chris

May have missed prior threads on this, but how are you all planning to deal with the automatic rollover provision..... amend cashout threshhold down to $1,000.00 or keep it at $5,000.00 and deal with getting the IRA's in place....??? Thanks.

Wouldn't you still have to amend the allocation formula in the document? And how would you amend it other than to provide for different classes of e/ee's, i.e., cross-testing? It would seem that you still have a 411(d)(6) issue to deal with.....as the plan document would need to be amended regardless of what the resolution said. Just because it may be OK under 401(a)(4) doesn't necessarily mean it's OK under 411(d)(6). Working out all the applicable issues.......

How would you go about doing that? My understanding was that if all conditions have been met in order to receive a contribution under the allocation formula in the plan document, then you can't just go change the allocation formula as the participant is entitled to an allocatin under that formula. I believe I had TAM 9735001 in mind from prior research. But I see at 3.303 of the ERISA Outline Book that the general argument is that since the PSP is "discretionary", the formula can be changed regardless of whether or not participants have met the conditions....... Is that where you're coming from...???

PIP is correct. The allocation formula in the plan document will control. The allocation formula may be based on a participant's compensation as it relates to the total of all participants' compensation. Additionally, it may be integrated with Social Security, etc..... The only way to get where you want to get is to amend the allocation formula to allow for specific groups of employees to receive a contribution as determined by the E/er, i.e., cross-testing. HOWEVER, the allocation formula may prevent such an amendment. For example, if there is NO requirement that a participant be employed on the last day in order to receive an allocation of a contribution and if the plan requires a participant to have at least 1,000 hours of service, then the allocation formula could not be amended because those participants with at least 1,000 hours have already met all of the conditions for receiving an allocation, i.e., >= 1,000 hours. The employment on the last day of the plan year requirement is probably the only out...

Regarding your post: -- you can use the full calendar year compensation for the calculation of the 3% nonelective contribution; -- safe harbor notice due as late as 4/1/05, i.e., first date anyone is eligible, but conservative approach would be at least 30 days prior; -- if you make the 3% nonelective contribution based on calendar year comp., top heavy probably not an issue; -- don't see an issue with allowing catch-up's as of 4/1/05 since that is the first date participants can defer.......

Re-read it. Should've re-read it before I replied the first time.... However, for the initial year you're going to be using full limits for everyone albeit only the HCE's benefit by virtue of their compensation amounts. And by doing so they will get a bigger piece of the allocation of the contribution. If comp. is then switched to "comp. while a participant" next year, I still wouldn't think you'd have much of a problem. Theoretically, you might have discrimintaion based on who enters, but practically I don't think there would be a problem since you're talking about two different plan years. After going through this it seems the better argument for discrimination would be in year 1 re pro-rating vs. not; however, you're only doing what is allowable to be done......??????

Agree that it could be discriminatory, but......practically where's the problem? Everyone in the plan for the initial year had 12 months compensation used. Thereafter, everyone entering the plan will have compensation while a participant used. Unless factually only all highly compensated e/ee's are entering plan in initial year and all nonhighly compensated e/ee's are entering in the next year (the year in which compensation is only counted from entry date), I don't see a problem. I don't see how you could have those facts anyway......

Also posted the following in the General Retirement Plans section..... Am I right in thinking that an amendment to a safe harbor 401(k) plan during the plan year is OK (i.e., won't adversely affect the 401(k) safe harbor) assuming what's amended is not 401(k) safe harbor related? For example, if e/er wanted to add or take away loans, it could amend during the plan year to do so and just issue a summary of material modifications to the participants. Since nothing affected the 401(k) safe harbor, the fact that the safe harbor 401(k) notice given out prior to plan year did/didn't mention loans is not a problem..... ??

Am I right in thinking that an amendment to a safe harbor 401(k) plan during the plan year is OK (i.e., won't adversely affect the 401(k) safe harbor) assuming what's amended is not 401(k) safe harbor related? For example, if e/er wanted to add or take away loans, it could amend during the plan year to do so and just issue a summary of material modifications to the participants. Since nothing affected the 401(k) safe harbor, the fact that the safe harbor 401(k) notice given out prior to plan year did/didn't mention loans is not a problem..... ??

If such persons are on leave under FMLA (Family Medical Leave Act), FMLA will require that such persons be deemed to be employed as of the last day of the plan year if employer has 50 or more e/ee's. Don't think that would require hours to be credited unless they were on paid leave. See 3.95 of ERISA Outline Book.

