I'm setting up a new Safe Harbor PS 401k Plan for a client with a 10/31 year end. The plan is effective 11/1/02 and the 401k portion is effective 1/1/03.

For the 10/31/03 plan year, is the maximum 401k deferral $11,000 or $12,000? Can the catch-up deferral be $1,000 or $2,000? I wasn't sure if you looked at the beginning date of the plan year to determine the 401k limits for that fiscal year - or if you go by the ending date of the plan year.

I understand I'll have to watch the individual participant deferrals on a calendar year basis also to make sure they don't exceed the calendar year limits. The plan year limit is what's throwing me. Please help!

Does the new minimum (5% or 1/3 of highest er rate for HCE) top heavy contribution pertain to Age-Weighted (Points and Comp) Profit Sharing Plans or just the Cross Tested Plans?? Thanks.

Can more than 2% shareholders of a 100% owned ESOP in a Sub "S" corporation participate in a 125 Plan?

I've not been able to locate anything specific other than the blanket "no" for more than 2%'s.

I've been told by a vendor that the 3-year catch-up in 457(B)(3) may not be used in the year of retirement. And I would agree with this in a case where the employee retires on or after attaining normal retirement age.

But what if the employee retires before attaining normal retirement age? What's to prevent the employee from using the catch-up in the retirement year, as long as the retirement year is one of the three taxable years ending before the year the employee would attain normal retirement age? The IRC states "1 or more of the particlpant's last three taxable years ending before he attains normal retirement age . . . ." It doesn't state "1 or more of the participant's last three taxable years ending before the year in which he retires . . . ." Assume the vendor's plan language regarding the catch-up provision is identical to 457(B)(3).

Thanks in advance for any replies.

Ken Davis

Univ. of South Alabama

Does Revenue Ruling 2002-27, which address “deemed 125” compensation under so-called “mandatory” 125 plans, affect 403(B) plans in a manner similar to qualified plans? Or is there no effect, since 403(B) plans utilize a different definition of compensation (IRC 403(B)(3) for contribution limit purposes?

For the governmental types out there - does anyone have a form they would be willing to share for in-service distribution from a 457 to purchase service credit under a governmental DB plan? Thanks.

Company A set up Plan A which permitted a great deal of investment flexibility. Company A was purchased by Company B and they would like to merge the Co. A plan into the Co. B plan. However, Co. B's plan does not permit as much investment flexibility. One person in Co. A's plan refuses to sell his off-the-wall investments. Can he be forced to do so?

I have a new comp plan 401(k) that has one 5% owner and two HCE's that are eligible for 2002. (Next year there with be a NHCE also eligible.) The first class is 5% owners and the second class is all others.

Am I correct in saying that class A can max out and I only need to give class B a 3% top-heavy contribution provided that I pass the ABT?

And next year provided that I do not change the classes, I will need to give 5% to class B since the NCHE needs to get the gateway?

Thanks Karen

Are Non-qualified Deferred Compensation plans subject to QDROs?

Has anybody installed 8.0 yet? We're fearing we might be one of the first.... and we're having some issues!

I am in the process of merging a MPPP with a PSP. I am clear that balances are accounted for separately even following the merger. But, in putting the post-merger plan document together I am bumping into conflicts, and I am not sure how to handle them.

For instance:

There is no means for using one set of distribution options for the MPPP source, and another set of options for the PSP source (non-standardized prototype). Is the standard that once the plans are merged, the old MPPP optional forms of benefit must apply to the "new" PSP as a whole?

And what about pre-retirement, in-service withdrawals?

Is there any guidance on how to handle these differences when you are not working in an individually designed plan environment?

I've got a know-it-all participant (don't we all) who insists that hardship withdraws are a mandatory feature of profit sharing 401k plans. She has forwarded me the IRS regs regarding Hardship Withdraws and when I explain that they are for following only if the plan allows for them, she want me to get a legal opionon. (yeah, I'll get right on that)

Can anybody site a treasury or irs reg that states that hardship withdraws are optional?

