mschwechter

I have an existing 401(k) Plan that terminated in 2003. Last Distirbution occured in January 2004. We are putting in a new 401(k) Plan for 2005. Can I start the Plan in January 2005, or do I have to use a Feburary 2005 effective date so I don't run afoul of the 12 month rule? In other words, does the 12 months exclusion rule run from the date of the Plan Termination, or the date of the last distribution from that terminated Plan?

Thanks, makes more sense now.

So it appears that you are saying that even if the sh match was made for the short plan year due to termination, adp/acp testin gi still needed, right?

Company is sold part way (1/4) through the year (asset sale). Enhanced safe harbor match being made on a payroll-by-payroll basis. Since deferrals and match both cease at the same time, do I sitll have a safe harbor plan, or do I now need to test since I am ceasing the sh match?

There really is no set time requirement for alocating to the participants, as long as the employer does not have use of the funds. Many smaller employers use this method as being the most cost effective for the employer. The only risk you run is if the money does not get allocated in some reasonable time, the participant can claim loss of earnings in an up market. Personally, don't see a problem with a monthly allocation from a trust owned account.

The IRS's view on loan payments not starting is that it is the employees responsibility to know what is going on with his paycheck, and take appropriate steps to insure that the payments start and are withheld on time. I would suggest this also applies to employee deferrals. If the employee increased their withholding election, and their net check did not decrease, this should be a red flag. Even if an hourly employee, they are sure to point out if they did not get paid for the correct number of hours (of course they will only point this out if shorted, not if over). I think the employee is responsible to make sure the change took place, and should not be rewarded for their failure to do so.

I would think that if the insurance was owned by the Plan, and the Plan was the beneficiary, and the defination of Death Benefit did not change, and especially if the insurance was a 3 or 5 year decreasing term policy, it would be ok, and an investment / expense of the Plan, (PS58 costs would also not apply). If you are looking at whole life, I would have to say why, since you are trying to cover a short term decreasing liability. Thus can also be done outside the Plan as a key man policy to cover the contigency.