2muchstress

At the IRS Q&A at ASPA in DC, the IRS agent opined that if a plan consisted of only 401k and safe harbor contributions, the plan would not be considered top heavy for that year. However, if forfeitures were reallocated, then that could cause a top heavy minimum to be required. We have had the same debates in our firm, and I believe that it was really unclear at first. But the ASPA Q&A from October is the most recent that I have heard anything on the issue.

At one of the ASPA annual conferences in DC (I believe it was 1999) an IRS agent gave the opinion that the date of the loan was the date the check was issued and that the repayment period could not exceed 5 years beyond this date. Though it was just his opinion and doesn't hold much authority, I have always tried to structure loans with this in mind. Sometimes it means amortizing a loan over 129 bi-weekly payments instead of 130. Practically speaking, if a loan goes over by one pay-period, I don't think that this is an area of concern.

Agree. I have always taken the conservative approach and have given contributions to any active participant on the date of the merger.

Maybe I'm thinking in too simple of terms - if this person was not eligible to be working for you because she was an illegal alien, then she could not be eligible to enter the plan. Treat her as an ineligible participant, and then your document should tell you what to do when you include somebody who was not eligible.

Since participant loans are not a protected benefit, I don't see how the elimination of a term of a loan would violate any regs. I too would recommend getting rid of it.

Mbozek, I agree with you, but I'm just the TPA. The plan's ERISA atty gave his opinion and we accepted it. The only thing I can say is that the atty is pretty well known. I would tell you his name, but I don't think that would be fair to him. Anyways, like I said, he will be the one who has to represent the plan if anything happens.

We had the same scenario a while back and the plan paid an attorney huge sums of money from the forfeiture account. The attorney argued that because forfeitures could have been used to pay plan expenses, but the company paid the expenses out of company assets, then the forfs can be returned to the employer as a "reimbursement of plan expenses paid by the company". I personally think it was an aggressive approach, but the attorney was a well known ERISA attorney who is well respected in our area, and he will be the one who gets to represent the client under audit.

Austin, the one you posted is very similar to what our client's are using.

Yes, if the participant's accrued benefit is used as security for the loan unless the total accrued benefit subject to the security is $5,000 or less. Spousal consent must be obtained within 90 days of the date that the loan is so secured, and in teh smae manner as the consent to the waiver of the QJSA or QPSA is obtained. For purposes of spousal consent, any renegotiation, extension, renewal, or other revision of a loan is treated as a new loan. Taken from Pension Answer Book Q10:12

Interesting conversation. I have to agree with Mbozek. I've been in this industry for a long 4 years, and I have only once had a participant inquire about restoration. The participant was told that he had to pay back x amount of $$$ and then he was never heard from again. Austin, I agree with your logic, but I must tell you that it seems as if 80-90% of the distributions I process are cash outs. Its unfortunate, but of the hundreds of distributions I process each year, very, very few of them are rollovers. Also, most of the plans I set up are for the owner's benefit, with contributions only going to the rank and file because they are required minimums (either th or gateway). When I started in this industry, somebody told me that if a plan was not top heavy, it was poorly designed. As a TPA, my loyalty is to my client, not to my client's employees. If an employer thought that the unvested portion of the employer contribution was rightfully the employee's - then why have a vesting schedule? Anyways, there's my two cents.

corp tax deadline is 3/15/03 but can be extended clear to 9/15/03.

Okay, so I agree now that December 31 is not okay for a "maybe notice". However, 98-52 only indicates that a reasonable notice must be given. It later says that 30 - 90 days is deemed to satisfy the reasonable issue. So would anyone argue that it is still possible to give the "maybe notice" after December 1?

My reading of 2000-3 indicates that the "maybe notice" must only be given prior to the beginning of the plan year. I would interpret this to mean anytime before December 31. The second notice must be given 30 days prior to the end of the plan year, but the first notice (maybe notice) must only be given before the beginning of the plan year.

Under Notice 2000-3, and existing plan can be amended to add a safe harbor feature using the 3% non-elective contribution as late as 30 days before the end of the plan year. For this to happen, three things must occur: 1) the plan must use current year ADP testing method. 2) Notice must be given to the participants prior to the beginning of the plan year, that the plan MIGHT be amended during the year to a safe harbor plan, 3) a second notice must be given to participants 30 days before the end of the plan year notifying them that the plan was amended to allow for the safe harbor non-elective contribution.

Are they wanting to use the sh match or the shnec? If they want to use the shnec, then under notice 2000-3, they just need to inform their employees before the beginning of the year that the plan may be amended to a safe harbor plan during the year. This gives them until November 30 of next year to decide if they want to amend the plan. Keep in mind that they must use current year testing method in order to accomplish this.

I would say that 28k - 32k would also seem fair in the Northwest as well.

My experience is that the costs are the same. The bundled products just have a better way of hiding it.

Its too hard to tell without looking at the contribution rates for prior years. I just had a plan with 8 hces last year. Four of them contributed and 4 of them did not. The four who did not contributed terminated employment in 2001. So in 2002, the plan failed ADP because the only HCEs remaining were the ones who contributed. BTW- this is a 9/30 plan year end. As far as top heavy goes. Completely different issue.

An HCE is anyone who owns more than 5% in the current year, or made more than 85k (indexed) in the prior year. The document should specify if you are using the current year testing method or the prior year testing method. I believe that the current year method is most commonly used, but I have heard others argue differently. If prior year method is used, then the ADP for the NHCE's in the prior year determines how much the HCE's can contribute in the current year. Thus the allowable contribution rates are known at the beginning of the year. If current year method is used, then the allowable ADP for the HCE's in the current year depends on the ADP for the NHCE's in the current year. I hope this is what you were looking for.

Possibly. If an HCE (over 50) contributes 8k, the plan fails ADP and a return is calculated at 2k. Then you could return only 1k and classify the other 1k as catch-up. So then the HCE does receive a catch-up contribution. However, if you have an old HCE who only contributes 2k, and a young HCE who contributes 11K, and the plan fails, then the return of excess would go to the younger HCE and the older HCE would not be able to receive a catch-up because the full 2k had to be considered for ADP. I don't like it, but that is the way it works.

If an HCE contributes 12K, the catch up will be excluded from the ADP test, thus only the 11k is used for ADP. If a participant reaches a statutory limit or plan limit, the amount in excess of that limit (up to 1k) will be treated as catch-up and excluded from ADP. However, if the HCE did not contribute beyond any plan limit or statutory limit, say 8k, and it is not know until after the ADP test is run if there will be a failure - then the full 8k is considered for ADP and the catchup will reduce any refund that the HCE may be entitled to.

If the employee has a claim against the employer for creating a tax burden from the default - Isn't it still the responsibility to the employee to mitigate damages? I would have to believe that if the employee waited 10 months before notifying their employer that they forgot withholding, then it could be argued that the employee did not mitigate the damages and should be held responsible.

The amounts that highly compensated employees can contribute is limited by the amounts that the non-highly compensated employees contribute. If you have a 401k plan with poor participation, then it is very likely that somebody who earned >85k in 2001 will not be able to max out in 2002.

IRS Notice 98-1 indicates that a first plan year is considered to be the first year in which a plan allows for 401(k) contributions unless the plan was aggregated with another plan that allowed for 401(k) contributions in the prior year.

I think I might buy that book and send it to all my clients for x-mas.