PLAN MAN

Can someone please explain the big picture to me? How did the plan sponsor keep making deposits if the external payroll service stopped withholding deferrals? Where did the funds come from for the plan sponsor to deposit? Sounds to me like a bigger issue than just an excess. By its actions, did the plan sponsor deposit an employer non-elective contribution to the participant's account? If the money did not come from the participant's check what do you call it? I agree, this is an administrative violation and calling it a mistake of fact won't fix it.

Sounds like this can be settled with good plan design. What about new hires? If you exclude certain divisions or locations now, will it be clear that any employee hired into one of the excluded groups will not be eligible? If the excluded group is large, you may have discrimination problems if HCEs participate at a later date.

I agree with the others. It is great to have a plan sponsor involved and concerned. Adding my two cents, in general I would be sure to document the reason for the delay in your plan files. That way, if you are ever audited, you have all the information right there.

You must follow the terms of the plan document with regards to distribution to a non-spouse beneficiary. If the plan provisions do not require a distribution after a particular time following the participant's death, then you cannot force the distribution. If the beneficiaries are known to the plan administrator, then there is not a "missing participant".

If the plan fails minimum coverage for 401(m), how did you run the ACP test? Did you include a QNEC for those employees excluded under the plan's allocation provisions?

Keeping records of employees who returned enrollment forms with 0% salary deferral or checked a box indicating they did not want to participate in the plan is something to keep in mind if you ever decide to add automatic enrollment to the plan.

As I understand things, if the plan cannot obtain spousal consent and waiver of the QJSA for the already distributed benefits, then the spouse, upon the death of the participant, has the right to contact the plan and request the annuity payments due them under the original QJSA. If the spouse dies first, or if they never contact the plan, then the plan has nothing more to do.

What do the plan's written QDRO procudures say about a pending DRO and the plan placing a hold on the participant's account? Some procedures only permit the plan to place a hold after the DRO is received, others may permit the hold once the plan administrator is notified of the pending divorce. Always go with what the plan documents say. The plan administrator does not want to be in a position where they can be sued by the alternate payee for allowing the participant to remove assets from the plan.

I'd say the missed contribution is deductible as an employer contribution in the year contributed. However, I think the income is treated differently. This would not be considered an employer contribution, but could be treated as a regular business expense.

The eligibility rules include testing. You should focus on the rules under code section 410(b) and the coverage testing.

If the trustee is a fiduciary of the plan and the plan sponsor is named as trustee, are all the officers of the company considered plan fiduciaries? How do you determine who has fiduciary responsibility/liability for plan assets? Naming a trust company with deep pockets seems like the better way to go.

A couple of comments make me nervous. First, I don’t think there is any authority in the regulations that allow a plan to forfeit the nonvested portion of a participant’s account at the end of the plan year in which employment is terminates. There must be an event that triggers the forfeiture, either the participant takes a full distribution of their vested account balance or the participant has five consecutive breaks-in-service. Until one of these events, the participant’s account cannot be forfeited. Second, I don’t see where it is permitted that a plan can limit the buy-back option to pre-tax amounts only. The code provisions state the participant must have the right to repay the previously distributed amounts – limiting the repayment to pre-tax money seems to be reading too much into this. JanetM has the IRS reviewed this particular provision? For administration purposes, it is much easier to refuse after-tax money, but can the plan really do that? Finally, don’t forget to restore the account balance of a rehired 0% vested participant who was deemed to receive a cash-out distribution upon termination. This participant is now deemed to have repaid that distribution upon their rehire.

First, when wouldn't you count all prior service? All service with the employer counts for eligibility (except for break-in-service provision in the plan). Second, if you go with an open enrollment solution (i.e., allow anyone employed on 1/1/07 into the plan on 7/1/07) you may have a coverage issue if one of the original employees fails to eventually earn a year of service. Coverage testing would require the using the least eligibility requirement imposed by the plan. Third, if you use the nine month approach (i.e., eligibility is age 21 and nine months of service) an employee is not required to earn any hours of service to be eligible to enter the plan - just be employed 9 months after their initial hire date. This allows part-time employees to participate in the plan where a 1-year/1,000 hours requirement may keep them out. Does this change how the doctor expects the plan to operate?

