Bird

Right, and I was a little concerned about giving the wrong impression without a longer explanation. I didn't see anything about split eligibility in the question so didn't go there. (And of course it would be a BAD idea, as I read the goals here, as immediate inclusion for deferrals would trigger a top-heavy minimum). Safe harbor is probably the way to go.

Sure. But the owner and wife need to meet eligibility and enter the plan themselves in 2004 under the 1 year requirement. I may be reading too much into it, but I'm just a little concerned about your phrasing "...can we exclude the employee from non-elective or matching contributions..."; either the employee is in or not for all contributions, including 401(k) deferrals. That is, you're not "excluding" the employee from any contributions; s/he is simply not in the plan.

I agree with the other comments; you'll have to read the document very carefully. And yes, a plan may match on a payroll basis. I will add that in my experience, it is not at all unusual for a payroll company, or plan sponsor, to assume that matching is done on a payroll basis, whether or not that assumption is correct.

Sure, it sounds nuts, but at the same time not surprising. Fund companies want to play the game but also want to make up their own rules. I think their policy might be permitted if it is also reflected in the plan and/or SPD, but odds are it's not. The obvious answer, in a perfect world, is to cut Fund Group A out of the investment options entirely so you don't have to deal with them. I know it's not necessarily that easy.

Steve55, did you continue to file a 5500-EZ for the profit sharing plan (#002 if I understand correctly)? If so, no problem, you can continue to run two plans or merge the PS into the 401(k) as suggested. If not, then it looks like you have two missing returns (02 and 03) to file. There are late filing penalties, but in my experience, you can get them waived.

We use Comserv's Automated Location Information Account System (ALIAS) service. We provide all the info we have in an Excel file and they get back to us within a day or two. It's $25 per name (as I look at their website they say they charge hourly with a 1 hour minumum so I don't know if that's a change or simply the hourly rate). No charge if they don't generate an address. We're happy with them; at least you get an answer. I don't have the time to use the IRS/SS programs, although it appears you have to go through one of those motions if you want to "prove" that a person is missing under the DOL FAB. I think you have to call first to set up an account, then you e-mail info as needed. 866-937-2836

Demosthenes is probably right from a practical point of view, although I'd be curious to hear opinions on whether or not it is proper to pay the (administrative) costs from the plan. I would not be above being spiteful enough to pay FUTURE admin costs that would normally be paid by the employer, from the plan. Not that they care.

Sorry I don't have anything to offer about how far back they can go, but I'll share my war story in hopes you can glean some value out of it. One of our plans was audited. They had actually always sent their deposits in weekly, at the same time as the payroll, in fact some of the deposits may have actually gone in a day before or on the same day as the payroll since the check was cut and mailed a day or two before the actual paychecks. Well, over the course of a couple of years, 5 deposits were "late"; I don't remember the arbitrary cut-off date but it was a couple of days. The longest was 15 or maybe 17 days after the payroll date. It was a while ago and our best guess was that the diskette (they were being mailed at the time) was damaged and the investment provider had to ask for another - this definitely happened a couple of times. We explained all this, waited several months while THEY took their sweet time to think about it, and they came back and wanted lost earnings. Fortunately, the auditor was reasonable, but the regional supervisor was a hard-a** pressing for the extra money. We explained that it would cost $X (maybe $1,000?) to calculate and allocate the lost earnings to each participant, and the actual total lost earnings were something like $65. We finally got a letter telling us that we (the client) were really bad people, guilty as heck, but they wouldn't make us deposit the lost earnings. All I can suggest is that you estimate the earnings, estimate the cost to allocate them properly, and say that the cost would be paid by the plan. Unfortunately, it may not do you any good since there's not much reasoning with them. We were lucky to have good facts and a decent field rep.

jquazza has a good formula that works...but I doubt that it follows the terms of the document. That is, unless the document specifically caps the matched % at 1% (or .1%) I think your match has to be in proportion to total deferrals. I know some disagree, saying that "discretionary" means you can arbitrarily cap the matched deferral %, but I don't think so. Obviously, the employer thought "discretionary" means "I can do whatever I want." I'm of the opinion that it is too late to change the '03 formula, and monies should be reallocated. It may or may not be too late for '04, depending on whether or not the plan has a last day requirement to get a match.

Not to beat this to death, but I have one question and I'm not afraid to look foolish by asking it... Gary- I know about that rule for SEPs. I don't think it applies to qualified plans, does it? (Thanks to Gary Lesser and Bob Garrels for joining in. They are pretty well known as experts in this area. )

Go for it. I didn't say it was wrong, just silly. I'm not looking at the worksheet now, but I don't think it said anything about integration. And after looking at it, I was sure glad that I don't need it.

Mmmm, I've seen this one before. IMO, if you want to explain how the Bush tax cuts work, when it comes time to pay the bill, the owner would say "The tab is $100 as usual, but you can pay $90 now and $10 later." What's interesting is the debate about who pays the $10 later.

