An employer maintains 3 separate 401(k) plans for its employees. Each one I believe covers a different group of employees. One is for CBA ee's, another for non-cba rank and file, and a third for higher paid management. What options are available in regard to 401(k)/401(m) testing? Do all 3 get tested separately, do all 3 get combined for 1 big 401k test, is it optional to do either, or must the answer be found in the plan document?

Thanks

Company A has a 12/31 plan year end and purchases the assets of 3 other companies (B,C,D) on 9/1/03.

The employees of companies B,C & D are allowed to participate in the effective 3/1/04, but the plans are not merged.

Questions:

When determining HCE's for the 2004 plan year, is the compensation and ownership in the predecessor employers ignored, since they were unrelated for part of the year?

Since Company A is not continuing the plans of B,C &D, are they deemed to not be a continuation of the predecessor employers, and if so what compensation should I be using for the 2004 plan year testing? From 3/1/2004 - 12/31/2004 or 1/1/2004 - 12/31/2004?

I'm not real familiar with SEP's, but I was asked recently about a small business starting a non-contributory SEP. I honestly have never heard of this distincton ("non-contributory") used with a SEP before, but I suspect it just means a SEP in which the eligible employees can contribute pre-tax money, but to which there is no employer contributions made. Thats what the owner thinks (and wants) here.

Does this sound OK, and if the owner does not contribute to the plan, is there really any benefit to sponsoring this plan?

Does anyone know if there was some proposed legislation being pushed that might exempt or reduce taxation on distributions from insurance annuities ? Someone in our office thought they remembered seeing something on that but we can't find anything now. This might be an issue ASPA is concerned about due to it putting qualified plan distributions at a disadvantage. Can anyone set me straight on this ? I realize I may not be stating the issue correctly.

I read about this in a just published book and would like some citations to either support or challenge the concept.

Facts: Sole proprietor, materially participating, no employees. The trade or business has a good gross income level but he expects to have little or no net taxable income on his Sch C for the year, yet he wants to maximize his solo-401K/ProfitSharingPlan contribution.

Solution: form a SMLLC Single-member LLC and have the 1st Sch C "hire" the SMLLC (a 2nd Sch C) to preform administration/management services.

End of year: Sch C #1 has a $200,000 loss (including the fees paid to the SMLLC)

Sch C #2, The SMLLC (Sch C #2), has a $200,000 profit (solely from the fees paid to it by Sch C #1). Taxpayer establishes a solo-401K/ProfitSharingPlan for the trade or business represented by the SMLLC.

He is now able to pay in the maximum for the year based on the $200,000 net income shown on Sch C #2.

The book's author claims that the key here is that the Sch C #2 is represented by a SMLLC (rather than simply a non-entity trade of business filing a Sch C).

If this "works" why does it "work" only with an SMLLC Sch C but does not "work" with a non-entity trade or busienss Sch C?

Any authoritave citations (pro or con) will be appreciated.

If I retroactively correct, by amendment, to define union employees as eligible employees do I have to submit the amendment for full correction?

Can a QNEC be used to satisfy the base contribution percentage for an integrated plan? ie) Integration is 5% for total wages plus 5% over wage base. QNEC required is 3%. If the profit shring contribution is 100% vested can I deem the first 3% of the 5% base allocation a QNEC?

Thanks

We were just informed that a plan of our has a p/t ee who was eligible to enter the plan on 7/1/01. She works 3 days per week, so meets the 1000 yrs elig. requirement. I see that she entered the plan on 7/1/01 (at prior TPA) and was given a profit sharing contribution at year end. Same for 12/31/02 and 12/31/03. We, the new TPA, assumed that she worked f/t, but declined to defer. Earlier this week, the agent was notified that she was p/t but eligible, and he thinks she was never given the opportunity to defer into the plan.

Since more than 2 years has passed, it looks like its VCP for this plan. Either way, how can we make a correction to her (she wants to defer now)? Someone indicated tht we would need to calculate the average deferral % for the plan, and give that to her. I beleive the plan also matches, so the co. would have to pay the match as well. What about earnings?

Would you consider this "insignificant" enough to go the way of SCP?

Thanks for your help!

Does anybody have an opinion regarding the provision in the final regulations re automatic rollovers that states the following:

"(d) Mandatory distributions of $1,000

or less. A fiduciary shall qualify for the

protection afforded by the safe harbor

described in paragraph (b) of this

section with respect to a mandatory

distribution of one thousand dollars

($1,000) or less described in section

411(a)(11) of the Code, provided there is

no affirmative distribution election by

the participant and the fiduciary makes

a rollover distribution of such amount

into an individual retirement plan on

behalf of such participant in accordance

with the conditions described in

paragraph © of this section, without

regard to the fact that such rollover is

not described in section 401(a)(31)(B) of

the Code."

Does this mean that if you do a mandatory cashout of $1,000 or less when you have an unresponsive participant and don't roll it into an IRA, you're not protected?

Plan has not been restated since 1979.

What do we do?

Does anyone know if there is a statute of limitations on uncorrected prohibited transactions? We have failures going back to 1998 and plan to fully correct. Must we also file IRS Form 5330 for each of these years?

I'm sure this has been asked, so sorry - Plan Year ending 10/31/04. What are the dollar limits:

414 limit = 40k or 41k?

Comp limit = 200k or 205K?

TWB = 87k or 87,900?

