2muchstress

Maybe I am misunderstanding the question, but why would a recordkeeper be doing 3 years worth of ADP tests at once? Or was it on three separate occasions where money had to be refunded. Next question - When do you provide your recordkeeper with the company's census data? As a TPA, we send all of our clients a year-end package in December (for calendar year plans). This package requests the census and explains why it is needed. It also explains that 401(k) plans must pass a non-discrim test and if this test fails, money must be returned to the HCE's by March 15th to avoid penalties. We then follow up that request in February and basically tell them that we need the census before March 1 so we can do the test and return excess contributions if necessary. However, if we get the census later, we still make every effort to perform tests and return $$$. If we don't receive the census on time, and the plan fails the non-discrim test, then the plan sponsor pays the 10% penalty. If we did receive the census on time, and we goofed, then we will pay the 10% penalty for the plan sponsor because it was our error. This does not happen frequently because the bosses frown on it. Go figure? Basically, all of this can (should) be avoided if you provide census data to your record keeper early in the year. After the census is provided, call them and ask about the tests. Knowing that you have failed the test in the past, they should give it high priority.

For what its worth, the IRS audited a plan of mine last year. It was my only plan that did not use a separate EIN for the trust (takeover). The IRS didn't mention anything about it, and the audit was completed with no changes. This same plan however was using the EMployers ID # on distributions, and I remember that there was a difficult time because tax deposits from the plan were being credited to the corporation. Fortunately we have a separate department that handles all the distributions from our plans, so I did not have to deal with that recon.

I agree. When filing personal taxes, you always put the 1040 first, then file the Schedules alphabetically, then the Forms numerically. I would assume the same theory would apply to 5500's. Although, several people in my office with 20+ years of experience seem to disagree. Creatures of habit?? Maybe.

Okay, so October 15th is a little late to be asking this question, but everybody in my office seems to have a different opinion. What order should the attachments to a 5500 be in when the returned is filed? Some people argue alphabetically. Some argue that the Schedule P is last because it is not required. Some don't ever pay any attention. Any comments would be great.

After I posted the question, I realized that this was probably a document issue. The old document allowed for it. The new document did not. I think we will treat it as a scrivenor's error and change the document, because I'm sure it was the client's intention to keep things status quo.

I have a plan takeover that included the Employer Davis-Bacon Prevailing Wage contributions in the ADP for the NHCE's. I have never done this before, but it would should help if it's allowed. Can anyone tell me if this is acceptable. Thanks.

Well, to summarize the original question. The overwhelming majority believe that there is no double-taxation on participant loans (at least for the principal balance). There seems to be some aregument as to whether or not the interest is double-taxed. The original post mentions a 50/50 split. I just don't understand how somebody could say the loan repayment is double-taxed. The interest being double taxed is arguable, but at least there seems to be some foundation to the argument - not there with the principal portion though. I'm glad this chain was started because I have tried in vain to convince a few people that loans are not double taxed, and some people just don't get it.

It is not necessarily a system issue. It's a time issue. I review everybody's vesting before I send anything out the door. To blindly mail a report that is generated by the system without any human review would simply be irresponsible. The more sources I have to review for accuracy, the more time I spend. When participants want distributions, vesting is the biggest question that comes up. To explain that same thing over and over to every participant takes time. Also, if somebody termed in a prior year, and vesting changes don't apply to them, many systems will not automatically pick that up. I have worked with 4 different systems, Planfax, ASC, Datair and LDE. Every system requires a certain level of human review. There are always problems with status codes, vesting calcs. etc. I'm not going to triple their charges, or even double their charges, but I am going to make sure that I get paid for the time I spend on a plan. That's the name of the game. Nobody enjoys pro-bono work.

I agree with Michelle. However, I also strongly believe that if a client will not apply the 2/20 vesting to all sources, and all ee's, then they should be charged extra. I had one client who did not want to have all ee's on the 2/20, and was thinking about only vesting the new match on the 2/20. They paused for a second, and then said, "How much extra will this cost me". I didn't have a response, I was so shocked. I just said yes, it will cost more, but I don't know how much. They decided it was not worth the hassle.

I am also not a QDRO expert, and I probably agree with your position. However, would it not be possible to xfer the money to the alt. payee's account, place it in a separate source for the QDRO, and then only distribute the QDRO money from that source? This may be a good issue to refer to ERISA counsel.

Without reviewing any regulations, my response was based on information from S. Derrin Watson's ASPA Webcast and his book 'Who's the Employer". When it comes to these issues, I believe Derrin's word is the word of God. Although, after reading these threads for a while, I have also learned that you too, mbozek, are a reliable source of info. However, it is all together possible that the term legally separated is more restrictive when it pertains to family attribution rules (Derrin's forte), than when it pertains to beneficiary designations. Although I must reiterate, and the point was pounded clearly, over and over in the ASPA webcast that legal separation is declared by a judge.

