kocak

yes they are restricted. Safe harbor contributions are not available for hardship. mck

If you are looking at top heavy for 2002, your determination date is 12/31/01. You start with looking at employees who had an hour of service in the year ending on the determination date. Therefore, the owner's balance and/or distribution are disregarded for the 2002 top heavy test, since he did not have an hour of service in 2001. Re. the key employee determination, again, for a determination date of 12/31/01 the lookback period is the one year period containing the determination date. Therefore, the wife would not be a key employee (not a more than 5% owner, not an officer earning more than $130,000, not a more than 1% owner earning more than $150,000). Note however, she is probably a FORMER key employee. You'd have to check your tests for prior years, but since she was a more than 5% owner in 2000, she was a key. Remember former key account balances are also disregarded for top heavy testing. Re. the order of compliance testing. Top heavy is always the first and the last thing I look at in compliance testing. When doing a 2001 plan, I first look at the top heavy test for 2001 (determination date 12/31/00). This tells me if I am top heavy for the plan year I am working on. I'll then know if I have vesting/minimum accrual issues, etc. Once the valuation is completed and all my other compliance testing is done, the last thing I look at is top heavy for the next year. I have information as of 12/31/01 so I can tell if I am top heavy for the 2002 plan year. mck

An employee is an HCE in 2001 if they are a more than 5% owner in 2001 or 2000. Therefore, he and his wife are both HCE in 2001. But, since he terminated in 2000, he won't be included in your testing. For Key determination, are you looking to see if they are top heavy in 2001 or 2002? Normally when I am doing the 2001 work, I am looking to see if they are top heavy in 2002. If your determination date is 12/31/01, you would only include employees with an hour of service in 2001, so he would not be included in your top heavy testing. mck

Thank you. I was stuck on 7.285 and it wasn't clear to me in that section. I'll see what the client wants to do. Thanks again mck

The employer's tax year is the calendar year, the plan year ends 9/30. I know the EGTRRA provisions increasing the deduction limit to 25% are for tax years beginning after 12/31/01. In this case, the TAX year is 2002. Can I allocate 25% of compensation for the plan year ending 9/30/02 on compensation from 10/1/01-9/30/02? I'm thinking I can deduct 25% in 2002 but it might have to be on 2002 compensation. Or do I have to wait until 9/30/03 plan year to increase to 25%? Thanks. Michele

maybe, maybe not. My understanding is that freezing (amending to 0%) a MPPP does not automatically result in 100% vesting. If it is a freeze and a plan termination, then yes 100% vesting applies. With no formal plan termination, you still have to be careful that a partial termination has not occurred. This comes up when dealing with forfeitures, etc. I think it is referred to as a horizontal partial term. It is clear that you can freeze the MPPP contribution, and merge it into the PSP without 100% vesting, if that plan design makes sense in your case. michele

Thanks Tom, I'll have to go back and reread the info. I thought there was an effective opportunity issue as well as a universal availability issue. It doesn't seem right that the HCEs can take advantage of something (by avoiding returns) but the NHCEs can not because they weren't aware they could defer more than a plan limit or the 402(g) limit.

I"m interested in this issue also. We had a case come up this week, where we forfeited a missing participants balance several years ago. Then the plan terminated. Now the participant is found and wants paid, but we have no way in our document (since the plan is terminated) to reinstate their account. I think ASPA commented to the DOL this summer, but I haven't seen anything since then. mck

Think about effective opportunity. If the participants didn't know catch-up was available for the pYE 9/30/02, even if you were somehow able to amend your plan, I would argue that catch-ups were not available.

also, with a 401(k) if they are >50 they may be able to do catch-up. This is only $1000 now but goes up quite a bit in the next few years and will make a difference on plan design. mck

Just to be different... we put them in the order listed on the Form 5500. We figure the DOL is expecting them in this order, or else they would have put the Schedules in alphabetical order on the Form. Our office also files the 5558 last, however I would prefer to file it right after the Form 5500. mck

I agree. Your plan year begins 8/1/01 so pre-EGTRRA rules apply. mck

The prototype we use has a place to put the effective date of the safe harbor provisions. I had a 9/30 plan year end we were switching to calendar year in 2003. I did the GUST restatement effective 10/1/02, short plan year for 10/1-12/31/02 and then safe harbor provisions effective 1/1/03 all in same prototype. I didn't submit for a letter though..... mck

We also mark Schedule I - 5a yes, even though plan was not terminated. We feel this is consistent with the "final" filing box marked on Form 5500. Other practitioners have disagreed -- search the message board on this issue.