To quote you: "Yes, that is correct. I just want to make sure that my 401k administrator is advising me correctly. They are stating that the discretionary profit sharing must be given to all eligible particpants, wheter they are deferring contributions or not, according to IRS regualtion and not my adoption agreement elections. So, they are stating that if an eligible participant declines to participate in deferring money for retirement, they will still need to enroll in the plan to receive the discretionary profit sharing. Does this sound correct?" The answer is, 'It depends'. It depends on the type of prototype document you have and what elections you make in the adoption agreement. First, it is correct that who receives an allocation of the discretionary profit sharing contribution cannot be based on if the participant makes salary defereral contribution or not. Under IRS regulations, any contribution that is based on the participant making salary deferral contributions is considered a matching contribution. Second, if you are using a 'Standardized Prototype' document for your plan, then there are restrictions included in the basic plan language that determine who receives a profit sharing contribution. Under a standardized plan, any employee who has met the eligibility requirements and is employed on the last day of the plan year is eligible to receive a profit sharing contribution (even if they do not make salary deferrals) AND any participant who terminates at any time during the plan year with over 500 hours of service (including vacation time and sick time) is also elgible to receive a profit sharing contribution. You do not have an option to change these requirements. Under a plan document other than a standardized prototype, the plan sponsor has more options. You can have different eligibility requirements for when an employee qualifies to make salary deferral contributions and is eligible to receive a profit sharing contribution. This way an employee can make salary deferral contributions sooner than they are eligible to receive a profit sharing contribution. Also, the plan can be written to require an employee who has met the eligibility requirements for a profit sharing contribution, to satisfy additional service requirements (for example, be employed on the last day of the plan year and/or work 1,000 or more hours of service during the year) each year to actually receive a profit sharing contribution. As you can see, it depends on how your plan document is written.

As we know, terminating plans are required to be amended for all relevant law and regulation updates in effect as of their termination date. Under PPA, some provisions are optional and others are required. If the plan sponsor has made any changes to the operation of the plan in accordance with PPA, then a plan amendment is necessary to reflect these changes. A good faith effort should be followed to adopt any amendment. (who knows what the IRS will require?) SunGard Corbel has a good article on this issue, "Terminating a Defined Contribution Plan in 2006 or 2007: Do I Need to Amend for PPA?" see: SunGard

Forget reading the regulations....What does the plan document say? I'll bet it says a nonkey employee includes a participant who is eligible to defer, but does not. The lanuage in the plan document should be all the proof you need to determine the TH contribution. Yes, WDIK, the TPA should know this.

First, I don't see how the TPA could be liable for making the TH contribution. As plan sponsor, the employer is the responsible party for making any TH contributions - and getting a deduction. I don't think any plan document would permit contributions by the TPA. I agree with the previous comments, if the plan is top heavy or not - does not depend on the TPA's actions. That being said, as wsp wrote, this is a good example of poor communication/understanding. I'm sure the employer is relying on the TPA to explain to them the status of their plan and to advise them of any potential issues based on that status. If the TPA failed to timely alert the employer that the plan was approaching TH status and the impact that has, the employer may have a case that the TPA failed to provide adequate services. The employer could demand that the TPA reimburse them for any contributions required due to TH status. That is different than the TPA actually making the TH contribution.

I know we are all waiting for the DOL's words of wisdom on the Qualified Default Investment Alternative, but does anyone have an idea when we may see guidance on the Investment Advice provisions under PPA? Is anybody operating with a level-fee arrangement qualified under PPA? Thanks.