Pardon me for jumping in, but I had a similar question regarding amending the eligibility requirements for a volume submitter safe harbor 401(k) from age 21 and 1 year to age 21 and 6 months... Would it be possible to do that for a calendar year plan year safe harbor 401(k) such that additional persons would be deemed to enter the plan retroactively as of July 1 (has dual entry dates)? The objective of the employer is to see that additional participants receive the 3% nonelective safe harbor contribution for 2004 instead of having them wait to enter as of January 1, 2005. Clearly, participants would not be able to defer comp. they already earned, but the point would be to see that they were deemed to have entered as of July 1, 2004 so that they could receive the 3% nonelectrive safe harbor contribution. Pardon the redundancy..... I suppose the plan would have to issue a "corrective" safe harbor notice for 2004 re the change in eligibility....??? Thanks for any suggestions, comments, etc., including fruit cocktail (WDIK).......

As long as chris4013 found his/her answer, I don't care what we have for dessert....

....and you need to have an employer/plan sponsor in order to be able to have a plan.... You're correct in that Notice 98-52 is not about effective dates of plan years, however, that portion of Notice 98-52 does speak directly to the required length of a plan year for a safe harbor 401(k) plan. The issue deals with the length of the plan year since it would appear that the effective date would determine when the first plan year began. Seems to me that he's wanting to use full comp. numbers, but I still don't see how there could be any compensation prior to the date of existence of the employer. ...unless the problem is that a participant received 205K of comp. in the short period and he's concerned that he'll have to pro-rate that amount.....????

See the underlined language in the 98-52 reference above. The emphasis was on the fact that the plan year didn't predate the employer's existence not the arbitrary 3 months time period. Thus, if the employer is newly formed as of Dec. 1, 2004, 98-52 allows for a one month plan year (assuming it's a cal. yr. plan year). My point was that the newly formed employer short plan year language in 98-52 implied that you cannot have a plan year that predates the employer's existence.

If prorating compensation is the issue, wouldn't Reg. §1.401(k)-1(g)(2)(i) which allows for compensation used to be the compensation for "either the plan year OR the calendar year ending within the plan year" make it such that you don't have to pro-rate? That being said how will you have additional compensation if the employer paying the compensation was not in existence?

I read the prior discussion referenced by WDIK; however, why is there any discussion of a short plan year due to an employer not being in existence in IRS Notice 98-52: "X. Plan Years of Fewer than 12 Months A plan will fail to satisfy the ADP test safe harbor or the ACP test safe harbor for a plan year unless: (1) the plan year is 12 months long; or (2) in the case of the first plan year of a newly established plan (other than a successor plan), the plan year is at least 3 months long (or, any shorter period in the case of a newly established employer that establishes the plan as soon as administratively feasible after the employer comes into existence). " if it could always be handled by having an effective date of 1/1/?? prior to the date of existence of the employer? Maybe the underlined language is for all of the attorneys who don't know the "special effective date rule"......??? Effective date issue aside I believe the Regs. under 401(k) (don't recall the exact cite at the moment) allow for compensation to be the compensation for the cal yr. ending within the plan year, thus, no pro-ration of compensation has to take place.... I'm assuming the plan has yet to be put in place, otherwise, the plan document would define the plan year. And, as Sal referenced, the full twelve month plan year for the initial year could get the blessing of the IRS if submitted (or of the automatic reliance assuming the document provider's product allowed for such an effective date). If so, go for it.

Safe harbor 401(k) provides for eligibility rules age 21 and 1 year of service. Also provides for dual entry dates of Jan 1 and July 1 with entry date for a participant being the entry date coinciding with or next following the date the eligibility requirements were met. Employer hired new doc Oct. 2003. Employer wants to amend Plan to allow for new doc to enter plan as of July 1, 2004. In essence, eligibility requirement would have to be reduced to 6 mos. in order for new doc. to enter plan as of July 1, 2004 and thus be able to defer in 2004. Also, compensation taken into account would be for entire plan year and not just compensation from entry date. What issues are there with amending the service requirement retroactively, e.g., effective as of first day of 2004 plan year (Jan. 1)? Although potential discrimination issue in favor of highly compensated e/ee exists, wouldn't non-highly's also benefit by virtue of now being eligible for the 3% nonelective safe harbor contribution? Thanks for any input...

