Santo Gold

I'm having trouble understanding a portion of the final 401k regs concerning the use of the ACP safe harbor: If a plan uses an additional match (in addition to the basic safe harbor match), and that additional match has a 1000 hour/last day requirement, is it just the additional match that is subject to the ACP test, or is it that the additional match PLUS the basic safe harbor match is now subject to the ACP test. Thanks

Company A leases most of its employees from a hospital. Company A wants to start its own 401k plan. The owner would like to exclude the leased employees from company A's plan, but would likely fail coverage. When the owner pays the hospital for the leased employees services, included in that is a portion that is for the leased employees retirement benefits in the hospitals plan. Lets say it works out to be a 5% of pay contribution for each employee. Question: Can the owner take credit for that 5% in this plan? In other words, if the owner were to make a 3% safe harbor contribution plus an additional 2% PS contribution to Company A's plan, does that mean that since he is already giving 5% to the hospital for the leased employees retirement benefits, he can put 0% in for the leased employees into Company A's plan? Thanks

Soon to be extinct company wants to terminate and pay out its 401(k) plan before the end of 2006. The plan has about $5,000 in forfeitures however that need re-allocated before doing so. Document calls for forfs to first pay down expenses (of which there will be about $1,000) and then re-allocate anything leftover (about $4,000). The big problem though, is that no one has worked for the company since 2003. The owner has been there, but he's not taken any pay since 2003. On what basis would we re-allocate the forfeitures? I have not seen the documet and will assume for now, that the plan calls for forfeitures to be re-allocated after 5 breaks in service. So perhaps the plan was correct in not re-allocating sooner. But would that mean that now, we have to go back and fully vest the folks whose non-vested balances created these forfeitures?

Employer wants to fully vest all existing participants in the company retirement plan as of the date of sale to a new owner. Then revert back to the existing schedule for all new participants after that. As long as the change applies to everyone equally this should be OK, correct? Thanks

A tax-exempt local government money purchase plan has a GUST document, which uses a vesting schedule that starts at 0% for years 1 and 2, and does not fully vest until year 8. Normally this would not be permitted, but is there an exception for government plans?

Plan sponsor wants to start safe harbor auto enroll, effective 1/1/08. Match will therefore be 100% on first 1% deferred, and 50% on the next 5% deferred. Current company match is 50% on first 6% deferred. Since the auto enroll match would be better than the existing match, it's a no-brainer then, that the company match must be amended to be in line with the auto enroll match. Correct? On the other hand, if the current match was better than the auto enroll match, would anyone try to keep the 2 match formulas? One for auto enroll, one for everyone else?

Tom: Thanks for replying, but could you clarify what the distinction is between your first and second paragraphs. In pp1, you say it's clear that if the plan is safe harbor, the 3% must be provided, no wiggle room. But in the pp2, you mention about offering the 3% on a year to year basis.

When s/h 401k plans are created, is the s/h contribution optional each year, or is optional (i.e., you can go from s/h to non s/h on a year to year basis)? I'd like to be able to switch year-to-year, but the following document passages lead me to believe otherwise. The plan document seems pretty conclusive. Under a section titled Safe Harbor Non-Elective Allocation Formula: "The Employer shall make a fully vested contribution to each Eligible Employee equal to at least 3% of his or her Compensation for the Plan Year." Nothing potional about this, so that means the 3% contribution is required each year. However, in the next sentence, it adds: "If the Safe Harbor Notice requirement and the Safe Harbor Non-Elective Contribution are satisfied for a plan year, the nondiscrimination tests under IRC §401(k)(3) and IRC §401(m)(2) are not applicable" I can understand that if the s/h notice is not provided in a timely manner, than the plan is subject to the 401k/m tests. But since this passage also considers whether the s/h contribution is satisfied, does that it may be optional? I may be reaching here.......

Sorry for the confusion everyone. The payrolls are bi-weekly (every other week) and "semi-monthly" (twice a month). I honestly thought that bi-monthly was one of the oddball words that could mean either twice a month or every other month (kind of like how flammable and inflammable mean the same thing). Jim Chad: Regarding your option #2 - While that would satisfy the ASAP deposit requirement, having money sitting in a checking account for (in some cases) up to 3 weeks while not invested according to the participant's investment instructions would probably run afoul of the other DOL requirement to have self-directed monies invested "within a reasonable time period". What we'd like to avoid is either extreme, one of which was the example of having the bi-weekly payroll 401k monies deposited on Friday the 12th, and the semi-monthly payroll 401k deposits from the 15th, having to wait until the 26th to get those invested. The other extreme would be where the semi-monthlyl people have their payroll end on a Thursday the 15th, and then having to do another deposit for the bi-weekly people the next day, on Friday the 16th. Sure, they could perhaps hold off and do both on the 16th, but as we try to make this as automatic as possible, I think making frequent exceptions would be confusing. What I was really driving at was my understanding that there is an exception to the "as soon as possible after money is withheld" requirement. That being, if a company has varying payroll frequency, the company could hold off on the deposits until after the all payrolls are completed (assuming those specific payrolls are going to the same plan). For instance, if one unit of a company has weekly payroll, but other units are monthly, then all units can remit their 401(k) contributions as soon as possible after the monthly payroll is processed. Or in this case I mentioned, 401k contributions for both the bi-weekly and semi-monthly payrolls can be made ASAP after each semi-monthly payroll. Anyone think this arrangment would be acceptable? Thanks for all of the input already.

