Lori H

A small 401(k) plan failed to submit timely deferral/loan payments in 2007 when they were transitioning to a new manager. The accounts were frozen during the implementation and then they had problems learning how to submit contributions. This, I am thinking, could have easily been avoided by submitting contributions to an interest bearing money market account set up in the plans name at a bank until the kinks got smoothed out at the new provider(Fidelity) or they could have simply opened a holding account at Fidelity. Irregardless they made up the late payments and earnings on the late payments were calculated and ultimately credited to the participants account. After this they received DOL correspondence requesting them to apply to VFC and provide exhibits that the deposits and additional interest were made. My question is should the applicant seek relief under PTE 2002-51? Total earnings credited were $1127.93 If not, what would the basis be on the excise tax? The earnings?

I have had this come up recently. A terminated participant wants a hardship. The plan doc(Corbel) does not differentiate between active and terminated. It just says "participants". A terminated participant is a participant. I'm thinking the hardship could be issued. To throw another argument into the topic, what if the term participant is participating in another plans 401k? Would they suspend the participant for 6 months?

i would have them suspend for 6 months immediately.

well, there are 2 participants, one of which is terminated, so i don't THINK the exclusive benefit rule would be violated. yes, the $50,000 rule is clearly violated.

A two participant plan is basically in existence so the trustee can use it as a bank. He currently has 3 loans with balances totaling 31014.88. The highest balance in the past 12 months was 55999.17. The plan does allow for 3 loans and he does make timely payments. However, this month he has paid off one loan, he now has 2 outstanding and is in the process of taking a new loan to pay off high int credit cards. He has been advised that this will violate the plan provisions. He wants to know possible ramifications if the plan got audited. Is it a taxable event? I explained that on the 5500 he has to report his outstanding loan balances and it would look fishy if his balance was high as compared to total plan assets, which is about $200,000.

So for calendar year 2009 someone over age 50 could possibly defer 22K. Let's say for plan year 2008 which ran MAY to APRIL 2009, over 50 participant deferred $24,250....402g violation? What if they only deferred 20,500 calendar year 2008? Could they not just adjust deferrals to make sure they did not go over $22K for 2009?

The 10,000 was shown as a receivable and was included in the assets on the 5500. The PS formula is an integrated discretionary. However, it had to be allocated on a comp % as the $10,000 could not accommodate the integrated design.

Small plan (25 particippants) failed to make it's $10,000 contribution for the 2007 calendar plan year. Suggested to revise the 5500 and corp tax return showing no contribution. Other options????? make the contribution ($10,000 would have lost money)late or file SCP?

Thanks. it's an LLC and they have monthly fed and fica taxes with held

husband and wife are setting up a plan. They will be the only participants. By my calculations they would need to earn $260000 between them to max out. They are both over 50. Do you agree? annual comp: 260000 total 2009 deferral: 16500 each 2009 profit sharing: 65000 (32500 each) 2009 catch up: 5500

I am trying to complete a 5500-EZ. Question 10(g) asks for amounts received by the plan other than from contributions. I've read the instructions and know that rollovers, transfers and net income go on this line. It says not include unrealized gains or losses. Am I correct in assuming the interest and dividends are reported on line 10(g)? And where would the unrealized gains and losses be reported? I am accustomed to a Form 5500, Schedule I, in which you can take the BOY and add in the contributions, unrealized, etc. and it balances with the amount of the assets at the EOY. Does the 5500-EZ not work this way? Thank you in advance for the assistance.

i agree. i think he needs to go back and amend. he hired a new book keeper of the aggressive type and never consulted with anyone before going all dividend.

No, it was actually made in 2008. Sept 08 to be exact.

jpod, yes, they are a S Corp and yes, they paid dividends to the Doctor in order to avoid FICA and other taxes.

A small (2 person) calendar year profit sharing plan made $20,000 contribution for the 2008 plan year. In 2008 there were 3 new participants for a total of 5 as of 12/31. During 2008 and on the advice of his new book keeper, the owner, a chiropractor, drew no W-2 earnings and reported all of his earnings as dividends. Well, the plan defines comp as w-2 earnings only. Therefore, he gets nada for an allocation. However, he does not want the other particpants to get such a large contribution. He has already filed his 2008 corporate tax return. What can we do, if anything, outside of allocating the contribution to those who had w-2 earnings? Refund it back with an amended tax return? Hold in suspense? None of the above, I am thinking other than to allocate. (he never consulted his Advisor or TPA when he switched from w-2 earnings to dividends)

Well, that is what they are trying to consider. How much it will cost to terminate, freeze, spin off the current member of the multiple and it was actually the plan actuary who mentioned that corporate bond rates are higher, so it will PROBABLY be cheaper to pay out lump sums in 3 years than it is today. Probably being the operative word.

With interest rates used to convert accrued benefits to lump sums in the process of changing from US Treasury rates to corporate bond rates, and being phased in over the 2008 to 2012 plan years, would it not be cheaper to pay out lump sums 3 years from now than it is today, considering bond rates are higher? This would be something to consider if deciding whether to terminate a DB plan or not? yes? One member of a multiple employer plan maybe purchased soon and they are trying to determine whether to spin off, freeze or terminate current DB plan.

Was just playing devils advocate. Seems uniform I guess. Thanks Sieve.

Sieve, It would almost seem discriminatory if a pension plan was required to give a contribution to participants who worked over 500 hours but terminated prior to year end, the plan is restated to a 401k or profit sharing prior to year end and those who were employed on the last day did not receive a pension contribution.

are they? I know they are exempt from federal with holding but not from FICA. What about FUTA and SUTA? I don't think they are.

Thank you very much Sieve and fellow posters.

the plan gives contributions to disabled, retired, die regardless of the number of hours. same as active participants without the last day of plan year requirement

A plan sponsor is looking for ways to cut costs. they currently maintain a calendar year pension plan. Active participants receive an allocation as long as they are employed on the last day of the plan year regardless of the number of hours of service. Terminated participants get an allocation if they work over 500 hours. My question is could the pension plan be restated and avoid required funding for the current plan year which started January 1?

this rule (excess aggregate match distributed to the participant) makes absolutely no sense. If a plan is to be Non Discriminatory, the HCE should not receive the benefit of the match. If you tested the plan a couple of months prior to the close of the plan year, you could make adjustments (i.e. reducing the HCE match) in order to pass the ACP, then the HCE would not have the benefit of receiving an excess match distribution :angry: can someone please explain the reasoning behind why the HCE would ultimately receive match they otherwise would not be entitled to rather than the company having the benefit of using them to offset future cost as a forfeiture?????

Needing to revisit this again: If a participant is 100% vested and they received an excess match contribution due to the employer miscalculating(for example they did not take the comp limit into account), does that excess get forfeited or distributed to the participant? Now if the plan fails the ACP test AND the participant is 100% vested, the employee gets the refund. It is not forfeited? If the participant is NOT 100% vested the portion of the match that fails the ACP test does get forfeited?