Doesn't directly answer the ADP question, but you cannot have a plan without a sponsor. Thus, if the sponsor not in existence until July 2004, then plan cannot be effective prior to that same date......

Don't know that any distributions are "required to be made" during the process. Depends on how comfortable the employer is that there will be no problems with receiving the favorable determination letter upon termintaion. I generally have employers designate in the resolution terminating the plan that it will be submitted to the IRS and that no distributions will be made until a letter is received. That way you don't have the issue of the IRS finding a problem and the employer having to get $$$$ back from a participant (often hard to do) that the employer already distributed.....

Participant to have surgery re grafting bone? onto his jaw. Part of the procedure involves cheek implants, which per the doctor, are required, i.e., nonelective. Participant has requested a hardship withdrawal for the costs of the procedure including cheek implants. Per Pub. 502, cosmetic surgery is OK if it is necessary to improve a deformity arising from birth defect, pers. inj.,.... Plan's hardship w/d rules are the safe harbor rules under 401(k). Thus, med. expenses as described in Code Sec. 213(d) meet the definition. It appears the safe harbor means what it says, i.e., med. expense has to qualify under 213(d) b/f being the basis of a hardship w/d? E.g., breast implants as part of reconstructive surgery after mastectomy is OK b/c meets 213(d), but breast implants for cosmetic reasons only don't qualify...?

I don't think he would have a handwritten memo lying around labeled "204(h)/4980F Notice"; however, sometimes clients do have internal memos, minutes or other information that might suffice. Sounds like he should get one drafted effective to terminate the plan as of the current year if he doesn't like amending, funding,....maintaining the plan. What's the reason to have it if he's not going to do what he should to maintain it....? He would be hard pressed to have had 1,000 hrs. in approx. 60 days (10/1 - 12/3). That may be the way out.......

204(h)/4980F notice aside can you have a plan w/o employees? Plan deemed terminated as of 12/31/03? Or is it that the corp. is still alive and he's still "employed" but he just doesn't have any compensation (other than the 2 mos. at beginnning of plan year)? If the owner doesn't like amending or funding the plan , then why have the plan? Terminate it as of 12/31/03, make the required amendments to the doc. language and file the final 5500. I'm sure the owner can probably find something that would pass as a 204(h)/4980F notice..... Just additional thoughts which probably raise additional issues....

Plan is a PSP with annual valuation date (12/31). Distribution section re terminated participants states that upon particpant's election account balance will be payable upon the Anniversary Date that coincides with/ or is on/after the date of participant's termination of employment. SPD says the benefit will be distributed as described "as soon as administratively feasible". Given that the annual valuation takes some time to get together it is not unusual for a number of months to go by after year end before a participant's account balance can be determined. Regardless, participants want their $$$$ now and some even demand interest to be paid from 12/31. Plan typically denies such a request. Are there any recent rulings, cases, etc.... which address specifically the payment of interest issue? My gut is that the "administratively feasible" threshhold is determinable on a plan by plan basis and is probably like trying to define "reasonable"..... Thanks for any help.

He or she is trying to find out if it's an "ERISA plan" because that will determine how he or she needs to deal with the plan. Had a local personal injury attorney tell me that that was a hot sub-area now related to PI work....whether a plan was an ERISA plan or not....b/c if it was then there were extra hoops to jump through, etc..... The local PI attorney said he knows of attorneys in the DC area who have specialized in reviewing plan documents/materials to help PI attorneys determine if a particular plan is governed by ERISA or not. Doesn't really help as to the specifics but adds some background as to the nature of the request.....

Employer has 4 shareholder-employees and 26 staff employees. One of the shareholder-employees would like to have long term care insurance. The other 3 would not/could care less. Consultant had planned for the 1 shareholder/e/ee to forego year end bonus to fund premium for a long term care insurance policy. Thus, on its face (and w/o researching it...) the choice appeared to be b/t a taxable benefit (cash) and a nontaxable benefit (LTC ins.). 125(f) aside, if such a choice was given and only the 1 HCE chose the LTC ins. then it would fail the discrimination req's for caf. plans. Thus, looking at the alternative of employer only paying for LTC ins. for the 1 shareholder/owner. Hence, the discrimination issue as to that arrangement. As I replied above, it appears that the 105 analysis of whether it is a "plan for employees" would apply. If so, don't think a class of one would work. May have to have employer buy LTC for all officers of employer who all are also employees....ends up that the officers are all shareholders so IRS could eventually argue that it was a plan for owners and not employees.....