Following are two sample letters to send to your representative regarding the issue of cross tested plans. One is for business owners, the second is for administrators.

Our office works very closely with ASPA, and this is their suggested letter.

contact me directly and I will e-mail the actual word document to you.

Thanks for your help in this matter!

March 12, 2000

The Honorable _________ Senator_________ The President

U.S. House of Representatives U.S. Senate The White House

Washington, DC 20515 Washington, DC 20510 Washington, DC 20500

Dear Representative (Senator or Mr. President) _____________,

As a small business owner in your district, I am writing to express my outrage with the regulations affecting small business retirement plans currently being considered by the Department of the Treasury. It has taken years to build my small business into a successful enterprise. I am proud of the fact that my small business can afford to provide meaningful retirement benefits to its employees. However, if Treasury issues the regulations being considered, it will no longer be economically feasible to offer a retirement plan for the employees of my small business.

Treasury has a history of interfering with my small business retirement plan. In 1994, Treasury attacked my small business retirement plan with a legislative proposal. Fortunately, Congress rejected that proposal on a bipartisan basis. Now, Treasury is attacking small business retirement plans again. But this time they are trying to go around Congress. These repeated attacks make it even more difficult for my small business to offer a retirement plan to its employees.

I would like to continue to offer substantial retirement benefits to the employees who work for my small business. I hope you take action to stop Treasury from issuing regulations that will leave me with no choice but to terminate my small business retirement plan.

Thank you for helping me to continue to offer retirement benefits to the employees of my small business.

Sincerely,

[small Business Owner(Principal)]

....................

March 12, 2000

The Honorable _________ Senator________ The President

U.S. House of Representatives U.S. Senate The White House

Washington, DC 20515 Washington, DC 20510 Washington, DC 20500

Dear Representative(Senator or Mr. President) _____________,

I am a retirement plan professional in your district that helps small businesses establish and maintain retirement plans for their employees. I am writing to express concern with regulations currently being considered by the Department of the Treasury. If Treasury issues these regulations, many small businesses in your district will terminate their retirement plans for their employees.

Small business employees already have few opportunities to save adequately for retirement. Presently, only 20 percent of small business employees are covered by a retirement plan. This coverage gap is significant given that small business now employs over half of the nation’s private workforce.

Treasury just announced that it is reviewing its nondiscrimination regulations and their application to “cross-testing” and “new comparability” methodologies. Since 1981, Treasury guidance has permitted qualified plans to satisfy nondiscrimination regulations by allowing these testing methodologies which compare the real value of contributions to a defined contribution plan at retirement taking into account the ages of the participants.

In 1994, Treasury tried legislatively to repeal these methods. Fortunately, Congress rejected Treasury’s proposal on a bipartisan basis. Now Treasury is trying to accomplish by regulation what it could not achieve legislatively.

Given the pressing need to expand small business retirement plan coverage, and the great complexity of this issue, great care must be taken to ensure that action by Treasury does not result in small business plan terminations. However, the notice issued by Treasury suggests that they will dramatically change the regulations affecting small business retirement plans. In fact, the approach suggested in the notice would clearly discriminate against small businesses merely because they have a small number of employees.

I am asking you to stop Treasury from taking action on this issue. Many of these plans legitimately rely on “cross-tested” or “new comparability” plan designs, which have been permitted since 1981. Now, without any previous indication, Treasury has issued a notice indicating they are seriously considering changes to these rules and asking for comments in 75 days. If they rush to propose new regulations in this area, it could potentially lead small businesses to terminate their retirement plans leaving their employees with no retirement plan coverage.

Thank you for helping small businesses to offer retirement benefits to their employees.

Sincerely,

[This message has been edited by Tom Poje (edited 03-09-2000).]

Our county mental health was recently dissolved from co. dept to an Authority. As a new Govt entity we can opt out of Soc.Sec. (except Medicare portion) if we have a Qualified Retirement Plan. Our current plan is a EE 457 and ER 401(a) match up to 5% of what EE contributes. Plan is optional, but over 70% of employees contribute 5% and get 5% match. First, does our plan "qualify"; and secondly, is there a minimum EE and/or ER contribution percentage requirement to be out of Soc. Sec. I've heard 7.5% minimum. Where does that come from? Can that be a combination of EE and ER?

We've just been notified by our client that their 401(k) plan is to be audited in April. It's our first audit and we don't want to miss any important steps in preparing for it. We're told it will focus on distributions and loans for the '98 pye. If anyone can assist with tips, suggested reading, etc. I'd greatly appreciate it!

