lkpittman

MWeddell, I realize that we've got an operational error--but I believe the failure to provide the notice in this situation is an "insignificant operational error" under 2001-17 and that we can self correct (SCP). Obviously there is no specific guidance on this type of operational failure, but under the guidelines for "correction principles and rules of general applicability" of 2001-17, I'm not too worried about it, so long as we've provided the 3% non-elective contribution. And yes, Blinky, we've definitely learned a lesson here with respect to drafting any individually designed plans/amendments for safe harbor provisions. Thanks, all.

Thanks, Tom. With the wording of this plan, I believe they are going to have to make the contribution (contribution isn't "contingent" on notice). Testing won't be a problem, since HCE did not defer. I think we're going to "self-correct" this (without any kind of IRS approval) and let the chips fall where they may. Plan is terminating now since HCE died. I think we'll be okay as long as they make the contribution.

Thanks--I think we're on the hook for the contribution, as well. So, what's the "penalty" or downside for not providing the notice timely?

This may be a problem on several levels. Client added a CODA to existing PSP effective 1/1/01. CODA included a safe harbor non-elective 3% contribution and notices were provided by the TPA to the client with instructions regarding timely notice. Sole shareholder (and the only HCE) dies during the plan year. Several NHCEs deferred small amounts--but HCE did not defer any amount prior to death (intent was obviously to fully fund to $10,500). The office manager is now trying to sort out what needs to be done--we advised that they are on the hook for the 3% non-elective; HOWEVER, she advises that the notices were never provided to the ees! 1) So, are they "off the hook" for the 3% non-elective becuase proper notice wasn't given? I realize ADP must be performed, but that's obviously no problem. 2) Now aren't we looking at a plan operational failure (failure to operate plan in accordance with its terms to provide the notice and safe harbor contribution)? Wouldn't correction include providing the 3% non-elective anyway? Obviously, they'd like to avoid providing the 3% contribution at this point. Any insight?

Client adopted individually designed plan effective 1/1/98 and executed a document that was drafted and executed at that time to include applicable GUST provisions. No DL was requested. Last year, the plan was restated to use "new and improved" (finally after the guidance, etc.) plan document for submission and both plans (the "interim" plan and the final plan, retro to 1/1/98 for GUST provisions, were submitted for DL. Now IRS is asking for amendments to the initial plan document, even though the issues are "corrected" under the newer document. For example, regarding HCE determination and election for "top paid group," the first document didn't state how the plan was operating--the language states that "if employer elects . . .". However, the second document does state that no elections have been made to apply top paid group for any year. I don't think that amendment is necessary to the initial document. Any thoughts?

Participant would like QDRO to allocate 50% of the balance of the outstanding loan to the Alternate Payee. P would also like the QDRO to be structured so that the payment of the amount due to the AP would be offset by the balance of the loan attributable to the AP. Plan document does provide for distribution in cash or in kind. Plan document also allows for immediate distribution to AP. Does anyone see any problems with this?

Mike's was the answer I was looking for--but I was fearing the problem as Tom has identified it. But the plan in question simply wants to limit HCEs to a flat 9% of comp. This should be okay, right Tom?

Client wants to put a cap on the HCE deferrals (9%)in the plan document. I guess this doesn't cause a problem--does this smell funny to anyone?

Thanks for the information. Maybe some of you are already aware that proposed legislation was submitted in the Assembly on Monday. Just yesterday, I found AB 1743 and 1744, which are supposed to bring California into federal conformity--although I have not read the proposed bills yet and I've heard that there may not be total conformity. You can find the text of these bills at www.megalaw.com.

Maybe this is a stupid question--but can anyone cite the CA Code Sections that are in conflict with EGTRRA? I've read the articles and other posts, but would like to be able to cite the CA Code Sections that are "non-conforming."

I think what Bill is saying is--why would you need a safe harbor 401(k) in order to max out for this guy? Just set up a regular 401(k), then this guy can contribute $41,000 next year (assuming he's over 50) without any probs. If you're talking about the current year, to get to $35,000, he'll need a PSP and a MPPP.

We have several public law clients that are asking about this problem. We are taking it up with our local Assemblyman (CA), who is happy to get behind conforming state legislation.

Yes, that would be a perfect icon! Thanks for your input. I've been doing more research and found more info on "co-investing" and self-dealing. Thanks, all.

Anyone seen or drafted a 401(k) enrollment and salary deferral election to include a participant's election for the catch-up? Anyone willing to share samples of language or refer to me something? Any help? Thanks.

