A client sponsors a 457 plan. The State passes legislation splitting the client into two separate entities. One is our client. The other is a new entity that sets up a similar plan. For unknown reasons, this was not handled as a spin-off. Participants in the new plan (who were former employees of our client, and have balances in our client's plan) want to rollover their balances into their new plan. The question is: should we rollover their vested balances, or treat the state legislation that created the new entity as a partial termination of our client's plan, such that the affected employees are 100% vested?

My company currently has a policy that anyone working 20 or more hours per week earns vacation, sick and holidays. We would like to stop this policy and allow only full time employees (working 40 or more hours per week) to continue these benefits. Can we do this? What kind of length of notice do we have to provide)? Also, can we tell them anything they have accrued this year to date must be used before the end of the year?

I have a start up company where their first year of existance was 2001. During this year they also started a 401K plan for their employees. They have three "5%" owners who will be tested as HCEs on the ADP Test. Since no one had any salary for the prior year they are the only HCEs. The test fails miserably.

Is it okay to apply IRC Section 401(K)(3)(F) (the Statutory Exclusion rule) to eliminate all the NHCEs from being tested since no one worked a full year of service?

This would leave 3 HCEs and no NHCEs which, according to

Treas. Reg 1.410(B)-6, deems the plan to pass ADP Testing.

Am I interpreting the regs correctly here?

i have an integrated ps plan with 2 hce's and 1 nhce. the hce's want the same allocation although one of the made double what the other one made. is there any way to do this? i was thinking of limiting compensation or limiting the allocation amount to what the lowest paid hce would get....any ideas? also, what would the affect be on the nhce as she made more than the lowest paid hce? i appreciate any advice....

Can a governmental defined contribution plan impose a maximum age (e.g. 70) for contributing to

the plan? Or would this be prohibited under ADEA?

Can anyone tell me how a private tax-exempt organization is suppose to record/report the assets held in a Top Hat plan. I realize these are "unfunded" plans, but since the investments for such plans are assets of the employer, not sure how they show up on the financials.

I have a client that had both a Profit Sharing Plan and Money Purchase Plan. He decided that the Money Purchase contribution formula would change from an annual formula of 10% of compensation (calendar year plan), to 10% of compensation from 1/01/01 through 5/31/01. Also, the plan would merge into the Profit Sharing Plan effective June 1, 2001. The client is an attorney. He went ahead and executed an amendment, resolution, and even the 204(h) notice (without letting us in on it). Everything seems to be ok with that part. We checked the language of each.

My questions are:

1) Is there some horrible consequence of having the merger effective in the middle of the year? The 204(h) notice does include the fact that no participant will accrue benefits under the money purchase plan after May 31, 2001.

2) Should there really be two amendments, Resolution and Notice? One addressing the change in the formula. The other addressing the merger.

I sure would like some input.

Thanks

1.401(a)(4)-8(B)(2)(ii)(B) says:

(B) Normalization

The account balances determined under paragraph (B)(2)(ii)(A) of this section are normalized by treating them as single-sum benefits that are immediately and unconditionally payable to the employee. A standard interest rate, and a straight life annuity factor that is based on the same or a different standard interest rate and on a standard mortality table, must be used in normalizing these benefits. In addition, no mortality may be assumed prior to the employee's testing age.

My understanding is that to run this test, the employer contribution (account balance) is divided by the mortality factor at that age.

For example, a contribution of $5,000.00 is divided by factor UP84@8.5% for age 43 10/12 deferred to age 65, or 1.0780, to get 4,638.22. This amount is then divided by the Compensation to get the equivalent accrual rate.

The equivalent accrual rate for each participant is then the percentages used to run the average benefit ratio test.

Is anyone able to confirm that this is the right approach?

Once doing this, is it then necessary to also run the cross-testing where the contribution amounts are projected forward to NRD? In the case of the data I'm working with, this is a tougher test which requires a lower HCE contribution rate to pass. The results are different due to not counting mortality until age 65.

