Santo Gold

Unfortunately, only 1 of the 2 individuals is an owner (100%) and they are not married. The other employee is an HCE though. I will have to check on whether they are liscenced to perform their services. I would have to believe that they have some certification to do what they do, but where is the line drawn for determining whether that satisifies the PBGC exemption? Although software designers was not specifically mentioned in the list of occupational exceptions, I was hoping that since engineers was on the list of exemptions this could apply to them.

I have a software design firm (S-corp) consisting of 2 individuals that will adopt a DB plan for 2004 (cutting it close). Do you think they are subject to PBGC premiums? Would you consider this a professional service corporation? Thanks

Couldn't he also use say a 7/1, or 10/1 effective date, still using full year comp? I understand the 401(a)(4)5 issues, but would this really be considered an amendment? Its actually a plan adoption. Would it really be applicable in this case anyways? The employee #2 has been gone since 3/31, the plan will not be signed until 12/29 or so. The paper trail shows that it was only in August, 2004 that talks of a retirement plan first came about. Making the the effective date a few months away from ee #2 DOT should help too? And, the plan is open to other NHCE's if any were to be hired. I guess I'm doing a good job convincing myself that this would all be OK, but would anyone else agree with me?

Not sure if my first reply made it through, but the departure of E#2 was not pleasant with lawyers now involved, etc. So, the owner does not want E#2 in the plan at all, regardless of whether he never vests. Also, the owner would not be keen on starting a plan and he himself not being vested in it right away. I'm sure if there was no other way, he would accept it, but that will not be his first choice.

I have an odd situation that maybe someone has had before and can provide some advice on how to proceed. A small business was started in November, 2003. When the company began, there was the owner and 2 other salaried employees. On March 31, 2004, employee #2 left, leaving just the owner and employee #1, and it has stayed that way since. Employee #1 will make over $90,000 in 2004. Employee #2 did not make over $90,000 (and would not have even if still employed). The owner would now like to start a DB plan for the business, effective 1/1/04. The plan is intended to cover only owner and employee #1. I want to arrange eligibility to keep employee #2 out. Can the plan require a year of service, but allow for immediate entry for employees employed on 4/1/04? Alternatively, if there is no way to keep employee #2 out of the plan, then the next question is keeping him from getting a contribution. Since there are no other NHCE's, I would need him to work 500 or less to be able to keep him out of the 410(b) test. But him leaving on 3/31/04 is right near the 500 hour breakpoint. How should hours worked be counted for him? If we use 37.5 hours as a standard work week, that would produce 487.50 hours worked (37.5 * 13). If we use 40 hours, then we get 520 hours worked (40 * 13). I have a hunch that I should not be able to arbitrarily pick between 37.5 vs 40, but if they are all salary ee's, how should hours be counted? Thanks

Mr. T is an employee of a large corporation and participates in their 401(k) plan. He is under age 50 and maxes out with the 401(k) contributions ($13,000 for 2004). Mr. T has also owned a small business for himself with 1 other employee. Financial Guy wanted to set up a retirement plan for Mr. T's small business, and accidently set up a SIMPLE rather than the intended SEP. Mr. T has had his first Elective Deferral withheld from his pay for the SIMPLE, when it was realized he had no room to put any elective deferral money into this plan (maxed out in the big company's 401k). Although withheld, the money has not yet been deposited anywhere. The other employee has not contributed anything. What are his options in this situation. For starters, can he keep the SIMPLE and not make elective deferrals, just use the ER contribution portion of it? What to do with his withheld money since it is not deposited yet. Is it OK to simply "reverse" that last paycheck of his to get the money back to him? Any other ideas? Thanks

I may not have been clear in the original post, as I don't believe the hire dates are as complicated as they may seem. When I referred to hire dates prior to when the leasing agreement became effective (08/2003) I was thinking of when these leased employees first became employees of the leasing company, which may have been several years prior. Let me restate things: The 2 owners started company A in 2001. They were the only 2 people who performed services for company A up until August 2003, when they signed a leasing agreement with a hospital. Starting in August 2003, these leased employees starting performing services at company A, many in a full time capacity. Sometime after August, 2003, company A also hired a few employees (which I referred to as "regular" employees in my initial post). So, my question is that if Company A starts a PS plan for 2004 with a 2 year of service requirement and a 1/1 nearest entry date, then the earliest that a fulltime individual, whether a leased employee or regular employee, could enter the plan would be 1/1/06, correct? My concern centers on whether counting eligibility service for the leased employees is counted any differently than for the regular employees (who I am confident can be kept out of the plan until 2006). Does it matter which leased employees were hired by the leasing organization prior to August, 2003?