Client has a plan where all assets may be self-directed. Participant (partner) wants to take all money in accounts in plan and purchase a single parcel of real estate. His account will consist then, of this single piece of real property (vacant land, no UBTI). Problem is, he also wants to purchase a portion of this property personally, i.e., the title to the property will be in the trust (about 75%), for his benefit and in his own name personally (about 25%). I don't like the smell of it. Sounds like a PT, but can't put my finger on it--possible fiduciary breach--dealing w/plan assets in fiduciary's own interest? Any comments? Thanks.

Darrell: Did you ever get a definitive answer to your question? We're also now restating a combo MPPP ESOP and pondering the question of eliminating the QJSA--or even converting the MPPP portion to a PSP to get out of the QJSA requirements. Input would be appreciated. Thanks.:confused:

Right, Merlin, I thought about that after posting and I knew someone would catch me on that! Thanks. I was focusing more on the lookback comp issue and thinking more about the situation where an employer now has NHCEs now where they didn't used to (my second example--new hires--this happens a lot with our medical groups).

Yes, you still use 2000 comp to make HCE determintion. It can get weirder, though, if the employer/entity itself actually started (incorporated, etc.) in 2001, then you would simply have no HCEs in 2000. Also, new hires that make over $170,000+ are not considered HCEs during their first year of employment. I think that's weird . . . because now, in plans that usually would be considered "automatically" passing 410(B) coverage because they generally employ no NHCEs, cannot use that "exemption" because the would-be HCEs are NHCEs for first year and possibly second. Yikes!

Okay--first plan year is 2000. Employer elected to use the 3% default for ADP testing. Then, in 2001, they amended to use an safe harbor match (notice requirement met). Now, for 2002, they want to know about eliminating the match. I will advise them to simply not provide the annual safe harbor notice and amend the plan to use current year ADP testing, correct? Anyone see any problems or is there anything else we need to do to get "out" of the safe harbor? I will also advise them that they can wait until sometime during 2002 under Notice 2000-3 guidance, but I think they are looking to get out before. Thanks!

Carol--thanks for the input, BUT, this WILL be a new 401(k) plan--we have determined that the entity is a rural cooperative because it is a "district organized under the laws of a state as a municipal corporation for the prupose of irrigation, water conservation or drainage" under the new 401(k)(7)(B) (TRA '97) rule. So, we are actually setting up a NEW 401(k) for them (I had inquired about this new exception in an earlier thread. Does this change your answer? Can the CODA be a part of their existing MPPP? Your input is greatly appreciated! :confused:

I have a water/mutual irrigation (gov't) company that is moving ahead with establishing a new 401(k) plan under the new 501©(12) rules, but now they want to know whether then can combine the plan with their existing 401(a) Thrift Plan. The Thrift plan is a money purchase pension plan set up to provide for 10% contribution after mandatory 4% employee contribution. This scares me, because generally MPPPs aren't allowed to have CODAs; however, can this CODA be included with the MPPP in this case because it is a "rural cooperative plan" under the new 501©(12) rules? HELP!!!!

Hi Davef--thanks for responding. I've drafted the plan and the atty is reviewing it. I've deleted all the ERISA Title I requirements, as well as the nondiscrimination, coverage, vesting, etc. Code requirements that are not applicable to gov't plans, much the same way I would do for a Pension or straight PSP for gov't entity. We'll see how it flies. I haven't thought too much about the overall contribution when combined with 457--the entity we have currently has a Pension Plan in place only. Seems your conclusions may be right?

Has anyone set up a 401(k) for a governmental water/irrigation district/agency under 401(k)(7)(B), as amended under TRA 97? We're going to set one up for a client, but I'd like to know if anyone has done it and submitted to IRS yet? Also, Carol, I noted that your "Choose Among" chart on your website doesn't list the new exception for establishing a 401(k). Is there something I should know before delving in here?

Has anyone set up a 401(k) for a governmental water/irrigation district/agency under 401(k)(7)(B), as amended under TRA 97? We're going to set one up for a client, but I'd like to know if anyone has done it and submitted to IRS yet?

IF your example meets the requirements of 401(k)(10)(A) (I'm not going to address that one!), in order to transfer rather than allow distribution to participants, the acquisition/transaction documentation should simply specify that the assets are to be transferred pursuant to 414(l)and not distributed. I think then you would have a 414(l) transfer of assets/liabilities and the employees would not be entitled to a distribution. Problem is, we find that many corp attys avoid making decisions relating to the plans in the transactional documents (and they don't fully consult with benefit attys about the ramifications!). A separate merger/transfer agreement could be executed for the plans. I think that the same would hold true when "same desk rule" goes away in 2002.