I converted a traditional IRA to a Roth IRA in 1998. For 1999, i made contributions of $1350. Now, in doing my taxes for 1999, it looks like i am $70 over my contribution amount as my income came up to almost $110,000. Do i recharachterize this amount, or say it will count for next year's contribution?

Assuming that a governmental 457 plan has met its requirement to establish a trust pursuant to IRC Section 457(g), what is the procedure for paying out a participant's account? Is the account distributed directly to the participant or to the employer who withholds any applicable income and FICA taxes and distributes the remainder to the individual? Am I correct in assuming that the establishment of the trust has not changed the nature of these distributions as compensation subject to reporting on a W-2 rather than a 1099? Does the trust withhold at the rate that the employer is withholding or at a different rate, or does it withhold at all? Finally, if the deferrals and earnings, as applicable, have not been made subject to FICA taxation under the "Special Timing Rule" of Reg. Section 31.3121(v)(2) prior to distribution, who pays the employer's portion of the FICA tax due on the distributions under the general rule of IRC Section 3121(a)? Who reports the FICA wages? If the trust reports the wages for income tax and the employer reports the wages for FICA tax, does the trust withhold the FICA taxes on the employee and submit directly or does it transfer the FICA taxes to the employer for payment with its 941 filing? If the trustee submits the FICA withholding directly, does it withhold as a separate employer (7.65/15.3%) or, if the employee's wages from the employer for the year are already in excess of the taxable wage base, at the 1.45/2.9% rate?

I presume that someone has addressed all of these issues because distributions have obviously taken place, but I have not seen anything discussing the procedures for making distributions. If this topic has been previously discussed, I apologize for taking up time and would ask that you just point me in the right direction. Thanks, Jim Colville

A PA which had a 401k plan merged with a partnership that had a profit sharing plan in august of 1999. the new entity is a PLLC the maintained their separate plans for the 1999 plan year. they had intended on merging the two plans and amending the plans into a cross tested plan for 2000, but due to recent developements, do not want to do that. can they at this point, prior to May 1, merge the pa 401k plan into the partnership psp plan and then amend that plan to a 401k safe harbor using a 4% safeharbor match for the 2000 plan year. would this be ok under the transitional relief under notice 2000-3?

would it avoid being a "successor plan" as defined in Notice 98-1??

If a business sells at least 85% of its assets to another company, employees who continue to work for the acquiring company are eligible for distribution of salary deferrals from the selling company's plan if the acquiring company does not assume sponsorship of the selling company's plan. IRC 401(k)(10)(A)(ii) provides this exception to the same desk rule only if both businesses are corporations.

I have a situation where the buyer is a partnership and the seeler is a corporation. The buyer acquires all the assets of the seller and does not assume sponsorship of the seller's plan. All of seller's employees now work for buyer. The seller continues as a corporate entity with a board of directors but no assets or employees.

The seller now wants to terminate its plan and permit distribution of salary deferral assets. Would plan termination without a successor plan exception to the same desk rule apply? My research indicates that the buyer is not the same employer but a new employer. Therefore, the the buyer's plan is not a successor plan. Nevertheless, I'd thought I'd put the question out for discussion.

We have a client who wants to max out their profit sharing contribution. How would I go about doing this? There are only 3 participants eligible in the plan and two of those defer, however they don't come near the deferral limit of $10,000. The only other participant is a doctor who earns over $160,000. What is the maximum they can put in the plan for the profit sharing contribution?

This may be common knowledge, but I've never had this cituation before. Employee was hourly paid and participating in Union Hourly 401(k) plan. He subsequently becomes exempt salaried employee with the same employer and is now only eligible to participate in the Salaried 401(k)Plan. Can he be given the option to roll over his Union 401 account to the Salaried 401 (k)Plan, or is this not permitted by regs.?

If not, can we still allow him to borrow from the Union Plan?

Employer created a cafeteria plan in 1993, which it still maintains. The only benefits under the plan are insurance (medical, life, dental, etc.) premium reimbursements. The way the plan reads is that the employer pays the premiums on behalf of employees who, in turn, reduce their salaries to "reimburse" the employer. In essence, the employees are simply paying a portion of their insurance premiums. No 5500s have ever been filed for the plan. We now plan to file past 5500s with the IRS and will be requesting penalty abatement. The question we have is whether the employer faces ERISA penalties as well. It appears that since the plan only provides for premium payments (and the plan has always had less than 100 participants), it would be exempt from ERISA's reporting/disclosure requirements under 29 CFR 2520.104-20. Consequently, no ERISA penalties would apply since there was no ERISA reporting obligation in the first place. Is this analysis correct? Any other helpful information?

