wsp

Me as well, fortunately this specific case doesn't involve 402(g) catchups as the NHCE defers so little that ADP precludes him from coming close to that. That's not something I want to touch. And my CPA boss can't understand why every new plan I start has a 12/31 pye.... I'd be careful about throwing out the dinner thing. You just might have 30 people, myself included, wanting to pick your brain. Though I suppose if they're buying... Thanks for the help.

Thanks Tom! Nothing like having to go online to access the regs because the accounting firm that you work for didn't think it was important to keep that section up to date.... So, bottom line is that if you're running a new comp plan and intend to maximize the HCE then you'd better not be failing ADP. Will you be covering this sort of thing at WP&BC? or are you focusing on SH plans?

Is there a specific order that testing must be run on and catchup contributions allocated? Specifically I have a plan that will fail ADP. Owner's deferrals exceed other HCE's by about 4,500 so if I run ADP first then refunds get attributed to owner and reclassified. However, if I run 415 first then refunds get reclassified there and not included in ADP, thus plan failure gets attributed to other HCE's. So, which way do I go???? Doesn't impact owner at all, his max is his max...but since the other HCE's are children of owner it does have a dramatic impact on overall family contribution level. Children are young so are receiving 0% in profit sharing contributions so they depend on being able to maximize their deferrals. Guidance would be much appreciated.

Thanks for the input. End solution likely will be that he's going to start a 401k, roll part of IRA into plan, take a loan for down payment, finance the rest, and then after age 59 1/2 take a distribution to pay off the loan. Going through big hoops just to buy a condo but to each his own. This way though it's much easier to control and he won't have to hire all of the outside parties to manage things....besides the intial desire to have child live in condo.

Client is looking to buy a condo using IRA funds. From what I've read on topic the benefit is only there for ST or flipping opportunities as the laws preclude any sweat equity gains from occurring. And also understood that associated costs (property manager, appraisals every 2-3 years, and trust expenses) make this a difficult asset to own....UNLESS renter is known commodity (ie propertys best interests are maintained). Does the fact that a property manager and outside agents are hired for other positions allow the client to rent to someone who would otherwise be a prohibited party? ie his daughter. Whole thing makes no sense to me but he's more concerned about diversifying his portfolio, while at same time getting into rental property without having to deal with unacceptable tenants, then he is at making money. What other things must he consider? Would it be different if it were a 401k investment rather than an IRA? Seems to me rules remain the same, but as trustee he would be able to avoid trust expenses but appraisals and property management expenses are still there. Anyone else doing this?

I suspect that we are talking about the same things, but my lack of knowledge on the topic is getting in my way. Thanks to you both for taking the time to explain things. Person asking us the question is an HCE and key employee but is not an owner, so it's unknown if employer will pay for expenses through a MERP. And yes, premiums are fully employer paid so we are talking about wanting to pay unreimbursed medical expenses only on a pre-tax basis. But as you suggest, a better alternative would be the MERP as it's nontaxable for the employee while still deductible for the employer. Am I correct in assuming that unused amounts in a MERP can be carried over from year to year? Maximums the same as HSA? What are reporting requirements? Form 5500? If company won't pay for expenses but will take on the liability involved in a employee deductible plan, then we really are talking about a FSA rather than an HSA or MSA as deductibles aren't likely to be very high for this employee. Or am I wrong in that? I would imagine that he could self administer the plan since he's the only covered and eligible employee. If not, no worries, we will be sending them elsewhere for administration. We are accountants and retirement plan admins only. Is there a single sheet pro-con comparison of various plans out there?

Thanks for your input, it's very much appreciated. I'm on board with the documents, filing requirements, claims adjudication, etc etc but the discrimination test has me baffled. Assuming that the union has negotiated a similar benefit, then it seems natural that a single non-excludable employee, even a key employee, should be able to have that benefit as well. To me, it's being offered to 100% of the employees so long as the plan document doesn't exclude any non-union participants. I see the math, butthat means that he will never be able to receive any benefits like this, as all employees are union employees. Thus he's penalized for running a union shop. Is there a facts and circumstances option available for cases like this?

This was the initial inquiry....I'm not sure to what degree the owners are aware of the liability nor his background and knowledge re: a plan of this nature. He's their legal counsel, but we all know that means nothing when it comes to the benefits arena. As for the discrimination part...is a cafeteria plan not able to exclude individuals who are covered by a CBA as you can in retirement plans? And the 5500 is required since they essentially have a trust arrangement to hold the money until it's being used, correct? But if it's a pop then no reporting is required? Sorry questions are so basic, I'm a retirement plan guy who was asked to do the research. Blech...whole new level of respect for you H&W folks!

It's a partnership and he's not a partner. The partners only receive partnership compensation and all of the other employees are part of a CBA.

