pbarrett

The employer is the plan administrator. Sungard Corbel just recently updated the document to add the Gust and Egttra amendments. Employer contributions are subject to a vesting schedule. As the first page of Corbel's doc says, the plan was frozen 12/31/98. Forfeitures, per the doc, are first to be used to pay plan expenses and then to be added to the match. If you did not catch the one sentance that the plan was frozen, you'd think this was an active plan. The employer, in fairness, thinks he's done everything ok. I will be referring him out to seek his own legal counsel but I am curious about the plan being frozen. The employers claims he is following the provisions of the plan. There has been no match (and there will be no match because it is frozen) so the money is all sitting there. I know he cannot pay the 401(k) fees, but it wasn't a bad thought on his part. My real question is: shouldn't the employer match dollars have been considered fully vested as soon as the plan was frozen??? The plan cannot be terminated according to Legal because there is no provision to terminate a 403B plan in the code. We have an opinion from a legal firm (dated 10/98) who specializes in 403(b)'s. Again, I'm more curious than anything else. If anyone works with these plans, I'd appreciate any input you can give. Thanks so much.

You know, I was wondering if anyone at this point would have a response to an old question I put out there. Distributions were made from the frozen 403(b) plan. We are of the opinion the distributions should have been paid on a 100% vested basis. The Trustees opted to forfeit balances. They now have a sizeable amount sittiing in their 403(b) forfeiture account. We believe the funds should be refunded the the participants with earnings. This plan was frozen 12/31/98. A 401(k) plan was establised 1/1/99. We handle the 401(k) plan. This issue came up because the Trustee phoned and wanted to know if they could pay our 401(k) admin bill from the 403B forfeiture account. "He has quite a bit of cash there and thought he should start using it." Is it Friday yet?

We have a married Dr. (Dr. X) who owns 100% of his LLC (Co. A), there are no other employees...there is no pension or p/s plan. We have a Partnership owned equally owned by 6 LLCs' Dr. X's LLC is one of the 6. The Partnership pays Dr. X compensation dirctly to his LLC, i.e., the check is cut by the partnershp, payable to Dr. X's LLC. The Parnershp sponsors a profit shring plan that covers all 6 partners and all 30 eligible employees (all Drs receiving the maximum $40,000 allocation). Dr. X's LLC pays $100,000 annually to a Management Company (a C Corp); it's only employee is the owner (the owner is Dr. X's wife or Mrs. X). A DB plan is to be established and sponsored by the C-Corp for Mrs. X (Dr.'s wife)... see any problems?

We went thru a broker who has done business with us for several years and National Bond Specialists. We were quoted $5 per $1000 for the nonqualified assets. The Plans we are most concerned about have land, restaurants, antique watches (if you can believe it- transferred in from a really old db plan)and art. Do you think the type of non-qualified asset has anything to do with the pricing we're being quoted or we're just getting ripped off? I know the broker and NBS knows we're talking about fiduciary bonds for pensions because we had to fill out forms disclosing what's held in the Trust. Now in fairness, current (within 12- 24 months) appraisals have not been done. All have had an appraisal within the last 3 years though. Another side question, if the client gets the audit done for 2002 and ups the bond today for 2003, would that be considered a "reasonable time" for the bond purchase to avoid another audit for the 2003 year?

We have an old ps plan with hub/wife holding assets in excess of $1,000,000. They have not made ps contributions in years. The funds were rolled in from an old DB. I realize they should have recurring deposits but that is not my issue here. Question: Over the last few years they have hired employees. There are now 5 participants in the plan. The two HC's and 3 nhce's. The 3 nhce's have -0- balances. There is no bond in place because the participants are not at risk. I would guess 80% of the assets are non-qualifying. Is a bond and audit required? Again, if the intent of the reg is to protect the participants, we're fine. However, we are preparing 5500's versus 5500 EZs so I don't know if red flags are going to shoot up. Any thoughts?

On our plans, the bond was not increased in time for the 2002 year (and in many cases the 2003 year). It is my understanding the "increased" bond had to be in place 1/1/02. Right? Also, we checked with 3 bonding companies and found the bond would run $2500 to $5000 for these plans. Our auditor charges $1500. The clients opted for the audits to save money. Am I missing something here?

Thanks so much!

We are a TPA firm. In 2000, we instructed a Trustee to distribute appx $24,000 to a terminated participant and withhold $6000 for taxes. The $24,000 was paid out. The $6000 was transferred from the Trust to the Corporation (the Trust does not have a checking account and the intent was for the Corporation to in turn deposit the $6000 w/h). We just found out that the $6000 is still sitting in the Corp account. We prepared and the Trustee sent in the 2000 1099R showing the total dist of $30,000 with $6000 withheld. No one has heard anything from anyone. I don't know what the penalties are but I guess the proper approach would be to send the $6000 into IRS with a letter of explanation from the Plan's trustee. Are there special procedures or can someone direct me where to go to check out the late penalties. I thought maybe if the Trustee is just honest the penalties might be waived. This is a long time client and I truly think it was an innocent mistake. Any thoughts would be appreciated.

The CPA doing the small plan audits for us (for the 2002 year) is saying we need to prepare the H versus the I. We get errors preparing the H from the software package because there are less than 100 participants. (These are audits due to the % of nonqualified assets held.) Is the CPA correct?

