Santo Gold

Thank you Janet M. 2 more questions come to mind if we merge: Other than making elections on what new investments (if any.....I think the plans are identical in all BRF as well as investment options) they want, is there anything the participants of the "old" plan need to sign off on? If they have no options on what to do with their money, I can't see where they would need to sign off on anything. Also, it's been a long time since I handled a 5310-A; is that the only form needed to report the merger (other than the final 5550 and pertinent questions on that form) and is there a user fee associated with that form?

Thanks for the response. Does that mean that those under 21&1 folks who do not get a s/h contribution might still have to get a 3% top heavy contribution, even though they are not otherwise eligible for any other type of employer contribution?

If a company adopts a 401k safe harbor with no elibility requirements to make 401k contributions, can they still put a 1 YOS requirement on the ability to receive the safe harbor contribution? Will that jeopardize the automatic passage of the ADP test? Thanks

An employer has 2 401k plans covering 2 different groups of employees. They are considering eliminating one of the plans and have everyone covered in 1 plan. Would a plan merger make more sense than a plan termination? Are there any obvious pros/cons to doing a merger vs a termination, or vice-versa? Am I correct in that in a merger, there is no option for a participant to receive a distribution whereas with a plan termination the participants could take distribution? Finally, in a merger, accounts do not automatically fully vest, correct? Thanks for any insight!

A 40 year old participant in a PS plan (with rollover money) is looking to take a hardship withdrawal for almost all of his account balance for the purchase of a home (1st time home buyer). Am I correct that this is not an eligible rollover distribution and therefore taxes do not need to be withheld? Also, the 10% early distribution tax does apply so he could gross up the hardship amount to cover the 10% penalty. Finally, can the TPA fee be paid directly from the participants account? Thanks

So even if the participant rolls the RMD to an IRA, and then (before 12/31/05) takes a larger RMD determined on the basis of all assets in the IRA (including these newly rolled over plan assets), that still is no good, correct? Thanks

Terminated participant is age 75 and has been taking RMDs for several years out of his plan account balance. He now wants to "consolidate" his monies and move his plan money into 1 big IRA with all of his other IRAs. Question: If he currently has $60,000 in plan money, and lets say his RMD for 2005 for this balance is $3,000. Can he roll the entire $60,000 now (May, 2005) into this IRA, and take an RMD by 12/31/05 from this IRA, which will have to factor in all of the other IRA monies?

The EGTRRA tax credit of up to $500 for the first 3 years of plan operation......Does anyone know exactly where (eg what line) this is reported at on the company's tax return? In this specific case, its a sole prop. Thanks

If the employer decides to go with offering another investment option/firm and assuming all other things are equal between this investment firm and the current one, and if the only one who takes advantage of the new investment firm is this 1 HCE (there are 3 hce's total), would that be considered discriminatory?

Kirk Maldonado: The employer does not want to retroactively reduce the match back to 1/1/05. Rather, they would like to amend the formula, effective 7/1/05 (the match is deposited each month). Would these actions be sustainable?

Janet M - Thanks for the reponse; I'm a little suprised it would be that easy. I was worried that since we have a set match formula in place at the beginning of the year and to change it in mid year would mean some participants could get a smaller match as a result of the change, that this would result in a cutback of benefits. Nothing to worry about?

In a non safe harbor calendar year 401k plan, there is a non-discretionary tiered match formula. The employer would like to modify this formula in mid year (as of 7/1). I have not yet seen his proposed change, but it sounds like the match will be greater on the first 3 percent deferred, and smaller on > 3% deferred. Since the current match formula is written into the document, can it be changed in mid year if a portion of the match will be subsequently be smaller?

Currently, a 401k plan allows for full participant self-direction of assets, but restricts it to one family of funds. One of the owners recently decided that he does not like this arrangement and wants to direct his money to another place. Allowing him to do so would require giving all others this option, which could get messy. While the owners sort that issue out, he inquired about another way to achieve this via taking in-service withdrawals periodically (eg, quarterly, semi-annually, or annually). The plan does not currently allow for in-service w/d's although it could be amended. Still, this seems to not be do-able, since the money would have to accumulate for 2 years before taking it out. Also, the participant is only 45 years of age. I haven't come across a situation where a participant wanted to use an in-service withdrawal feature in such an ongoing manner and it sounds like it wouldn't work. Does anyone agree?

You can always cop-out and say that both are important and you should have both. But for more detailed and thorough answers, you have to go with the Outline Book. Our office stopped ordering the Answer Book (in favor of the Outline Book) several years ago and have not regretted it. However, for topics that you are unfamiliar with and perhaps need just a good read-able/explainable understanding of, then I think the Answer Book is the better source. It is easier to pick up on a topic's "basics", where as you can get lost in detail in the Outline Book.

We normally deal with pretty small plan sponsors and when distributions occur, our clients typically use an 8109 coupon to forward withheld taxes, usually with their bank. But recently an accountant told us that one of his clients got a $500 fine for not sending this repayment electronically, although the amount was correct and the timing was fine. Does anyone have any further information on whether electronic filing is now required?