A client is looking into setting up a cafeteria plan for himself. He is the only non-bargained employee of 15 person company. He would like to set up a Health Care Reimbursement account to pay for the uninsured medical expenses. As the others are bargained, they would be excludable from discrimination testing leaving only himself. Is this ok? What reporting requirements are there? Is it something he could administer himself easily enough? any pitfalls?

Posted this under the 5500 page and got no response, perhaps this is a better place for it. I had a client ask me this... Voluntary Long Term Disability, Life Insurance & Accident plans that employees pay through pay roll deduction. Statement from insurance company identifying the contract and broker commissions paid. Since this is voluntary and employee paid, what if any reporting obligations do they have? Is there an understandable source out there that can lead me through the questions that I need to ask the client to determine if they should file? I have so little contact with health plans that I haven't a clue. Thanks for any help that can be provided.

I had a client ask me this... Voluntary Long Term Disability, Life Insurance & Accident plans that employees pay through pay roll deduction. Statement from insurance company identifying the contract and broker commissions paid. Since this is voluntary and employee paid, what if any reporting obligations do they have? Is there an understandable source out there that can lead me through the questions that I need to ask the client to determine if they should file? I have so little contact with health plans that I haven't a clue. Thanks for any help that can be provided.

Company has a 6/30 pye for dental plan. Last october they switch providers. Old company provided Schedule A up through September 30. New company changed policy year from 7/1 to 10/1. I realize that for ease of recordkeeping I should have changed the plan year end to 10/1 back then...but since I didn't hear about it until now, I'm way past that. What's required for me to change in terms of participant notice, plan amendments, and filings. Is it so simple as no notice necessary, 1 page amendment, and filing for short plan year through 10/2005? Or even easier? No notice and no amendment... I have to say this filing is rediculous and a colossal waste of time. 2 entries on a Schedule A hardly seems worth the effort.

Thanks to the both of you. I stumbled across the calculator last night while surfing for info while I was at home. Why I was doing that, I'm still not sure. The reason that I was thinking to have the two accounts was to make sure that the paperwork is clean..and if he needed additional funds he could withdraw them from the second account without fouling up his substantial equal payments. I think I read about a plr that ruled against additional funds being pulled from the account that the SEPP were being taken from.

current plan allows for deferrals and match... Plan is intended to become safe harbor, given the sheer number of changes that need to be made to the document and SPD, wouldn't it be safer to simply restate the document? Scary as it sounds...in 13 years I've never had to convert a plan...always restated as there were multiple other changes the clients wanted to make as well. It's not so simple as adding the SHMAC or SHNEC formula language is it? Since neither is guaranteed, I'd imagine that you still need all the ACP/ADP language to remain in the document. Also, do you need a material modification letter if you restate? or is it enough to provide everyone with new SPD?

A question was posed to me and I wasn't sure of the answer... A participant has an IRA of 350k. He is age 57. He would like to start taking distributions from his IRA to build and pay a mortgage on a second home but doesn't want to incur the penalty. Can he take out more than the amounts calculated using the minimum distribution amounts, so long as it won't deplete the balance sooner than 5 years? This person wants to take 20k a year.... allowable? If so, would it be prudent to recommend that the person take 100k of the money and move it into another IRA, since you don't have to aggregate them, purely as a just-in-case you need to access additional funds and prevent yourself from changing your installment payments?

Prospect called and asked if we would file his 5500 as his accountant didn't have the software. Told him we would and fee would be nominal if he had all of the answers filled in ahead of time. He wanted to meet and provide me with data...which should have been my first clue to run! Turns out he has never filed...plans have been around since 92. Questions are..which forms to file? 92-96 owner is only participant..... 5550 EZ? If I file that I'm not eligible for DFVC am I? Would I be better served filing C/R? Can I even file C/R? 97-2002 owner had an employee...obviously file 5500 2002 employee terminates and takes distribution 2003 file EZ again or 5500? 2004 new employee gets contribution...Again back to 5500. So, what do I file in 92-96 and 2003? obviously we want to minimize the damage here, there's actually 2 plans for each year a MPPP and a PS plan...so DFVC filing for all years would be optimal. Also, if i'm not required to file as a sole prop with <100k. Do you mark the first return that I do have to file as a first return? seems odd for it to be a first return with a begbal.

Does it make a difference if he doesn't work today? Or is that headed in a direction I don't want to go to? If he terminates today, prior to starting work, then he's not eligible to receive the contribution, correct? I'm running into this with another client who terminates a parent with 2 months left in the year and then hires her back 2 months into the year....thus keeping her eligible for ADP and healthcare; but not for a profit sharing contribution. They take a ding in terms of coverage but since she's HCE it doesn't hurt.

