Bird

You already have a means of "prolonging" the distribution - following the terms of the plan. I don't see the need to do anything more. I'm not saying that you shouldn't apply for a DL but that's a different issue.

I think that the "reasonably rely" language applies to outgoing rollovers; that is, the distributing plan may reasonably rely on the participant's representation that the rollover is going to a qualified plan or IRA.

On your points 1 and 2 - the 401(k) is a new program; you need a plan document, new election forms, etc. Deferrals can only be made to the plan from the point that they are elected by the employees going forward (i.e. can't retroactively change from SARSEP to 401(k)). It might seem like a "continuation" or "conversion" of the SARSEP but it is not. If you are saying that due to the 25 'ee limit, the SARSEP is not permitted at all in 2007, then I think you are correct in your approach in point 3.

I agree that this is ok and doesn't need any special relief. My understanding at this time is that operational compliance until PPA amendments are required (2009 or whenever) is ok.

I wouldn't pay him out unless the plan is terminated, or amended to change the timing of distributions.

Until the plan is terminated, the provisions of the plan continue to control. So it depends on what the plan says.

Thanks for the responses. We are trying to get an SPD and/or 5500 filing. Fidelity is involved, apparently as the custodian, and I think the participant is incorrectly trying to get them to provide the documentation. They're being no help whatsoever; of course it's not their job but at the same time that's their MO.

A distributing plan administrator refuses to make a statement as to whether the plan is intended to be qualified. Does anyone have any thoughts/experience on alternative acceptable documentation - SPD, check stub with "XYZ 401(k) Plan" showing the distributing plan's name - so the recipient plan can "reasonably conclude" that the distributing plan was qualified?

I think the cites are saying that compensation is determined as of the last day of the year. My take on the deposit deadline is that they could indeed by made and deducted as late as the tax return due date. If they are deposited after the earlier of "[paraphrased - as soon as they can be separated from the employer's assets, or the 15th business day of the following month]" then they are late according to the DOL, and it would appear that they (the employer) should add earnings. Whether the DOL cares or not might be another matter.

Good point. Thanks, I feel somewhat vindicated in bringing it up.

OK, in the course of trying to prove my point I found a cite that proves I'm wrong; sorry for the distraction. Here's Belgarath's cite, which on its face is not on point because the applicable year is the prior year: 1.401(k)-2(a)(1)(ii) HCEs as sole eligible employees. If, for the applicable year for determining the ADP of the NHCEs for a plan year, there are no eligible NHCEs (i.e., all of the eligible employees under the cash or deferred arrangement for the applicable year are HCEs), the arrangement is deemed to satisfy the ADP test for the plan year. And here's the important cite saying you can (effectively) use current year in the first year even if you're on a prior year basis: 1.401(k)-2©(2) Pension Calculation of ADP under the prior year testing method for the first plan year. 1.401(k)-2©(2)(i)(i) Pension Plans that are not successor plans. If, for the first plan year of any plan (other than a successor plan), the plan uses the prior year testing method, the plan is permitted to use either that first plan year as the applicable year for determining the ADP for eligible NHCEs, or use 3% as the ADP for eligible NHCEs, for applying the ADP test for that first plan year. A plan (other than a successor plan) that uses the prior year testing method but has elected for its first plan year to use that year as the applicable year is not treated as changing its testing method in the second plan year and is not subject to the limitations on double counting on QNECs under paragraph (a)(6)(vi) of this section for the second plan year. My bad/sorry.

First year for NHCEs using prior year testing is deemed to be 3% so HCE max is 5%; I don't think they're ok in 2006 if they were over 5%.

You're right. A normal person such as yourself says "I can withdraw my contributions tax-free" but govspeak is "You pay tax plus a penalty on the taxable amount. The taxable amount is [blah-blah that comes to $0]."

Mmmm. Did you use prior year testing in 2006? If so, I think 2006 should have been 5% for the HCEs and 2007 is the year of no testing limits for the HCEs. I disagree with 5% for 2007.

