austin3515

No problem... Long as the SH contributions cover the entire year, short or not, it's okay.

I think to say it completely, the discretionary match cannot exceed 4% of pay, and cannot be determined by taking into account deferrals in excess of 6% of pay... Even if I'm not right, it's clear there's some restrictions - if your designing a plan for someone, you'd better research it pretty thoroughly!

1) According to my reading of the regs, you wouldn't run ACP testing on a match unless the match is on account of elective deferrals, which in my opinion, relates exclusively to elective deferrals under 401(k) (i.e., not under 125). So what you describe is not a "match" as defined by the regulations. You might be able to call it a profit sharing contribution, subject to general nondiscrimination testing of 401(a)(4). Of course, the plan must specify this allocation, which it sounds like yours does not. But if it did, b/c you have no HCE's, it should pass the test. 2) You indicated that the plan does not specify allocation of the match. I suspect the case is that there are two different sections-one spells out the AMOUNT of the contriubtion, and the other spells out the ALLOCATION of those contriubtions. 99 times out of 100, this will be the very next section. 3) So assuming one and 2 are correct, here is what happens: your client is making matching contributions to the plan, but allocating them incorrectly (i.e., based on health insurance premiums, and not elective deferrals). The fact that there are no HCE's does not help with the problems you have.

I thought the Plan Admin has the ability to limit contriubtions of HCE's to ensure passing the ADP test. I didn't think the limit needed to be in the document. I was just reading a Corbel VS document and seemed to include this type of language.

I'm quoting the ERISA Outline Book, page 4.21 2004 edition, Chapter 4, Section III, Part F. "IRS Interpretation applues protected vesting percentage to future accruals. The IRS interprets this rule to mean the vesting percentage at the time of the amendment must not be reduced, EVEN WITH RESPECT TO BENEFITS ACCRUED AFTER THE AMENDMENT (emphasis added by Sal via underlining). There's also an example in their demonstrating this. He goes on to say that an ERISA Conference report contradicts this, but that that won't prevent the IRS from going after you under audit.

I disagree. The vested percentage is what is protected, not the balance. Therefore, you can't amend the plan to decrease someone's vested status in the plan, even for contributions in the future. You CAN apply to new hires eligible after a certain date, but that's it. Although Congress has implied that this is not what was intended, it really doesn't matter because what I've stated is the IRS' position, and it's the IRS that will find you, and not Congress. If you have the ERISA Outline book, look up amending the vesting schedule. If you don't have that book, you should really get it!!

Poje - I thought you could treat people receiving the THM only as not benfitting?

Janet de minimis is $15 for terminated participants with no account - for everyone else there is no de minimis. That's in the VFCP somewhere...

Is all of the money 401(k)? Match/PS/RO money can be withdrawn in service for any reason (assuming the doc says so, and the doc could be amended to say so).

Errors more then three years ago probably are not an issue because the years are closed for IRS audit purposes...

I think with employer stock, the prudent thing to do is to limit their investment to a percentage to force some diversification. I have had clients in the past where once the balance of er stock exceeds 25%, future purchases are simply not allowed. What happens in the future is not relevant (similar to reviewing loans for the 50% security). I'm with mbozek though, with employer stock, 404© is by far the lesser issuer. You'll get nailed on the appropriateness of the investment in the first place--Of course imposing a cap is in my opinion a very good demonstration of prudence which will outa help quite a bit in your defense...

1) 404© is blown if you pull them out of a fund and map them to a new similar fund. OF course if this fund is better, perhaps the related liability wouldn't be such a scary thing. But because you picked the fund, and not the participant, 404© does not apply. 2) This one is much more gray (I think). Again, you don't want to be the one making decisions about investments (except of course for selecting good funds to put on the menu!).

If the employee (former employee!) has any sense at all, he'll leave the money right where it is, safe from anyone who wants, including the people he stole from.

One source ALWAYS unless it absolutely cannot be avoided! No, it does not have to be accross all sources. I always look at the plan to see which makes the most sense. Certainly fully vested comes first.

Participant in a real cash crunch. State Law (CT) requires the employees authorization for payroll deductions, and the employee can revoke the authorization. Does anyone have any concrete cites for whether or not payroll deductions can/should cease if the participant rescinds the authorization? I realize of course the loan must still be repaid, and that therefore the sponsor must try to get payment from the participant via personal checks or whatever. Also, I think the sponsor should never lend them money again, but is that where it ends? All money is in individual accounts.

I don't think the issue is limited to $ elections vs. % elections.

There's a few options - one is test the companies totally separately, the other is to aggregate and test together. This gets pretty complex, there's a nice write-up in the ERISA outline book. You should definitely take a look before issuing anything.

How bout amending the plan to add in-service distributions?

Right...

Both the DOL and IRS came out endorsing fees to terminated participants on the grounds that if they rolled to an IRA, they would be paying fees anyway. DOL had a field assistance bulleting, and the IRS had a something... Google it with "fees to terminated participants IRS and DOL" and I bet you'll find it. We use Corbel documents and I asked them their thoughts on the need for plan amendment and the document specialists felt that the document was vague enough intentionally such that no amendments were necessary to charge only termed participants a fee. I'd check with your document provider or the drafting attorney for more support. If doing it quarterly is too burdensome, just do it annually? Also, the money does not need to be escrowed. Just have the money sent directly to a service provider without being tainted by the sponsor's grubby paws!! We charge $18/TV/Yr., so we would just deduct that $18 from the part's account and have it sent directly to us. Mind you we have never done this in the past, but have looked into it in the future, particularly with lower cash-out limits.

I just can't see how your gonna pass nondiscrimination testing... What a bear! Presumably the higher paid people will get the highest dollar AND the highest percentage of pay, so unless the more valuable people are much older, and unless the gateway requirements can be satisfied (i.e., you need to cross-test), your idea won't work in a qualified plan. You COULD do this in a non-qualified plan, but then you have exited my area of study...

EI must be $168K after subtracting SE tax AND the $42,000 (42,000/168,000 = 25%).

Limit the keys to avoid top-heavy?

For the 5330, you pay the greater of fair market value or the amount actually paid. So let's say the underpayment rate exceeds the FMV rate (i.e., the rate the plan would have earned in arms-length loan). You still pay the excise tax based on the underpayment rate, because the amount paid (based on the underpayment rate) exceeds the fair market value rate. Let's say the fair market value is greater than the underpayment rate... But wait, are you really going to take the position that you paid participants less than fair-market value? Certainly not when the DOL has endorsed the underpayment rate as a pseudo-safe-harbor rate of interest.

What I think is that the DOL came out and said if your filing under VFCP, this calculator is the minimum we will accept. Therefore, it stands to reason, that they believe the model to be sufficient, fair and accurate. The "best performing fund" method came from the original VFCP program, and people used that regardless of filing under the old VFCP. I think it's fair to pretend that the "best performing fund method never existed...