Below Ground

Provided that there is no controlled group issue, simply stated, go for it. Just keep in mind that the IRC 402(g) Limit (maximum deferral) is an individual limit that applies to all plans a person may be in. IRC 415 Limits are not.

5500 Lines 8(a) and 8(b) use Code 3C if plan is NOT qualified. Other codes also define the plan, somewhat. 5500 filings can be easily obtained from FreeErisa.com. Just a thought.

Company X has sponsored a stand alone 401(k) Plan for several years. Now, Company X wishes to "do away" with its stand alone plan and adopt a multiple employer plan. If Company X adopts the Multiple Employer Plan, do the account balances of the existing stand alone plan need to be transferred into the Multiple Employer Plan? Or, could that existing stand alone plan be terminated with balance paid out to members? I believe that under "successor plan rules", balance need to be transferred to the Multiple Employer Plan, but am foggy on that specific topic. Any help would be greatly appreciated.

Thanks Tom! That really cleared up one final concern I had. Beautiful! Thanks!

Found the answer to my own question. According to the McKay Hochman FAQ Section, this issue was clarified by the Final 401(k) Regs. They say... #1 Monies are NOT considered available until end of tax year. I believe this means that no prefunding is allowed. #2 Provided that a written election was made before the end of the plan year, the deposit deadline is the due date of the applicable tax return, plus extensions. (Thanks Lori!) Anyway, thanks for your replies.

Tom, thanks for the cite. Could you quickly summarize for me?

What is the last day on which a Sole Proprietor can deposit his or her "salary deferral" to a 401(k) plan? I understood that this is not the standard timing as used for employees. Is it 2 1/2 months after the plan year ends, provided that it is from income of that period, and a written election for the deferral was filed before the close of the plan year?

Firm desires to merge their existing 401(k) Plan into a Multiple Employer Plan. Existing plan has loans but Multiple Employer Plan does not. The question is what should be done with several outstanding loans under the existing plan?

Assuming that I understand what has happened... I think you may be confusing "allocated" with "deposited" to individual investment accounts. Allocation is based on the 2005 data, calculating individual allocation values, which resulted in the contribution being deposited to a brokerage account that I assume was owned by the trust. What is left is division of that account into individual investment accounts which has nothing to do with annual additions of 2007. I assume that you know what the individual allocations of contribution are (using 2005 data). Assuming that I am understanding the situation, terminated employees need an account established from which they would be paid their vested balance. Keep in mind that these people do have "rollover rights" depending upon the value due to them. You should not do "this" outside the trust.

A potential problem with amending the plan to make that person eligible is that this may make other people eligible, and could adversely impact testing. (Restructuring could help here.) Beyond that, do you now need to make a contribution to those people to reflect that they were not made aware of their right to defer under the plan? "Vicious circle" is an appropiate description. I have yet to see any position that does not have problems.

I suggest that you visit ASPPA.com at www.aspa.org. They have several publications, including the ERISA Outline Book. You may also wish to visit Aspen Publishers where you can find the "Answer Book Series". I do, however, suggest that you rethink your position. The potential costs of mistakes and/or omissions can be be staggering. The task I think you are attempting is not a simple thing. Your use of "slowly putting together" may be an indications that the size of the endeavor is starting to become apparent. Why "reinvent the wheel", especially one that is so brain numbing in complexities? Anyway, good luck. Hope the above helps.

You may want to rethink what is being done. Keep in mind that a person can have his or her balance restored if he or she returns to work. Did the person even have a Break in Service? If no, and the person returns to work, you may have a problem if you move forward with "immediate forfeiture". There is a reason why plan language typical requires at least a One Year Break in Service. Our approach when designing plans always uses the "5 Year or Payout" that Janet M refers to. While I can't say this method is required, I think any other way has too much potential for problems. Just offering "food for thought".

