austin3515

Participant is 60 and wants a participant loan for a primary residence to amortize over 30 years. I believe denying the loan on the basis that it will never be paid back is age discrimination, however, I cannot find anything in writing. Are there any limits regarding the latest maturity date allowable that are based on age? Can anyone point to something official looking? Thanks,

Surrender charges! That's what I saw! I will definitely look up the references. Thanks everyone!

LEt's say for example that there was one HCE who's account has $1MM, and one HCE who's account has $10,000. There's an asset based chard of 1% of assets, which is paid by the Plan. I don't think it's a stretch to say that the HCE got an extra $10,000 contribution through this arrangement...

Facts: 401(k) Plan with $10MM in assets. HCE's have very large balances. Employer pays all asset based investment expenses of the plan. Is this discriminatory? Effectively, the HCE's get a larger "contribution" from the employer? I'm pretty sure that I read somewhere that this would cause problems (at least it would necessitate general nondiscrim testing). Any sites/articles/regs etc. would be helpful. Thanks,

I have a client that wants to know more about communicating with clients regarding deferral levels. Can any recommend an article regarding tips on these communications? What is going too far? I'm curious to hear all of your thoughts as well, but I would like to send the client an article. They are closing on passing ADP tests, so she really wants the NHCE's to contribute.

I'm with PATA, paritcularly with Mr. Poje!

Oh! How is this tracked in the first place. I've never seen an after-tax bucket and an after-tax earnings bucket. Should there be? Or is that usually maintained in a "back-end memory bank" on a server somewhere?? At least I was right about one thing! (that being that I am naive!)

No problem at all. Why would there be a law to prevent the employer from providing additional benefits? There is no requirement that all contributions vest in the same way. I don't think you intended to "restate", but just to be clear, you could accomplish this through an amendment. Well, I guess provided all the language was in there about ACP testing (maybe there's other sections that need to be amended? Maybe restating wouldn't be such a bad idea after all!)

Maybe I'm naive (and I;m certain I am), but who cares? The most important thing is that you know what the post-tax balance is today, and if I understand you correctly, you know that. So in the event of distributions, they will be taxed appropriately? What am I missing???

My input is purely from a practical perspective. Why would they want to add such an arbitrary and ostensibly non-sensical differentiation? Sounds like a participant communication nightmare. They should be allowed to make special elections with respect to bonuses, period. Why complicate it? Eventually some participant will be pretty upset that they don't have this opportunity because of a technicality.

Is there a web site that ranks SIMPLE IRA/401(k) providers? For example, which of the big mutual fund companies are the most highly rated?

1) What do you think about amending the W-2's to reclassify draws as compensation, thereby generating income? 2) What if, at the time the retroactive election was made, a "dummy" payroll entry was made to "gross-up" wages for fica, futa, etc., such that the impact would be the same as though the employee had been a W-2 employee from day 1?

LLC Makes a retroactive S Corp election in March of 2003, retroactive to January 1 of 2003. The IRS allows you until March 15, 2003 to make such an election. The question is what do you do with member contributions contributed before the member was treated as a W-2 employee? Because the S-Election is retroactive to 1/1/03, there is no self employment income. Similarly, there is no W-2 compensation because the member simply did not know during the first two months that they would in fact be a regular W-2 employee. The literal interpretation would be, no earned income, no compensation, no contributions. The contributions made before the employee became an employee should be refunded. But this outcome is ridiculous in so many ways. Would it be reasonable to make some assumptions and estimates about compensation prior to the election? Any help on this cunnundrum (sp?) would be greatly appreciated.

