E as in ERISA

What about an agreement that he has to make himself available to provide services upon demand of the entity? And/or that he even shows up a certain number of hours per month. And he is not entitled to the $20,000 unless he does so each year through 65? That might solve a couple of your problems. I've seen different variations on this type of agreement. And some have more risk than others. But it's a possible avenue to pursue.

They would generally take a deduction on the company's tax return for the year ended 12/31/2003 if they make the contribution by the due date for that return (generally 3/15 or 9/15, if extended, for a corp -- or 4/15 or 10/15 for a partnership).

It depends on what the company year end is too.

While the IRS hasn't addressed this issue in regs, I don't think that this is generally considerable a viable entry date for a 401(k) plan. I think you'd not only want to fix this participant with a QNEC, but also consider changing the entry.

What do you mean by "sent in" the full $40,000 as a profit sharing contribution? There should be legal paperwork somewhere that designates how much money should be deposited. E.g., the plan terms, a 401(k) elective deferral form, a board resolution or other formal authorization of the profit sharing contribution, etc. Those should be determinative of how the money should be designated, even if someone informally indicated otherwise when they sent the money in.

Look at the elapsed time rules in the DOL regulations. They provide the "service spanning" rules that you are talking about.

It sounds to me like this was a loan offset (actual distribution), not deemed distribution. They simply treated the loan balance as a taxable distribution at the time that an actual distribution first became available. There was no obligation to "default" and 1099 the loan at an earlier date, as the final loan regs need not be strictly applied to a loan taken out five years ago. A plan could apply a reasonable interpretation of the rules prior to that. I would guess that most plans did not use this method. But that doesn't mean its unreasonable.

Is there any chance that they had a board resolution that authorized the amendment prior to the 9/30 deadline? That can often be considered to be the corporate "signature," provided that the document was complete etc. I'm guessing not, but it doesn't hurt to ask sometimes.

See http://www.benefitslink.com/erisaregs/fina...cdisclosure.pdf

ERISA 404© (which include prospectus requirements) is subject to the DOL regulations on electronic communications. Under those regulations it is not enough for someone to have "access" to a computer, through a kiosk etc. The use of the computer must be an "integral" part of the person's job. Otherwise you have to meet all the consent requirements.

I agree. The preamble for the regulations says: "Catch-up contributions with respect to the current plan year are not taken into account for purposes of section 416. However, catch-up contributions for prior years are taken into account for purposes of section 416. Thus, catch-up contributions for prior years are included in the account balances that are used in determining whether the plan is top-heavy under section 416(g)."

You might argue that the vendor's methodology for calculating its fees should not be solely determinative of the method of allocation. What if a bundled service provider offered two choices: (1) "Free" admin services if you also use their proprietary funds (they are compensated on a pro rata basis from the funds); or (2) $50 per participant admin fee if you don't use their proprietary funds (they are compensated at least partially on a per capita basis and possibly also receive some pro rata compensation from the funds). Should the way that expenses are allocated really be based on whether you choose the bundled or unbundled arrangement? In the first case, aren't the participants with higher balances really subsidizing those with lower balances? But isn't pro rata considered acceptable there? So couldn't you logically argue that you could do the same in the second situation?

You give credit for all 14 months. See Labor Regs. 2530.200b-9 for elapsed time rules.

Fix everything so that it's the way that it should have been: * Refund the excess withholding * Correct any related tax withholding and make the necessary adjustments/corrections on the employment tax forms * Issue a corrected W-2 to match the annual election amount and the corrected withholding

I know there is nothing that prohibits an SE from using the other $10,000 of his deduction to provide an extra $10,000 of benefits to NHCE. Didn’t my examples prove that??!?! But why would he SE do that intentionally? The cost ($10,000) is greater than the tax benefit ($4,500). The maximum CONTRIBUTION is not determined solely by 404 and the discrimination rules. The plan terms, 401(a)(17), 415, etc. also limit your maximum CONTRIBUTION. And I’m not quibbling here. One of the most important things with SE plans is to know how to simultaneously apply all of those rules and define an optimal contribution formula. So in most (all?) cases where the SE’s allocation is limited to $40,000, the plan terms will limit the maximum CONTRIBUTION to an amount less than the maximum DEDUCTION. Your example was as follows: The suggestion that any plan would have a formula that gave the NHCE in this case a $20,000 allocation seemed crazy. But I was actually helping you out…. I proved that it was NOT impossible. There could be a plan with 25 to 50% contribution rate plus a 415 correction method where the excess would go to the NHCE in the current year. (And the SE doesn’t have to be insane. This could happen where an SE had lower compensation in earlier years and neglected to change the percentage when compensation increased…). If you don’t like my suggestions, do you have a better way to clarify your example so that not only the maximum DEDUCTION but also the maximum CONTRIBUTION under the TERMS OF THE PLAN would be $60,000? (And the SE doesn’t appear insane)

