Facts:

1. Employer has multiple business units, and several 401(k) plans, covering different non-overlapping collections of those units.

2. Participant transfers from one business unit to another, and as a result of that moves from one plan to the other.

3. Because the plans are all with the same recordkeeper and same trustee, we do an automatic plan-to-plan transfer of his account to the new plan.

4. Let's say that he contributes $6,600 based on $60,000 of earnings while in Plan A and $4,400 based on $40,000 of earnings while in Plan B.

5. The plans are not aggregated for coverage or ADP/ACP testing.

Our interpretation of Reg 1.401(k)-1(g)(1)(ii) is that all contributions and all earnings count in both plan's ADP tests. Let's say that Plan A passes ADP/ACP, but that B flunks badly and refunds are required.

I'm left with a bunch of questions, but I think I can consolidate them down to two:

1. In determining the aggregate excess contributions, how much of the employee's earnings/contributions do we count?

2. In determining the transferred participant's excess contributions, how much of his earnings/contributions do we count?

RCK

I have read through the 3 threads copied below and I am still not clear on the answers to the questions below:

http://www.benefitslink.com/boards/index.php?showtopic=3901

http://www.benefitslink.com/boards/index.php?showtopic=4026

http://www.benefitslink.com/boards/index.php?showtopic=10349

If a U.S. company has a location in Canada, can the Canadian citizens living in Canada, working in Canada, and being paid in Canadian currency for service at this Canadian location, make 401(k) salary deferrals? [is their pay taxable in the U.S.?]

Do these Canadian employees have to be included in coverage testing?

Do these Canadian employees have to be included in ADP/ACP testing?

Two new companies are formed in late 2001, consisting mainly of employees from Co. X. They are NOT a controlled group. The new 401(k) plans for the new companies (effective 1/1/02) say that service with Co. X counts for eligibilty, etc.

How are the HCEs in the new companies treated for compliance testing? Is there a look-back period that goes back to their service with Co. X?

If an employee is participating in the medical reimbursement account, and his dependent pays for his medical care- can the employee cover this on his reimbursement plan?

Any help would be appreciated.

A Form 5330 should be completed for late salary deferrals. Since the deferrals need to be listed on the Schedule I, what should be done if 5 deposits were late a few days. Total interest due would be approx 10.00. Penalty is 10% or $1.00. Since the Schedule I was already flagged that deposits were late, wouldn't the IRS be looking for form 5330 even though the penalty is basically DeMinimis?

The son of the 100% owner works at the company full time, but does not receive any compensation. Should he be incuded in the ADP test or any other non-discrimination testing??? Thanks.

I have ADP refunds that are due, but the participants have already distributed their account balances during 2002. I know that I need to forward notices to these participants that the refund amount is not eligible for rollover, but do I need to go back and issue corrected 1099-Rs, one with the refund amount and a corrected one for the original distribution less the refund? Or is just the notice to the participant enough?

Can a self-funded ERISA plan limit benefits to a dollar maximum for certain diagnoses such as AIDS or cancer and allow full benefits for other diagnoses?

A profit sharing contribution (in a daily valued plan) has been allocated and accrued for 12/31/02 to all eligible participants. This contribution is scheduled to be funded on 4/15/03.

A fully vested participant wants to borrow the maximum amount (50%) prior to 4/15/03. The plan's admn. system does not include the accrued ps allocation because it has not yet been funded and it's assets are valued daily. Can the profit sharing allocation be included in determining the maximum (50%) amount that can be borrowed? Our administrator is saying no, because it is a daily valuation plan. I believe the accrued contribution is technically part of their account balance and should be included to determine the 50% amount.

This may seem like a straightforward question but confirmation will be greatly appreciated.

March 15th is a saturday this year. Is the 2 1/2 month deadline extended to March 17th for ADP/ACP corrections under IRS rules?

Thanks.

if i have two HCE and I want to discriminate against one of them, what is the lowest allocation % i can give them, 5% or 3%.

Thanks

Can anyone guide me concerning the use of a veba to provide an apprenticeship program benefits to current employees.

I am trying to determine whether we can run the payroll expenses through the veba. These expenses would be paid to the employees while they are in the program.

Employer sponsors a profit sharing plan with two participants, both of which are 50% shareholders of Employer and highly compensated. Participant 1 made an irrevocable election not to participate in the plan several years ago. In the current plan year, Employer mistakenly made a profit sharing contribution to Participant 1's account. Is the only option for correction to place the mistaken contribution in a suspense account to be used for future contributions to Participant 2's account? Participant 2 has already received a $40,000 contribution for the current plan year. Is it possible for the mistaken contribution to be returned to the Employer, especially in light of the fact that the mistake was discovered during the plan year in which it was made?

A 401(k) plan (not subject to the QJSA rules) provides that if a participant's account is greater than $5,000, both the participant and his or her spouse must consent to a distribution. A participant terminated employment and falsely certified that he was not married, and the plan distributed his account. A few weeks later, the plan administrator learned of the participant's lie when the participant's spouse contacted the plan administrator to ask why the account had been distributed.

Is this an operational failure for which corrective action must be taken? If so, what?

I have a cross-tested 401(k) plan with a safe harbor contribution. Everyone is eligible to enter the plan on their date of hire except any phyician employees who have made an irrevocable election to be excluded from the plan. The doctors are includable in the testing. They are not HCE's. Do they have to get a 5% gateway?

An Employer sponsors a Defined Benefit plan and 401(k) Profit Sharing Plan. Each plan has its own trust. The profit sharing portion of the 401(k) has had pooled investments. The 401(k) Profit Sharing Plan is in the process of changing investment providers and making all accounts (including profit sharing) self-directed.

The pooled profit sharing account contains an investment worth $35,000 that cannot be liquidated. Generally, we would recommend that the sole key employee (100% owner) accept this investment as part of his account to be transferred. However, his entire account balance is only $10,000. This would be a perfect investment for their defined benefit plan. Could the defined benefit plan purchase this investment for the current fair market value? This would be the perfect solution.

Thanks.

if a plan excludes compensation prior to participation for safe harbor 401(k) contributions as well as discretionary profit sharing contributions, do i have to use full year comp for non-dicrimination testing?

I believe that there are potentional 411(d)(6) problems if an EGTRRA amendment was not adopted by 12/31/02 even though the time for adoption of the EGTRRA Amendment has been extended with the remedial amendment period for GUST.

I know of a plan which has a signed certification to adopt a volume submitter plan and therefore has the extended GUST remedial period, but they haven't yet signed an EGTRRA amendment. It's a DC plan with employees and may have cutback issues.

Has there been any guidance regarding this cutback issue? Does anyone have any ideas with regard to how to handle a situation like this? Thanks.

I have a 401k plan where it helps to do the ADP test by disaggregating the otherwise excludables. Due to a quirk in the plan language, anyone employed on 7/1/02 gets an allocation, so it will help my ab% test to not disaggregate them. Can I treat them inconsistently for the two different tests?

I'm the plan sponsor and have just been notified that a participant, who is still considered an "active employee" as per the Plan, has taken a distribution. In-service distributions are not allowed, per the Plan.

She took part of the account in cash and rolled the other part into an IRA. In doing this, she defaulted a loan that we are still withholding payments for (we didn't know she took the distribution).

Even though this distribution happened last week, she has already cashed the check for the portion that she opted to receive in cash.

What is the appropriate correction here?