12AX7

From what I've been reading in an ASPPA ASAP, a one participant plan that elects to file Form 5500-SF does not have to meet the same investment restrictions as a non-one participant plan. Also, only certain lines on the SF need to be completed. Therefore, it seems that the 5500-SF would be an option, but again it opens to form to public disclosure on the DOL's website.

I personally would not use an SF (where permitted) and compromise the anonymity of a client's filing. I've also read that the the 2009 EZ may not be available for several more months, perhaps for the reasons that you have stated.

I take your question to mean the 2009 Form 5500-EZ. By that assumption, there is no EFAST2 equivalent and paper forms must be used. Alternatively, an "EZ Filer" may file using Form 5500-SF, however that would make the filing available to the public for inspection. I'm not aware of any changes for the 2010 Form 5500-EZ, so perhaps one of the experts could expand on that one.

Thanks for the explanation. The paradox will always be there.

In deference to LRM 94, could someone please explain how the deemed CODA is avoided for a Sole Prop where this person is in their own allocation group?

Two employees had (k) contributions during 2009 in a Safe Harbor Match plan prior their date of participation. The client would like to have a corrective amendment done so that these employees can keep their (k) contributions in the plan. Is there flexibility to have the amendment only allow for the (k) contribution and not the SH Match? I understand the possible Top Heavy implications.

From a participant's perspective, I can understand the emotional impact of something like this occurring, but it would not justify (to me) allowing the conribution to "stick" where it had not been accrued. What about a situation for example where a participant was allocated $2,000 in excess of the correct amount and this would require a similar action? On the surface, these two examples appear the same to the participant and in both examples, we have forfeited the excess allocation. What about a corrective amendment to remove the allocation conditions, or was this an isolated incident that occurred to one or a few participants for the year?

I would see this situation as a failure to follow the terms of the plan. The employer should not have discretion to override any provision of the plan, unless through perhaps a corrective amendment. In my opinion it wouldn't be a cutback where the participant would not have otherwise accrued the contribution.

Austin - if the definition of comp were amended to one that meets 414(s), are you saying it would kill the SH for any future year?

With the exceptions of Partners, this is a good argument for having each participant in their own allocation group. This may not solve your current issue, but we've found this helpful because the documents we use leave room for interpretation as well.

Would you not have a failure to follow the terms of the plan? Could a corrective amendment be done where the participant refuses to payoff the first loan, but then all participants would be allowed a second loan and the sponsor may not go with this idea. Is the payoff of the first loan a small balance? I don't see an easy solution, however maybe it's possible to take some of the payment from Loan 02 and payoff Loan 01 quickly and refinance Loan 02 to a longer term (if possible) so that the remaining payments will fit into a new term. This is all somewhat klunky work for a non-cooperative participant.

I'm not aware of any limit in the number of times a Top Paid Election may be changed. Since the change is a discretionary amendment, it must be in place by the end of the plan year for which the change becomes effective. IRS has commented on this issue several times in the recent past.

Maybe I'm getting a little off-track on the issue, but I don't think this could ever be a 414(s) issue, even if comp excluded bonuses for deferral purposes. It seems that the terms of the plan were violated and perhaps correction is needed as Belgarth suggested.

You're right. I misread "SH" as "TH". My bad.

There would be no cutback if the contribution had not yet been earned or accrued (e.g. last day requirement) at this time. In either event, I like your idea but never had the chance to implement it. Not sure how many owners would only want to make only a contribution to the employees.

If no one has made any deferrals during the plan year and if there are no other contributions or allocations to the plan (including forfeiture allocations) to a key employee, then no Top Heavy minimum is required to any other eligible non-key employee (assuming the plan is Top Heavy). Compensation for the Sole Prop is detemined when the Schedule C is finalized. I'm not sure what you mean that this person has taken some money during the year. Hope this gives you some guidance.

Yes, they were hired by the new company.

Thanks everyone for the comments. I've more of less expressed these concerns to Company B. At this time, I don't know the fate of Company A's plan, but I do know that the 5500 was not put on extension for 2008, which is really a bad start to things. If Company B is soliciting quotes from other consultants, I have a feeling they will not bring up Company A's plan again.

There was nothing specific to the plan in the purchase agreement. I was only told that in the agreement Company B would assume no liabilities for Company A, prior to the closing of the sale. I'm trying to win Company B as a client, however they are uneasy discussing Company A's plan. As mentioned previously, the Trustee of Company A's plan works for Company B. If there's any risk for Company B, I would like them to know about it up front.

Blinky, your points are well taken, however Company A was disolved after the asset sale. Is there a potential to litigate under these circumstances. I don't think Company B would have any possible liability, or would they?

On June 26, 2009, Company B purchases the assets of Company A and hires its employees. Company A ceases operations soon after. Company A sponsored a Safe Harbor plan and did not deposit the SH nonelective contributions for 2009. Company B tells me that the purchase agreement removes them from all liabilities of Company A's plan and that no nonelective contributions will be made for 2009. The Trustee of Company A's plan now works for Company B. What implications if any are there for the Trustee of Company A's plan? This seems to now be an orphan plan. Does the requirement for the SH nonelective now go away? I appreciate any insights into this matter.

Company A's stock was held mostly by another public company. On June 26, 2009, the assets of Company A are acquired by a group of investors that are unrelated to the previous stockholders and a new company is formed to continue Company A's operations. The employees transfer to the new company and it's business as usual. Company A sponsors a Safe Harbor Nonelective plan. 401 (k) contributions to the plan ceased on June 26th and no SH nonelective contributions have been made to the plan for 2009. The plan has not yet been terminated and the new company does not want to sponsor the plan. The new company however would like to create a Safe Harbor Match plan. Since this is an asset acquisition, it appears Company A could terminate its plan (assuming all required contributions have been made) and distribute assets to participants, even though the same participants are now covered under the new company's (k) plan. I just want to make sure I'm understanding the successor plan rules correctly.

The correction is being done for the 2007 plan year. In 2009, there are no NHCEs employed. Does the employer luck out in not having to make a contribution? Almost seems too good to be true!

Some plans do have provisions requiring Key Employees to also receive a Top Heavy minimum. Please refer to the plan document.

Sorry to bump this up again. I'm hoping someone could offer some thoughts on this matter. Thanks.