Gilmore

Andy, Thanks for the help.

A profit sharing plan is to be set up as a new comparability plan. The employer is a small company owned 100% by one individual. The owner's wife is also employed at the company. The targeted group is just the owner, excluding his wife who will be in the "all other" group. Is it acceptable to list the owner as a classification by name? If we listed the classification as "All Owners", could it be argued that the spouse should be included in that group, due to attribution? Would a reasonable classification be something such as: "All Owners, excluding those participants who are owners due to stock attribution rules". Thanks.

Thank you for your reply. I did go back and read some of the previous postings as you suggested. Am I correct that most opinions lean toward the IRA taking on the qualified plan characteristics? And also, if the EGTRRA amendments were written to not allow after-tax money than it would be the responsibility of the participant to determine what portion of the IRA could be rolled into the plan? Thanks again.

I am a little confused on how EGTRRA has changed the rules for rolling over IRA money into a qualified plan. If a Plan uses the good faith EGTRRA amendment and allows rollovers from IRAs into the Plan this means that any traditional IRA can be rolled over, meaning that the IRA may consist of taxable earnings and previously taxed contributions? Does the Plan then have to account for these amounts separately? If yes, let's say the Plan decides they do not want this extra administration, so they choose not to allow IRA rollovers, does this then negate the possibility of any type of conduit IRA rollover? Also, if a Plan allows traditional IRA contributions to be rolled into the Plan, does the IRA money retain its IRA charectoristics, or does it take on the charactoristics of a qualified plan. For example, does the traditional IRA money lose the home buyer and education expense exceptions for distributions; can minimum distributions from the IRA money be delayed until after retirement; can loans be made against the rollover money? Any insight into IRA rollovers would be appreciated.

Thanks Tom. Yes, Demo 5 is for the average benefits test, and you have unconfused me!

I am continually confusing coverage and nondiscrimination when it comes to cross testing. For example, if I have a plan that benefits 4 of 5 NHCs and 100% of the HCEs, and it is being cross tested for nondiscrimination, coverage is still passed at the plan level using the ratio test at 80%, correct? So for instance, if this plan were being submitted using form 5307 I could show my coverage passing by completing question 11 of form 5307 and include Demo 6 for the Average Benefits Test for nondiscrimination? No Demo 5 would be necessary? As always, thanks for any input.

Wanted to make sure this course of action was ok... A partnership consisting of four partners has a 401(k) plan. The partnership is terminating and becoming two new, completely separate partnerships (each with two of the four previous partners). They would like to terminate the existing plan and each new partnership wants to create a new plan, crediting prior service with the old partnership. To add to this scenario, it is determined that the plan is top heavy for 2003. If the plan terminates mid-year is a top heavy contribution required? (This issue seems unclear in the reference material that we have.) Would be interested in any opinions on the top heavy issue and any successor plan issues. Thanks.

A participant who did not get the match because of a last day rule would still be included in coverage testing. I think (and I'm not anywhere near the expert that these other guys that are answering are) that by answer C they may mean a participant who was not included in coverage due to factors such as not meeting the plan's eligibility requirement for match (which may be different from eligibility for deferrals) or perhaps did not meet statutory requirements.

Thanks, I'm planning to take this exam next year so that is good to know. Although I understand that they are completely redoing their exams starting next year?

Please let me know if I have this completely wrong on the second question, but if the plan year ends on June 30, 2003 and the participant turns 50 later in 2003 are they not still allowed catch-up contributions during Jan-Jun of 2003. So it seems to me that answer C would be the wrong answer since the participant needs to turn 50 before the end of the calendar year, not the plan year.

A plan filing a Schedule H for 2002 moved their investments in 2002. The assets moved from a mutual fund company that charged the plan $8,000 in surrender fees. Are these fees to be reported on Sch C for 2002 and if so, how would the fees be coded. Thanks.

Thank you both for your recent replies, and thank you for the link, R. The link provided in the previous discussion did not work due to the software changes with the message boards, but can I assume that the same type of discussion resulted...some saying it could be fixed, others saying it could not? Our first reaction was that the loan was in default. However, because the stoppage in payments was clearly the fault of the Plan Administrator not correctly coding her payroll system, I thought there might be some leeway and decided to post the question. Anyway, the Plan Administrator has discussed the situation with the participant, admitting that she made the error, and the participant is ok with the distribution. Luckily it was a fairly small amount. One other question... The participant has more than one loan, including the one that was defaulted. Since the payments on the loans are made from payroll deductions, would the new rule on subsequent loans that is in effect after Jan 2004 have come into play (assuming we are in 2004)? Thanks again.

