers. he is over 70 1/2 and still employed by an employer sponsoring on of the 403(b) arrangements. does he have to take an rmd from the other 403(b)?

Client filed 12/30/03 5500 8/10/04 (due 7/31/04). Yhe late filing was due to emergency hospitalization, so I think we can establish reasonable cause.

If the IRS accepts his excuse, will the DOL? If not, does the fact that he's been notified by the IRS preclude him from filing under DFVC?

A tangential question. Given that the DOL is now the primary "intake" agenency for 5500 filings, what is the IRS interest, at least for plans that are not subject to minimum funding standards?

I've read the IRS publication 590 where it relates to compensation that is eligible for an IRA contribution.

I have one steady line of work: home-based telemarketing that I receive a 1099 for every year. I make about $6,000 (net) annually. I'm an independent contractor.

Some years I try my luck at network marketing, which usually involves some advertising expense, but it is totally separate from the home-based telemarketing I do. Some years I may have a profit and some years I have a loss with the network marketing. This is all reported on a separate Schedule C.

So here is my question: If I have a loss from network marketing, let's say it's $4,000, do I subtract that from the $6,000 I always make from telemarketing to get a net eligible taxable compensation of $2,000? Would $2,000 be the maximum I could contribute to an IRA?

In publication 590 it says if you have W-2 wages and you have a loss from Schedule C, do not subtract that loss when calculating taxable compensation.

So if I was doing telemarketing as an employee, not independent contractor, I would definitely have $6,000 of eligible taxable compensation. It seems like all that is important is that there is some material involvement in an income-producing activity.

An answer from a CPA or IRA specialist would be appreciated.

Thank you,

Mary-Jane

Employer has been allowing pre-tax payment of premiums to supplementary voluntary policies (life, health, etc) since Dec. 2003. Employer wants to stop the practice (due to ERISA implications). Employer has had a flex plan in place but it does not list the voluntary policies as an optional benefit.

QUESTION: Is BEST course to amend the plan retroactively to provide that there was a "12-month window" during which this was allowed, and to inform employees of the change?

Other thoughts?

Just curious what version people are running these days? We haven't updated in a while and wanted to know if there were any problems on any of the newer versions. We will probably update to the most latest by year-end

I am starting to do the 2004 cross testing projections and am getting confused by the "early entrants" into the 401(k) portion of the plan.

Top Heavy Plan

401(k) - 3 mos service

ER (SH-NEC & PS) - 12 months

Employee is in the 401(k) portion only, but gets TH min, not SH.

Cross Testing:

Ratio %: only the folks in the ER portion (ignore the TH min ee)

Average Benefit Test:

- NDC - only the folks in the ER portion (ignore the TH min ee)

- AB%T - include the TH min guy (def and TH min)

Is that right? Thanks -