PAL

Is the excise tax paid for late deposits of deferrals (using Form 5330) deductible on the corporate tax return? I believe certian penalty taxes are and am not sure if this is or not. PAL

I've run into the same thing and from what I've been able to determine, you can't combine both the 401(K) AND THE h&w FILINGS TOGETHER.

Another question I have related to this is what shares would the participants be entitled to resind? The ones bought after the registered shares ran out, the shares you designate as not being covered? If there is a lot of activity, how would you be able to figure that out exactly which shares those were?

I really haven't been able to get a hold of anyone who seems to understand what I am talking about there. All they say is that they are separate account.

I am looking at a Form 5500 prepared by the insurance co that is also the rk for the DB plan. They show that the benefits as well as funding is insured (and don't check trust on either). However, there is a trust with money in "Separate Account No. 1" which appears to be a money market fund. The insur co. completed the Schedule A showing the money under Part II, number 4 - plans interest in separate account, completed a Schedule D listing it as a PSA (#000) but listed it on Schedule H under #13 - registered investment company assets. Should this actually be listed under PSA? If so, does that really get them where they need to be because it doesn't appear as if the the Separate account filed as a DFE. Also, shouldn't this at a minimum indicate that the funding is through insurance and trust?Thanks. PAL

mjb has a good point and it is one that worries me. I see a future where any kind of error by the plan sponsor/administrator could be an endless source of profit for wise plan participant. Several years ago, a company I know had a participant call and demand that they be made whole for the loss they incurred as a result of their money not being transferred correctly almost a year before. In addition to the three quarterly statements the participant had received (showing that the money had not been correctly transferred), their recordkeeper was able to pull three recorded phone calls from the participant. The calls all came in during the period when the error was still outstanding and on each call, the participant requested detailed account balance and share price information (exactly what would be required in order to determine if he was ahead or behind based on the error). The third time the participant called, his account was down and he called back within an hour to demand that his account be "corrected" and the "loss" to his account be fixed. It's the same dilemma when a participant enrollment or increase in deferral election percent in not entered into payroll correctly. A wise employee will see that the correct amount is not coming out of their pay and they will say nothing because at the end of the day, it doesn't matter that the employee has received plan statements every quarter and a pay stub every week for the past year and a half. The correction for that mistake is for the employer to contribute the money (plus earnings) that the employee did not. I understand that the employer should be responsible for the mistakes they make but I really believe there should be a limit and the employee should have some accountability as well. PAL

Directly from the IRS web site: The Fix As in the case of an erroneous exclusion of an employee from the plan, the remedy requires the employer to make a corrective contribution of 50% of the missed deferral (adjusted for earnings) on behalf of the affected employee. The employee is fully vested in those contributions, which are subject to the same withdrawal restrictions that apply to elective deferrals. However, unlike in the case of mistaken exclusions where the missed deferral amount is estimated based on the ADP for the employee category (e.g., NHCE), in both illustrative examples, the employees’ election deferral amount is known. Thus, the missed deferral and the corresponding corrective contribution (50% of the missed deferral) are based on the participant’s actual election instead of the ADP (i.e., 5% or 3%, respectively) of the NHCEs. Here is a link that might help... http://www.irs.gov/retirement/article/0,,id=175716,00.html PAL

I think the final regs required matching of CUC in a safe harbor plan. Does this help? PAL

In looking through 2006 IRS Publication 560 (pg 9), it appears as if you have the year of the transaction plus the two following years to correct acquisition issues: i.e. >100 employees or more then one plan due to acquisition. Is that correct? Gary's post seems to indicate that they only have one year. For example, if as the result of an acquisition in 2007, the controlled group which originally had just a SIMPLE IRA now has both a 401(k) as well as the SIMPLE IRA, when must this be corrected by 2008 or 2009? As always, thanks for your assistance - I'm out of my comfort zone here... PAL

