MoShawn

Employer pays premiums to a third party insurer to pay short term disability to employees. Third party makes the payments to the ees. Third party sends quarterly statements to the employer detailing what benefits were paid and the FICA withheld. Employer adjusts W-2 at year end to reflect the amount paid and the taxes withheld. Can these payments be excluded from plan compensation without doing the compensation ratio test?

I don't believe you can put an hours of service requirement on a top heavy contribution, correct?

My thanks to all who have responded. Essentially, "Mr. Geezer" (I like that) cut back to about 600 hours per year, is sticking around just so that he isn't sitting around with nothing to do, and apparently doesn't want to be bothered with the plan any longer. The client stated that the participant brought in the quarterly statement that he received at his home to ask why he is still getting money. That is why I have no doubt that this is being requested by the participant. This is already a new comp plan with each individual their own group for allocation purposes. The issue is that the plan is top heavy, which requires a contribution, and which in turn triggers the gateway. I was hoping for a way to exclude him to avoid all this.

JanetM: My concern is, as mjb stated, that IRS/DOL could come back and cry age discrimination. However, this is being requested BY THE EMPLOYEE. (This is not an IRA, Roth IRA, SEP or SIMPLE, so I think the charitable distribution is out.) david: No, he is not HCE. Kabert: This is what I'm leaning toward at this point. Amending to make this employee excluded (or ineligible for any further contributions) and having both him and the employer sign something stating specifically that this is being done for no other reason than the employee's request. Does anyone see a problem in proceeding this way? (Personally, I'm having a hard time figuring out why this employee wants to opt out of free money.)

I have a client that is asking why an older employee (85) is still receiving a profit sharing contribution when he "closed out his participation in the plan". (He was fully distributed, not terminated.) The plan is top heavy and crosstested, so the employee receives the greater of the top heavy minimum or the gateway. Client now wants to exclude him from the plan. My only concern is that he is 85 years old. He (the employee) has stated that he doesn't want to receive any further contributions. In the event that there were a DOL or IRS audit, what are the chances that this would become an issue if the employee is the one saying he wants out? (Plan passes coverage/non-discrimination easily without him.)

Situation with prospective client. Owner's son works for the company, earns more than $105,000, and owns more than 5% of the stock. This is a company in the construction industry and excludes union employees. The son currently is a member of a union and accrues benefits under the union pension plan. Can he be covered under the 401(k) plan without covering all union employees? It would seem that you cannot have a collective bargaining agreement with benefits the subject of "good faith" bargaining when one of the individuals is also an owner of the company? Any opinions/suggestions?

Why would the 2 plan route be better? I'm looking at an organization with 15 employees here, with no possibility of an annual audit. If I can have a non-ERISA church plan and skip the ADP test and 5500 while providing crosstested employer discretionary contributions all in 1 plan, why would I go with 2 plans? I apologize if I'm missing something obvious. This is my first foray into the 403(b) realm after 8+ years of 401(a) administration.

What do you mean, "not so for gov plans or church nonERISA plans"? Is 401(a)(4) testing not required or not available? Currently reviewing a non-ERISA church 403(b), and trying to determine if they would be better off as a 401(k) plan. As I understand so far, church 403(b) plan would have no ADP test (assuming universal availability), no Form 5500, and could still use new comparability? Kind of sounds like a no-brainer.

New plan with an initial effective date of 10/1/07. Plan has 3% SHNEC with additional ps. Using accrued balances, plan is top heavy for 12/31/07. Document says "For a Participant's initial year of participation, Compensation shall be recognized for the full calendar year." 1 - Is the comp limit pro-rated to $56,250 because of the short plan year? 2 - Are the top heavy minimum and safe harbor contributions based on compensation earned between 10/1/07 & 12/31/07, or is it the full 12 month period ending 12/31/07.

We are considering adding a plan imposed limit on HCE deferrals for a plan we administer. Has anyone seen an instance where the actual percentage limit is not specifically written into the plan? Can it be stated as a formula (i.e. "the actual deferral percentage of the NHCE group from the prior plan year, plus 2%"), or even as "an amount to be determined each plan year by corporate resolution"? Would any elective deferrals over this limit be able to be re-classified as catch-up contributions?

We are considering adding a plan imposed limit on HCE deferrals for a plan we administer. Has anyone seen an instance where the actual percentage limit is not specifically written into the plan? Can it be stated as a formula (i.e. "the actual deferral percentage of the NHCE group from the prior plan year, plus 2%"), or even as "an amount to be determined each plan year by corporate resolution"?