Thanks in advance.

I have a client that is terminating a profit sharing plan effective 12/31/02. He will sign the amendment to terminate ASAP. Do we have to wait until we have the 12/31/02 balance sheet to file the Form 5310 (Line 18), or can we use the 12/31/01 balance sheet, even though 12/31/02 is the proposed termination date?

If a cross tested ps plan excludes bonuses for allocation purposes, what comp must be used for discrimination testing??

When is latest that a calendar year standardized profit sharing plan be amended, for example to a cross tested allocation?? Is it before any participants work 500 hours or is it prior to the plan year since active participants only need 1 hour to accrue the std allocation?? Thanks.

Hi,

I have 3k in a 2002 Ameritrade Roth IRA.

Is the 3K I have a fixed amount that I cannot add to until 2003 comes and then at that time add up to another 3K?

So in 2002 I'm limited to 3K to trade with including broker fees.

thanks in advance,

sj

Here is a hypothetical question that closely resembles my dilemma this year. I would appreciate any advice.

Assume that I will receive a year-end $4,000 bonus from my employer and I have already maxed out any matching my company will do on it's 401k so any money I invest will be 100% of my own funds.

My first option would be to put the entire $4,000 in my 401k deferring all federal (27%) and state (3% IL) income taxes. Now let's fast forward 30 years on this one transaction and say that it has increased by tenfold and is now worth $40,000 and I am taking a distribution on this money. I would try and keep my distributions in the 15% tax bracket and the state of IL does not tax retirement income so my net distribution on this money would be $34,000 ($40,000 less 15% federal taxes = $34,000).

My second option would be to take the entire bonus, which would be taxed at the 27% federal and 3% state income tax rates, leaving a net bonus of $2,800 which I would put into a Roth IRA. Again, we will assume this initial transaction has increased by tenfold over the same amount of time and is now worth $28,800. Since the Roth IRA requires no taxes at the time of distribution I would get the full $28,000.

According to my calculations the 401k would have outperformed the Roth IRA $34,000 to 28,000. Even if my 401k distribution would be taxed at the 27% rate instead of the 15% rate I still show that the 401k would have outperformed the Roth $29,200 to 28,000 due to the state of IL not requiring retirement distributions to be taxed.

Is my math correct? Everyone I talk to tells me to maximize my company matching on my 401k then put money into a Roth IRA but I think my calculations would prove otherwise and that I should just keep putting any extra money into my 401k. Any help on this decision would be appreciated. Thanks in advance.

Sam

If I make an early withdrawal from my 401K or traditional IRA (no special circumstances), I know there is a 10% penalty. But do I also have to pay the 7.5% (I believe that's the percentage) FICA/Medicare tax when I file my 1040?

Carl

Hi, My Wife is about to lose her job due to her Norway based Company moving its operation to China and The Dominican Republic. She will be receiving no severance pay for her 22 years of service but will be receiving her Pension benefits in a lump sum Settlement (POSSIBLY). How can she go about openning a Roth IRA and how much of her Pension Settlement can she roll over.

Before going any further let me say that "self funding" is new to me and there will by quite a learning process for me throught this research, please bear with me... :confused:

Due to increased medical inflation the City is looking at pursuing self funding for employee health benefits. Being a local government makes a difference with respect to ERISA (but not sure what that means for us exactly). We are a small employer, with 190 employees and about 500 covered lives. We are considering the possiblity of sharing the risk with other employers in the community, but would first need to consider their experience rates, etc. Currently we are fully funded and because we are a small employer, do not have an accurate history of our own experience due to pooling our risk with others. The City wants to "think out of the box" so to speak, in this venture and consider hiring staff to handle everything in house and not go with a TPA, broker, etc. The first thing I am recommending is to seek out an experienced benefits attorney, before going any further. Interested in hearing from some experts out there on your thoughts. Also, any tips on finding an experienced benefits attorney? I noticed this site has some good employment links.