Santo Gold

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?

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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?

#3 - The Story of the 2006 Pension Reform Bill #5 - The DOL Auditor Always Rings Twice #36 - Fahrenheit Form 5500

Sponsor has 2 separate 401(k) plans, covering 2 separate groups of employees. In the past, we have aggregated the plans and tested them together for ADP/ACP testing, and they have passed. 2005 was a close call and its likely 2006 will not pass. However, our initial analysis is that if the plans are tested separately (disaggregated), they both would pass ADP/ACP. Of course they would have to also pass 410(b) via disaggregation. The question though, is whether changing from aggregated to disaggregated for testing is a document issue? Does that need to be spelled out in the document, or can we make the switch without any amendments, notices or such?

I know this has been discussed before, but I am having trouble finding the previous posts. Can a 401(k) plan with immediate entry for 401(k) purposes, impose a 1 YOS eligibility requirement before eligibility is met to share in the safe harbor match? Thanks

Only HCEs are employed right now, so there is no problem with discrimination. Question for Belgarath: I'm using an IRS approved prototype document for this plan, and would not normally file for a determination letter. Did you file for a letter solely because of the retro effective date?

Thanks for that informative link; it pretty much covers the exact situation I have. Sounds like the answer it is "probably" OK to have the effective date pre-date the company's existence. Based mostly on IRS conference opinions.

A small company was just started in May, 2006, and damn the torpedos, they want a 401(k) plan up and running by 7/1/06. They want a calendar year plan, but with a 7/1 effective date, which would make their initial plan year a 6 month SPY. The document software does not seem to support having an intial SPY, and as such, there would have to be an amendment before 1/1/07, indicating the plan year as being from 1/1 - 12/31 after the 2006 plan year. This is what they will likely do, but what if we just drafted the document to reflect a 1/1/06 effective date? We would have the "whole plan year we want". The company wasn't around at that time, but would that invalidate the document?

When determining ownership percentages for Key employee (or HCE) determination, do you count just shares owned, or should share options also be considered?