Santo Gold

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

Thanks for the caution Tom. Do you normally see non-qualfied deferred compensation added back in? I checked the document and for compensation, treatment of elective deferrals. It talks about including elective deferrals as compensation pursuant to 125 - cafeteria plan, 402(e)(3) -qualified plan CODA, 402(h)(1)(B) - SEP, and 403(b), as well as 132(f)(4) - taxable transportation fringe. Nothing about about adding back in NQDC. Also, would agree that when asking for W-2 wages, that means box 1 of the W-2 (wages, tips, and other compensation), rather than box 3 (Social Security wages) or box 5 (Medicare wages)? I looked at 6051 definition seems to say that, without exactly saying that. Thanks

Got the answer to Question 1: Deferred Comp contributions are not included for W-2 wages. I am still struggling with Question 2. Thanks.

The 401(k) plan document defines compensation as W-2 wages. Question 1: On line 1 of the W-2, should this figure inlcude or exclude deferred compensation amounts? Question 2: This is an S-Corp, so the owners health insurance gets added back into to the Box 1 figure, but is excluded for FICA wages. Should these amounts be added back into Box 1 for plan compensation? Thanks for any help.

The sponsor of a small non-standardized MP plan is having financial woes and is looking for ways to save $$$. They currently sponsor a 5% MP plan. The owner wants to maintain that plan, at that funding level, but would like to discontinue accrueing benefits for himself. Since roughly 70% of the annual contribution goes to him, this would be a significant savings. Assuming the document language allows for it, can he waive participation in the plan, even though he has previously met the eligibility requirements? Thanks

Company has a calendar year MP and SEP plan and they want to get rid of both. I'm told that the 2004 MP contribution has not yet been made (neither has the 2005, but there is still time for that). They will obviously have to fund the MP plan before terminating. Does this late deposit (for 2004 plan year) get reported on Form 5330 and is there estimated lost earnings that have to be calculated on it as well? Is this a plan defect that has to be reported via EPCRS? Thanks for your help.

I was hoping someone could help me with a calculation for maximizing a a contribution for a sole prop in 2005. I have a 1 life (owner) sole prop 401k plan. Owner is under age 50, so maximimum accumulation is $42,000 for 2005. Accountant says that before any 401k or employer contributions, wages are $148,000. To determine maximum, do I subtract the 401k portion from this figure ($148,000 minus $14,000 = $134,000) and then from there, perform the loop calculation on the $134,000 to see if she can get to $28,000? Or is the $148,000 first lowered further based on FICA because of the $14,000 401k contribution? Thanks for any help.

Glad to take credit for starting a good topic GBurns. If I can't provide insightful answers, I'll at least take a bow for thought-provoking questions.

Great replies, thanks to all. I am suggesting to them that they cannot proceed unless they each adopt individual plans for themselves. Next year (2006) they can look into the corp's plan. Thanks again.

rcline46: I like your first recommendation. A little digging via EOB mentions a court case involving a similar situation - Van Roekel Farms vs. Commissioner. In this case, 1099 payments were made to a president of a corporation, who was the sole participant in the company's ESOP. Since the payments to the president were not reported as compensation from the corp (no W-2), the company could not treat those payments as compensation for 415 purposes. Thus there were $0 415 comp and no contributions could be made. This sounds similar to my situation. If the above holds for my situation, could the 3 HCEs, all of whom have 1099 income only, have 1 life plans for themselves in 2005?

A small business wants to start a Profit sharing plan for 2005. The company began in May, 2005. The only employees are the two 50% owners and the spouse of 1 of the owners, so we have only HCEs for 2005. I'm told however that (for whatever reason) all 3 individuals received no W-2 income at all for the year. Instead, they are being 1099d for all compensation paid to them for 2005. They will go to W-2 starting in 2006. It's likely that more information is needed, but based on the above, do you think we can set something up for them for 2005? Does 1099 income prevent them from having any plan wages in 2005? Thanks for you advice.

four01kman: I would proceed as you mentioned, but I thought you could not retroactively defer 401k money? If the owner wants to defer $14,000 in 2005, he will need comp of $14,000 or more from 12/__/2005 - 12/31/2005. Given that, is there something else to be gained by making the non-401k components effective 1/1/2005?