jquazza

If the man says it's well over the limit, he is a CPA so he should know all the implications, by all means, listen to him, that will only simplify your work.

The determination of controlled group/ASG is really a very touchy subject as it can very well be determined as an illegal practice of law for a TPA. My advice is let them consult with their legal counsel and give you a clear answer.

It can't be late deferrals if you haven't even cut the paychecks.

Gman, as the others said above, a plan will generally allow participants to take a distribution upon severance of employment (though they don't have to.) Speaking in generalities again, in most cases, the participant receiving the distribution will have to pay regular (fed & state) income taxes on the full amount of distribution plus a 10% excise tax if the participant is under 59 1/2 (which you probably are, I have never seen a sexagenarian calling himself Gman.) In some cases you don't have to pay taxes on the full amount, but let's not get too technical. One way to avoid paying any taxes is to roll over the amount to an IRA or another qualified plan. The 20% tax you mention is just a withholding amount, meaning the payor will send that money to the IRS unless you elect to do a direct rollover. That doesn't mean that's all the tax you'll have to pay. Depending on your tax bracket, deduction and age, you might not have to pay any taxes at all and will get the money back when you file your 1040. As far as the loan is concerned, your plan loan policy should spell out for you what happens to the loan when you quit. In most cases, the loan becomes payable immediately and will be distributed to you within few months of your termination of employment, whether you like it or not. That means you'll get a tax bill but no money.

I don't know much about SEC rules, but as far as prohibited transactions under ERISA and the Code are concerned, I am pretty sure there is a PTE that addresses just that.

I agree with Archimage, the catch up provision lowers the refunds, hence lowers the QNEC.

Yes, 401(k) assets are protected just like OJ's pension (providing your 401(k) is covered by ERISA.) Only the IRS or an alternate payee under a QDRO (ex-spouse due to divorce usually) can get to them. The plan could also recover some of the assets in your account if you embezzled money from the plan. IRAs are usually not afforded the same protection, though some states grant the same protection to conduit IRAs that were funded exclusively with funds from a qualified plan.

Stop the press and reprint the correct checks. It is simpler to fix now than later.

Blink, I agree, you can defend that position, however, you should inform the terminated participant of the impending termination of the plan and how it affects his/her benefits, don't you think? The participant would probably not request a distribution then and wait to become 100% vested.

...and the restrictions vary by providers. Whatever your firm accepts as a "solo-K" is really up to your firm.

On example 1, not providing the safe harbor notice is a disqualification issue. On example 2, I think the sponsor should make the nonelective contribution (and thus be safe harbor.)

Tom, actually you can match deferrals in excess of 6%, but you'll have to run the ACP test.

I think here is a good start...

I agree with Archimage, and I would add, since this is the first plan year, you shouldn't even have a short limitation year, so you don't have to prorate the annual compensation limit.

To clarify Pax's citation, she is a key and an HCE because she is considered an owner by attribution under the rules of IRC section 318.

I would not consider the issue date. After all, you may print a check and not do anything at all with it. You might make a case for the postmark, especially if the postal services took time to deliver the mail.

A 401(k)/new comp PS has 1 YOS requirement for the K, 2 YOS for the PS, semi-annual entry dates. Plan defines compensation as date of entry compensation in each portion of the plan. Plan is top heavy. Favored group gets PS contribution >20%. A new participant (A) enters the PS plan on 7/1/03, gets a 6% contribution based on comp from 7/1-12/31/03. Contribution is just over 3% of 415 comp. Particpant B is in the 401(k), but not eligible for the PS, gets a top heavy minimum contribution boosted by gateway to 5% of 415 comp. Do you agree that I don't have to boost A's contribution to meet Gateway because it is over 5% of his DOE Comp, but I do have to boost B's because his comp for the PS is $0?

Was she eligible for the 401(k) portion at any time during the year?

and who want to deal with outside collateral...

A participant defaulted on a loan and loan was deemed distributed. Subsequently (in the same year), the participant resumed making his loan payments. Had he not resumed the payments, we would reflect the deemed distribution on schedule H or I and take the loan off the books for 5500 purposes. Now, because he is making payments, the loan should not be taken off the books, and I assume the deemed distribution should still be reflected. How do you bring the loan back into the 5500? Would you adjust the regular distributions? I was tempted to do that, but this was the only distribution during the year and I could not obviously enter a negative amount under the distribution (Relius won't let you.) Does anyone have any insight?

This is actually a test you don't have to perform as long as you can reasonably (mathematically) demonstrate that your plan is or isn't top heavy (see treas. reg. 1.416-T39). That means you don't have to actually calculate an exact ratio, but you have to be able to prove that you are (or not) top heavy using reasonable assumptions. For example, since no one has been tracking in-service distributions for the past 5 years, you could safely assume that all five-year distributions for key employees were in-service, and for non keys, they were termination distributions; your assumption will not produce an exact TH ratio, but will be a "worst case scenario." If your ratio is at or below 60%, you can safely assume the plan isn't TH.

You should not recalculate your ADP test after the refunds. Ever since the leveling method was introduced to calculate the refund amounts, when you recalculate your ADP, you may or may not get a passing level, and at any rate, the results are truncated due to the leveling. Also, since your plan failed ADP and you distributed refunds, you don't have any room in your ADP to shift. If you distributed too much to give room to shift, then you have an impermissible (potentially) distribution. Refunding or forfeiting the match would therefore be in order.

A is a 1% owner. A's comp in 2002 is 200k+, A's comp in 2003 is 140k. For top heavy determination, A is a key employee for determination 12/31/02. A is a former key employee for determination date 12/31/03. Is A entitled to a top heavy minimum contribution for the 2003 plan year?

Yes, my contention had to do with rerunning the test. I don't think you should rerun the test excluding the recharacterized contributions.

It's a little hard to follow you Blinky, but I am not sure I agree with you and I think Phyphy has the right idea. First, you should not rerun the ADP test once you've recharacterized some deferrals as catch-up due to the ADP test failure. So, the idea here is to add QNECs sufficient enough to bring your plan, not to a passing level, but to a failing level that would produce refunds that equal the catch up amount available to the HCE who gets the refund. I don't see anything wrong with that.