Beltane

which says....???

I would say No. After tax contributions are not 401k contributions, they are 401m contributions. Since elective deferral [401k] contributions may not be converted to Roth 401k accounts, voluntary contributions [401m] I assume are also prohibited.

Yes, very good point, thanks.

1.401(k)-2(a)(4) lies out the elective contributions to be taken into account. Specifically, it states: "An elective contribution is taken into account in determining the ADP for an eligible employee for a plan year or applicable year only if each of the following requirements is satisfied-(A) The elective contribution is allocated to the eligible employee's account under the plan as of a date within that year...." I would say a 401(k) deduction is 'allocated'as of the paydate its deducted [definition of allocate: 'set apart for a specific purpose']. So if someone deferred into 2005 and termed 12/31/04, its allocated in the 2005 plan year. Meeting the other conditions of the above cite, this deferral would be taken into account in their ADR for 2005. They have a 2005 elective contribution, and only "eligible employees" may make such contrbutions - so the contributor must be an 'eligible employee for 2005' and is in the 2005 ADP test. Score 2 - 0

I'm not sure this is the issue - i believe the issue is whether or not these employees are 'eligible employees' under the 401k testing rules. This cite is a de minimus exception to the definition of compensation for 415©(3), which disallows the use of accrued compensation as part of the definintion. I have no problem using their W-2 compensation in the test, but it is correct to include them in the test even though they did not perform any employment service in the year of the test? I'm getting the feeling this is administrative choice which must be consistant from year to year, and not subject to annual discretion. Score still 1 - 0, in favor of including them.

Not be excluded = would be included in the test. ok, score is 1 to 0 in favor of including them in the test. Anyone else have any comments? Anyone know if this guidance from the Notice 2004-84 quote has been issued yet?

I brought this issue up partially before, but am hoping to get a survey of responses and reasons from the field here to get a more direct answer. Company has a 401(k) plan with a December year end. There were 3 eligibles who did not work any hours in 2005 but, because of the 2 weeks in arrears payroll system they are on, received checks on the Jan 15, 2005 payroll, thus received W-2's. Would you include them in your 2005 ADP test? This question was posed after session to an IRS official at an ASPPA conference earlier this year, and there response was yes, you include them.. Please, if you could, post your feelings and explanations. Thanks ahead of time for any responses!

An employer has begun reimbursing their PS trust for the quarterly investment management fees of the pooled trust. Its my understanding these reimbursements are to be treated and allocated as contributions, since they are deductible under IRC 404. Comments anyone? thanks

There is no amending of W-2's, the distributions are reported on a 2006 form 1099-R. See the 1099-R instructions regarding distribution codes.

Perhaps the 'endorsements' refer to the corporate resolutions of adoption??

Single location employer is adopting a new plan and applying for a determination letter. Under Treas Regs 1.7476-2, the notice to interested parties allows for this notice to be posted in a place which is 'customarily used for employer notices to employees with regard to employment and employee benefit matters'. Anyone know how long this notice must remain on the wall in the break room, so to speak??

Sorry to state the obvious, but don't forget the catchup if that would help.

Sorry about the ADP reference above, I know this link started out as a Safe Harbor issue, but I believe the answer is also non Safe Harbor related.

This is a technical tip link from the 2002 ASPA [now ASPPA!] conference: http://www.reish.com/practice_areas/Techni...s/IRStip122.cfm However, for reasons already posted here, following this opinion puts us between a rock and a hard place. [because one might not be following the terms of the plan if the final payroll is ignored for 401k purposes]. On one hand, I can understand ignoring the January payroll run for the ADP test, since you are to include only those eligible to defer. If they weren't employed in the second year [let's say 2002 to equate with the link above] they certainly would not be elgible to defer in 2002. However, if a plan defines compensation for benefit purposes as a Participant's W-2 comp, you would have to allow for the 401k deduction and deposit...one which is ignored in the ADP test. Strange, unless I'm missing something which is very possible [feedback please...] - strange to have a 401k deduction made but excluded from the adp test [setting the otherwise excludable employee rule aside]... Regarding Rcline's post...the new 401(k) regs are effective for plan years beginning on or after Jan 1, 2006, right? So are we dealing with an administrative change on this issue for post 2005 plan years?

I don't see the difference in the fact set if you cross into another year, since you have no ee/er relationship when the final check is received no matter what month we're talking about. If your plan definition of compensation for all purposes is W-2 comp [a safe harbor definition] [were not talking about severence pay here], you would have to consider that compensation for plan purposes. In the [basic] document we use, 401k amounts withheld are deducted from the 'Participant's Compensation', and this prototype has a determination letter. I make the argument that ignoring such compensation would be an operational failure for not following the terms of the plan.... I suspect your crossover issue is you have hours of service in one year, and compensation for such service in another. If there is no hours of service requirement for a benefit accrual in a plan year [401k, SH 3%, match, whatever], again, I don't see how that compensation can be ignored. Thanks for posting by the way!