Well, okay I misspoke. Any separation other than a "legal separation" or divorce would be meaningless......

Both responses are correct. You cannot be "legally separated" until a judge signs the order. Any separation other than a "legal separation" would be meaningless as far as qualified plans are concerned.

I don't have a solution, but I have the same problems. I'm just posting so I can be notified of any other suggestions.

I started in 98 and I don't have a clue about the old rules (except for when you old timers mention the good ol days)

Thanks again. I guess its obvious that I'm a newbie to this industry. But, maybe in several years, I'll be moderating this board.

Tom, I appreciate your responses, they have been helpful. But they also bring new questions to the table. I guess I'm confused as to how the 404 violation in 2000 would not change any balances. Please correct me if I'm wrong, but I thought that you could not allocate contributions above the 404 limit. If that's the case, then money was allocated to participants when it should not have been. I guess because the money was always funded after the end of the year, it could be considered funding for the current year. That being the case, then maybe I understand your point. Nextly, and I am just talking out loud at this point, there have been many participants who received distributions during the past couple of years. These people would have received more money than they were entitled to. Does this not create a violation of the exclusive benefit rule??? That's probably a whole different can of worms that I shouldn't be opening. Ideally, I would love to say that nothing needs to be done, and the prior administrators should hold some liability if the plan were to be audited. But, since I discovered the problem, I also feel some obligation to correct it. So as I see it, at a minimum of what needs to be done is: amend 5500 for 2000 amend corporate tax returns for 2000. amend corporate tax returns for 2001. I'm thinking that we will not need to do a 5330 because all of the contributions were funded after the end of the year. On the other hand, what's the point of correcting 2000, if 1999 is not correct. How far back would we need to go? Is there anything I missed? Additional comments would be great. Thanks

Tom, Point taken, however that doesn't help my situation. Here's how the TOTALS line on the 415 test looks Compensation $3,448263.81 Annual Additions $526,393.55 Percent of Comp 15.27% So I may have been inadvertantly confusing some people, (and I may even be confused myself). Also, ADP for NHCE's was over 5% - so all indications are that the 404 limit was exceeded in 2000. We are responsible for 2001 admin, and know that for 2001, the limit was exceeded. I just don't know if I can go forward with the 2001 until I know how the 2000 corrections will effect my balances.

A 404 violation meaning that the contributions to the plan were greater than 15% of total eligible compensation. This is more of a deductibility issue and not an annual addition issue. However, since the average annual addition for all eligible participants was over 15%, then there was obviously a 404 violation. Also, contributions to a 125 plan were obviously not included in any tests done by prior administrator, but could have serious impact on the 404 limit as well.

Working on a messy takeover plan. Company has deferral and match, and then funds a 10% contribution to all employees on the last day of the year. For 12/31/01, they funded the 10% to everybody, but now that we have all of the data, we know that there is a 404 violation. Because the money was funded in 2002, the excess can be allocated as a 2002 cont. However, company claims that they have always funded 10% to everybody and have never had any problems before. Putnam did their administration for prior years. When I look at Putnam's 415 test, the average annual addition for everybody is 15.27%, thus there was an obvious 404 violation. Also, this 15.27% does not include any contributions to a 125 plan. How would the 2000 violation be corrected? Company claims that because it was funded in 2001, then why couldn't the excess just be claimed as a 2001 cont? If possible, this would then reduce the contribution previously allocated for 2001, and then create an even greater excess to be allocated in 2002. What's the easiest solution at this point????

Thanks. Knew about the 401(m) and miserably failed ACP test. A doctor contributed $10,500 but know other ee's contributed at all - so he gets all of it back. Could have sworn that after tax contributions had nothing to do with 402(g) because nothing was "deferred" - however I was thrown off by the $10,500.

This is one of those questions that I'm embarassed to ask because the answer seems so simple. But, here goes: Are voluntary after-tax contributions to a qualified plan subject to the 402(g) limit, or are they subject to the 415 limt???

As a TPA, I will save this letter and use it every time the DOL asks about administrative fees paid from the plan. If it worked once, it should work again. As a person, that really SUCKS!!

I agree with Katherine and have seen it done both ways. If the employees of Law Firm A who are going to leave and go to Law Firm B want to receive distributions, then it might be best to start a new plan with the exact same provisions. However, if a new plan is started, then this is a perfect time to look at different provisions. Maybe the only reason firm B wants the same provisions is because that is all they know. There may be better ways to allocate employer contributions, or other provisions that can benefit the employers or employees better.

Just a few chains before this one, somebody posted a nice worksheet for dealing with catchup contributions for non-calander year plans. It was posted on 9/5/02, and not too far down the page.