A small manufacturing company has 1 location, but runs b-weekly payroll for its hourly employees, and bi-monthly payroll for its salaried employees. The salaried group contains the owners plus a few others. No HCEs are in the hourly group. Other than remitting 401k contributions separely for each payroll, is there an acceptable way to streamline the process, so that either 401k contributions are deposited on a bi-weekly basis, or a bi-monthly basis? Here's a worst case scenario: Bi-weekly pay ends on Friday the 12th and the bi-weekly 401k monies are deposited that day. Bi-monthly people get paid on Monday the 15th, but they have to wait until Friday the 26th to have their monies deposited. Is there a way around this?

Correct on 410b = ratio% test. They will pass ADP and 410b easily even with these non-exempts being zeroes....I'm was just checking to ensure that they can be kept out of the plan by definition.

Can a plan exclude "non-exempt" employees from a 401(k) plan, as long as 410b is satisfied?

Can an employee max out her 401(k) contribution ($15,000) and then continue to put more after-tax money into the plan, as long as 415 is not exceeded (other ER contributions and forfeitures counting toward 415 as well)? Do after-tax contributions count toward the 402g limit? Thanks

A PS plan has 2 different PS allocations. One gives a flat percentage to all eligible participants. The other one allocates on a service & comp weighted basis. The same group of participants share in each allocation. Would 410(b) be tested separately for each of these allocations, or can we combine and test together in 1 410b test? Thanks

I think I have this right, but I was hoping someone would verify: 401k plan started in 1997. Had a document at the time but never amended. 40 participants. Therefore, they need GUST, EGTRRA, RMD, Inv dist. We will have all the documents drafted, signed and dated (current dates) and follow the VCP submission process. Compliance fee is $1,000. So far so good??? Also, is it required they they also request a document determination letter (we are using a prototype) and, other than the compliance fee, is there any additional up front or post review government fees/penalties for using VCP? Thanks

If I 401k plan has a 6/30 plan year, does that mean it should have been amended by 6/30/2006?

If a Profit Sharing plan uses a points method for allocation (points for compensation increments of $100 plus point for YOS) of employer contribution, is that considered a safe harbor for 401a4 purposes? If not, can it be designed in a way that it would be considered safe harbor?

I met with a new 401(k) client and in wrapping up the meeting, the HR person asked if I thought they needed a separate ID number for their "OBRA trust", distinct from the EIN. Their accountant said yes, their OBRA trust expert said no. My initial response of "what exactly is an OBRA trust" did not hinder them from still asking my opinion. It sounds like their employees contribute (after-tax) money into an account, and pretty much use it any way they want, similar to a savings account. Thats about all I got out of it. My initial thought is that if this account has money in it and is attached to an EIN, well if the employer goes bankrupt I would assume that any place with money and the Employer's ID is ripe pickings for creditors, so they would want a separate number. Any help out there from someone who might know what to make of this?

Correct, I do not think I am going to satisfy the safe harbor with the service weighted allocation. Therefore, when performing the 401(a)(4) test, should/can I combine both allocations? It would probably be beneficial to do so, since the flat percentage of pay allocation would help.

A 401(k) plan has a non elective company contribution (fixed percentage of pay) that goes to all eligible employees. In addition to that, there is an additional company nonelective contribution that is allocated weighted for service and compensation. When testing for 410(b) and 401(a)(4), can/should both contributions be combined, or must each separate allocation method pass each test on its own? Does the answer change if the eligible group of employees who receive these 2 separate contributions differ?

The 401(k) plan sponsor wants to pass the investment advisory account fees onto the plan participants. Investments are self-directed, but pooled, so the TPA will prepare quarterly statements for the participants. Do the fees have to be shown separately on the participant statement, or can it be "netted" against the earnings? Thanks

Can't believe the creativity people have when designing 401(k) plans. Here's a new one: Can a company establish a 401(k) plan such that participants can only make elective deferrals once a quarter? They have bi-monthly payroll and I assume participants would have $0.00 deferrals in 5 out of the 6 quarterly payrolls. Then, with payroll #6, they would have a set amount withheld. Participants choice as to whether they want to have 3 months worth of contributions taken out in that last payroll, or have some other fixed amount withheld. I really don't know why they would want to do this, but I assume the employer thinks it will cut down on admin time for his HR person. Despite the nonsense of the whole idea, do you see anything "wrong" with it?

http://benefitslink.com/boards/index.php?showtopic=25816&hl=

A 401k PS plan was written to provide for lump sum distributions only (no J&S). The plan also allows for hardship withdrawals. Would the hardship w/d forms still require spousal consent, even though it is not needed for other distributions?

401(k) plan currently has no hours requirement and no last day of employment requirement for participants to share in the profit sharing contribution. The employer is looking to change this to 1000 hours/last day required to share in the contribution. For participants already in the plan, this would not be allowable, but what about for new participants, scheduled to enter the plan on 7/1/06. Could the plan be amended before then and applied to any new participants entering the plan after the amendment date?