I understand that terminating plans must be updated for the GUST amendments prior to termination. But is there any reason to include the EGTRRA amendments for plans that will be terminating before the end of this year?

Does Rev. Proc. 2002-38 basically require all S-Corp ESOP's (regardless of ownership percentage in the ESOP) switch to calendar year fiscal year?

Cory Rosen posted the following comments on September 9, 2002.

Update for September 9, 2002

By Corey Rosen

IRS Revenue Procedure Limits Most S Corporations to Calendar Year

On May 10, 2002, the IRS issued Revenue Procedure 2002-38, in which it clarified that under Section 1378 of the Internal Revenue Code, an S corporation’s taxable year must normally be its calendar year. There are exceptions for fiscal years other than calendar years if approved by the IRS, one of which appeared to provide an automatic approval for plans adopting the fiscal year of the sole owner (such as an ESOP). Many S corporation ESOPs retained the fiscal years they used when they were in C corporations, relying on this automatic approval process. The new revenue ruling, however, requires that these companies now switch to a calendar year. Only plans that had specifically requested IRS approval for non-calendar years would be grandfathered. It is not clear if the IRS will allow companies who will have to pay double taxes in a year due to the change in their fiscal years to spread the payments over a longer period of time.

Ok...Stupid question time. Under the final regs, exactly what tests does the plan have to pass to meet requirements under 401(a)(4)? The regs seem to read that if you pass the MCG test you do not have to worry about Average benefit / 70% ratio / nondiscriminatory classification.

I can't believe it is this simple. Someone please set me straight on this. Since we do very few x tested plans, and this is the first safe harboir k x tested we have administered, I need some help.

Thanks to all!

We have an employer who failed to list a part-time employee on the census form and only listed her when she became a full-time employee. In completing the 2001 plan valuation, we have determined this employee was eligible to participate in the plan in the 2000 plan year.

We immediately instructed the employer to correct this defect of excluding an eligible employee under the EPCRS Self-Correction, by depositing to this employee's account a make-up contribution for 2000 plus earnings based on her 2000 compensation. The employer made the contribution in a timely manner in 2002.

The questions:

Because this is a money purchase plan, does the discovery of this excluded eligible employee cause the employer to now have a funding deficiency for the 2000 plan year because the required contribution (i.e., the newly discovered employee's) was not made by the funding deadline for 2000?

If yes, does the fact that the employer corrected the failure under EPCRS override, waive or eliminate the funding deficiency caused by the discovery of the excluded eligible employee?

Does the excise tax imposed by Code section 4971 still apply and the employer is required to file a Form 5330? If yes, does the employer file a 2000 Form 5530 to report the funding deficiency?

In the past the IRS was very accepting of reasonable cause letters and often waived their late fees. (I realize that this did not waive the DOL fee at that time.)

Now that we file 5500s with the PWBA does anyone have any experiences they can share on reasonable cause letters? We are considering the DFVC program, but feel we have a reasonable cause. Our fear is that we will file for waiver of fees and have it denied and then have full fees apply rather than reduced DFVC fees.

Thanks.

Have a client that has never filed a form 5500 since the 401(k) plan was established in 1994. I know that I have to use the DFVC program, but my question is, where can I get copies of the 1994 and 1995 5500 forms? I have 1996 going forward.

Boy do I feel dumb asking this question . . .

What is the difference between a plan's adoption date and its effective date?

How are HCE's determined in initial year of a 401(k) plan? The Company was in existence in the prior year, but they maintained a SEP. Are we correct in saying there is no lookback year even though the Company existed in the prior year?

Hi,

I am a 22yr student, working full time. I am looking to invest my money. My job has a 401k plan but my employer doesn't match our contributions to the 401k plan. I instead decided to open a Roth IRA outside.

Being that the company doesn't contribute and I will be leaving the company in about a year so I think the Roth IRA is a good way to go.

I have been reading over some Roth IRA basics to get the gist of things.

I understand that I should look for a broker that doesn't charge an annual fee (or charges a low fee).

What company can I go to start open an account or get more information?

What is the index fund?

WHen I open a Roth IRA, how does my money grow? am I investing my money in different stock options and who decides where the money goes? How is this different from a mutual fund?

I read something online about money market. What is that?

Thanks

A few shareholders and associates in Law firm A decide to leave the firm and form Law Firm B. They would like their new entity to sponsor a plan with the identical provisions. is this a spin-off as defined by the 414 regs and are the account balances just transferred to the new plan?

The ER is making a 3% Safe Harbor contribution to the eligible employees. In addition, he will make an integrated contribution above and beyond the safe harbor contribution, perhaps in the 5% range. Must a portion of the additional contribution be allocated across the board, or can it be allocated only to those in excess of the wage base?

I have an employee that has a new baby, wife has decided not to return to work and is taking leave. They have a balance left in their dependent care account and no monies left in their medical reimbursement account. They want to know if they can stop their dependent care reduction, increase their medical reimbursement to cover COBRA premiums and transfer the balance in their dependent care account to their medical account.