It happens, that in addition to this, running the 410(B) test by rate groups is even tougher with this data, requiring an even lower percentage for the HCE.

Thank you very much for any advice.

Facts:

Prototype Document submitted to the IRS for GUST ...awaiting opinion letter

Employer has made significant amendments to the pre gust prototype.

Q: Do they have to file as an individually designed doc before 2/28/02 or can they rely on the extended remedial period of one year from the Gust opinion letter on the Prototype, which has not yet been received from the IRS?

Presuming it is possible to restate an individually designed plan on a volume submitter document without any cut-back violations, will the sponsor of an individually designed plan meet their GUST restatement deadline by executing, on or before 2/28/02, a certification of intent to timely adopt the volume submitter document?

Also, I believe it was stated by the IRS, perhaps at the last ASPA conference in LA or elsewhere, that a plan that currently is on a prototype or volume submitter document, but that is deemed to be an individually designed plan due to specialized plan language or amendments, can still meet the GUST restatement deadline by executing, on or before Feb. 28, 2002, the certification of intent to restate on a volume submitter or prototype plan document. Does anyone recall who said this, and when?

We have a takeover plan in which the participants previoulsy were allowed to have multiple outstanding loans. The plan administrator would like to amend the loan policy to allow only one outstanding loan for existing and new loans. They have requested for the multiple outstanding loans be consolidated into one loan per participant. The participants seem to agreeable to this.

My question is how do we do this. The only time I've done loan consolidation is when a new loan is taken.

Can I consolidate the loans being certain not to exceed five years from the first loan? What interest rate should I use? Current prime plus 2% (as stated in the loan policy) or an average of the previous loan rates? Any suggestions or advice will be greatly appreciated.

New 401(k) Plan established 1/1/2000. Plan fails ADP in '00. Correction method was a QNEC. Prior to contribuition of QNEC, plan was Top-Heavy. Plan made QNEC and 3% top-heavy contribution to those not eligible for QNEC. After QNEC and '00 top-heavy contribution, top-heavy % drops to 47%.

Question: Do you determine top-heavy status before or after the QNEC was made? Is Plan top-heavy for 2001?

(This is a plan a colleague is taking over so I don't have many more details)

All responses are greatly appreciated!

How would you handle this employee's eligibility? Hire date 10-15-99, waived coverage when initially offered. Had proof of other coverage from May '01 to Sept '01, enrolled in company plan at open enrollment Oct 1 '01. Would there be any pre-x?

Here is a situation that I have recently encountered that I have never seen in my years in the business. Any comments would be appreciated!

Companies ABC and XYZ are in a controlled group situation, and currently all eligible employees of each company participate in a Money Purchase, Profit Sharing, and 401(k) plan (3 plans total). Unknown to our firm, the client's attorney adopted a 4th plan in 1997 (or so), a Profit Sharing plan strictly for the employees of XYZ. However, the plan has $0 in it, as XYZ has been making its profit sharing contribution to the combined profit sharing plan.

Skip forward to 2001, where ABC has encountered a loss year and does not wish to make a profit sharing contribution (it will fund its mandatory MP plan contribution). XYZ is profitable, however, and desires to make a Profit Sharing contribution for 2001. The attorney has now come in, and is advising the client to move XYZ's portion of the combined plan assets out of the combined PS plan and into the 1997 plan set up strictly for the XYZ employees. The XYZ employees will remain in the combined MP and 401(k) plans. The attorney also wishes to take the PS plan forfeitures attributable to terminated XYZ participants and transfer it over to the XYZ plan as well. The plan assets are not segregated by employer, they are commingled. The attorney feels (and we agree) that a profit sharing contribution can be made and still pass IRC section 410(B), as the majority of HCE's are employed by ABC.