Sigh. I'm not sure what I said to incense you but I'm sorry for...whatever. I understand that but the thread started out with an example where SEI was under $200,000 and was simply commenting that I didn't know what the actual situation was. But, if we're talking about a situation where SEI is $277,000 before any contributions, and you only have a couple of other participants and they're not getting too much, net earnings after contributions will be over $200,000 and you can just use the $200,000 limit in your calculations, just as if it was W-2 income. I don't know how many different ways that can be said, but it's true. FWIW, I don't use the IRS' silly little table. The deduction for 1/2 of self-employment tax, the deduction for employee contributions, and the deduction for the owner's own contributions are all built into the spreadsheet that I use, and I get an answer more-or-less directly. You asked for an article in your intitial post and 11 posts later, after going into some detail, you asked if someone could enlighten you. Sorry for trying to help; I just thought if you needed a shortcut that might have some value. If you still want an article, Larry Starr presented an excellent outline at one or more ASPA conferences in the early-to-mid 1990s. Maybe someone can dredge up a copy. The bottom line is that if you want to do an integrated plan for a self-employed person, you have to guess at earned income after contributions, and then do a calc to see if you come up with the (same) contribution. (That's an attempt at a short explanation so don't jump on me.) The only practical way to do it is in a spreadsheet, although I guess admin programs might have that functionality. Frankly, I don't trust them unless I can duplicate the results myself. I think you can set up an Excel spreadsheet with a circular reference for the earned income used in the allocation calc and the earned income derived after subtracting all of the deductions from your starting self-employment income, and keep hitting the recalc key until they are the same. I'm leery of using a circular reference and have programmed mine to "guess" at the net earned income and zero in until the guess equals the subtraction result. But, you should probably ignore all that since I am not familiar with self-employment calculations.

Thanks to Blinky and Butler for backing me up. Moe, you started out saying that self-employed income was under $200,000, then there was a reference to $277,000, so I don't know what the actual scenario is. As I stated earlier, I would be more than happy to take 30 seconds and run actual numbers through my spreadsheet and post them here for peer review. If I'm doing something wrong I'd like to be educated. I wouild be especially interested in learning about using comp in excess of the, um, 401(a)(17) limit directly in an allocation calculation.

That's how I see it.

Moe, I may not be getting the full picture since you didn't post any numbers (and if you want to do that I would be happy to run them through my own spreadsheet as an exercise), but... It seems to me that if you're looking at self employment income of $277,000, and he only has a couple of employees, that his net taxable income after all deductions will be greater than $200,000 and you should just use $200,000 as if it were W-2 income. I don't see the relevance of any percentage calculation that uses $277,000.

Talk to the custodian. In most cases they will allow the employer to set up the account on behalf of the employee, but they might want a special form to do it.

Harwood, that's interesting. It would seem to me that you'd have to be careful that doing so didn't result in a cutback in benefits; e.g. J&S annuity provisions, a later NRD, maybe a later distribution date upon termination of employment, and a bunch of other things. Right, or did I miss something (and not even have to duck)?

I'd do the merger. Termination is a pretty big event in my book; you have to at least consider whether an IRS filing is appropriate, and whether terminating and not filing will trigger an audit (a few years ago the IRS said they would be looking more closely at terminations that don't file, but I haven't seen any evidence of that). J&S options are NBD, IMO.

I think proper procedure depends on determining whether or not the employee terminated. I don't think there's enough information to determine that and I wouldn't want to guess anyway. But if he's terminated, it seems that he could take a distribution if the plan permits it. If he's not terminated, then money could be transferred from one plan to another in a spin-off. I don't know if this is the classic definition of a spin-off, if indeed there is a classic definition, but you can't just arbitrarily transfer money from one plan to another without an event.

A uni-k is just a 401(k) plan marketed to 1-person businesses. This company could probably adopt said "uni-k" but they will have to file a tax return and do other things that might not be expected if they just read the marketing literature.

Thanks, FundeK, the cite is crystal clear but I just couldn't find it.

This has probably come up before... when defaulting on a loan, do you use the loan value as of the last payment or as of the last date of the cure period? I guess another way of phrasing it is: what is the date of default? e.g. a loan payment is made on Feb 1, and the outstanding balance is $5,000. No payments after that and the cure period ends on June 30. Is the default amount $5,000 or do we have to add interest to June 30? I'm inclined to think $5,000...

Thanks all for the feedback. The phrasing still seems a bit odd to me, but as we always have and use a separate trust ID I guess it will never be an issue for us.

The plan/sponsor doesn't have to do anything (and I wouldn't); each participant has an IRA that they can do with as they wish. The 25% penalty applies in the first two years, even if rolled over. After two years it is treated as a traditional IRA and can be rolled without tax or penalty.