As of January 1, 2003, taxpayer “Smith” is a member of an LLC – “Smith, Jones & Co.” The LLC is classified for federal income tax purposes as a partnership, and Mr. Smith as a partner. Mr. Smith’s “earnings” (made up of “draw” or “guaranteed payments” and his share of LLC profits) constitutes self-employment income. On February 28, 2003, Smith, Jones & Co. files Form 8832 (Entity Classification Election), electing to be treated as an association taxable as a corporation, and on March 1, 2003, Smith, Jones & Co. files Form 2553 ( Election by a Small Business Corporation). Both of these elections are to be effective retroactively to January 1, 2003. For calendar year 2003, Mr. Smith expects to make $120,000 ($10,000 per month), and wants to contribute $12,000 ($1,000 per month) to their 401-K plan. During January and February, Mr. Smith took a total “draw” of $24,000, and wrote his personal checks to the 401-K plan totaling $2,000. Beginning March 1, 2003, Mr. Smith receives a salary of $10,000 per month, and has $1,000 per month withheld and paid into the 401-K plan. At December 31, 2003, Mr. Smith’s total wages are $100,000, and the total 401-K contribution on his W-2 Form is $10,000. Mr. Smith also receives a Schedule K-1 (Form 1120S) for 2003, showing the $20,000 of “draw” for January and February, as well as any additional profits for the year. None of these K-1 profits are self-employment income, since Smith, Jones & Co. is retroactively treated as an S corporation for the entire year. How can Mr. Smith qualify the $2,000 paid into the 401-K plan during January and February for deductible 401-K contribution treatment? Is there any support for “grossing-up” his Form W-2 to include either the $20,000 paid to him during January and February, or the $2,000 paid into the 401-K period out of this January/February income? Does Mr. Smith need to withdraw this $2,000 (plus earnings), and recontribute it out of March – December wages, in order to perfect the 2003 contribution deduction/deferral?

Actually, I think your answer was exactly what I was looking for, which is that the timing of the amendment depends on the amendment desired. I was looking for a chapter entitled Plan Amendments which I was hoping would say when I can and can't do certain amendment (some very simple guidelines). Your point is well taken that it depends on the amendment... nothing is ever straightforward in this world... I am glad to know that there is more latitude regarding amendments after the Plan Year has ended... Thanks,

Now I know I'm confused... I just realized that if a plan fails coverage they would be required to amend the plan retroactively in order to pass coverage. Does someone have somthing they can point me to that is a good resource on when certain plan amendments are required? I have the ERISA outline book (2003) byut I couldn't specifically find anything that clarified things for me. Wasn't there anything that had to be adopted by year end? I think it was EGTRRA amendments, right? IF you wanted to add catch-up contributions or whatever else, you had to amend before the end of the year (i.e., goodfaith amendments). I know this was extended until the end of the GUST remedial amendment period... What amendments must be done before the plan year ends (i.e, adding a new 401(k)? What can be done after the year ends (i.e., amendment to correct coverage violations or 401(a)(4) violations). Can I amend the plan in March of 2004, effective 1/1/03 to accellerate the vesting schedule? Hopefully this demonstrates the source of my confusion adequately! Thanks,

I thought the "remedial amendment period" ended on the last day of the plan year. I don't have time to fish out a reference (i think its 401(b)), but I'm definitely interested to know if amendments can be processed after year end. Can I amend a plan year ended two years ago? Where's the cut-off?

I was thinking along the lines of an amendment has to be adopted by the last day of the plan year?? Is there a loophole that will let you adopt an amendment today for a 12/31/03 plan year?

That's correct. That would only work if the match provision never existed and the match was all of a sudden added. I'm not sure who designed the plan but we've just discussed is why you should never ERVER use PY testing with a discretionary match. However, as Blinky the Three Eyed Fish brilliantly points out you can always switch to current year testing whenever you like (there's restrictions and complications on changing from CY to PY.), provided the amendments are made in a timely manner (a plan amendment is required to switch testing methods). So if you're testing a 12/31/03 plan, it may be too late (in fact it probably is), and you're back to the orignal problem. Also, you do not need to use the same method (i.e., CY/PY) for match and deferrals. So you can switch the match to CY, and leave the deferrals on PY testing.

In a multiple employer plan, must one employer provide a contribution to an employee transferred to another employer during the year if the Plan has a last day rule? Similarly, if a plan has an annual 1,000 hour of service requirement, must each employer consider hours of service with all employers. The only guidance I have found relates to service within 410(a), which relates exclusively to initial eligibility. That indicates that employers are treated as one employer with respect to 410(a). No such information on allocation conditions though. Specific sites would be terrific. I know that the Plan document should be specific, however, I'm wondering if there is a specific rule on this matter. Thanks for your help!