I see that I was not clear with my question. I was asking what happens if the person does not elect out of the "automatic deferral" and the employer fails to apply to the automatic deferral to that person's paycheck. Let me provide an example to insure clarity. Employee will be eligible this coming July 1st. Prior to this date Employer provided a notice describing the Plan and a Salary Deferral Election Form. Since the Plan includes automatic enrollment (with an automatic 3% salary deferral to the Plan), the Employee is told that if he/she does not return the Salary Deferral Election Form, 3% will be automatically withheld from that person's paycheck. To avoid this deferral the Employee can return the Salary Deferral Election Form with an election of zero for deferral (aka negative election). Again, the question was what happens if the Employee does not return an election and the Employer does not apply the 3% Salary Deferral as defined under the automatic enrollment. Is the Employer required to make a contribution on behalf of Employee to "make up" for the lack of the "3% Deferral"? From other sources I have learned that the answer is "yes". Also, I learned that by use of 6% you could simplify the deferral escalation requirements of the "safe harbor option". Thanks DW! Hope this clarifies my question Hyper. Let me know if you have a different opinion on the answer to the actual question. Thanks for your original post.

Client is considering adding an automatic enrollment provision. This provision will NOT include the automatic escalations defined in PPA. Those provisions are viewed to be administratively burdensome to apply with a large, turn-over prone workforce. Looking at this problem one can see why concern is appropriate for that type of population. Another question is what happens if an eligible person does not return the "negative election" and the employer does not apply the "automatic deferral" (eg. 3% deferral) to the person's paycheck? Does the employer need to contribute a special contribution for this person to make up for the "automatic deferral" not applied to this person's paycheck? Thanks for your input!

What I'm "getting" is that recharacterization doesn't mean that testing did not fail. Instead, there just is nothing to distribute since the monies are now Catch-Up. I guess that this means that the second required condition of "no ADP test failure" is not met. (Point shifting is then not available.) Too bad since this would really help with quite a few plans. Anyone feel I am wrong?

I suggest that if a person had pay during the testing year from which they could defer to the plan, that person was eligible to defer for that year and should be included in the testing.

Plan has both ADP and ACP using Current Year Method. Understand that you can shift Elective Contributions from ADP Testing to ACP Testing to help pass ACP Testing if 1) plan is required to pass ADP Testing, and 2) the ADP Test is satisfied when you include the Electives being shifted to ACP Testing. Question is related to second criteria. What if ADP Testing initially fails, but testing does not "actually fail" since Catch-Up Contributions are applied to Excess Contribution Amount; thereby eliminating Excess Contributions. I note that no amount of Catch-Up was needed for IRC 402(g), and that only $3,000 of the $5,000 allowance was used for ADP Testing. Can you still shift Elective Deferrals to ACP Testing, provided that the shift does not create Excess Contributions under ADP Testing?

... but a nonelective contribution can be counted.

No allocation, including forfeiture amounts, means nothing to test.

For the short term you should be okay with "Good Faith Compliance Amendments". Of course, I would try to get the Client to switch over to the document you use ASAP.

Carol, nearly all plans have additional language that is exclusive to proprietors and partners (typically earned income). As for the original question, I really don't know but I would suspect it involves impact of deferred or fringe pay. Sorry.

Not only is that person dead, but dead in another country! While this is not important I thought I would just add that fact.

Wow! That is a long and varied trail. Having read most of it (my eyes started to bug out), I surmise that the employer should first employ the "IRS Locator" or "SSA Locator" service to begin a paper trail of showing a good faith attempt to locate the person. Then, when the person is not found, handle as you would whenever a person can't be found. (They have already taken several steps to find the person, but to no avail. We also know SSA is already looking for this person, and has not yet found.) If, however, the person is found, get legal counsel before doing anything. Sound reasonable?

Individual was hired and worked for a company for a number of years. During this time person did deferrals and received employer contribution under qualified 401(k) Plan. Person is 100% vested. (We are talking about a long emploment.) Problem becomes known after person terminates emploment and "disappears". Turns out that person's documentation (social security card, birth certificate...) were fraudulent! How does this become know? Social Security Administration contacts employer to alert the firm that it appears that person was using social security number of dead person! Beyond all other related problems, what should be done with monies held for this person under the 401(k) Plan?

WDIK is correct. The 120 Rule is not a one time exemption. An I can be used until they reach the 120 mark.