Yes, they may use a different definition of compensation for the deferrals versus what they use for the match. They definitely won't fit a prototype plan document, but it doesn't sound like they do anyway. Obviously, you'd want to talk to payroll and the recordkeeper to make sure they can handle it.

Both the ADP and ACP tests should be run using 414(s) compensation. HCE compensation must be a total compensation definition. Hence, you probably want to include all commissions for running those tests.

If your client is already used to running their tests with deferrals limited to first $45000 of commissions, this change can be expected to make their ADP test results worse.

A law firm has a top-heavy profit sharing plan that excludes associate attorneys but passes coverage. Figuring its "their money" the firm begins a separate 401(k)plan for elective deferrals only, allows associates to particpate, but also allows key employees to participate. The plans, on an aggregate basis are top heavy.

1) I assume the firm now must make a 3% contribution for associates into the 401(k) plan because the Plan is no mandatorily aggregated with the profit sharing Plan. Does anyone disagree?

2) Is there a way around this prospectively?. It does not appear that the 401(k) can be terminated and a new plan started includng associates/non-keys only because of the successor plan rules.

3) If the 401(k) Plan was "frozen" so no future deferrals were allowed, would a top heavy contribution still be required because of the frozen plan's aggregation with the profit sharing plan and the fact that keys are getting 3% or more into the existing profit sharing plan? [1.416-1 Q&AT-5 read with 416©(2)(B)(ii)(I)].

4) If you prospectively eliminate participation of the keys in the 401(k) would you then have to wait 5 years before mandatory aggregation would not apply?

5) Any other ideas on a way "around" the top heavy contribution problem prospectively?

[This message has been edited by KJohnson (edited 03-01-2000).]

[This message has been edited by KJohnson (edited 05-10-2000).]

Has anyone had a leased employee participate in the recipient's 401(k) plan? If so, what procedures were used to handle the leased employee's elective deferral contributions? Were the contributions withheld from the amount the recipient paid the leasing organization?

Am I the last to know? In Quantech 4.3, unconfirmed MATCH transactions do NOT show in the ACP test (reportedly fixed in 5.0). When posting with 415 limits, NO UNCONFIRMED TRANSACTIONS are used (reported fixed in 5.0). Here's the best one - in doing the 410(B) Average Benefits Percentage Test, NO UNCONFIRMED TRANSACTIONS ARE USED. THis is NOT changed for 5.0 or 6.0.

Am I wrong in believing these are serious oversights? Who would check the totals on a test if each of the individual reports were correct??

I am considering starting a small TPA out of my house. Does anyone have any advice that may be useful? Do I need any sort of license? I am planning on going after small plans, how much revenue can I expect them to generate? How long before I can expect the business to be profitable? Should I try to ally myself with a broker? Any help would be greatly appreciated.

An employer/plan sponsor has an SEP that allows for immediate eligibility at which time employer is the only participant. Upon hiring two new employees, the employees are not included within the SEP, and the employer has never included the elgible employees within the SEP. I realize that correction cannot occur under EPCRS. I have been searching for authority but can find no guidance on how to correct this problem. Should employer pursue a closing agreement under IRC § 7121? Any advice on how to fix this error would be appreciated.

I am looking for studies that support value of increasing participation in the 401(k) plan. Why should we, the employer, care that participation levels are falling now that we've gone to safe harbor?

------------------

weslie

A law firm has a top-heavy profit sharing plan that excludes associate attorneys but passes coverage. It begins a separate 401(k)plan for elective deferrals only, allows associates to particpate, but also allows key employees to participate. The plans, on an aggregate basis are top heavy.

1) I assume the firm now have to make a 3% contribution for associates into the 401(k) plan. Is that correct?

2) Is there a way around this prospectively?. It does not appear that the 401(k) can be terminated and a new plan started includng associates/non-keys only because of the successor plan rules combined with the fact that there is an existing profit sharing plan covering more than 2% of those who were eligible for the 401(k).

3) If the 401(k) Plan was "frozen" so no future deferrals were allowed, would a top heavy contribution still be required because of the frozen plan's aggregation with the profit sharing plan and the fact that keys are getting 3% or more into the profit sharing plan?

4) If you prospectively eliminate participation of the keys in the 401(k) would you then have to wait 5 years for mandatory aggregation not to apply?

5) Any other ideas?

[This message has been edited by KJohnson (edited 02-25-2000).]

Employer maintains 401(k) plan. Plan is top-heavy. Employer amends plan to allow employees to participate in 401(k) arrangement (i.e., make salary deferral contributions) before having completed one year of service. Employer could most certainly exclude these employees (i.e., require one year of service), but feels "what the heck -- it's their money, let them contribute". But now, if you believe IRS, employer has to make 3% top-heavy contribution for these otherwise excludable employees. I'm troubled by this result. I think a solution is for Employer to have two plans -- Plan A, which covers employees with more than one year of service, and Plan B which covers employees (other than key employees) with less than one year. Since Plan B is not top-heavy, no minimum contribution is required for Plan B participants. But, if I can do this with two plans, why can't I do this with one plan and disaggregate the "plans" for top-heavy (just like I can disaggregate for 410(B) and (a)(4) testing)? Is anyone else out there frustrated with this? Thanks.

