Santo Gold

A company has a self-directed 401(k) planm but the assets are not in individual accounts, but are held in a pooled account. TPA produces quarterly report/statements. Would it be acceptable if each month, the employer deposits the 401(k) money in a money market or plan checking account, but only transfers these monies into the proper funds (per employee investment direction) on a quarterly basis? By segregating the 401(k) monies from the company assets monthly, they will satisfy the ASAP/15 business day requirement. Are there any other cut and dry deadlines that pertain to the actual investment of 401(k) contributions, per the employees instructions?

A state office of Child Support Enforcement sent a letter to a Profit Sharing Plan Sponsor, stating that a participant owes a duty of child support. This is not a DRO. The letter states how much is to be withheld from gross income each month for child support. It seems to focus strictly on employee income. However, an attached information notice has a small 1 sentence blurb that states that gross income includes any payment from a pension plan. The individual in question is on disability but is not receiving monthly payments from the plan. He only has about $2,000 in the plan. I read the Notice to mean that if a participant is receiving monthly checks from the plan, it is included as a source of income, but that is not the case here. Would you agree? Since this is not a QDRO, does that automatically mean that his plan assets cannot be touched for child support? Finally, the participant in question has more problems than just child support. He is about to be evicted from his house and wanted to take as much as he could from the plan as a hardship. Do you think he can still do this given the child support issue? Thanks for any replys.

Do you think that Plan A's Loan Procedures would have to specifically allow for this or are loan rollovers always allowed? Also, would Plan A simply report the entire distributioin ("cash" plus the outstanding loan) as a rollover out of the plan?

Several participants who work for company A have outstanding loans in the Company A's 401(k) plan, Plan A. 2 employees are leaving company A (amicable) to form their own company, Company B and a few of the other employees will be joining company B as well. Company B will be completely separate from Company A, no controlled group. Company plans to adopt a new 401(k) plan, Plan B immediately. Some of the partiicpant in Plan A have plan loans. Can Plan B be written to allow for rollovers of loans from Plan A? Can Plan B allow such a transaction to occur? The desired result is that most of the Company B employees wish to rollover their Plan A account balances to Plan B. They'd also like to avoid taxation on the remaining loan balance they have in Plan A. Thanks

I will check on the service agreement between the accountant and client. Thats a good place to start. Accountant may not have been responsible for monitoring any violations, but he was aware that the plan was not in compliance and should have at least said something. If I see a bank being robbed, I do not have to stop the crime being committed, but I am obligated to at least call someone for help. The accountant should have at least made the sponsor aware that violations existed and were ongoing.

EAIE: I should have been clearer....the accountant's only involvement with the plan appears to be determining the contribution each year (including determining who is eligible). He would had to have had payroll records to make that determination, so he is the logical choice to request the data from. I agree, a fee to recover those records is fair, as long as it is reasonable. Accountant handled all other aspects of the employer's payroll and company tax transactions. I think the problem is that accountant is pointing fingers at the financial advisor, since he (FA) set the plan up and it was his responsibility to inform the client of all of the compliance issues that would need to be handled (probably true). However, I don't like the accountant's apparant "ostrich" defense in that he knew about the plan and did the contribution calculations, but kept his head in the sand regarding other possible violations. Our objective is to bring the plan into compliance and then terminate it. The plan has a lot of exposure for all of the neglect over the years. I would think that the accountant should be more helpful in resolving these problems, even if he is not the main person involved. To not do so would seem to put his client at ongoing risk, which is not in their best interests.

A small MP plan has several violations going back to the plan's 1999 inception, including no 5500 filings, document not updated for starters. The accountant determined the annual contribution for the plan, but did nothing else plan related. Our TPA firm was brought in to help clean up the mess, which apparantly has ruffled the accountant's feathers. We would like to see payroll records going back to 1999 to confirm that deposits were correct, as well as to get accurate partiicpant figures in order to complete the 5500s from 1999 - 2005. Accountant has told the owners "since you have hired a TPA, we are not going to retrieve this data". Is the accountant obligated to provide this information? A reasonable fee would be in order of course. How would you proceed?

Small employer has a 401(k) plan but, after several years has decided he no longer wants to allow 401(k) contributions. He wants to eliminate the 401(k) feature, but keep the discretionary PS piece. Is a CODA a protected benefit and therefore, is he prevented from eliminating it? Also, since this is not a plan termination, the participants could not take distribution of their 401(k) monies, correct? Finally, since 401(k) language is throughout the entire document and SPD, if the above is permitted, would you restate the entire document and SPD, or handle the change via a 1-2 page plan amendment, with an SMM? Thank you

I'm not certain yet as to the reasons for this, but the employer of a 401(k) profit sharing plan wants to "freeze" the plan, but not yet terminate it. In other words, he does not want to let anyone else into the plan, and he also wants to prohibit current participants from making any future 401(k) contributions. I assume there will be no more PS contributions either (there is no match). They will eventually terminate the plan and pay out either later this year or sometime next year. I can't think of a good reason for the delay, but, assuming the proper plan amendments are made, do you see anything wrong with doing this?

Bird - are you saying that all plans that are not self-directed must have the small plan audit? So, even a 10 life PS plan that has the bond, has enough qualifying assets, but is trustee directed, would require the audit?

A company had a 401(k) plan for several years back in the 90's. Business got bad, they terminated the plan in 2002 and paid out in 2003. There were only 5 employees, 3 of which were HCEs/Key's and the plan was top heavy. Business is better now, and the employer wants to start a new 401(k). Same three HCEs/Key's but with about 8 NHCEs now. Would the distributions to those 3 keys still count toward top heavy in a new plan? It's possible that the new plan would not be top heavy starting fresh in 2006, if we do not have to count anything from the prior plan.