How did you get a 50% ($20,000) contribution for the employee with $40,000 compensation?

They need "elections" with a percentage just like all of the other employees -- although they have until the end of the year to make them -- because compensation isn't considered earned before then. Then you need to know what self-employment compensation is for the year -- and you apply the percentage to the self-employment income. Then you apply the plan's match rate to that contribution.

It looks like the confusion is resulting from the fact that some are discussing 404 deduction limits and compensation limits, while others are discussing plan limits and 415 limits. I think mbozek's point is that the SE's contribution is a circular calc. You need to know what "SE income AFTER SE contribution" is in order to calculate the SE contribution. You convert it into a straight calc by dividing the contribution rate by one plus the contribution rate (.25/1.25 = .20) Then you multiply that percentage by the SE income BEFORE SE contribution." His other point is that the other employees' contribution is a "known" factor that is already included in the "SE income BEFORE SE contribution," so it isn't included in this calculation. However, one issue I have is that the 401(a)(17) limit is a limit on the net "SE income AFTER SE contribution." So you can apply your "circular calc percentage" to a number in excess of $200,000. E.g., if the "SE income BEFORE SE contribution" is $240,000 and the plan has a rate of 20%, you can apply the "circular calc percentage" of 16.67% to the $240,000 to get a contribution of $40,000. You then test to make sure that your "SE income AFTER SE contribution" is equal or less than $200,000 ($240,000 - $40,000 = $200,000). If not, you skip the circular calc and just multiply the plan rate by $200,000. So I think that I understand Mike Preston's point as well. I think that his main point is the application of a stated across-the-board (nondiscriminatory) plan rate and the 415 limits. I think that he's just ignoring the circular calc -- which you will generally end up doing when "SE income before SE contribution" is higher. E.g., if the plan has a stated rate of 25% across-the-board and "SE income BEFORE SE contribution" $250,000 or more and there is one employee with $40,000 compensation, then I think that you could actually get to his result. The required total contribution under the terms of the plan could actually be $60,000. The contribution is 25% of plan compensation ($200,000 + $40,000). That calculation doesn't violate 401(a)(17), because no more than $200,000 was taken into consideration for the SE. It doesn't violate 404, because the contribution did not exceed 25% of compensation. You only have a violation when you do the 415 test. The SE would have initially received $50,000 and exceeded the $40,000 limit. But it's not elective deferrals, so it doesn't come out of the plan. It either gets reallocated to the other employee (so he gets $20,000 total) or it gets held in suspense. The point is not to have stated rate of 25% in this situation.... In most cases like this, you would have different contribution formulas for the employees and SEs and perform discrimination testing.

Can't "disabled dependent care" potentially be either a medical or dependent care expense (as noted in Pub 502)? Many transportation expenses are deductible for medical care purposes, so that part might be reimbursable under the medical FSA....

http://benefitslink.com/taxregs/rmd2002final.pdf

Yes. See Q & A 4 of § 1.401(a)(9)–8.

I don't think that it's clear how to answer it: http://www.aspa.org/archivepages/conferenc...ast/5500/qa.htm

You're supposed to send out another notice. The regulations say, "the administrator shall furnish all affected participants and beneficiaries an updated notice explaining the reasons for the change and identifying all material changes in the information contained in the prior notice."

Not that I know of. But if its a public company, its EIN would generally be in its filing posted on the SEC web site.

Possibly through a cafeteria plan -- e.g., if the plan provides that the money leftover at the end of the year will go to charity. This might also make participants feel a little bit better about the "use it or lose it rule. " I haven't actually seen it done -- but it's something to consider. I have even seen discussion suggesting that the employees can designate which charity their money goes to....