buckaroo

I agree with fixing the language and we are in the process of changing the language, but I am still trying to determine what happens with the six months. Here is an example: Month1: 50 Hours Month2: 50 Hours Month3: 50 Hours Month4: 50 Hours Month5: 50 Hours Month6: 50 Hours Month7: 200 Hours Month8: 200 Hours Month9: 100 Hours Month10: 100 Hours Month11: 50 Hours Month12: 25 Hours The person does not meet the hours in the first six months (300). After Month 7, he has 450 hours in the preceeding 6 months. After Month 8, he has 600 hours in the preceeding 6 months. Does he come in on the first entry date following Month 8? Or does he re-start the calc in month 7 and count months 7-12, entering on the first entry date after Month 12. I appreciate any repsonses.

When a plan requires less than a year of service to become a participant, it can utilize service conditions based on elapsed time of service, hours counting, or a combination of both types. In this case, one of my Plan amended the eligibility requirements on 1/1/2007 from 1 Year of Service (YOS) with at least 1,000 hours worked to 6 months of service with at least 501 hours worked. Due to this change, it is possible to violate the minimum statutory service standards. An example of this is as follows. An employee has a DOH on 2/1/2007. He works 500 hours from 2/1/2007 – 7/31/2007 and 500 hours from 8/1/2007 – 1/31/2008. For his initial YOS, he has worked 1000+ hours. Under the minimum statutory service standards, he has met the service requirement and should be permitted to participate in the plan. However, under the service requirements of the Plan, this employee would not be permitted to participate in the plan as he did not work at least 501 hours in the six month eligibility period. (This should rarely if ever happen, but it could still cause the violation.) While writing this example, I have come up with a question. How do we calculate the 6 months? Is it a running clock or does one period have to be compelted before another starts? Using my example above, the first period used for measuring service is 2/1/2007 -- 07/31/2007. Is the next period used for measuring service 3/1/2007 -- 08/31/2007 (and so on for future periods) or is it 8/1/2007 -- 01/31/2008. I am leaning towards the first option, but I need confirmation. Also a citation would be nice. Second, does the amendment have to (or can the amendment) state that the service is based on CONSECUTIVE months of service? If it can and does not, does this mean that we will have to track how many hours of service were worked in each month of service by the employee until he meets the service requirement? Any help would be greatly appreciated.

Plan year and fiscal year are calendar year. Client has not made required top heavy minimum contribution for 2006. His corporate taxes are due (on extension) on 9/17/2007 (since 9/15/07 is a Saturday). If the client does not make the contribution by 9/17/2007, our understanding is that the client has 30 additional days after the IRC 404(a)(6) period to make the contribution and the deduction will be taken on the 2007 return, but the contribution will still be attributable to 2006 (for 415 annual addition purposes). Furthermore, if he makes the contribution after the additional 30 days, he can still take the deduction for 2007, but the contribution will count as an annual addition in 2007. Questions: If a person terminated in early 2007 (January 2nd), earned $100 in 2007, and was to receive a 2006 T-H min contribution of $900, does he have a 2007 415 violation? If so, how is it resolved? Does it matter if he is a HCE or NHCE? When does the required T-H minimum need to be made if it is after the 30 additional days? Is it by the filing date of the 2007 taxes? If not, when? If possible, please provide a citation. Thank you in advance.

Recently we received a call from a prospective client regarding the proposed design of their new plan. They own two companies. Specifically, they stated that they wanted to cover one company (Company 1) and not another (Company 2). They then went on to say that they have a number of employees who receive pay from both companies. Forgetting the coverage issue that goes with the exclusion of Company 2, my question revolves around the ADP/ACP testing and the people who work for both entities. After some thought, my opinion is that the ADP/ACP tests should initially be run using the plan deferrals and ONLY the compensation from Company 1. The compensation would then have to be tested using the compensation ratio test. If that test is failed, then I would need to use all comp (Company 1 and Company 2) for everyone who worked for both entites. Essentially, all employees who are eligible for the plan would be using all comp earned from the control group. (People who are employed by Company 1 whether or not they also received pay from Company 2.) Is this clear? Does this sound correct? Any comments would be greatly appreciated

Client currently has a S-H 401(k) plan utilizing the standard match contribution. They want to change to the 3% SHNEC. When does the plan have to be amended by? 12/01 or 12/31? Or another date? I woulde think it is 12/31/2006 and the notice is independant.

