I am working with a hospital who wishes to establish a 401(k) and 403(b). They want a consolidated front-end for their employees for servicing of the two plans. The only way to accommodate this is to put the 403(b) on the recordkeeping platform. Currently they have a non-ERISA, individual contract based 403(b). If the plan is put onto a recordkeeping system and more importantly fixed menu is put into place (there is no match in the 403) it is my understanding that it now becomes an ERISA based plan. Let me know if this is correct.

Also, what other considerations do I need to be aware of other than the hospital will be required to:

- have a plan document (anyone know of 403B doc providers?)

- File Form 5500 Annually

- audit the plan annually

Thanks in advance. Bryan

what is the proper way to handle the return of deferrals from a participant that was not eligible to make them. since it is after the april 15 deadline is it treated the same as a return of a deferrals in excess of the 402(g) limit?

X wants to recognize service for employees who transfer from Z. Z owns over 50% of X but is not considered a controlled group.

We have a client which is a law partnership in which they would like to have separate allocation groups for each of the partners, because some want to maximize their contributions, and others don't. The plan is a cross-tested 401(k) plan, and most partners maximize their deferrals (and do catch-ups where possible). The NHCEs share one allocation group.

There appears to be no way to separate partners by age, comp, service or ownership percentage, so we are now exploring whether to set up separate classification groups by name. I've seen some indications on these boards that this is a big no-no, and other places it seems to be OK.

Does anyone have some good cites or guidance or IRS and DOL opinions about this kind of situation? I'm starting to get really confused if we need to tell them to just live with it, or if we can really do this type of design.

We have a client who is 100% owner of two separate medical practices. Both practices have safe harbor 401(k) plans incorporating the 3% NEC. The doctor earns $45,000 in practice 1 and $400,000 in practice 2. It is my understanding that the doctor's compensation for each practice when calculating the 3% NEC is $200,000 (2003 plan year). He would receive a $6000 safe harbor contribution in each plan. Any thoughts?

I can't seem to find anything that talks about establishing a minimum amount for hardship withdrawals. Are we permitted to do so? If so, I'd be interested in knowing the limit that other companies have set.

Now that the Sup Ct has ruled that under ERISA the assets of self employed owners are protected from creditors if the plan also covers common law employees (Yates v. Hendon, Mar 2, 2004) does this protection also include amounts rolled over from a participant's IRA and funds transferred from or accumulated in an HR-10 plan prior to the time the plan becomes subject to ERISA? If the ct decision is read literally only retirement plans without any employees are not protected by the non alienation provisions of ERISA and the source of the funds before they become plan assets is not relevant for protection under the non alienation rule.

I have a situation where my organization (an IRA custodian) received and deposited a check for $3,000 on 4/12/04. The check represented a $3,000 IRA contribution for 2003. The check was returned by the drawing bank for insufficient funds on 4/19/04 and, consequently, the IRA contribution was removed for 2003. The client has presented the same check for reprocessing and wants us to credit the IRA with a $3,000 contribution for 2003.

Our policy has always been that the check must be received in good order and negotiable form by April 15th in order to credit the contribution for the previous year. The only exception to this policy is for checks received after April 15th in an envelope postmarked by April 15th.

Given the fact that I face this issue at least a dozen times each year, I would like to know if anyone is aware of any authority that would support the above position, whether that authority directly relates to IRA contributions or addresses other similar tax situations such as the timing of gifts for purposes of the annual gift tax exclusion.

As always, any insight would be greatly appreciated.

I have read a few prior posts on this and want to confirm my understanding.

Plan has 2 HCE's. One is very old (owner) and the other is very young (son) and one NHCE in the middle from an age standpoint.

As I understand it, the SHNEC causes two problems with an age weighted plan. First, the EBAR will no longer be the same for all participants so they don't get the automatic pass on cross testing that a normal Age Weighted P/S would get, which forces me to perform the cross testing. Second, the plan will no longer meet the broadly available allocation rates so I will have to make sure they all get the gateway minimum. Is this correct?