Thanks.

I used to be up to speed on cash balance plans, but as I have not done any work on them for a couple years, I am rusty.

If an employer is considering establishing a new defined benefit plan, what are some of the most likely reasons why a cash balance plan might be the preferred type of plan over a traditional db plan?

The big one to me is that employees, and sometimes employers themselves, understand the account balance concept better than they do accrued benefits. Another I have read about is that some employers like to have the newer, "trendy" types of plans.

What are some others?

I have seen several plans that allow participants to terminate deferrals during the year, on the condition that deferrals cannot be resumed until a future calendar year (sometimes the next year; other times requiring suspension for the following plan year as well).

Would this be allowed under §409A or, for that matter, under existing law? §409A speaks to the timing of elections and distributions, but does not state that elections to defer must be irrevocable for the period to which they relate.

On the other hand, revocation could be an end-around that would allow participants to fine-tune their deferral amounts, by electing a high deferral percentage at the start and terminating deferrals once they reach a deferral amount that they decided fit their needs after the year started.

Thanks in advance for any thoughts on this!

I am familiar with the "Bona Fide Wellness Program" proposed regulation Section 54.9802-1. Under this program, a "reward" (with a value of up to 20% of the cost of single employee health coverage) can be offered if a participant meets the standard of a bona fide wellness program.

So far, so good.

BUT - I have a client who wants to give all employees a Health Risk Assessment test (HRA). If an employee refuses to take the HRA, the employer wants to charge the employee the full cost of their health insurance premium, whereas those employees who take the HRA would pay only about 1/4 of that amount.

Assuming, for example, that the full cost of the premium is $1000, and that the discounted premium for employees taking the HRA is $250, the "reward" for taking the HRA exceeds the 20% differential allowed by the proposed reg.

Accordingly, I advised that the program doesn't meet the requirements of a bona fide wellness program, and therefore violates HIPAA.

My client assures me, however, that this is done as standard practice in the market.

The client's argument is that, since the discount is based NOT ON A HEALTH FACTOR, but merely on TAKING THE TEST, this program cannot violate HIPAA.

Any insights from you pros out there is welcome. Do you think that the client could be right - that HIPAA, and the Bona Fide Wellness Program Reg. are not applicable under these circumstances?

Thanks!

I'm passing this question along. Confirmation (or disagreement) would be appreciated.

Situation:

Doing 1/1/2004 valuation.

The plan year is 1/1/2004 - 12/31/2004. Plan benefits were frozen as of 10/20/2003.

In accordance with Rev Proc 2000-40, the funding method was switched to Unit Credit (was Aggregate). The base determined for the change in funding method was determined in accordance with Rev Proc 2000-40, 5.01(2), as follows. All numbers were determined as of 1/1/2004:

AL new method = $328,076

AVA (FMV) = $371,365

Net outstanding balance of prior bases = $0 (because plan was Aggregate)

Funding Deficiency = $136,200

Change in method base = $328,076 - $371,365 - [$0 - ($136,200)] = ($179,489)

Rev Proc 2000-40 allows a negative base if the method is Unit Credit.

Q1: Is this correct?

Now, the next problem comes with calculating the full funding limitation. It comes out to $0 as follows. All results are determined as of 1/1/2004

UCAL = $328,076

UCNC = $0 (frozen plan)

AVA = $371,365

FMV = $371,365

FFL = $328,076 - $371,365 = $0. (Note, FD does not get added into assets.

So now we believe that there is no contribution for 2004 due to the FFL

Q2: Is this correct?

Now let's look at the calculation of the minimum funding deficiency as of 12/31/2004. Is it just the $136,200 * 1.07? (assuming 7% interest rate). But how does the FFL of $0 fit in? Does it eliminate the FD? Yes.

Q3: Is this correct?

Thanks for any help.

We have three clients who have recently received form letters from the IRS asking for "an explanation to support" how and when a funding deficiency was corrected or why it was not corrected. The entry on line 9p indicating the plan had a funding deficiency triggered the inquiry.

In all three cases, the form 5330 has already been filed and the excise tax paid. Evidently, the IRS is asking the clinet to confirm what the IRS already knows somewhere else in its bowels. In essence, the form 5500 schedule B people cannot communicate with the form 5330 people.

Is anyone else experiencing this? It appears to us this is more of an annoyance than a real problem, but I want to make sure I am not missing something.

A 401k Matching Safe Habor Plan has a three month wait for 401k deferrals and a 1 year wait for the safe harbor match.

If the plan is deemed top heavy, must a top heavy minimum be provided for all employees eligible to make 401k contributions?

Is anybody aware of a specific article or publication concerning New York State Fiduciary Obligations and Governmental Plans?

Non-qualified deferred comp. plans are to be converted to synthetic equity by using their "present value" and the current S Corp stock price. Does anyone have a clue what interest rates are to be used to determine present value? Here is one example. HCE has an arrangement whereby the company is to deposit $6250/quarter into the plan. This continues to age 60. At that point HCE can take 60 monthly w/drawals until the account is gone. The money is going into an annuity product w/ multiple investment options that the HCE can switch between. Of course it is possible that the present value is simply the current accumulated value of the account, but I don't see anything helpful in the regs. If that is the case, how would a different plan that promises $50,000/yr for 10 years starting at age 60 be valued if nothing has been set aside for it?

Any thoughts would be appreciated.