I have a client that is a temporary staffing service and has a profit sharing plan with a decent amount of money. That plan covers all employees including the temps (if they meet the eligibility requirements). Effective 1/1/04 they are adding a 401(k) Plan which will exclude all of the temps and any HCE’s. They needed to do a separate plan because they didn’t want the temps to know about the 401(k) Plan. For a multitude of reasons (primarily communication) they really couldn’t roll it out for them. All of the 401(k) money will be employer directed. They want to invest all of the money in the existing brokerage account (i.e. for the profit sharing plan) to obtain “economies of scale” on the investment side. Page 36 of the Schedule H instructions reads as follows: “If the assets of two or more plans are maintained in a fund or account that is not a DFE, a registered investment company, or the general account of an insurance company under an unallocated contract, complete parts of I and II of Schedule H by entering the Plan’s allocable part of each line item.” An ERISA attorney pointed that out to me, and said that doing what we want is okay. My question is this: The profit sharing plan has an audit requirement while the 401(k) plan does not. The 401(k) Plan will be a very small portion of the assets. Are there any insurmountable complications with respect to the audit? My assumption is that limited procedures would need to be performed on the 401(k) Plan, since the commingling necessarily has implications for both plans. Anyone seen this before? Anyone have any thoughts? The TPA will be tracking everything as if it was one plan anyway, so all of the information will be segregated at least in total, and then the investments and investment income can be allocated out pro-rata based on ending balances. All other amounts will obviously relate specifically to one of the Plans. Any help on this would be greatly appreciated!

WDIK - With respect to your first provisions, the "last day" simply refers to WHEN the year of service will be creditted. It does not specify that employment is required on that date in order for a YOS to be creditted.

With a name like qualified plan, how can you dispute? I mean it's not even his middle name, it's his full name!

Rather, these determinations generally must be made solely with reference to the number of hours (or other units of service) which are credited to the employee during the applicable computation period. This right after the first bolded excerpt. What exactly is the DOL saying here then? When I see words like "MUST" and "SOLELY..." I don't know... Also, I've looked at a few documents and NONE require employment at the end of the 12 month period. They only say the computation period commences on the first day of employment.

http://www.dol.gov/dol/allcfr/Title_29/Par...2530.200b-1.htm (b) Rules generally applicable to computation periods. In general, employment at the beginning or the end of an applicable computation period or on any particular date during the computation period is not determinative of whether the employee is credited with a year of service or a partial year of participation, or incurs a break in service, for the computation period. Rather, these determinations generally must be made solely with reference to the number of hours (or other units of service) which are credited to the employee during the applicable computation period. For example, an employee who is credited with 1000 hours of service during any portion of a vesting computation period must be credited with a year of service for that computation period regardless of whether the employee is employed by the employer on the first or the last day of the computation period. It should be noted, however, that in certain circumstances, a plan may provide that certain consequences follow from an employee's failure to be employed on a particular date. For example, under section 202(a)(4) of the Act and section 410(a)(4) of the Code, a plan may provide that an individual otherwise entitled to commence participation in the plan on a specified date does not commence participation on that date if he or she was separated from the service before that date. Similary, under section 204(b)(1) of the Act and section 411(b)(1) of the Code, a plan which is not a defined benefit plan is not subject to section 204 (b)(1) and (b)(3) of the Act and section 411 (b)(1) and (b)(3) of the Code. Such a plan, therefore, may provide that an individual who has been a participant in the plan, but who has separated from service before the date on which the employer's contributions to the plan or forfeitures are allocated among participant's accounts or before the last day of the vesting computation period, does not share in the allocation of such contributions or forfeitures even though the individual is credited with 1000 or more hours of service for the applicable vesting computation period. Under certain circumstances, however, such a plan provision may result in discrimination prohibited under section 401(a)(4) of the Code. See Revenue Ruling 76-250, I.R.B. 1976-27. With respect to the latter bolded item, this is why I contend that retroactive effective date demands the participant became a participant on 1/1/03 (ie., this section does not apply because he was employed on the day he was able to enter the Plan).