I know 2001-17 outlines several methods concerning how to allocate lost earnings when utilizing various correction methods; however, what about losses? Obviously in light of current market performance, a participant would have been hard pressed to earn a positive return (at least for the past 18 months). Do you just give them a money market rate of return or do you use the statutory rate similar to the DOL method?

Company A sells Company B in a stock sale to Company C on June 1, 2001. As of date of sale, Company C stops participating in the Company A 401(k) Plan and becomes a participating employer in the Company C 401(k) Plan. (No transfer of plan account balances due to disposition of a subsidiary rule; instead distributions are made from Company A plan and participant may roll over money to Company C plan.) While not addressed in the sale agreement, I assume the compensation and deferrals of the Company B employees will be included in testing in the Company A Plan up to date of sale and included in the testing for the Company C Plan, along with the Company C employees, from June 1 – December 31 2001.

My question is how to determine the HCE or Non-HCE status of the Company B employees for this June 1 – December 31 period under the Company C Plan. Do I need to get the records and look back to the compensation earned by the employees in 2000 or can the new controlled group start date of June 1 be considered the first day of employment for these employees in the new controlled group – meaning that the Company B employees have no prior compensation with the new controlled group and therefore can all be treated as Non-HCEs for this period? I do not think there is any definite IRS position on this. Any thoughts would be appreciated.

(Would the treatment be different if the sale was an asset sale and not a stock sale and the Company B employees had become employees of Company C and had their account balances transferred from A Plan to C Plan?)

Thank-you for any responses on these matters. I would like to know what others are doing in these different situations for 2001.

Should I use a Roth as an option to pay off my mortgage.

I just refinanced to a 15 yr. fixed mortgage (6.25%). I now have an extra $200 per month. Instead of prepaying the mortgage and getting a 6.25% return I was thinking about putting the extra $200 towards a Roth IRA (maybe and Index Fund).

My reasoning is this:

The $200 per month grows tax free

Lets say after 10 years, I take out the principle ($24,000) and pay off the mortgage. The $24,000 is not taxed because it is the original contribution amount and now the gains/interest can be left until I retire.

Is this sound investing or should I:

1) Put the $200 towards the principle and be happy with 6.25%

2) Put the $200 in an Index Fund, pay the taxes as it grows, and pay off the mortgage when the fund = the outstanding loan amount.

3) Forget about paying off the mortgage early and invest for the long haul.

Thanks,

I must be missing something. Why use an Education IRA when a Roth still allows for tax free distributions for higher education?

From what I understand, you are better investing in a Roth for higher education because you have higher contribution limits and you are still allowed to take the Hope Tax Credit.

Do I have this straight? I need to start saving for my childrens' education, and I am looking at the Roth. Am I way off base on this one?

Thanks,

I'm working on a calendar year plan. I've been asked to project the 2002 ACP percentage allowed for the HCEs.

There's been a lot of hiring the last few years, and employer doesn't match for Post-Doctorate fellows nor non-resident aliens.

To make the numbers work, I've basically said, to be in the ACP test for 2001, you had to be hired before 7/1/00. (There's a three month service requirement, but I've got no HCEs to put into the separate group.)

Rationale is that I could have a one year wait and an entry date of six months later.

Just wondering if this is aggressive number grinding.

Company A sells Company B effective July 1, 1999. For the remainder of 1999 Plan Year and for five months of 2000 Plan Year, Company B is a participating employer in the Company A 401(k) Plan, which is therefore treated as a multiple employer plan from July 1, 1999 through May 31, 2000. Company B establishes its own Plan effective June 1, 2000 and the portion of the Company A Plan that covered the Company B employees is “spun-off” to the new Company B Plan. In 2001 the Company B Plan is fully restated for GUST (effective back to its initial June 1, 2000 effective date) and will be submitted to the IRS for a determination letter.

1. While the Company B Plan is drafted as having a June 1, 2000 effective date, Company B did all if its 2000 testing on a calendar year basis as if its multiple employer piece of the Company A Plan that was spun off and the Company B Plan spin-off plan were one Plan for all plan coverage, testing, compensation purposes for 2000. Is that correct or should the two separate plans be tested separately for each portion of the year that it was in existence?

(Company A included Company B in its testing for the period January 1, 1999 – June 30, 1999 and Company B tested from July 1, 1999 – December 31, 1999 on its own.)

2. Company B plans on submitting its 2001 GUST Restatement for a determination letter. I assume it also should submit its initial Plan document effective April 1, 2000. What about the Company A Plan? I assume that Company B does not need to be concerned with submitting the Company A Plan, even though a portion of it was “spun-off” into the Company B Plan. Is that correct? Can the Company B Plan receive a “clean” determination letter without submitting anything relative to the Company A Plan?