Rcline, are you suggesting this is always the case, even when we are not dealing with a year overlap? For instance, if [calendar year plan] an employee/contributor terminates 3/15/06, and receives the check or is paid on 3/17/06 that 401(k) should not be withheld from that last check??? Seems like that would be nearly impossible to enforce, especially if an outside payroll service is used.

I believe you can self correct this under EPCRS by correcting the erroneous deferrals plus earnings, and distributing them as normal income, and amend the W-2 accordingly.

We have used www.apscreen.com sucessfully. Phone number is 800 277 2733. I think its $ 10 per search.

Years ago the IRS took the position that allowing 401k deferrals to continue after the 401(a)(17) compensation limit had been reached was in effect recognizing compensation above the comp limit and thus disallowed. This contradicts the conclusion I am reading on the replies here, does anyone have a site or other reference to support the allowance of 401k deferrals after the comp limit has been reached?

Additional comment to my prior post....looking for confirmation and clarification from the audience. As I examine the catch up regs and preamble, it appears the catchup limit for a plan is determined from one of the following limits: Statutory (the calendar year 402(g) limit), employer provided limit [never seen this actually, other than the limit on elective deferral percentages which are high now because of EGTRRA] or the ADP limit. For a non calendar year plan, say a March year end, the statutory limit really becomes a calendar year payroll limit, so when running the ADP test the statutory limit is beside the point. Assuming there is no employer or plan limit, this leaves us with the ADP limit, which has to be calculated by running the test. You run the test and fail. You calculate your total dollar refund, then apply the leveling method to see who is credited with tentative refunds and the amount per HCE. For an HCE who is catchup eligible and is in the refund group, the maximum catchup amount is determined based on the catchup limit in effect for the year in which the plan year ends. For a March 31, 2005 plan year end, you would use the 2005 catchup limit of $4,000. So if the tentative refund is $3,500 to such HCE, this is less than the catchup limit so no refund is required, just reclassify as catchup. My problem is what if, when you run the test, you have a Non HCE who is catch up eligible and goes over the statutory 402(g) limit for the 2004 calendar year? How is their catchup taken into consideration? The HCE limit is the ADP limit, what is the catchup limit for a non-HCE? In other words, if NHCE deferred $15,500 in the plan year ending March 31, 2005, what figure is used for their test?

help me on this one...The preamble to the final catchup regulations says: "...in a plan with a plan year ending on June 30, 2005, elective deferrals in excess of the employer-provided limit or the ADP limit for the plan year ending June 30, 2005, would be treated as catch-up contributions as of the last day of the plan year, up to the catch-up contribution limit for 2005." February 28, 2005 year end would trigger usage of the 2005 catch-up limit figures of $14,000 + $4,000, so $16,000 deferred in that plan year would yield $14,000 for testing and $2,000 for recharacterization... Not sure about this, comments anyone??

Two controlled corporations sponsor a standardized DC plan which has a calender year. Stock transaction in early 2006 will eliminate controlled group status, so a spin off plan will be established. Any feelings on doing the spinoff in the second half of 2005 to save the audit report attachment for the 2006 5500 return? If separarated before year end, both plans [identical otherwise] will have under 100 participants on 1/1/06. My feeling is no, cart before the horse. Initially I thought there might be a 411(d)(6) problem for the period of time up to the stock transaction, but everything in the spin off plan will be identical. I don't anticipate any testing issues....

Thank you, that makes sense.

Two entries on the 2005 version? One for the 2004 hypothetical earnings and a second for the 2005 hypothetical earnings? Put another way, if the hypothetical earnings for 2004 were $ 120 and the hypothetical earnings for 2005 was $ 20, those would be your entries?

When the books were reconciled in early 2005, it was discovered two deposits from early in 2004 were not made. We have calculated the lost earnings using the greatest rate of return of all fund options and are basing the excise tax on Form 5330 on this amount. Deposits were promptly made in early 2005 when discovered. Looking at the 5330 instructions, it appears there are two taxable periods involved here, one for 2004 and another for 2005, although only one prohibited transaction, which occured in 2004. Any insight on if two 5330's must be filed? One for 2004 and the second for 2005? Or can we just report it on one 5330 using the taxable period of 1/1/04 -12/31/04? thanks for any help