I am concerned about the eligibility of the uni-401k and the possibility that there may have been employees eligible to enter that plan. If the uni-k was properly terminated (Big IF), and the employer has already had his uni-k assets moved into most likely an IRA, would it still be OK to start a new 401(k) so soon after the first plan? And is there a problem that the owner took a distribution from the first plan, and has now started a second plan?

Company started a new 401(k) plan, effective 1/1/05 for all employees. However, we've come to discover that they in fact had a prior uni-401(k) plan, effective 1/1/2002. At the time the uni-401k was adopted, the owner was the only "employee". But when he started to hire employees, her was lead to believe that the uni 401k was only good for the owner, and that to have a plan covering everyone, a new plan would be needed. I am still awaiting a copy of the uni-401k plan document, but am I correct in that uni-401(k)s are really open to everyone (have to be)? I also realize we will have plan termination issues if the uni-401(k) was not terminated properly. But if the existing 401(k) had identical provisions to that of the uni-401(k), would that alleviate any potential problems of starting a 401(k) so soon after terminating a previous one? Thanks

I was handed a small MP plan that started in 1997. Document was properly established and the accountant has been doing annual 5% contibution requirement, correctly I hope (will be checking that, as well as distribution, vesting, etc.). But, 5500's were never filed. I want to file all of these now, using the small plan filer program - $1,500 for 2+ old filings. But, how to remedy the fact that they never had a fidelity bond to meet the small plan audit waiver from 2002 - 2005? Do they simply have to now have these audits done en masse with the filing? Any way around this since the filings and audits are now way late?

Tom: Thanks for the bonus points and the great explanation. Very helpful Mike: When you said that "it is incorrect for a different reason" were you referring to the initial post that was incorrect or to Tom's response? There are matching contributions available to everyone after 1 YOS, but other than that, there are no other employer contributions, just the 1% after 10 YOS.

A 401(k) plan has a non-elective component in which the employer makes a 1% of pay contribution to all participants with 10 or more years of service. The result is that out of 250+ plan participants, about 80 receive this contribution, with a mixture of about 30 HCEs and 50 NHCEs getting the contribution. Of the remaining 170 participants who do not get it, 25 are HCEs, the rest are NHCEs. I fail 410(b) but still pass 401(a)(4). But, because I have NHCEs getting $0.00 non-elective, it would appear that I do not pass the 1/3 gateway allocation mark since I have NHCE's getting 0.00% and HCEs getting 1.00%. Is there an exception for this type of allocation method, which is uniform after so many years of service? Thanks

Thanks Stephen. And if he actually retired, left the company, and was then paid, we would only count that for 1 year, correct?

A 401k plan with 3 key employees (all family) is top heavy. The father turns age 60, which is also the plan's retirement age, and the plan allows for distribution upon attainment of NRA. If the father were to take all of his money out of the plan, but continue to work and accumulate additional benefits, the plan would no longer be top heavy (excluding his balance, which would be paid out). Can we exclude his pay out after 1 year, or do we have to maintain that as part of the t/h calculation, since he would still be working? Thanks

Small company wants to start up a plan that has only 401(k) contributions and safe harbor match contributions. If this is the only money in the plan and it is top heavy, does the employer have to contribute 3% to everyone not receiving the safe harbor match (ie, they are not deferring)? If the answer to above is "no", would that answer change if the owner rolls money into this new plan from another employer's plan or IRA, in which case there would now be money in the plan other than 401k and s/h match? thanks

A 401(k) plan, with only 1 key employee (also the only HCE), became top heavy for the 2005 plan year. The top heavy contribution only has to go to those participants still employed on 12/31/05. If there were 10 non-key participants, and 5 were employed on 12/31/05, while the other 5 had between 501 - 999 hours but were not employed on 12/31/05, would only the first 5 get the top heavy contribution? Would the plan have 410(b) coverage problems since only 50% of the NHCEs are benefitting? Thanks for any comments

For plans that use W-2 compensation, aren't elective deferrals required to be used for compensation? In this case, that would mean using the $120,000. Then, since it is an S-Corp, you would add to that the health premiums for S-corp owners. So, wouldn't that mean for this owner, compensation is $129,204.33?

Mindreader

Lori: Let's give credit where it's due for the owner who wants the 401k feature primarily for the benefit of his employees. On the other hand, I think there would have to be a frost warning in hell before he would voluntarily provide a PS contribution:) I like the 3% as well, as I think he is going to have to put something in because of Top heavy. Still, he would rather wait until the bitter end when it is determined that he has to put it in, rather than committ to it before hand.

Lori: The owner is not looking to max out his portion of the 401(k) and it has been explained to him these likely problems with ADP and top heavy. His spouse will be the other HCE in the plan (legit) but does not plan to contribute, so that will help. He is prepared to scale back his contributions if the plan looks like it will fail ADP. Top heavy is more troublesome but he will make the 3% contribution if he has to.....but only if he has to. WDIK: This is rather feeble reasoning, but my concern was that I thought that top heavy contributions were a form of a profit sharing contribution. So, even if my document has the top heavy language, it might be all for naught if a PS is not an option, which would throw the plan into chaos. Would you say that this is incorrect? Taking that 1 step further, aren't 401(k) Plans really Profit Sharing plans with a CODA? If so, how can you then have a 401(k) without a PS?

A small company wants to start a 401(k), but the employer is very much against the idea of a profit sharing contribution and does not want any PS language in the plan at all. He's OK with a match. My question then is can we prepare an otherwise regular 401(k) plan document with only k and match contributions, with no allowance for a profit sharing? And also, if the plan become top heavy (which is a good possibility), does that in effect mean that a PS contribution has to be allowed, since the 3% goes in as a PS contribution? Thank You