Below Ground

Thanks for your 2 replies. I'm quite sure that under coverage testing these leased employees must be considered as employees. We also know that we can use contributions under the plan by the leasing organization for testing of the plan maintained by Company X. I reference the explanation of this topic as found on page 1-12 of "The ASPPA Defined Contribution Plan Series Volume 3: Advanced Compliance and Administrative Topics". I now see that I did not phrase my question properly. I was too broad in scope. Sorry. On this same page it notes that guidance on leased employees participating in the recipients plan is a topic that lack adequate formal guidance. For this reason (and others) I am not using a plan of the recipient for the leased employees. However, it does say that (1) we can count contributions under the plan of the leasing organization for testing applicable to the recipient's plan, and (2) we can have matching contribution under the recipient's plan based on deferrals under the leasing organizations plan. I have two questions. First, can we do a 401(k) Safe Harbor for the Recipient using deferrals under the leasing organization plan, with match going to recipient's plan? In effect, will the avodiance of testing still apply even though deferrals and match go to different plans? I know we can do this with a Nonelective 3% Contribution, but will this work with a Match? Second, are there other problems to be aware of when you have this type of arrangement in place. That is, what potential problems exist when you have deferrals under the leasing organization's plan but matching under the recipient's plan. Clearly, my original post was not clear in this regard. Again, sorry. Anyway, given my clarification, any suggestions would be appreciated. Thanks!

Company X has 10 employees. 2 are owners. 8 are leased employees. What are the problems with Company X having a 401(k) Safe Harbor Plan? Can leased employees defer to this plan or must they defer to a plan of the leasing organization? If they defer to a plan of the leasing organization can Company X contribute a Safe Harbor Match to this Plan using deferrals contributed under the leasing organization plan, or can they contribute the Safe Harbor Match to the leasing organization firm and get "credit" under the Company X Plan? I suspect that the best route would be the 3% Nonelective from the Company X Plan deposited to the leasing organization firm's plan. Any and all thoughts are appreciated. Thanks!

My 2 cents is that "it depends". I know that sounds like a cop out, but it is not. I suggest that it is different for every TPA, depending upon the way your service is defined. Ask yourself what is it that you can do. Do provide funds for deposit? Do you control the timing of deposits? Did you advise the plan administrator of what "being late" means? Did you advise the plan adminstrator that deposits where in fact late? Did you offer assistance for correction? If you have no power to effect a situation, how can you be responsible? That is the bottom line for the situation. Experience... We have a client that was very late, repeatedly. We told them they were late. We computed lost earnings. Did 5330. Offered to do VFCP Filing. They were audited by BOTH IRS and DOL. When they tried to lay responsibility on us with a private attorney we showed documentation defining our service role, and the actions we had taken. That ended the issue for us. I note that our role never was an issue with the audits, just the client trying to shirk responsibility. You do what you can, and document everything.

No takers?

Here's a new one, I think. Employer A is on the verge of bankruptcy. Operations were being kept a afloat using funds obtained from a bank note. Bank decides to sell the note to a 3rd party, who is not related in any way to the company or bank. 3rd party calls note and via foreclosure, seizes all company assets. 3rd party then restarts operations as a new firm using assets of old firm. Even hires a few of the old firm's employees. The old employer still exits on paper, but for intents is gone. Company maintained a 401(k) Plan, which has an outstanding value from a matching contribution. How does the preceding impact the Plan? Specifically, who is the sponsor and who owes the match and must pay cost of the Plan? I suspect that the preceding is an asset purchase making the old firm wholly responsible for the plan, with no liability for the 3rd party. Since Employer A has no money I also guess that the owners of Employer A could be liable for the match and costs of the plan. Is taking those monies from the accounts of the owner/participants feasible? As an in-service distribution? Can they forgo their match? Seems to be a real mess.