An employer (S-Corp with 2 equal owners) wants to start a PS plan for 2004 and would like to exclude as many non-owners as possible, at least for 2004 and 2005. We are considering a 2 year of svc requirement to enter the plan, which could keep everyone hired 7/2/2003 or later out of the plan until 1/1/06. Employer has a mixture of "regular" employees and leased employees. All of the current regular employees started either in late 2003 or in 2004. Leased employees started performing services in 08/2003, which is when the leasing agreement the company was enacted. This may be too simple, but for these leased employees, is the day they started performing services for this employer considered their date of hire for plan purposes? Given the leasing date of 08/2003, that means their date of hire could not be earlier than this day, correct?

Thank you for the great responses. More complicated than I expected but I think I got it now.

Sub-S corp has a 401k plan. The company will be paying bonuses but probably not until after the end of the year. Can the employer pay the bonus in 2005 and still have it count as 2004 income? If so, how late into 2005 can this take place? Furthermore, if this allowable, can 401(k) contributions be made out of this bonus and count as 2004 401(k) contributions? Thanks

I am looking at a beneficiary designation form and it indicates for contigent beneficiary "Children per stirpes". Is this a latin word? Does anyone know what it means and how it affects their contigent beneficary designation?

If a prototype plan uses a 6 month of service requirement to enter the plan, can they later amend that to 1 year of service and actually start counting hours (eg 1000) to enter the plan? Similarly, can the plan be amended to do away with elapsed time for measuring service for elilgiblity and vesting, and go to a 1000 hours counting method? Thanks

I guess I'm a little confused then. I thought one of the benefits to both an individual and an employer of an individual making 401(k) contributiions was to avoid certain tax consequences. Can I assume that means the individual avoids federal income taxes but the employer does not avoid FICA/FUTA taxes? Thanks

This is probably too easy, but for payroll purposes, when an individual makes a 401(k) contribution, is that 401(k) amount subject to FICA? Does it make a difference if the 401(k) amount is made from a company bonus as opposed to regular payroll?

Gary - Regarding Leased ee's in point #4, I thought if the defined benefit was tested and determined to be of greater value than a 10% MP, then no benefit would be needed for the leased ees in the ER's plan. Am I incorrect? Thanks

I need the SEP/SIMPLE Answer Book!!!! I'll be ordering next week. In the meantime, maybe someone can help me with a few SEP questions, ranging from easiest to hardest: S-Corp started in June, 2002 with 2 equal (50/50) owners. No other ee's in 2002, just them, but they take no comp. In 2003, both take a salary. They also hire 2 p/t people. In 2004, they are again taking salary and expect to make a lot of money. They 2 p/t people leave in 2004, and are replaced in July, 2004 with 4 new p/t people. Owners objective is to start a SEP in 2004 that will include them (owners only) and not the others. 1. Would the eligibility have to be set at "having performed services in 2 of the previous 5 years" to get the 2 owners in (3 out of 5 would keep them out for 2004, correct)? Would the minumum wages have to be $0 since they were not paid in 2002? Also, if 2 out of 5 is correct, would that mean the 4 new p/t people will not enter until 1/1/2006? 2. Assume all of the p/t people work less than 1000 hours. Can the employer terminate the SEP after 2005, start a PS or 401k in 2006 with a 1 Year of Service/1000 hour eligibility requirement, and have everyone excluded other than the 2 owners? 3. I believe 415 applies to SEP's so if they contribute $3,000 each to the IRA, they can receive up to a $38,000 employer allocation each in the SEP? Is this correct? 4. Employer also uses around 20 leased employees from a hospital. These employees are covered under the hospitals DB plan. I think the ER reimburses the hospital for all wages and benefits including the DB plan. Do these leased employees have to be covered in the SEP? 5. Finally, can the company borrow from the 2 owners to fund the SEP? This is quite a laundry list so thanks for any comments. I'd rather stick to 401ks.

I'm not real familiar with SIMPLE's but an employer has maintained one for 5 years, and has gone over 100 employees in 2004. They will use a 401(k) in 2005. Can the employer continue to actively fund the SIMPLE through the end of 2004, or does the employer have to stop in the month the company exceeded 100 employees?

I talked with a doc's office who just recently discovered that their 401(k) plan has been top heavy since inception (mid 90's) and they have not been making the required 3% contribution for all non-key's (the 3 keys have 401(k) contributions well over 3% of pay). They are in the process of determining the liability for all of those years and turning themselves into the IRS. In the meantime, they's like to start a second 401(k) plan with the goal of eventually terminating plan #1. I assume they want to "freeze" if you will 401k #1, with no new money coming into it. Keep it around until they resolve matters with the IRS. Starting in 2005, they want to start 401(k) #2, for the same group of ee's (all employees) with probably the same or similar plan specs. Other than plan #2 not really being necessary, is there anything wrong with this scenario? Am I correct that they should not terminate #1 until after the problems are resolved?

This probably has an obvious answer, but I had to ask: Client wants to have a loan feature in his 401k plan. He understands that there will be a small fee that the loan participant will incur and must pay, to the TPA. Client's question is, can he (the owner/employer) also charge a nominal fee for his aggravation involved in approving the loan? He is talking in the $30 - $40 range, not much at all. Also, could this be paid to the employer?