Does anyone know anything about the "Pension Transfer Trust Plan" or a "pension liquidity trsut plan"? Based on the brochure I'm looking at, for a small fee of under $7,000, you set-up a c-corp, become an employee of the c-corp, set-up a 401(k) plan, transfer your old company 401(k) plan assets into your new c-corp 401(k) and then you use all of the 401(k) money to purchase stock in the c-corp so that you now have the cash on hand, tax free. An example they gave related to $100,000 in a 401(k) plan said: "..the buyer can get the down payment for his new business and keep the $45,000 check to the IRS as cushion for additional operating money". It doesn't feel right to me. Comments anyone? PAL

Thanks for your response. Yes, I thought about that but everyone seems to treat 30 days as the drop dead rule. Do you know of anyone who has sent the notice later and been challanged on it? PAL

An employer decided, effective with the plan year beginning 1/1/08, to add a safe harbor match to an already existing 401(k). They sent the notice on December 1, 2007 but, yes - you know what's coming - they missed a group of employees (about 15%) when sending the notice. Can this be corrected and the safe harbor status maintained? The 401(k) reg don't appear to allow the plan to have a fall-back ADP/ACP testing if it is a safe harbor. Question #10 from the June 2006 ASPPA Q&A's indicates that it could be corrected under VCP but I'm not sure what the correction is: http://www.irs.gov/pub/irs-tege/epcrs_asppa_qas.pdf Has anyone used VCP for this before? I guess that the company could go back and eliminate the safe harbor match (giving notice of course) which is really not to the advantage of the participants. I don't know that they have actually signed the plan amendment yet. Am I missing something here - there should be a better way to fix it. Other ideas? Thanks. PAL

I'm also interested in knowing if anyone else had experienced this type of issue.

Thanks - I didn't see anything to prevent the aggregation but wanted some confirmation that I didn't miss anything. PAL

I agree with Mr. Powers! All of the bundled arrangements I knew about are now a thing of the past and even with those arrangements, the client was still the one to engage the audit team at a somewhat but not greatly reduced price. Based on the engagement letters I've seen recently, $5,000 - $7,500 is a very low for a 401(k) plan audit even if you are not using a big 4 so if they are going to get the audit for less then that, I'd say there is something weird going on (perhaps lots of soft dollars being moved around). If they do take the deal, be warned: I was at a conference not to long ago and senior DOL representatives discussed how they believe that low fees for audits is a potentially good criteria to use when pulling plans for DOL review. They base that on their belief that if the fees are low, it is likely that not much work was done for the audit. I would not be surprised to see more audit fee information added to the 5500's sometime within the next few years. PAL

I didn't get any feedback on this - thoughts anyone?

Due to an acquisition, Company A has a 401(k) plan (Plan Z) that will not be able to stand alone for coverage once the transition period ends on 12/31/07. Unfortunately, Company A does not have the resources and is not prepared to merge Plan Z into one of the existing plans of Company A, several of which are safe harbor plans. If Plan Z were changed to a safe harbor (with a match that mirrors on of the existing plans) effective 1/1/08, could Plan Z then be aggregated for purposes of passing 401(b) testing in 2008? I did look and didn't see where this would be prohibited but admit that I haven't really dug into in detail yet. Any cites would be appreciated. PAL

I have a plan document that uses "Code Section 415 Safe-Harbor Compensation" definition which reads like (but does not reference) the general definition under 1.415-2(d). The company does not calculate deferrals on imputed income amounts for group term life and personal car usage. The plan document does say that Compensation shall include amounts received: “… for personal services actually rendered in the course of Employment…” and at the end it says “… Compensation shall include only that Compensation which is actually paid or made available in gross income during the Limitation year”. Do either of these provide a reasonalbe basis for not including these amounts in calculating contributions? PAL

I always understood that the safe harbor matching contribution could not be taken as an in-service distribution (including hardship). Is this still correct? We are looking at changing our plan to a safe harbor and in-house counsel has come back and questioned this restriction because they can't find any specific prohibition. As I recall, I thought it was kind of a circular interpretation related to Notice 98-52 but is there something more current I can point to or am I off base with this (I am admittedly behind on completely reading in detail everything that has come out over the past two years!!). Thanks. PAL