The top heavy regs. indicate that all years of service, except for plan years beginning prior to '84 and years for which the plan is not top heavy, are to be used for the top heavy minimum accrued benefit. However, in the audit guidelines of IRS Announcement 95-33, years of participation may be used only if benefits are accrued on participation. Is there any circumstance in which the top heavy minimum would be based on years of participation if benefits are accrued over all years of service?

In performing the General Test under 1.401(a)(4)-3(B)(4), is it allowable to use a different measurement period for determining the accrued benefit and determining testing service? Specifically, in determining the increase in the accrued benefit during the plan year, is it allowable to calculate the accrued benefit as of the end of the plan year and divide by the testing service as of the beginning of the plan year? I do not believe that this is an acceptable methodology, but would like to hear from others.

What options are there for the beneficiary (spouse) of a deceased 457 governmental plan participant?

Correct me if I'm wrong - but these assets cannot, even at the death of the participant, be put into an IRA for the beneficiary.

I am a non immigrant worker, working in United States for last 4 Years, and paying and filing Taxes and returns.

Will I receive the benefits of ROTH IRA even if I am not staying in United States then?

Is anyone familiar with Rev Rul 84-45. It has to do with assumptions in connection w/ computing estimated earnings history when determining SS PIAs for plans that incorporated PIAs. I'm wondering if anyone knows any of the specifics w/r to what are acceptable assumptions to use based on this ruling.

A plan has a formula of .9% below CC and 1.4% above CC. Seems fine at normal retirement. However at age 55, based on the ERF factors the disparity is .32, but the maximum is .316 for someone w/ SSNRA of 67. Does this mean that this plan does not pass 401(l) and does not meet a nondiscriminatory safe harbor plan formula?

Footnote: if you do park the money in an IRA temporarily, make it a brand-new IRA ... don't mix any existing IRA moneys or future $2,000-a-year type IRA contributions with the funds you've received from the 401(k) plan.

(If the moneys get mixed, you probably won't have the ability legally to get the 401(k) funds out of the IRA and into the new employer's plan, due to a rule in the tax code.)

[This message has been edited by Dave Baker (edited 03-07-2000).]

A rather small 401(k) plan with no HCE's exceeds the 15% of aggregate wages deduction limit with the 401(k) and matching components alone for calendar year 1999. The matching formula is discretionary (not fixed unlike an earlier posting).

Assuming the plan provisions don't conflict with the following options, some of the current thoughts are as follows: (1) The employer could scale back on the match and be within the deductible allowance (massive PR problem even if they get participants to voluntarily scale back on 401(k) deferrals in the year 2000 and "make up" the 1999 lowered contribution next year), (2) make a nondeductible contribution and pay the 10% excise tax, then scale back on the year 2000 401(k) levels to a point where the 1999 + 2000 match deduction is within the year 2000 allowance.

What do all of you think about option (3) refund 1999 deferrals to a few amenable participants in the same manner of excess contributions reportable on the year 2000 1099-R taxable in 1999(all the 1999 deferrals were deposited prior to 12/31/99). Under this scenario, would the 10% non-deductible tax still apply if the refund were done before 3/15/2000? Would earnings be also refunded (and would it be taxable in year 1999 or 2000)?

How about option (4): Return a portion of deferrals to the corporation (for refund to the participant) and amend the 1999 W-2's (should earnings be returned?)

Any comments or thoughts would be greatly appreciated!

In a plan effective 1/1/99 that covers a participant who's 75 years old and an HCE, is there still a 401(a)(9) requirement if the contribution will not be made until after 4/1/00? Or must the employer make the contribution before 4/1/00 so that this HCE can be paid his MRD (since contributions, no matter when they're made, are deemed to be in the plan as of 12/31/99)?

We have a client that is a partnership. The plan is a 401k Safe Harbor Plan. The plan limitation of 15% is exceeded by deferrals and the 3% safe harbor contributions only. Can you return the excess amount to the employer and classify that amount as a mistake in fact? Or do you blow them into the IRS on a 5330? We're thinking we have to report the excess amount as the safe harbor contribution is required?!