With all of that said, I still allocate the P/S contribution based on Comp * Actuarial Factor (disregarding the 3% SHNEC). Correct?

Is this why they say that two safe harbors don't make a safe harbor?

For QDRO's, is it required to create separate plan accounts or can we leave everything in the participant's account and separate when payments commence?

Thanks.

This question ties to a forum of about a year ago.

Employee A terminates and receives a cash out distribution. Plan document says the forfeiture occurs on the earlier of 5 year break or cash out.

Employer wants to terminate plan, pay off the other six participants before the end of the current year which is August 31, 2004 so that only one filing is due.

Resolution to terminate will be made and signed after the pay off of the above employee.

How do you allocate the forieture from employee A? Plan documents has compensation choices of: full years compensation or entry date forward. Using full years compensation means we hang around until August 31, 2004. Distribution can't occur until after that date and there is another filing. There is an option of having a short year, but, I don't see that this helps.

In my mind I'm trying to be able to use compensation through, say, April 30 to use to allocate the forfeiture. Anyone to my rescue?

1.A plan uses maximum permitted disparity in the benefit formula. The plan's actuarial equivalence factors are 8% pre-retirement, 6.5% 1983 IAM post-retirement. Does the use of 6.5% factor require the plan to be tested under 401a4? I think the answer is yes, but I'd like confirmation.

2.Same plan, same conditions, but the plan document (a Corbel vs) contains the following language as part of the definition of actuarial equivalence:

"Notwithstanding the above, if a benefit is distributed in a form other than a nondecreasing annuity payable for a period not less than the life of the participant.... the interest rate used in determining the Actuarial Equivalent of the portion of the excess/offset portion of the monthly retirement benefit... shall not be less than the lesser of 7.5% or the Applcable Interest Rate".

Does this language eliminate the need for testing with respect to the permitted disparity?

How do you (or plan sponsors that you work with) and interpret the 25 percent participant exclusion allowance under Code Section 402(h)?

Facts: An individual, and the only employee of X, has pre-plan compensation of $100,000 for 2003. The individual defers $14,000 ($2,000 of which is treated as a catch-up contribution). The plan is either (a) model SARSEP (see compensation definition below that excludes elective deferrals), or (b), a prototype SARSEP that defines compensation as including elective deferrals in the definition of compensation, but also contains the LRM required 25 percent allocation limit (see LRM language below)? Are the exclusion allowances under the model and prototye determined the same?--

(1) $24,000 -- .25 ($100,000 - $12,000) + $2,000

(2) $23,500 -- .25 ($100,000 - $12,000 - $2,000) + $2,000

If method "(2)" how is Section 414(v)(3)(A)(ii) resolved? That section provides for purposes of Code Section 402(h)--among other sections covered--that catch-up contributions are not "taken into account in applying such limitations to other contributions or benefits under such plan or any such plan." If catch-up reduces 402(h) compenation, it would appear that the individual gets $500 less overall. In a sense, the employer's maximum exludible contribution is lowered by considering the catch-up in the computation of the exclusion allowance.

From model SARSEP (3/2002, pg 3), it states:

Compensation does not include any employer SEP contributions, including elective deferrals. Compensation, for purposes of the $450* rule, is the same, except it includes deferrals made to this SEP and any amount not includible in gross income under section 125 or section 132(f)(4).

● The maximum an employee may elect to defer under this SEP for a year is the smaller of 25% of the employee’s compensation or the limitation under section 402(g), as explained below.

Note: The deferral limit is 25% of compensation (minus any employer SEP contributions, including elective deferrals). Compute this amount using the following formula: Compensation (before subtracting employer SEP contributions) X 20%.

● If you make nonelective contributions to this SEP for a calendar year, or maintain any other SEP to which contributions are made for that calendar year, then contributions to all such SEPs may not exceed the smaller of $40,000* or 25% of compensation for any employee.