You're right. Unless the spouse rolls over to an IRA or a plan (presumably another plan in which she is a participant; I don't think your plan or any plan would allow an internal rollover unless the spouse/bene is actually a participant), the rule is that distributions must begin by the later of the end of the year following death or the end of the year in which the participant would have attained age 70 1/2.

It sounds to me that there is no RMD. I agree with your firm.

I've never had any clients get notices if a 945 wasn't required. I'm trying to imagine what such a notice might say and I'm coming up empty.

Sorry if I misread the situation. But now I have to wonder out loud why/how it is easier to open a checking account, deal with recordkeeping issues associates with it, and have to prepare 1099s than it is to open an account and let the recordkeeper deal with it?

pmacduff- Unless the speaker gave examples similar to the ones you just gave, I don't think s/he was wrong. In your client's case, he DID utilize the full $5,000 catchup when you converted some of his deferrals to catchups as a result of a failed ADP test. You seem to be distinguishing between the 999.88 that exceeded 15,000 and the 4000.12 that became catchup as a result of a failed ADP test. I don't believe there's a difference. Tom is talking about a different situation, BTW. He's saying that if an over-50 participant defers 15,000, and then is allocated 34,000 as PS, the IRS "has reservations" about converting 5,000 to catchups as a result of exceeding 415. I disagree with their reservations, although I can sort of see where they're coming from. I just don't see any issue whatsoever with your situation resulting in a total of 49,000 to the participant.

I understand your thinking a little better now. I don't believe that there is any hint of a problem with this whatsoever. You're using up the catchups before even reaching the 415 limit. FWIW, I think you were applying an artificial constraint by "shooting for" a total of $45,000 in the first place. Maybe there was some other reason for it, but if you were trying to maximize overall it's as simple as: 401(k) after catchups - $10,998.88 Available for PS/forf - $34,001.12

It's disturbing that there's (apparently) more than one person in an office that (apparently) does TPA work that would think this. I mean, it's a very logical way to look at it but anyone who's been in this business for any length of time knows that you can't thnk that way. Anyway, you can't do it. I don't know what to cite but you haven't made a contribution and you haven't made a distribution. Might you "get away with it" in an isolated case? Possibly. No way would I make a habit of it.

I'm sure they're going to pay a full 1/2 month's comp from now on; I was just trying to demonstrate the silliness of the way they did the calculation.

I'm not a "payroll expert" but... Following the company's logic, everyone should be docked for weekends, and another person with the same rate of pay and employed for the entire year would not be paid for 104 out of 365 days and would receive only roughly 2/3 of their annual rate of pay. Wow. I'm not sure about the absolutely correct way to calc it (breaking it down to a fractional daily, weekly, monthly or semi-monthly rate) but the employee is a lot closer than the company.

I agree with Jim Chad; this guy's total allocation limit is $49,000. If you allocate $33,000.12 for PS, that forces $5,000 of his deferrals to be catchup. But let's back up, because I think your post contains some contradictory language. First you say he has to take a refund, then you say he hasn't made the full $5,000 catchup. Well, an ADP failure is one way to create catchups, so before you do any refunds you should apply the excess to catchups. Here's how I see it: We know he has catchups of at least $999.98 due to exceeding the 402(g) limit. If the plan fails ADP and his excess is $3,000 excluding gains, then you apply another $3,000 to catchup and don't need to refund. His "regular" deferrals are now down to $12,000. There are $1,000.12 potentially available for catchup but not used as yet. I believe you can now allocate $33,000.12 to PS. Since we were at $12,000 of regular deferrals, this pushes him over 415 by $1,000.12. That amount is recharacterized as catchup. So you have $33,000.12 of PS and $10,999.98 of regular deferrals for a total of $44,000, and $5,000 of catchups for a total allocation of $49,000.

I don't like either group. The first one seems like a circular definition that doesn't say anything. Who are the physicians receiving a 10% allocation? Well, the ones receiving a 10% allocation of course. And who exactly are they...? The second group is really awful language, IMO. It might be definitely determinable if you had an election on file to look at and thereby determine the appropriate group, but it screams "deemed CODA."