Your argument disregards A-20: (a)(2) Loans that repay a prior loan and have a later repayment date. in Treas. Reg. Section 1.72(p)-1, Q&A 20.

How. Please provide some detail.

5 years from the current date. I realize this is beyond the maturity date of the existing loans. That is why I am considering the balance of the 4 current loans plus the balance of the new loan against his loan limit.

I think I'm ok under that Reg. Vested balance is $100,000, so maximum amount of loans permitted is $50,000 reduced by the difference between the high balance in the last 12 months and the current outstanding balance: 50,000-(30,900-24,300) = 50,000-6,600 = 43,400 Since the replacement loan will extend beyond the maximum payoff date of either replaced loan, I have to include all loans as outstanding on the date of the refinancing: 4,500+12,400+3,300+4,100+16,500=40,800 Thus the total amount considered outstanding on the refinancing date will be less than the maximum amount permitted, and ok under 72(p), no? Am I missing something?

The following seems to work out mechanically. Any disagree? Participant has 4 outstanding loans: #1 Balance of $4,500, max payoff date of 5/30/2012, payment of $48 #2 Balance of $12,400, max payoff date of 8/15/2010, payment of $184 #3 Balance of $3,300, max payoff date of 9/16/2009, payment of $62 #4 Balance of $4,100, max payoff date of 9/29/2008, payment of $142 Total current balance of $24,300 Total payment of $436 per pay High balance in last 12 months of $30,900 Current total account balance (including loans) of $100,000 Current amount available for loan is $43,400 (50,000-(30,900-24,300)) New loan of $16,500 to refinance #2 and #4 (because of high payments) Total current balance of $24,300 plus the new $16,500 equals $40,800 Since this is less than the $43,400 from above, he is permitted to repay the new loan over 5 years. This works out to approximately $147 per pay (6% interest), for a total payment after refinancing of $257 per pay (saves $179).

I am on the receiving end of this issue, and just want to confirm. I have a participant whose spouse recently passed away. She wants to roll his 401(k) and IRA accounts into her plan. She is the sole beneficiary, and is 43 year old, so presumably the spouse died prior to his RBD. I do not doubt that she can roll his accounts into the plan, but in the case that she should remain with the company for a while, would everything remain under his RBD and life expectancy, or change to her RBD and life expectancy?

I've seen other topics like this on this board, but I think they all dealt with deferrals permitted for the remainder of the calendar year. My circumstances are a little different. 11/30 Plan year end No catch-up contributions for 2006 as of 11/30/06 or 12/31/06 (i.e. not over 402(g) or 415 limits, and no reclassed ADP refunds at 11/30/06). Participant defers $692 in December 2006. Participant defers $19,847 between 1/1/07 and 11/30/07. Total deferrals of $20,539, of which $4,347 is reclassified as 2007 catch-up (402(g)). Plan fails ADP Testing for 11/30/07. Required refund for this participant is $1,148. Remaining catch-up for 2007 is $653, leaving a refund amount of $495. Can I reclassify $495 of the $692 deferred in 12/06 as catch-up as a result of the failed ADP Test at 11/30/07?

I have a current participant in a 401(k) plan who turned 70 1/2 in 2007 (not a 5% owner). Formerly worked for the USPS and still has a balance there. The USPS sent him a letter saying that he now needs to take RMDs. Am I reading correctly that he could take the RMD for 2007 and roll over the remaining balance from USPS to current employer's plan and delay further RMDs until after his retirement from current employer? Plan does allow rollovers, so no problem there. Thanks in advance.

Do you know of anywhere that this has been stated? What happens if it is deemed invalid under audit?

I have a participant requesting a hardship distribution, but am having trouble determining if it qualifies. Plan does not permit loans, there are no other in-service withdrawals, and hardships are limited to elective deferrals. Plan uses safe-harbor standards for hardship. His reason for taking the hardship is an upcoming surgery that will have him out of work for 3-4 months. However, the only thing he has on-hand to determine "immediate and heavy financial need" is his monthly mortgage and property tax statements, which don't qualify under safe-harbor standards. His argument: "If I don't pay these, I'll get evicted or foreclosed." Is this a valid argument?

Does this mean that a lump sum distribution to a non-spousal beneficiary is not subject to the mandatory 20% federal income tax withholding?