The last payment made on this loan was in the fall of 2001. It was not caught in 2002 as he was still within the grace period when loans were reconciled. Further confusing matters was that he took a second loan right after the payments stopped on the first so I can only assume the Plan Administrator thought the payments had resumed.

Thanks for your input. We were planning to handle it as a deemed distribution but wanted to make sure we weren't over looking any other options.

A participant takes out a three year loan for $5,000 and begins making payments through payroll. The Plan Administrator sets the loan schedule up through their payroll system which is preset to stop payments when a specified amount is paid back, presumably the total amount of principal and interest. The Plan Administrator inadvertantly sets the max payback to only the $5,000 principal amount so payments stop once that cap is met. Since loans are reconciled only once a year the mistake is not found out until after the loan is in default. What are the options for correction, and please let me know if additional info is needed to determine. Thanks so much.

Just curious Mike; can you give a little detail on the exceptions? Thanks.

Thank you gentlemen. I've printed off both of your replies and will start investigating. Thanks again.

Thanks for the clarification, Mike, Andy. Is there a good reference, other than the threads here, for learning more about component plan testing?

Mike, Not sure if you are still following this thread, but if so, can you please elaborate a bit on your response. Thanks.

I saw the Corbel piece as support to what I was reading in the ERISA Outline book. Like an "IF/THAN" kinda thing. Since the plan is now two plans it no longer is just a safe harbor plan and thus is subject to top heavy minimums for everyone who is benefitting (not just the "excludable" plan) as mentioned in the ERISA Outline. And R, you are correct that the ERISA Outline is pretty emphatic that the top heavy minimum would be provided to all participants. It would be nice if the Outline had a code section or Q&A to back up that argument. And I would be very happy to hear if anyone is taking a different view in their practice. At this point the only plan we have that uses such provisions also uses the 3% nonelective and works to the benefit of the employer as there are some otherwise excludables who met the initial eligibility and without the disagraggation would be receiving a safe harbor contribution despite the fact that they terminated during the year. The plan is top heavy but since they did in fact terminate during the year they received no employer contribution. And all of those in the non excludable group received their 3% through the Safe Harbor contribution. Please let me know if you disagree.

Corbel has an interesting piece that came out last week in their Pension News, Technical Updates section. It is entitled, "Minimum Gateway and Safe Harbor Minimum Contribution Requirements (3/13/2003)". It discusses the effects of having early eligibility for deferrals but statutory requirements for the Safe Harbor Contribution, on both a top heavy plan and a cross tested plan. The article mirrors what is in the ERISA Outline Book as far as the disaggregated portion of the plan no longer being a Safe Harbor plan, and thus making the plan subject to top heavy minimums (and ADP testing; an HCE that is disaggregated for the Safe Harbor minimum would be tested in the disaggregated group).

Thanks for the reply.

I've read some information on a disaggregated safe harbor plan and was hoping that someone wouldn't mind verifying my understanding of the rules. The plan has a 3 month wait for salary deferrals, but statutory requirements for the safe harbor non-elective. Am I correct in that if there is an HCE among the excludables an ADP test must be run and that the provision that allows for the HCE to be considered non-excludable would not apply in this case? Also because the plan now consists of two separate plans for testing, the safe harbor "top heavy" exception no longer applies? So anyone not termed during the plan year would need the 3% top heavy, assuming the plan is top heavy? Thank you.

Thanks guys, I appreciate your help.

Tom, Blinky Thanks for your input. I hope you don't mind my continuing this line of questions. I have been going back over the postings on this topic and also reading and re-reading the ERISA Outline Chapters 8 and 9. Tom, I understand that if the plan is disaggregated for coverage than the rate group testing must be tested separately as well. And you are correct, in this instance it still passes 410(B). First, just so I'm clear, the ADP or ACP test would have no bearing on whether or not I was disaggregating for the nonelective "plan"? Second, there is one participant who met the plan's eligibility for the nonelective (quarterly entry dates) however did not meet the statutory requirements (semi-annual entry) and is therefore in the otherwise excludable group. This person terminated during the year so did not receive an allocation. However, what if this participant had not terminated and was to receive an allocation. How much does he have to get? There are no HCEs in the excluded group so the excluded group would not need cross testing so does he not need the gateway? And if he does not need the gateway, once again, how much should he receive, assuming the plan is not top heavy? Sorry if this is a really obvious question.