Thanks for your help on this.

We are a 401(k) TPA, and are exploring paperless employment termination distributions for the 401(k) Plans we administer. Right now participants fax or mail us a form to request a distribution. Is anyone handling this process paperless?

Does anyone know of a reason why a plan cannot have an integrated profit sharing contribution formula in addition to a 3% safe harbor contribution? Wht does it mean in Code Section 401(k)(12)(E)(ii) by "without regard to Code Section 401(l)? These seems to imply that as long as the 3% safe harbor meets the 401(k)(12) requirements, you can have additional contributions, but that the additional intergrated contribution cannot be considered in determining whether the safe harbor is met.

Does anyone know where I can find info on which states have legislation allowing tax-free W/D from the ROTH IRA (assuming it is a qualified w/d)?

When "recycling" shares, must all cash in the plan be used, or is it okay to use just the contribution amount, and leave any existing cash in the plan alone? Is consistency required, or could all cash be used at one time, and only the cash from the contribution another time?

Regarding the Model Amendments for CRA 2000, must Govt. Plans amend for both? Is the amendment for 414(s) really necessary since that section is of limited applicability to Govt. Plans?

401(k) Plan has 1 year eligibility for 401k & 2 year eligibility for its P/S. In 1999 the plan allocates a 3% top heavy minimum for all 1 year ee's thinking it is top heavy.

Plan discovers in 2001 that the plan was not top heavy in 1999, thus those employees should not have received that contribution.

What is the best correction method - reallocate the 1999 profit sharing to those who met the 2 year requirement and have the employer make up any losses for distributions, etc? Is there another way to put this plan back on right road that I am missing?

Thanks.

Ervin Barham

I am trying to determine if a Roth IRA would be a suitable vehicle for my retirement funds.

I have received conflicting advice as to whether or not I am eligible to establish a valid Roth IRA.

Because my income is above the maximum allowable, and the fact that it is entirely capital gains I appear to be ineligible on two counts. However it would not be too difficult to arrange for a small amount of earned income to be generated and placed in a Roth IRA. I would of course have to pay a 6% annual penalty on those funds which I am willing to do in order to gain the tax benefits of a Roth IRA. If the contribution was not more than $4000 per annum for myself and my wife, and the penalty was paid annually, would this constitute a valid Roth IRA?

An employer terminated their SIMPLE IRA in May, and they want to start a 401(k). Do they have to wait for January to start, or can they start now since the IRA is not open for new contributions anymore?

Can an employer set up a plan where there is a medical opt out provision that only salaried employees can take advantage of?

If QDRO procedures are silent on this issue, when would a plan administrator be permitted to honor participant requests for permissible withdrawals/loans/distributions pending QDRO determination? The DOL publication indicates a separate account should be set up for an alternate payee upon receipt of a DRO. What if the plan administrator gets a request in writing for employee information (e.g. subpoena) with the stated purpose of preparing a DRO?

Now that Schedule Q is optional under Announcement 2001-77, is there any real good reason for including it in a determination letter request? I don't see much benefit in getting a determination on the operational aspects of the plan, particularly as compared to the time and expense involved in preparing Schedule Q. A determination would be based on a one-time demonstration under Schedule Q, but a plan has to pass those tests every year, so how beneficial would that determination be? Am I missing something? Is there a significant downside to not submitting Schedule Q?

To the practitioners out there, on what side of this decision are most of your clients coming down?

Client wants to adopt a safe harbor 401(k) plan with a short plan year beginning October 1, 2001. Client currently maintains no qualified plans. If the plan becomes effective on October 1, 2001, then the 3 month plan year requirement will be met. As to the notice requirement, wouldn't the following language from Notice 98-52 allow for the safe harbor notice provided to employees on September 5, 2001(today) to be deemed to be reasonable:

b. Deemed Satisfaction of Timing Requirement

The timing requirement of this section V.C.2 is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established section 401(k) plan , or would apply in the case of the first plan year in which an employee becomes eligible under an existing section 401(k) plan.

??? Thanks.

What is the best way to withdraw company stock from a 401(k) so that it maintains the favored tax status (i.e. The growth is taxed at capital gains rates when the stock is sold, not at ordinary income tax rates).

If a portion of the 401(k) is company stock and a portion is in mutual funds, can a partial withdrawal be done for the company stock while the remainder is rolled directly to an IRA? Or does the entire amount have to be withdrawn, taxes withheld, and the participant must come up with the balance of the tax withholding to roll the entire amount to an IRA?

Does anyone have a good website for this information?

If one plan covers 3 participating employers (all in the same controlled group) can they choose to have different matching and profit sharing contributions for each employer? If the answer is, yes, what additional testing must they do?