saabraa

Domestic employees can participate in a SIMPLE. The employer gets no deduction, since there's no trade or business. Section 4972 was amended by EGTRRA to provide for no 10% excise tax on nondeductile contributions made on behalf of household employees participating in a SIMPLE.

I agree with JAY21 in that it's mainly the Model SEP that has the prohibition against the second plan. A Sep plan that lacks the prohibition language is free to exist along with another plan. You might be able to cure a problem with the document by amending the Sep onto a different document. The correction revenue procedure, 2006-27, states that not following the Sep plan document is a 'qualification failure' for the Sep. The Sep is considered a DC for deduction purposes, though it may not directly say this anywhere---There are a couple of places in IRS writings where the Sep is called a DC equivalent; I think one is regarding section 415 . Section 404(h) says a Sep is subject to section 404. Section 404(a)(7)(a)(i) allows a deduction for the 2 plans combined which amounts to the greater of 25% of comp or the funding limit. I'm pretty sure the PPA change isn't effective until 2007. If too much has been contributed in total, the best cure is removing the excess from the Sep.

The employee's Simple Ira must receive the 2% contribution. I assume the employer uses eligibility criteria that include the requirement "employee is reasonably expected to earn $5,000 this year." Whatever the eligibility requirements are in this case, the employee must have met them, since he (she) was ''eligible to defer 1/1/06 but chose not to." I'm not immediately sure of the exact date by which you'd need to have the knowledge that the employee is now NOT reasonably expected to earn at least $5,000----at the latest the date might be by 1/1/06 (12/31 deadline). Your facts don't indicate knowledge of ineligibility had been acquired as of 1/1/06.

The Roth phaseout changes and lots of other stuff, such as individual tax rates, are in Revenue Procedure 2006-53 IRB 48, p. 1, which came out around November 9.

According to IRS Notice 2006-107, issued yesterday, nobody needs to give the notice prior to 1/1/07. IRS says DOL has agreed to the extension. The IRS notice probably answers the other aspects of the original question too. See 2006-51 IRB 1.

Hardship distributions are ineligible for rollover.

No need to wait. Notice 98-4, Q & A B-3 addresses the issue. The notice doesn't answer your question in so many words. It talks about 'maintaining a plan' being a situation in which allocations are made FOR (my emphasis) a plan year.

Whether or not the plan is covered by ERISA doesn't appear relevant to your situation. Using the information you've provided, and then making an assumption or two------The short answer is that there's no way to get a deduction. You're saying the contribution wasn't timely made. I'm not seeing where the Department of Labor's rules have applicability. It's a 1 person, owner only plan, for one thing. Furthermore, the DOL correction applies to late filed form 5500's; that's not relevant here. The IRS correction program does cover SEPS, but you've not failed any SEP requirements such as nondiscrimination, full vesting, etc. that are found under Internal Revenue code subsection 408(k). You've not met the section 404 contribution time frame, and that can't be cured via the IRS program.

Someone's leaving something out. You'd still have to meet one of the traditional IRA exceptions to the 10% additional income tax. By leaving a conversion in the account for 5 years, you've avoided the 10% tax only in regard to converted principal. Even any portion of the conversion that was never pretax could have otherwise been subject to the 10% tax, which is contrary to the usual IRA rule.

And then again, maybe not so useful. I must admit, that was a whole lot more shooting from the hip than my usual. I was transposing qualified plan concepts. I recall the proposed 403(b) regs require a written plan---but they're not final regs yet. I would expect a written promise to be subject to contract law, a subject I know nothing about beyond what coall stands for. If the new regs don't address timing of the employer contribution, then I'm unaware of anything that does.

Don't forget that Dept. of Labor has no jurisdiction/ERISA doesn't apply, if the employer happens to be a church or a government. Turning to the IRS rules regarding timeliness of deposit of 403b employee contributions, historically there was nothing more than some old revenue ruling; it was interpreted to require nothing faster than a once a year deposit. The proposed regs, as I recall, have now tightened up the rules to resemble the DOL time frames. But being proposed regulations, my understanding is that employers don't need to worry as much, if at all, about being bound by these particular regulations. As for the employer match, if it's not been promised in writing, it doesn't have to happen. If it is in writing, employers generally have until the due date of the Form 990 (deemed or actual) to deposit the match.

Presuming the plans are sponsored by unrelated employers, you may contribute to both. With one exception, each plan's own limits are followed, without regard to what one does in the other plan. The one exception is the section 402(g) limit, the elective deferral limit. The limit is an individual limit based on the person's tax year, which will virtually always be the calendar year. In general, persons under age 50 will have a $15,000 maximum allowable contribution limit, when adding elective deferrals made to the two plans.

Note that the 5500 returns are initially processed by a DOL controlled facility. I suspect they'll notice the absence of the required audit early in the processing of the return and will send a notice requesting the missing audit. Maybe someone can offer an experience based opinion on whether it's better to go this route or via the DOL's correction process, which is the original question. Depending on how quickly the audit and valuation will be completed, a potential daily penalty could be less painful dollarwise and timewise than a certain correction fee, accompanied by whatever rigamarole you go through with that process. Also note that by filing now, you're probably going to be considered timely for IRS purposes. The audit isn't an IRS requirement, so the return should be considered complete (except for the presumably small adjustments resulting from the valuation).

Musings------------ 1. File a return with the indication "final return" in Part I. Fill it out as a 403(b) return, ie only items 1-5 and 8 get filled out. But I see a possible problem with this. The DOL and/or IRS may communicate back regarding 1 or more glitches arising from the switch to the abbreviated reporting, though I can't think of any examples. I wouldn't do a final return with all the schedules. The minimum problems I see with that is having to indicate 0 participants at item 7 and 0 assets on the financial schedule. 2. Alternatively, write to both DOL in Lawrence, KS and to IRS Service Center Entity Unit in Ogen, UT. Ask them to delete the filing requirement that arose with the unnecessary prior filings. I wouldn't call this a red flag, though it obviously is drawing attention to the situation. If you go this route, I would follow up in a few months by phoning each agency to confirm they're showing a return is no longer necessary. Other than that, I'm thinking the business of opting out of certain government or church plan exemptions via the 5500 filing (see Form 5500 prior to 1999) or a determination letter indication is inapplicable to 403(b)s, or maybe even inapplicable to government plans altogether. In other words, I don't think a filing obligation was established via the act of filing 5500's previously.

Janet, does your company need a part-time retirement plan specialist?