● Catch-up elective deferral contributions ... are not subject to the 25% limit.

Aren't allocations required to be based on total compensation. Would allocations in excess of the T/H requiremet (assume 3 percent) have to be allocated any differntly then the first 3 percent?

From SEP PROTOTYPE LRM--(3/2002, page 5), it states:

In no event can the amount allocated to each participant's IRA exceed the lesser of 25% of the participant's compensation or $40,000, as adjusted under Code § 415(d). For purposes of the 25% limitation described in the preceding sentence, a participant's compensation does not include any elective deferral described in Code § 402(g)(3) or any amount that is contributed by the employer at the election of the employee and that is not includible in the gross income of the employee under Code §§ 125, 132(f)(4) or 457.

From SEP Model document--(3/2002, page 1) it states:

Is a catch-up contribution described in Code Sectrion 402(g)(3)?

Contribution limits. You may make an annual contribution of up to 25% of the employee’s compensation or $40,000*, whichever is less. Compensation, for this purpose, does not include employer contributions to the SEP or the employee’s

compensation in excess of $200,000*. If you also maintain a salary reduction SEP,

contributions to the two SEPs together may not exceed the smaller of $40,000* or 25% of compensation for any employee.

What is the result if a model SEP and model SARSEP are adopted? Which document is followed?

Assume a prototype SEP included elective contributions in its definition of compensation and allocations are made comp-to-comp. How do you or plan sponsors you work with interprete the 25% allocation limit specified (see LRM language below) in the plan--25% of compensation excluding ALL elective amounts or just excluding normal elective contributions?

From SEP LRM--(3/2002, page 5)

In no event can the amount allocated to each participant's IRA exceed the lesser of 25% of the participant's compensation or $40,000, as adjusted under Code § 415(d). For purposes of the 25% limitation described in the preceding sentence, a participant's compensation does not include any elective deferral described in Code § 402(g)(3) or any amount that is contributed by the employer at the election of the employee and that is not includible in the gross income of the employee under Code §§ 125, 132(f)(4) or 457.

IRC 414(v) lists 402(h) as a section to which the catch-up contribution would have no effect on a limit or taken into account, as follows:

(3) Treatment of contributions--In the case of any contribution to a plan under paragraph (1) --

(A) such contribution shall not, with respect to the year in which the contribution is made --

(i) be subject to any otherwise applicable limitation contained in sections 401(a)(30), 402(h), 403(b), 408, 415©, and 457(b)(2) (determined without regard to section 457(b)(3)), or

(ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and

(B) except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

So, is a catch-up elective contribution an "elective deferral described in section 402(g)(3)"? If so, it would reduce the exclusion allowance under Code Section 402(h) which it is not supposed to do..

Participant took a $10,000 loan in June, 2003. There have been no repayments. I have two questions.

1. Is there any kind of a correction program the employer can go through to avoid a deemed distribution? (Probably not, but I thought I'd give it a shot)

2. At what time does it become a deemed distribution if we are using the calendar quarter "cure period".

Thanks.

I have a plan whose sponsor went bankrupt during the previous plan year (2002). They closed down completely with layoffs after 3 months into the plan year (2003). There were 140 participants on 1/1/2003 and about 15 participants at the end of the plan year (2003). They've always filed a Schedule H with an Auditors Report. Can anyone think of a reason why the don't need an auditor's report for 2003? Is there any way we can request a waiver, etc.

The Situation: XCo maintains a fully-insured health plan. Both XCo and its employees contribute towards the cost of coverage (XCo bears the larger share). For whatever reason (e.g., demutualization or premium refund), XCo receives a check back from the insurance company.

As far as the DOL is concerned, at least a portion of the "refund" XCo received consists of participant contributions. As such, the allocable portion of the refund attributable to participant contributions (say 20%) must be used to benefit the plan. This could be accomplished through premium holidays, issuance of rebate checks, or increased plan benefits.