We are uneasy with this situation. Concern #1 is whether the separate XYZ plan still exists, or was terminated due to lack of substantial and recurring contributions. Concern #2 is if the assets of the plan indeed transfer from the combined plan to the separate plan, are we creating a partial plan termination in the transfer.

I don't know if there is anything to worry about, but this situation does not feel right. Any thoughts? Thanks.

I have a PSP, no contribution to be made for current PY. There are forfeitures to be reallocated, integrated at 100% SSWB. Plan is top heavy. When allocating the forfeitures, participants are getting 1.9%. One key is getting 1.9% plus 1.9% on excess.

Does the allocation meet the top heavy minimum requirement even though the key is getting 1.9% on his excess? Or should I just allocate 1.9% and ignore the integration?

I just love this stuff...

Suppose you have a plan with 50% of it's assets in a Real Estate Limited Partnership. The preamble to the DOL regs (2520.104.46)

gives an example where such a partnership is NOT a "qualifying plan asset." My question is, does this necessarily have to be the case? For example, suppose the Limited Partnership is purchased through a registered broker-dealer, or through an organization authorized to act as Trustee for IRA's under section 408 of the IRC? These are "regulated financial institutions" for purposes of the SPAW requirements. Would the Limited Partnership then count as a qualifying plan asset, or not? I'm inclined to think that the "held by" requirement doesn't simply mean "purchased through" and that therefore these wouldn't qualify, unless you had, say, a bank as Trustee. Since the bank is a a regulated financial institution, and would hold title in this case, then it should qualify. Any opinions out there? Thanks!

Employer provides health insurance; employees pay 20% of premium, employer the remaining 80%. Employer has a Code § 125 cafeteria plan, so employees pay their share of health insurance premium pre-tax.

I recently found out that if employees do not take health insurance, at the end of the year the employer pays them a "buy back" bonus (bonus is less than the amount employer would pay for the insurance). Apparently there is no official structure to this buy back program. I strongly suggested running the buy back through the cafeteria plan.

Employer's plan provider said the buy back is set up as "deferred comp" (no further detail on what that means at this time) and is not able to go through the cafeteria plan. Provider's suggested alternative is that the buy back should be a stand alone program, with a separate plan document.

Q: Does the provider's suggestion work? Should I insist the employer's current cafeteria plan be amended so that the buy back goes through it? Any comments or suggestions appreciated.

A retired participant in a 401(k) plans turns age 70 ½ on 5/25/2001, making his 2001 RMD date 4/1/2002. The participant wants to rollover his vested balance in his 401(k) to an IRA. Is his company required to pay him out his 2001 RMD before he can rollover his 401(k) to an IRA? I say that the 2001 Required Minimum Distribution is not an eligible rollover distribution. The Plan Consultant is saying that the company can rollover the full amount into the IRA and then take the 2001 from the IRA before 4/1/2002. Which was is correct, and where can I find the IRS code to back it up. Any help is greatly appreciated.

Sincerely, Anthony J. Milano

Before the IRS released the 2002 limits in IR 2001-115, it was conjectured that the pre EGTRRA old law comp limit under 401(a) (17) for 2002 would increase to 180,000 [based on old law COLA adjustments]. Since there was no announcement to this effect, it is pretty clear that old law means the comp limit for 2002 is 170,000.

Given that, if clients want to reflect the 180,000, would you agree that the plan doc would have to very explicit in that regard and clearly define how COLA will be applied. Do you see any 411(d) issues if COLA is prospectively removed from the language and say the comp limit is frozen at 180,000 for all future years.

Looking for opinions.

Thanks

We had a bunch of furloughs late last year

These employees have recall rights for 3 years.

For those that are over age 70 1/2, are they required to get a minimum distribution

distribution by 4/1?

Active employees over age 701/2 are not required to take a minimum distribution from our plans.

I see this as a grey area. Is anyone aware of any guidance out there where it defines what "terminated"is?

Thanks