Copied from www.dol.gov: 29 CFR 2530.200b-3 - Determination of service to be credited to employees. (a) General rule. For the purpose of determining the hours of service which must be credited to an employee for a computation period, a plan shall determine hours of service from records of hours worked and hours for which payment is made or due or shall use an equivalency permitted under paragraph (d), (e) or (f) of this section to determine hours of service (f) Equivalencies based on earnings. (1) In the case of an employee whose compensation is determined on the basis of an hourly rate, a plan may determine the number of hours to be credited the employee in a computation period on the basis of earnings, if: (i) The employee is credited with the number of hours equal to the total of the employee's earnings from time to time during the computation period divided by the employee's hourly rate as in effect at such times during the computation period, or equal to the employee's total earnings for the performance of duties during the computation period divided by the employee's lowest hourly rate of compensation during the computation period, or by the lowest hourly rate of compensation payable to an employee in the same, or a similar job classification, reasonably defined; and (ii) 870 hours credited under paragraph (f)(1)(i) of this section are treated as equivalent to 1,000 hours of service, and 435 hours credited under paragraph (f)(1)(i) of this section are treated as equivalent to 500 hours of service. For purposes of this paragraph (f)(1), a plan may divide earnings at premium rates for overtime by the employee's hourly rate for overtime, rather than the regular time hourly rate. (2) In the case of an employee whose compensation is determined on a basis other than an hourly rate, a plan may determine the number of hours to be credited to the employee in a computation period on the basis of earnings if: (i) The employee is credited with the number of hours equal to the employee's total earnings for the performance of duties during the computation period divided by the employee's lowest hourly rate of compensation during the computation period, determined under paragraph (f)(3) of this section; and (ii) 750 hours credited under paragraph (f)(2)(i) of this section are treated as equivalent to 1,000 hours of service, and 375 hours credited under paragraph (f)(2)(i) of this section are treated as equivalent to 500 hours of service. (3) For purposes of paragraph (f)(2) of this section, an employee's hourly rate of compensation shall be determined as follows: (i) In the case of an employee whose compensation is determined on the basis of a fixed rate for a specified period of time (other than an hour) such as a day, week or month, the employee's hourly rate of compensation shall be the employee's lowest rate of compensation during a computation period for such specified period of time divided by the number of hours regularly scheduled for the performance of duties during such period of time. For purposes of the preceding sentence, in the case of an employee without a regular work schedule, the plan may provide for the calculation of the employee's hourly rate of compensation on the basis of a 40-hour workweek or an 8-hour workday, or may provide for such calculation on any reasonable basis which reflects the average hours worked by the employee over a representative period of time, provided that the basis so used is consistently applied to all employees within the same job classifications, reasonably defined. (ii) In the case of an employee whose compensation is not determined on the basis of a fixed rate for a specified period of time, the employee's hourly rate of compensation shall be the lowest hourly rate of compensation payable to employees in the same job classification as the employee, or, if no employees in the same job classification have an hourly rate, the minimum wage as established from time to time under section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended. (4) Examples. (i) In a particular job classification employees' wages range from $3.00 per hour to $4.00 per hour. To determine the number of hours to be credited to an employee in that job classification who is compensated at a rate of $4.00 per hour, a plan may divide the employee's total earnings during the computation period for the performance of duties either by $3.00 per hour (the lowest hourly rate of compensation in the job classification) or by $4.00 per hour (the employee's own hourly rate of compensation). (ii) An hourly employee's total earnings for the performance of duties during a vesting computation period amount to $4,350. During that calendar year, the employee's lowest hourly rate of compensation was $5.00 per hour. The plan may determine the number of hours to be credited to the employee for that vesting computation period by dividing $4,350 by $5.00 per hour. The employee is credited with 870 hours for the vesting computation period and is, therefore, credited with a year of service for purposes of vesting. (iii) During the first 3 months of a vesting computation period an hourly employee is paid at a rate of $3.00 perhour and earns $675 for the performance of duties; during the next 6 months, the employee is paid at a rate of $3.50 per hour and earns $1,575 for the performance of duties; during the final 3 months the employee is paid at a rate of $3.60 per hour and earns $810 for the performance of duties. The plan may determine the number of hours to be credited to the employee in the computation period under the equivalency set forth in paragraph (f)(1) of this section either (A) by dividing the employee's earnings for each period during which the employee was paid at a separate rate ($675 divided by $3.00 per hour equals 225 hours; $1,575 divided by $3.50 per hour equals 450 hours; $810 divided by $3.60 per hour equals 225 hours) and adding the hours so obtained (900 hours), or (B) by dividing the employee's total compensation for the vesting computation period by the employee's lowest hourly rate during the computation period ($3,020 divided by $3.00 per hour equals 1,009\2/3\ hours). The plan may also divide the employee's total compensation during the computation period by the lowest hourly rate payable to an employee in the same, or a similar, job classification. (iv) During a plan's computation period an hourly employee's total earnings for the performance of duties consist of $7,500 at a basic rate of $5.00 per hour and $750 at an overtime rate of $7.50 per hour for hours worked in excess of 40 in a week. If the plan uses the equivalency permitted under paragraph (f)(1) of this section, the plan may adjust for the overtime rate in calculating the number of hours to be credited to the employee. Thus, the plan may calculate the number of hours to be credited to the employee by adding the employee's earnings at the basic rate divided by the basic rate and the employee's earnings at the overtime rate divided by the overtime rate ($7,500 divided by $5.00 per hour, plus $750 divided by $7.50 per hour, or 1,500 hours plus 100 hours), resulting in credit for 1,600 hours for the computation period. (v) During a plan's vesting computation period an employee's lowest weekly rate of compensation is $400 per week. The employee has a regular work schedule of 40 hours per week. The employee's lowest hourly rate during the vesting computation period is, therefore, $10 per hour ($400 per week divided by 40 hours per week). During the vesting computation period, the employee receives a total of $7,500 for the performance of duties. The plan determines the number of regular time hours to be credited to the employee for the computation period by dividing $7,500 by $10 per hour. The employee is credited with 750 hours for the computation period and is, therefore, credited with a year of service for purposes of vesting. I hope this helps.