Safe Harbor Plan using the Basic Match to satisfy ADP Currently no other contributions. If not SH, Plan would be top heavy. If not SH, Plan would be fail ADP. I have a plan with the following employees Owner 1 - 40% - Comp 220000 Owner 2 - 40% - Comp 220000 Owner 3 - 10% - Comp 200000 Owner 4 - 5% - Comp 180000 Owner 5 - 3% - Comp 160000 Owner 6 - 2% - Comp 140000 3 Other HCEs 20 NHCEs The top owner want to change the SH to the 3% SHNEC. He wants to provide it to the following: all NHCEs the 3 Other HCEs Owner 6 Owners 1 and 2. If Owners 3-5 make their quotas, he also wants to reserve the right to provide them with a 3% NEC. (They are not required to receive any contribution b/c they are keys and the plan will exclude keys from getting T-H minimum.) Can I draft a plan provides the 3% SHNEC as stated above? If so, do I do so by excluding Owners 3-5 out of that portion of the plan? If so, I figure I can say that any owners under 40% making more than 150,000 are excluded from participation. (This is also how a plan on writing the tiers to maximize Owners 1 and 2.) Is there any additional info or idea anyone can suggest? Any help is greatly appreciated.

Recently, we received a revised election form from an attorney who added a section to ask any HCE participant how they wanted to have any possible ADP test failure refund taken from their account. THe three options provided were: All Pre-Tax then Roth (if necessary) All Roth then Pre-Tax (if necessary) Proportionally out of both I have reviewed our plan documents and it states that the refund can be taken out in any way the administrator sees fit. My questions are as follows: Does the choice have to be a formal amendment to the plan (I think no)? Can we also add the choices above to our forms? Do we HAVE TO add the above choices to our forms? What criteria (if any) should the Administrator use to choose how to process the refund? Can the Administrator pick a different method each year? (FOr 2006, All ROth. For 2007, All Pre-Tax.) Can the Administrator pick a different method for each participant each year? (Mr. A does all Roth and Mr. B does all Pre-Tax.) How often can the Administrator Switch? Is there anything else we should be aware of when reviewing the refunds?

I do not think you can do this, but I have a differnet question. Why not just carve out the NHCEs when running the ADP test?

I have a participant who went out on Disability in 1/2006 and is expected to return in 7/2006. She has now called the Plan Sponsor and asked about taking a loan from the 401(k) Plan. If the Sponsor and Trustee believe that she can make repayments to the loan, can she take a loan? Furthermore, if the Sponsor and Trustee do not believe that she can make repayments to the loan, can they stop her from taking a loan? If so, what documentation should I request from the Sponsor/Trustee? Any thoughts would be greatly appreciated.

I have a client who has a Safe Harbor 401(k) Plan. They satisfy the safe harbor requirements by making the 3% SHNEC. They have recently asked me to amend the document to exclude bonuses from the definition of compensation. (They no longer want to allow the participant to defer on their bonuses and they no longer want to consider bonuses when calculating the 3% SHNEC.) Aside from the additional compensation testing that needs to be done for excluding bonuses, can this be done? Is it permissible to exclude bonuses in a safe harbor 401(k) Plan?

Since no one else has answered, I thought I would give it a shot. A1) I think it is the same for each year. Let's break this down into each year anyway. For T-H determination for 2006, 2005 is your determination period. I think you would use compensation amount of 135,000 in 2005. This is the T-H Plan Key Employee Comp figure I have on the latest chart for 2006. For T-H determination for 2005, 2005 is your determination period. I think you would use compensation amount of 135,000 in 2005. This is the T-H Plan Key Employee Comp figure I have on the latest chart for 2005. Therefore, if the ptp is a key then he/she is a key for both years and the bal is counted for both years. A2) The determination year for the first year the plan is in existence is the first year. Therefore, it is the first year that you have to look at. I think the fact that the company doesn't exist in the prior year is irrelevent. This is just my best guess. I do not have a reference for you.

I had a similar question come up a year or so ago, but I have a couple of quesiton. Did company B have a retirement plan? Or are we tlaking about Company A's Plan? From what you are saying it was an asset sale? Did Company A adopt the plan from company B? Was it merged into A's Plan? Was it terminated? According to the ERISA Outline book, page 6.298, for Company B's Plan, she needs to take a minimum distribution since she was an owner in 2004, she required to take a minimum distribution for 2004 and for subsequent years. See sub section1.d.4.) on page 6.298. A participant may not cease min dists b/c she stops being an owner. For Company A's Plan (no merger into it), she was never an owner of Company A and my guess is that she doesn't have to take a minimum distribution until sher terminates from Company A. I am not sure what happens if they merged Co. B's into A. I hope this helps.

He gets the max if that is what is required by the hardhsip reason. For example if he needs 5,000, he can get only 5,000. If he needs 15,000, he can take the whole amount.

I ran the ADP test for my plan, excluding the statutorily excludables. Plan fails the ADP test for 2004. Client decides they want to correct by allocating a QNEC. The QNEC is to be allocated to NHCEs who worked 1000+ hours and were active on the last day of the plan year. As part of the correction report, our system provides the allocation figure. I had the system allocate the QNEC and it provides it to all NHCEs who are eligible for the QNEC, regardless of their status as a non-excludable or excludable. My question is: Isn’t the QNEC supposed to be allocated to ONLY those participants who are non-excludables and in the failed ADP test? Should the excludables receive the QNEC allocation? The plan document does not specify this.