I have a client who has a pye of 9/30 and they just gave me their census. The have a new comp plan and all looks good EXCEPT all of the employees who are younger than their son have terminated. First question is: is it too late to change the groupings so that I can provide the son with a zero. Second question is dependant upon the first answer being yes, it's too late: Since the son hasn't started working for today...it's possible to actually terminate him. I'm sure the IRS frowns on that, but what precludes us from doing it? I hate playing games with this stuff, but I suppose you have to get creative when a younger child is involved. better to have multiple groupings to begin with, but that wasn't the case and wasn't necessary for last 4 years.

We've been encouraging him to go safe harbor. For financial statement purposes, he's reluctant to do so. He hasn't made a profit sharing contribution for the last 2 years due to the economic downturn. This year it's better but he's a classic manufacturing company owner...stubburn and cheap. Keeps massive amounts of cash on hand "just in case". Evidentally, "just in case" doesn't mean to make profit sharing contributions in slower years. Demographics do not allow him to offset should he not be allowed to contribute. Which is why we encouraged him to go safe harbor; figuring the 3% SHNEC would be perfect scenario for him. He's focused on what he hasn't been able to do over the last few years and not what he "can do". As I said...stubborn. He also has difficulty getting by the vesting of the SH contribution.

Now you lost me. I know they would fail coverage if the other plan were terminated, but if it were allowed to continue how would this be any different coverage than if it were a single plan? Of course, I'm assuming that the Average Benefits Test is passed after agregating the plans. I see it for what it is...an end around on the non-discrimination rules. But given that coverage and all testing is satisfied prior to the creation of this new plan and ADP is tested on a plan basis while coverage is across employer wide 401(k)'s... Sorry for asking basic questions...I've been wracking my brain for a solution for this guy and I KNOW I'm spinning my wheels now.

Scudder charged the 20% withholding on the distribution NET of fees. So, that's how I showed it on my 1099's. Fees paid prior to distribution.

I have a client that has been having ADP issues recently due to a myriad of reasons. The ADP percentage of the NHCE group has been around 5.5 - 6%. Typically one would think that's a fairly good percentage given that his company is a manufacturing facility with average wages of 30-50k. But the HCE hasn't been paying himself a whole lot of $$ over the last few years and thus his actual dollar limit is rather low. He's upset over the expenses of the plan in relation to his benefit. You and I know that his benefit is in proportion to his compensation, but getting him to see that is tough. Especially when all he sees is the SS taxes involved in raising his comp. His current plan is a 401(k) with a comparability test profit sharing plan. Someone (there is always a "someone" to muck things up) told him that he could terminate the 401(k) portion of his plan and start a simple 401k. Well that's not possible, nor plausible, but it got me to thinking... If he were to start a separate entity, with just he and his spouse, and that new entity had a 401(k) plan. He could receive comp from both entities...defer into new one and receive a profit sharing contribution from the old. So long as the matching (if any) contribution were the same, the level of benefits would be as if it were a single plan....However, he wouldn't be limited by the ADP test issues that he is now. Am I missing something here?

Specific plan that needed the discussions has over 50 participants and average pay is sufficiently high that plan shouldn't ever be top heavy. Owner and other keys get about 46% of contributions each year. In addition, plan has a very very generous entry period (3 months) So not many exclusions. Owner was giving 5-8% in profit sharing previously with same provisions, just wanted to bump up his own account without contributing more for rest. I like the owner and owner by attribution except for the fact that owner's son is youngest in company and thus needs to get zero. So we need to distinguish him from other kid, correct? Can't give him one and the other zero. Not sure exactly what component testing is so can't see how it can work in the actual scenario. How can you use rate testing for one group of HCE's but contribution testing for another group of HCE's? And, wouldn't that have to be written in the document before hand or is that another change that can be made prior to anyone accruing a benefit?

Just curious on how everyone handles this? Do you have each rate group name the participant in it specifically so that the owners child can be excluded and/or given a zero benefit? Ex> Joe Schmo runs his own roofing firm. He has a new comparability plan that is working nicely and is maximizing his contributions. However, the heir to his roofing empire has just graduated from design school and needs to earn money to eat. Joe Schmo hires Joe Jr. to work for his company. Joes sole responsibility is to ensure that the company t-shirts are the best in all the land and that each employee wears it on a daily basis. Joe Jrs. Official title is Company Fashion Consultant. If you had them categorized as HCE and Non-HCE the plan would fail 401a4 miserably. So we must create a new category so that Joe Jr. can receive a zero contribution. How do you categorize them now. ie: Rate Group 1: Joe Schmo Rate Group 2: Joe Jr. Rate Group 3: All Others or Rate Group 1: President Rate Group 2: Company Fashion Consultant Rate Group 3: All Others