For vesting purposes, the plan can be written to disregard years of service before the year the plan was established. Under this provision, any service earned before 2008 would not count for vesting and all employees (except those at normal retirment age) would be 0% vested as of 1/1/2008. (Remember, this rule does not apply to eligibility.) If there is a predecessor plan, certain service may not be disregarded. See the regs. under section 411 for more information.

Doesn't the Code define a vesting computation period as a 12-consecutive month period in section 411? I don't see how you can get around that requirement and count hours over a larger period of time. Also, how do you explain the employee being fully vested after 5 years when being credited with 200 hours per year (200 x 5 = 1,000)? It looks to me the only way to count time without any hours requirement is to use elaspsed time. As long as an employee stays employed they would earn vesting credit each year.

I think you are looking for an answer in the wrong place. There are certain requirements in the Code that must be met in order for a profit sharing/401(k) plan to not be subject to the QJSA rules. One of those requirements is the plan must require the participant's spouse be the 100% primary beneficiary of the participant's account unless the spouse consents to the naming of another beneficiary. Congress was very concerned that nonworking spouses would be left without any benefits if the participant died before retirement. So it is either QJSA or 100% primary beneficiary for the spouse. I hope this helps.

This is definitely a coverage issue. Under the regs. 1.410(b)-6(b)(2), the exclusion for employees who fail to satisfy the plan's service requirements is applied to the lowest requirements applicable to any employee benefiting under the plan. As I understand it, if the owners were not required to satisfy any service requirements, then the other employees are tested as if they are not required to satisfy any service requirements and they would be treated as eligible but not benefiting under the coverage testing. From the regs: "those employees who fail to satisfy all of the different sets of age and service conditions are excludable employees with respect to the plan"

"Participant received distributions in 2006 exceeding the value of the RMD due to her on or before April 1, 2007. Has she fulfilled the requirement?" Were the distributions made in 2006 paid directly to her or were they direct rollovers? If paid directly to her, did she rollover any of those distributions within 60 days of receipt? RMDs are not eligible for rollover so you must be sure. Under the regs., the first distributions made in 2006 should have been used to satisfy the RMD for that year. If the rules are followed, you do not have this issue. (1.402©-2, Q&A-7).

Whew, there is alot of discussion in that other topic. I think some more information is needed to address saotampa's question. If the client did already file the corp. tax return, did they deduct any ps contribution? If not, they must file an amended return to deduct any contribution they make. It is my understanding that the ps contribution can be contributed to the plan by the due date for the tax return, regardless of when the return is actually filed. So, do they have an extension or are they going to file for an extension? If not, I say ps contribution should be deposited by 3/15/2007. If there is an extension, then the ps contribution can be deposited by the extension due date. Code section 404(a)(6): (6) Time when contributions deemed made For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).