The only part I can find no information on is the transfer of funds from one account to the other. I does not appear that can be done under any circumstances.

I have a client with a 9/30 PYE that has amended their plan to add catch up contributions. The question has come up, are the contribution limits based on a calendar year or the plan year. Since the testing is on the plan year basis, it seems logical that the catch up's would be limited by the calendar year limit for the calendar year in which the plan year ends. In this case, the year 2003 or $2,000 max. I have researched the question and haven't found any commentary about non calendar year plans. That's when I decided to come to the "experts". I'm open to hearing your ideas.

I have an employee that has a new baby, wife has decided not to return to work and is taking leave. They have a balance left in their dependent care account and no monies left in their medical reimbursement account. They want to know if they can stop their dependent care reduction, increase their medical reimbursement to cover COBRA premiums and transfer the balance in their dependent care account to their medical account.

The only part I can find no information on is the transfer of funds from one account to the other. I does not appear that can be done under any circumstances.

There are various message threads on this topic already, but I would like to get some up to date feedback.

We use a PPD (Corbel) prototype and the Corbel VS version that is similar to the PPD format. Both adoption agreements allow for a discretionary match formula to be combined with a discretionary amount.

"In determining a Participant's deferral contribution taken into account for the specified time period under the matching contribution formula, the following limitations apply:

Discretionary. The Plan Administrator will take into account the deferral contributions as a percentage of the Participant's Compensation as the EMployer determines.

How much leeway does this give the ER. If formula and amount considered are discretionary can they do different formulas by class, by years of service, by division?

We normally communicate the matching formula currently being used in a memo to ees, but wondering how much must be in document. This seems to give a lot of leeway. The basic document contains no additional language about the formula being definitley determinable. Using the double discretionary langauge in the document does not appear to be definitley determinable, but both plans have received favorable letters, and numerous users are utilizing these to restate plans currently.

Thanks for any input.

One of our plans in 2001 allowed deferrals in excess of the percentage imposed by the plan document (16% instead of 15% as stated in the plan) but this amount did not exceed the 402(g) limit. Now the plan administrator wants to refund the difference plus the earnings this year. We wanted to know if the employer must issue a 1099-R for this year and/or 2001 and if they must issue a new W-2 for 2001? Please help.

I have a 401(k) Plan that submitted a request to terminate the plan effective 12/31/2001... The plan has a 12/31 plan year end.

Approval has been received from the IRS during the 2002 calendar year. A final valuation of plan assets will be completed for distributions to participants. Since no contributions were made to the plan during the 2002 calendar year and IRS has approved plan termination, is this plan still required to run any of the year-end compliance tests for 2002?????

We recently took over as tpa for a plan that did not file Form 5500 for 1999 and 2000. The plan was effective in 1998 and did file a Form 5500 for that plan year.

I have completed the 1999 and 2000 reports and I have recommended that the client file the reports using the DFVC program.

In reading the program criteria the client is to file with the PWBA the forms. Then, they are to "submit to the DFVC Program the required documentation and applicable penalty amount."

What is the "required documentation" that must be submitted to the DFVC program?

I am under the impression that a MP plan terminating as of 12/31/01 that distributes plan assets prior to that date can satisfy GUST restatement requirements by being covered under the surviving PS plan restatement, provided that there is sufficient language in the document and corporate minutes. Is there any difference if the assets were not merged into the surviving PS until after 12/31/01.

Further, if a MP or PS plan terminates effective 12/31/01 but doesn't distribute assets until 2002, does the plan need to be restated?

Two employees are each exactly fifty percent owners of a professional service corporation, which maintains a 401(k) profit sharing plan. Each employee will receive a contribution equal to the 415© maximum for 2002, $40,000. None of this amount is attributable to a 401(k) elective deferral. Both individuals are also employed by a non-profit organization, which provides a voluntary 403(B) Retirement Plan for the benefit of its employees. Under this particular plan, employees may elect to defer all or some portion of a yearly bonus of $16,000 into the 403(B) Plan. Neither employee has an ownership interest in the not-for-profit. However, both employees are highly compensated in 2002.

Question: Is it possible for each employee to receive contributions of $40,000 under the professional service corporation's 401(k) Profit Sharing Plan and defer $12,000 (remaining $4,000 in cash) under the 403(B) Retirement Plan of the not-for-profit or does Section 415 or some other limitation prohibit this?

Treas. Reg. Section 1.415-8(d)(2) provides that if the employee owns or controls more than 50% of another business that maintains another plan, the contributions to the Section 403(B) Plan must be "aggregated" with the contributions to the outside plan or the 403(B) employer's other plans. Given that neither employee owns more than 50% of the professional corporation, I conclude that aggregation under Section 415 will not be an issue under these circumstances or otherwise. Please advise.