WDIK, Thanks for the reply. Upon more research, I agree with your assessment. I also received word from the auditor that the correspondence from the DOL stated that it should be marked and only the changed schedules should be submitted. Again, thanks for your help.

I rec'd a call from the auditor on one of my plans who said that she received information from the EBSA that her audit was not suifficient and she would need to complete a new one. She then contacted me and told me that there were a couple of changes that needed to be made to the form itself including the 5500 itself and the schedule H. From reading the instructions, it appears that since the EBSA has requested a revised form, the amended return box should NOT be checked off. Is this anyone else's understanding as well? (It seems odd.) Also, when processing an amended return, the instructions say to attach only what is changed. In my case, the 5500 and Sched H. However, since we are amending it due to EBSA, do we attach everything or only the selected Scehdules? Any input would be appreciated.

What about a loan?

Got it. Thank you all.

We just received notice from out client that they signed and mailed out the form 5500 on Monday, August 1, 2005 for the PYE 12/31/2004. Since the deadline for this form (July 31, 2004) is on a Sunday, does the deadline date get exteneded to the next work day?

I am just taking a stab at this and I am not sure I am right, but how about passing the average benefits test for coverage? You said that there are hundred of "as needed" folks who would probably become eligible if allowed in. You could set up a tiered allocation profit sharing plan with a 401(k) component. You could exclude the "as needed" participants and allow your hces and staff to participate. Depending how many total nhces you have counting the "as needed" will dictate what percentage needs to be covered. Take a look at the Safe Harbor Unsafe Harbor corridor. This will tell you how many need to be covered. If you cover enough, you have to next pass the ABPT. For the ABPT, you could make a P-S contribution to pass it (using the tiers) or you could make a QNEC (possible to nhce's only) to pass it and help with the ADP test. (For the P-S, you could give the hces nothing. You could even write the tiers so that the lowest paid youngest employees are in their own groups and get a contribution and provide you with a very large ebar, if cross testing.) If you give the same cont to all nhces, you can give them very large cotnribution. The basic problem with this is how much money the client would have to give the nhce group. Depending on the age of the participants, you can cross test it. In this case, you need to be aware of the gateway requirements. Again, these are just brain storming thoughts off the top of my head. I apologize that it is a bit scattered.

I thought I would give this a shot. First, if you are speaking about contributions, I would assume that your document states that a participant can stop contributions practically immediately. The document I work on states that it can be stopped within 30 days of writtten notice being provided to the administrator. Second, as far as the loan repayments are concerned, what does the loan paerwork say? I believe the loan package we set-up states that that the participant agrees to payroll deductions for the loan repayments. Our loan package requires the participant's signature. I would think that this would over ride the other authorization, but I am not sure. Your best bet would probably be to get a hold of an ERISA attorney who is also familiar with the state laws and payroll deductions in CT. Sorry if this is more confusing than helpful.

I believe that when you are calculating the top heavy ratio for a year, all catch-up contributions are taken into account. So, if you are calculating TH status for 2005, you are using 12/31/2004 balances INCLDUING all catch-ups from 2004 and prior. The trick comes in determining whether a top heavy min is required in 2005. To clarify, if a key makes 401(k) contribs in 2005 and they are classified as catch-up conts, they will not trigger a T-H min. Check out the ERISA outline book under the definition of top heavy 2a7). It should help clarify.

I thought I would try to answer the control issue for you. First, I assume that company A is owned 80% by the father, not 90. If I am correct, then I think Company A and company B are the only controlled group. THey are owned 80%+ by the same employees and 50%+ by common employees. All of the other combinations do not meet these requirements. As for the Form 5500, I am not sure what you mean by how to file the form 5500. Are you referring to the Scehdule T?

Here’s the situation. I have a client with a 401(k) plan who was owned by a few doctors a number of years ago. A few years into the business, each doctor decided to start his own PC and each PC would own the portion of the client entity. All three doctors adopted the client entity’s 401(k) plan. In 2003, one of the partner/doctors (PC owner) decided that he was going to retire. He did so for three months. At the end of the three months, he was hired as an employee of the client entity. My questions are as follows: 1) Does he have to satisfy the eligibility requirements (from scratch) of the plan as an employee? 2) If not, does he come in immediately as a participant using his past service in his own PC? 3) If he made over 90,000 combined in 2003, but only 50,000 as an employee, is he considered an HCE for 2004? 4) For top heavy purposes, is he considered a former key employee going forward?

I have a 401(k) plan that (during 2004) has adopted a resolution to terminate. I have a number of employees who were eligible for the plan (prior to the resolution) and made no 401(k) deferrals and have no account balances. They are still actively employed. The question is: Should they be included in the participant count in question number 7 on the Form 5500 or can they be considered as having received a distribution (deemed distribution) and removed from the counts? I know that they should be included in the count for question 6. Any referral or cite would be a great help.