chris

Is a change in plan year a "material modification"...?

Given all of the different discrimination testing which applies to the different types of benefit plans, what are the possibilities where a personal service corp has 4 e/ee's -- 3 of which are HCE's and 1 who is NHCE???? Thanks for your help.

I talked to John Tolleris shortly before the end of the year regarding such an issue and he said that proposed regulations should be coming out soon. First question is has anyone seen them? Second question is to what extent will such proposed regs be issued now that the limit between 401(k) deferrals and 457 is not tied together going forward?

Currently have a 5310 pending. agent wants amendments for: -- exclusion of hardship withdrawals from definition of eligible rollover distribution -- repeal of 415(e) combined plan limitation -- comp reduction regarding qualified transportation fringes inclusion in def. of comp for 414(s) and 415 Anyone have any sample language re a plain vanilla profit sharing plan?? Thanks.

At first glance, it appears that the 6621a2 underpayment rate is a floor rate of return to be used in determining the lost earnings amount under VFCP. However, the reg's state shortly after that that ... "For a participant-directed defined contribution plan, the lost earnings to be restored to the plan is the amount that each participant would have earned on the principal amount from the loss date to the recovery date. However, for administrative convenience, the lost earnings amount for a participant-directed defined contribution planmay be calculated using the rate of returnof the investment alternative that earned the highest rate of return among the designated broad range of investment alternativesavailable under the plan during the applicable period." Based on the use of the term "lost earnings" it would seem that the 6621a2 underpayment rate is not the floor rate of return. Any suggestions?

Has anyone ever gotten a favorable determination letter with respect to such a plan?

What issues arise where cross-tested PSP has classes defined as a specific individual,e.g., Class A is Joe Jones, Class B is Jim Smith, etc...? Thanks for your help.

I've got an adopter of a volume submitter 401(k) plan which was adopted back in 1997. Employer never submitted plan to IRS for a determination letter. Operational defects abound. To what extent might employer meet "favorable letter" requirement of Rev Proc 2001-17?

Employer has profit sharing plan with no 401(k) provisions. Employer wants to add 401(k) provisions and meet the safe harbor by contributing 3% nonelective contribution. Employer wants that to be effective April 1, 2002. Given that there are currently no 401(k) provisions in the plan, can't the safe harbor notice be given insode the 30 day period, e.g., March 15?

Is there any need to have deferral limits in a safe harbor 401(k) plan (that will meet the safe harbor using the 3% nonelective contribution) given the 25% deduction limitation?

Anyone heard of changes to be made to the DOL's Delinquent Filer Voluntary Compliance Program? DOL personnel recently stated to me that changes were coming very soon , but she couldn't tell me what those changes were?

My first thought would be no. The partnership would need to sponsor the SEP arrangement. Never dealt with it before, but seems logical that that would be the answer. Anyone see anything else??

IRS personnel have stated that given the recent legislative changes, a participant can defer the maximum limit under 402(g) AND have up to 40,000 or 100% of compensation contributed to a defined contribution plan. I don't see anything in 415© that takes elective deferrals out of the definition of "annual addition". It would seem to me that if a participant deferred 11,000 in 2002 he could only have an additional 29,000 contributed to the plan on his behalf. Am I missing something or did the IRS personnel think (possibly) that the 404 change was across the board??? Thanks for your input.

Despite the issue of giving a bonus to e/ee's who are no longer e/ee's, I would think they would be entitled to the 3% safe harbor based on the minimal 2001 W-2 compensation. It sounds as if the plan administrator is treating the e/ee's as "eligible employees" in 2001. If so, then they are "eligible employees" for purposes of safe harbor. Further, since no minimum hours of service can be required to get the 3% safe harbor contribution, they're entitled to it. Take a look at page 11.41 and 11.42 of The ERISA Outline Book. That gives you a good roadmap re treating or not treating such individuals as "eligible employees".

Basically, yes.

I agree as to the issue. The purpose for the test is to keep any discrimination in favor of highly compensated e/ee's in check and if it still occurs based on the testing, there are adverse tax consequences. I didn't know if there was something I was missing as to the availability of a cafeteria plan where all e/ee's are highly compensated/key e/ee's. For instance, a profit sharing plan is available to an employer where all e/ee's are highly compensated e/ee's. From a policy perspective, if there are no non-highly's to discriminate against how is there discrimination in favor of highly's?? Thanks for your help...

In other words, can a professional service corporation with 5 doctor shareholder/employees and no other employees set up a cafeteria plan? Wouldn't appear to be any discrimination because there are no non-highly's employed by the corp. Am I missing something or is it time to call it a night?

Thanks for your response, Belgarath.

Client's profit sharing plan has invested all of the plan assets into an investment variable annuity contract. the annuity contract is on a seven year schedule and provides for participants to withdraw a certain % of their account balance per year without penalty. If withdrawal is greater than that % certain penalties apply. Also, upon death, a participant's beneficiaries are entitled to market value of the account or the original investment value of the account plus a guaranteed % per year. Isn't there a diversification issue with respect to the sole trustee's potential liability???

Client's profit sharing plan has invested all of the plan assets into an investment variable annuity contract. the annuity contract is on a seven year schedule and provides for participants to withdraw a certain % of their account balance per year without penalty. If withdrawal is greater than that % certain penalties apply. Also, upon death, a participant's beneficiaries are entitled to market value of the account or the original investment value of the account plus a guaranteed % per year. Isn't there a diversification issue with respect to the sole trustee's potential liability???

Client has discovered operational defects in 401(k) plan with respect to the last three or four years. Client wants to fix the defects. It appears that client amended and restated its plan by adopting a volume submitter document sponsored by a pension administration firm in 1998. That firm has since gone out of business. Client can only find its adoption agreement and no copy of the actual plan document or the accompanying IRS letter. Can client amend and restate by adopting a new volume submitter document and then submit the plan for correction of the operational defects under the new letter??? Contacts with the attorney handling the dissolution of the pension administration firm with respect to plan doc/ letter/ etc.. have been unsuccessful.

CMC: Did you ever resolve this issue? I've got a plan in need of correction, but the most recent document provider used by the plan went out of business and I don't think the volume submitter document was ever submitted to the IRS. Just curious if you submitted the plan and what response the IRS gave you.

Anyone dealt with a "restorative payment issue" in the context of a participant directed defined contribution plan where the participants' investment directions were not followed?

Employee who was a participant in employer's 401(k) plan terminated employment September 30, 2001 and was rehired Dec. 1, 2001. Employer will meet the safe harbor by contributing the 3% non-elective contribution. Since the e/ee did not incur a one-year break in service, then the e/ee will receive 3% of comp. from Jan 1, 2001 to Sept. 30, 2001 and from Dec. 1, 2001 to Dec. 31, 2001, correct?

Employer's 401(k) plan provides for age/service req's of 21 and one year with participation retroactive to first day of plan year. Plan year is a calendar year. Compensation is taken into account for all purposes for the entire plan year. Plan allows e/ee's to defer up to 7% of compensation. If an employee has not been deferring but now wants to max out his/her $10,600 deferral limit, can he/she elect to defer the entire final paycheck to be cut 12/31 if that paycheck is less than or equal to $10,600? The e/ee makes well above 170,000. From a reporting perspective the W-2 would of course reflect deferrals equal to the $10,600 limit. Any comments or suggestions appreciated....