My understanding: 1. Only need to apply 2/20 schedule to contributions made for PYB after 12/31/01. If employer wants to keep 3/20 schedule on old money, I recommend setting up a new source. The Pre-EGTRRA matching source is 3/20, the Post-EGTRRA matching source is 2/20. 2. If employer wants to use 2/20 schedule for all, he can still limit the 2/20 schedule to those with an hour of service in the PYB after 1/1/02. So you would have a 3/20 schedule for employees who termed in 2001. Does this answer your question? Michele

You might want to check out Janice Wegesin's (sp?) website. form5500help.com. She indicates that 4j and 5k MUST be completed as though the plan was terminated. We've been doing it that way and plan to explain to an auditor why we didn't 100% vest. Versus explaining a final filing to the DOL without these boxes marked. As noted above, either way requires an explanation. michele

I would agree that the employer could adopt a second plan, or even amend the plan after the benefits have accrued to increase benefits, and make a minimum contribution under the old formula. Regarding the profit sharing contribution being "discretionary", I think TAM 9735001 says the participant has a protected benefit, thus the protected benefit rules apply, even if the contribution is discretionary. But I've been wrong before! michele

I was told that you needed to mark yes as a termination, since if you mark final filing, the DOL is looking for yes, the plan terminated. I had the same concern in plan mergers, since we weren't 100% vesting.

I may be missing the point here, but I was under the impression that you couldn't change the allocation classes, once the benefit had been accrued. The employer has X dollars to allocate in a plan year, and they allocate some to A and some to B. If I now take those dollars and allocate them to A, B and C (by adding a class), haven't I in effect reduced what I have allocated to B? michele

When doing compliance testing, the first and last things I do are top heavy testing. Assume I working on the 5/31/02 valuation report: First - look to see whether the plan is top heavy in the year you are working on (5/31/02). This determination was made using data as of 5/31/01 and is usually done with the 5/31/01 valuation report. If the plan is top heavy for the 5/31/02 plan year, then I have to make sure that my minimum allocation and minimum vesting requirements are met for that year. In the Middle - 410(B), 402(g), 415©, 401(k), 401(m), 401(a)(4), 404 testing. Last - look to see if the plan is top heavy for the next plan year (ending 5/31/03). Again, this determination is made using data as of 5/31/02. This allows us to give the client a "heads up" and may influence decisions key employees are making during the plan year. michele

For plan year 6/1/01 to 5/31/02 (assuming it is not a new plan) the determination date is 05/31/01. You use the "old" top heavy rules (5 yr look back on distributions, top ten owner is key employee) to determine top heavy status for the PYE 05/31/02. For the plan year 06/01/02 to 05/31/03, the determination date is 05/31/02. The "new" top heavy rules apply, so that only participants who have had an hour of service (and are not former key) in the 6/1/02-5/31/03 plan year are included. Their distributions made in the last year are included, inservice distributions made in the last 5 years are included. michele

I was under the impression that for a small plan filer to be exempt from an audit (PYB after 4/17/01) they had to meet the qualifying plan assets/bonding requirement AND the disclosure requirement. However, reading Janice Wegesin's article in the ASPA Journal (May-Jun 2002) I get the impression they have to meet the qualifying plan assets OR bonding. If they meet the requirement by bonding, then disclosure on the SAR is needed. I thought disclosure on the SAR was needed in any case, unless and exception (like all assets are participant-directed accounts) applies. I'm looking at the DOL Reg and I'm not getting it. What am I missing? michele

I thought these protections were only for tax-qualified plans. For example, a plan covering only the sole owner or only partners was not necessarily protected, since these plans are not covered by ERISA? Am I remembering this right? mck

5500 info for prior years can be found on freeerisa.com. I don't know about current filings... mck

I don't think there is any guidance out there on this issue. Sometimes I use the correction method in EPCRS for deferrals made by an ineligible employee (operational failure). Instead of refunding though, we usually forfeit the deferral (using it to reduce future employer contributions) and we make the participant whole by having the employer "increase" their next paycheck. mck