I feel I must preface my reply with a note that how much flexibilty can be employed under a multiple employer plan (MEP) is subject to a great deal of debate at this time. I am very interested in seeing replies to my post. To me your question is related to 2 concepts. Form of document, and how are compliance standards applied under a MEP. A MEP will typically employ a individually designed document. If changes to the document are not too extensive, you may also use Volume Submitter. Either way, you are not stuck with the boiler-plate language of the "master document", and you can make changes. For the most part, compliance issues must be reviewed after mandatory disaggregation of employers. That is, each Adoptiong Employer (AA) must stand on it own. There is no consolidation on a plan level basis. So, the first question is does the form of document used allow for the amendment desired. It is difficult to image a situation where this would not be true. Next, if the Plan was not a MEP, could the desired amendment be made to a stand alone plan for the AA? These issues, like impact on coverage, must be tested on a stand alone basis of the AA. For these purposes, terms like "Eligible NHCE" will mean from the workforce of the AA, not the entire population from all AA Firms. So, in theory, you can do what you want. That is, you can amend to be specific to an AA. In fact, you can have options between standard provisons for select by the firms. This means that each AA can have a destinctive plan design. You just need to make sure that the document form used can be amended in the manner desired. If not, get a different document.

You are not supposed to make that match. Matching contributions are not computed using excess deferrals/contributions.

Thanks Bird.

No takers on this one?

Why not? Outside of something in that specific Plan document, there is no prohibition of those contributions to any owner or family member.

When determining the value for calendar year 2010, is it correct that values used are as of 12/31/2010 (plan year end)? Also, when determining this value, instructions say "any other one life plan". I assume that this does include IRA values; but what about monies from an old SEP of the firm? I assume NO, since that type of Plan was not under 5500 reporting requirements.

Even though Prevailing Wage Contribution are Employer Contributions, it is my understanding that deposits should not be later than quarterly. I note that we always tell clients to deposit monies when credit is earned, and for the most part, this is what our clients do. There is of course always an exception, resulting in life being made interesting! Despite the fact that the Prevailing Wage Plan saves the Employer tons of money (payroll taxes, workers comp, etc...), this "exception" claims they can't afford to make the contributions, so they have yet to deposit credits earned in 2010! My feeling is that lost interest should be computed and credited, and maybe, payment of the excise tax applicable to late deferrals. Any thoughts on this are greatly appreciated. Thanks!

That was my suggestion at the end of the test. Let me know how well I did in specific areas (like they do if you fail) so that I could improve that area. Hearing that I passed is great. Also hearing what area could be improved would be even better.

Thank you very, very much for your replies. The protected benefit concern was something I totally forgot about. Again, thank you for all replies.

Thank you!

Thank you. I knew this but I just couldn't place where I read it.

That's what I thought, that you can't "cross lines". Am I correct that you also can't change a DCP into a DBP?

I seem to recall that you can't amend a DBP to be a PSP, or a DCP into a DBP. Right?

If the only contribution being allocated is safe harbor contributions, the plan gets a "pass" on the Top Heavy Minimum. Make sure the plan is safe harbor for ACP too. If so, then the only contributions under the scenerio defined will be safe harbor contributions. That is, deferrals and matching that is exempt from ACP Testing given 401(k) Safe Harbor Status.

Thanks!

Firm maintains both a DBP and DCP, which cover the same employees. Since the DBP is covered by PBGC the firm can deduct the amount needed to fund the DBP, PLUS 25% of covered pay under the DCP. If, however, the DBP was NOT covered by PBGC then the "25% Limit" would apply. By 25% Limit I mean that the maximum deductible contribution would be 25% of covered compensation, but not less then the amount needed to fund the DBP. For this computation, we can ignore the 1st 6% of pay that the firm contributes to the DCP. Did I state that correctly?

Thank you very much. If I understand this right, being under a qualified plan has no impact. A person can be limit on how much, but only based on AGI level.

K2 - Therein lies the crux of the matter. I, having nothing to do with IRAs, do not find myself confident in making a reply. Having stated this to the person with the question, I decided to post this question to fill that huge gap in my knowledge. From what I am gathering, there is no impact. Is that correct? Thanks!

Thanks Lou. The Roth IRA Contributions were for 2010. It seems that scheduled, periodic contributions ($ cost averaging) were made during the year. Then, stopped when person learned a 401(k) plan would be put in by the employer. Is there a general rule for this topic? Again, thanks!

Earlier in this 2010 calendar year, an individual was making contributions to a Roth IRA. The Employer has just established a 401(k) Plan that includes both Traditional and Roth Deferrals. Can the person now contribute under the new 401(k) given the contributions made to the Roth IRA?