2 large 401k plans are permissively aggregated for 401k testing. Both are calendar year plans, both have eligiblity requirements that are more lenient than 21 & 1. Plan A allows for entry on the first of the month following employment. Plan B has a 6 month wait and allows entry on 1/1 and 7/1. For the combined 401k test, do I apply the eligibility for each plan separately to determine who is in the test, or do I use the most lenient eligibility (Plan A's) and apply it to all employees, including Plan B. I think the former is right, but would appreciate and comments.

For determining 415 compensation, are any of the following included: Car income car allowance severance group term life insurance income Am I correct that possibly in addition to the above and barring barring any other "unusual" forms of compensation, 415 comp is basically W-2 plus elective deferrals?

Thanks to all for giving me a lot to think about. The plan sponsor does not explicitly know that I am talking to the FA right after I hear about the employees termination. However, this particular plan is self-directed (albeit in pooled, not individual accounts), so the sponsor is aware that the FA will have a role in getting the individual paid out. Our firm gets $0 from the FA whether the EE keeps the money with the FA or not. Full disclosure however might yield indirect benefits though; The "goodwill" that is generated by informing the FA early might be manifested in continued new business being brought our way. I scratch your back, you scratch mine......... But is this really illegal/unethical or just good business? There is nothing "automatic" about the FA getting this as a rollover and in this specific case, the EE has already met and spoken to the FA. EE can always say no to the FA. Years ago I worked for a TPA and they took it 1 step further; as part of their distribution forms, they had the option to keep the money in the same plan investments, just renamed as an IRA, and named the FA whom to contact. That seems a little more strong-armed than this.

Ours is a TPA firm, no product, so we work with a lot of different financial advisors, many of whom bring admin business to us. When an employee terminates employement or retires (particularly those with larger balances or benefits), we normally let the financial advisor know ASAP so that she can get a jump on talking to the employee about rolling the money or providing other advice on how to handle their money. Is there anything wrong with this, technically or ethically? Normally the advisor would know about it anyways when it comes time to move money to pay the person out so I don't really see a problem here, but wanted to check to see what others think.

I've run into a murky situation involving the 404(a)(3) deduction limit. The actual example is really confusing, so I'll try to just present the general question: An individual owns 100% of company A and B, both of which are adopting employers of a Target Benefit plan. There are 2 employees plus the owner all 3 of which work and draw compensation from both companies. Let's say that the total contribution required to fund the plan for 2004 is $100,000. Company A is responsible for $25,000 and Company B is responsible for $75,000. But the problem is that the maxumum deductible contribution for Company B is only $70,000, while Company A's max deductible is $35,000. Can Company B deposit (and deduct) the full $75,000 since they are being treated as a single employer under 404? There seems to be a lack of regulations on this specific topic. ERISA Outline Book (2004 ed, pg 7.410) confirmed this, while stating that you "should" be able to take the higher deduction for Company B. Does anyone have other ideas on handling this situation? Thanks

Employer had only 1 key employee and has maintained a SEP for about 8 years. SEP was not funded in 2004 since a PS plan was adopted in 2004. All SEP participants rolled money from SEP into the PS plan in 2004. Key employee rolled over only a small portion of his money. Should the SEP rollover money be counted towards determining top heavy for the new PS plan in 2004? If so, should the money not rolled over by the key employee be counted towards top heavy as well? For how many years? If we count only the rollover money, the plan is not top heavy. If add in the key employees money not rolled over, then it is top heavy. Thanks

A sponsor of a DB plan wants to amend the plan so that participants who terminate employment for reasons other than death, disability, or retirement, will have to wait until either early or normal retirement age in order to be paid out. Right now, the document allows for immediate distribution upon any termination of employment. Would amending the plan to delay the distribution availibility be a protected benefit violation? Thanks

Quinn - I did some research on your response via the 2004 Erisa Outline Book which served to further amplify your comments. It seems pretty clear that in the case of a business that was not around for a full 12 months before a plan is adopted, you either use the "short period" - in this case 11/1/03 through 12/31/03 without pro-rating the HCE comp. limit - or in the case where a plan and business are both started on the same date (eg 1/1/04), then there simply are no HCE's via compensation for the 2004 year. Mr. Tripodi did caveat his information by saying that this is the case unless subsequent guidance is provided. I have not heard of any though.

Since the business was not around for the prior full 12 months, would the look back year be 1/1/03 - 12/31/03, or 11/01/03 - 10/31/04?

One last thought on this.....for eligibility, require a year of service with retroactive entry date back to 1/1/04. So, the owner and employee will have 1 YOS on 11/01/04, bringing them into the plan 1/1/04. Employee #2 will not have 1000 hours and will not be employed on 11/1/04, so he never enters. I think this will work. Would the employer still be entitled to a full year of funding the plan since entry is 1/1/04? Another question related to this. For determining HCE's, can I simply look at 2004 compensation since for 2003 there were only 2 months? Is there a cut and dry way to determine HCE status when the lookback year is only 2 months?