My company offers a benefits package that allows employees to select the various types of coverage they want for medical, dental, life insurance, etc. It includes the option to receive up to a specified amount in cash back at the end of the year. They calculate the number of benefit credits you receive based on your family status, age and salary. I am divorced with a dependent child and did not elect family medical insurance coverage, but did select family coverage in all other areas of the plan. I was told that since I elected single medical coverage, my benefit credits were recalculated as a single instead of family status. This recalculation did not occur with married employees who did not choose medical coverage for their dependents. Is this legal?

Partnership which sponsors a PS Plan is going to incorporate. Should the new "corporation" adopt its own plan prior to year-end (granting credit for eligibility and vesting for service under the partnership plan) and the partnership merge its plan into the new corporate plan - or is there a better way?

If addressed otherwhere in Message Boards please advise. Thanks to all who take the time to respond.

Please help me understand bridging of service given all these mergers and acquistions...

Here's my case.

I worked for Company A, division A1 aerospace for 5 years, then left to work for Company B, division B2 telecom.

2 years after I left, Company A sold division A1 to Company C, transfering all pension requirements.

9 years after I left, Company A bought division B2 from Company B, transfering all pension requirements. So now I work for Company A again, now in division A3.

Company A informs me that they will not discuss bridging service until I have worked for them for 1 year. Company A, division A3 has a policy for bridging service, but it only addresses divisions A3, A4, and A5. Note: divisions A3, A4, and A5 did not exist 10 years ago. And division A5 is in the same industry (aerospace) as division 1, where I worked.

Next year will it be my 10th or 15th anversary? If it is my 15th, I get another week of vacation...

Any thoughts????? TIA

------------------

Paul Conway,

paul.conway@acm.org

Please help me understand bridging of service given all these mergers and acquistions... Here's my case.

I worked for Company A, division A1 aerospace for 5 years, then left to work for Company B, division B2 telecom.

2 years after I left, Company A sold division A1 to Company C, transfering all pension requirements.

9 years after I left, Company A bought division B2 from Company B, transfering all pension requirements. So now I work for Company A again, now in division A3.

Company A informs me that they will not discuss bridging service until I have worked for them for 1 year. Company A, division A3 has a policy for bridging service, but it only addresses divisions A3, A4, and A5. Note: divisions A3, A4, and A5 did not exist 10 years ago. And division A5 is in the same industry (aerospace) as division 1, where I worked.

Question

Next year will it be my 10th or 15th anversary? If it is my 15th, I get another week of vacation...

Any thoughts????? TIA

------------------

Paul Conway,

paul.conway@acm.org

A dependent after being dropped from the plan for not maintaining full-time status is now returning to school. The dependent is being added due to the family status change but the employee would like to add his wife at the same time. Is this permissible?

Is anyone aware of an industry or national standard applicable to TPAs for the timeliness of group health claims processing under a self-insured plan? We are claiming that untimely processing resulted in self-funding claims that would have been covered by excess insurer. The TPA contract, however, did not establish a time certain within which claims would be processed. It merely stated that the claims would be processed "promptly" and "timely."

How are excess employer contributions removed from a SIMPLE IRA? Is there a time frame in which the contributions must be removed? Are earnings removed also? Cites would be helpful.

Does it make more sense to a) reduce personal

debt by borrowing against Mutual Funds, b)sell them to reduce debt, c) hold on to the

Mutual Funds as long as possible, d) any other suggestions? (The interest rate on the debt exceeds earnings of the fund)

Can an employee of a company that has signed up for the Cafeteria Plan get out of the plan if their spouse whom is not an employee and is recently self-employed has found cheaper insurance? In other words does this event qualify as a reason to elect out of the plan once an election has already been made?

I think it is important to clarify whether you are talking about a true "rollover" (in which a participant receives a distribution from a prior plan and contributes it to a new plan) or a transfer or merger (in which there was no distribution from the prior plan, but the trustee sent accounts to the new plan). If it is a rollover, it is a contribution that is subject to whatever rules the NEW plan provides for rollover contributions and rollover accounts (it is free of the old plan's rules because there was a distribution to a participant). If it is a transfer, it is subject to the rules of the old plan and the new plan. Confusing, huh?

I recently excercised 850 stock options for a capital gain of 9500.00 I am in the 15% tax bracket. They were issued at an option price of 9.00 in July of 1998 and sold on 1/6/00.

Will they be a short or long term gain for tax purposes?

Is there a grace period for reinvesting this money whereas I will not be charged capital gains tax?

This is all new to me.