The Question: Must the benefit (whatever it is) flow only to people who participated in the plan during the year to which the refund relates (e.g., the year in which the demutualization occurred or the year in which claims experience was less than premiums paid) or can it be used to benefit current and future plan participants?

Assume a model SARSEP is very top-heavy (see definition of compensation in model below). Does the "net" compensation definition contained in the model document require that elective deferrals are to excluded in computing the top-heavy contribution amount? If so, wouldn't that violate the 416(i)(1)(D)/414(q)(4) top-heavy rules? The model only adds back elective for purposes of the $450 minimum participation compensation requirement (but not for t/h purposes).

If the employer contributed 5 percent to a (top-heavy) model SEP would the first 3 percent have to be allocated any differently than the additional 2 percent?

The model SEP states that compensation doesn't include "employer contributions to the SEP..." However, unlike prototype language, it does not state that compensation "includes" elective deferrals "except where specifically stated otherwise" [sARSEP LRM #7 (3-2002)]

Note:From model SARSEP (pg 3):

Compensation does not include any employer SEP contributions, including elective deferrals. Compensation, for purposes of the $450* rule, is the same, except it includes deferrals made to this SEP and any amount not includible in gross income under section 125 or section 132(f)(4).

● The maximum an employee may elect to defer under this SEP for a year is the smaller of 25% of the employee’s compensation or the limitation under section 402(g), as explained below.

Note: The deferral limit is 25% of compensation (minus any employer SEP contributions, including elective deferrals). Compute this amount using the following formula: Compensation (before subtracting employer SEP contributions) X 20%.

● If you make nonelective contributions to this SEP for a calendar year, or maintain any other SEP to which contributions are made for that calendar year, then contributions to all such SEPs may not exceed the smaller of $40,000* or 25% of

compensation for any employee.

● Catch-up elective deferral contributions (see Section 402(g) Limit below) are not subject to the 25% limit.

From page 4 of model SARSEP--Top-Heavy Requirements

Elective deferrals may not be used to satisfy the minimum contribution requirement under section 416. In any year in which a key employee makes an elective deferral, this SEP is deemed top-heavy for purposes of section 416, and you are required to make a minimum top-heavy contribution under either this SEP or another SEP for each nonkey employee eligible to participate in this SEP.

A key employee under section 416(i)(1) is...

Also consider the changes in the SEP LRM language--

NEW SEP LRM (3-2002):

For purposes of the 25% limitation described in the preceding sentence, a participant's compensation does not include any elective deferral described in Code § 402(g)(3) or any amount that is contributed by the employer at the election of the employee and that is not includible in the gross income of the employee under Code §§ 125, 132(f)(4) or 457.

OLD SEP LRM (4-2000)

For purposes of the 15% limitation described in the preceding sentence, a participant's compensation does not include any amounts contributed by the employer pursuant to a salary reduction agreement and which is not includible in the gross income of the employee under Code §§ 125, 402(e)(3), 402(h)(1)(B) or 403(b).

IRC 414(v) lists 402(h) as a section to which the catch-up contribution would have no effect on a limit or taken into account, as follows:

(3) Treatment of contributions--In the case of any contribution to a plan under paragraph (1) --

(A) such contribution shall not, with respect to the year in which the contribution is made --

(i) be subject to any otherwise applicable limitation contained in sections 401(a)(30), 402(h), 403(b), 408, 415©, and 457(b)(2) (determined without regard to section 457(b)(3)), or

(ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and

(B) except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

So, is a catch-up elective contribution an "elective deferral described in section 402(g)(3)"?

Generally, do participants get to vote the stock in their accounts?

Does it matter whether or not the stock is "employer stock"?

Does it matter whether or not the stock is publicly traded?

Thanks.

A client has failed to withhold 401(k) contributions for this payperiod. It is only Wednesday.. How should they proceed? Should they stop the current run and reissue the checks, potentially making the direct deposits late? I am not certain how this should be handled.