Oh, I just noticed I originally said 3% safe harbor match, meant 3% sh nonelective.

No, actually they have the 3% nonelective safe harbor. (It was thought they would be making ps contributions but the income was not there). The tests all look ok to me. The 410b ratio passes at 100% like you said. I don't need the adp due to safe harbor. I guess I'm just a little nervous because we're responding to an DOL audit and I wanted to make "really" sure I wasn't missing anything. This plan is so clean and small I can't believe they are looking at it. The ratio test is fine; the average benefit %'s fails (ebar) piece. But the questionnaire asks for both. Got me. Thanks.

We have a 401(k) plan. Deferrals only with a 3% safe harbor match. No match. No ps contribution. Both Highly and nonhighly get safe harbor once eligibility is met. Question: I know I don't need to worry about the acp/adp testing. What about the average benefit testing?

Yes, most of the remaining balance represents deferral money. The emergency we found out today is really forclosure on his home. Thanks for your help!

We have a participant who had a $40,000 balance and borrow $20,000 (rounding numbers of course). He has made a couple of payments but now says he has a family emergency and needs to take a hardship w/d for $9500. The plan permits loans and hardships. The only real question I have is can he now take the $9500? Does it in any way violate the 50% rule (can only take 50% for a loan of vested balance) or does the 50% only matter on the day the loan is made???? Thanks for any input.

We have a DB plan that terminated in 2002. The actuary determined that the client needed to fund appx $300,000. The client did so. Distributions were made during 2002 and the plan assets are at -0-. Problem- the CPA says with Corporation only had a $115,000 profit. He can't use the $300,000 contribution as a deduction. This is out of my area but does anyone know-- can the CPA carry forward part of the contribution? All contributions were made during 2002. PYE 12/31/02 Corp YE 12/31/02. Thanks for any thoughts.

We're getting lots of clients wanting to "add on" DBs to their 401(k) plans. We have a hub/wife 401(k). The are both over 50 and have each deferred $14,000 for the 2003 year from payroll. No match or employer contribution has been made. They each will earn a high salary this year. There are no employees. If a DB was established 2003, and let's say the funding requirement was $50,000 each for the two of them (100,000 total - wild guess), I know they can deduct the funding requirement for the DB but is it kosher in the eyes of IRS? My question is-- are they not over the 415 limit? They really cannot have both or am I missing something?

Thank you all for your assistance. The DB terminated in 2002 and everyone received their distributions amount except one person (who has since been paid). The 401(k) was established and funded for 2002. The $250,000 was deposited in 2002. The safe harbor was actually deposited in 2003 for the 2002 year. The deferrals were made timely during 2002.

Assume the client takes the db deduction for $250,000, pays excess penalties on safe harbor, what about the deferrals? (25% of eligible comp is about $110,000). One key earned $180,000, deferred 10,000, db cost $69,000. I know the limit on the dc is $40,000, which would include the $10,000. How is the deferral treated here?

We have a long time client who has maintained a db plan with us for years. He is turning the company over to his kids and decided to terminate the db plan in 2002. We have distributed the funds and the client did need to contribute appx $250,000 to meet the funds obligations of the plan. We thought everything was proceeding nicely until the Son of the client mentioned he's done well lately in the market with his 401(k) plan. I asked him about it. Long story short, the son set up a 401(k) plan with a competitor of ours. The all (including our client- Dad) deferred the max. It is also a safe harbor so 3% 100% vested contributions were made. I am not sure if they are planning to make a ps or match contribution. Our Actuary is stating there is a problem. As it stands now, I believe the deferrals are ok but the safe harbor contribution puts them over the limit. Am I correct? The CPA is saying the max is 25% of total comp, not a nickle more. We know they can use the db required funding amount. The 5500s have not been filed. Our Actuary says we should file our 5500 as is and move on. He feels we should have been told about the 401(K). We can't change our numbers. The term papers went to the PBGC and IRS for determination. The client clearly has a problem. Anyone have any ideas?? I guess we were not informed of the new 401(k) because they felt bad we would not be handling it. Any thoughts, ideas, suggestions would be appreciated.

We are taking over a new comp plan for period ending 12/31/02. Two Dr.'s each made well over $200,000 and each own 50% of the corporation. One Dr. has waived out of the plan. There are two groups in the plan. 1.) Keys 2.) All others When I run the tests and compute the allocations, do I count the one dr.'s comp that waived out of the plan at all? Do I put him in Group 1 with a -0- contribution? (Seems discriminatory). For 410B would I include him in the count? Help.

We use quantech, pentabs, and FDP in our TPA firm. We are upgrading our copier. According to the salesman, we should be able to print these software applications directly to the copier versus at the individual work stations. I hear they may be problems with FDP because it uses Word 97. Pentabs is a dos program. Anyone out there printing directly to copiers versus printers? If yes, any problems?

Can a participant who has a contributory ira with after tax dollars and pre-tax dollars in it roll or directly transfer the entire amount into a qualified 401(k) plan? I'm confused on the new reg's. It appears there is no problem with the pre-tax IRA, or a rollover IRA (consisting of after tax employee contributions within a qualified plan ) but I not clear on just a plan ol IRA that consist of pre-tax and after tax money. After help would be appreciated.

We have a ps plan with an 8/31 pye. The Trustee decided to term the plan 2/28/03. The plan assets at the time of the last val (8/30/02) were appx $800,000. It was decided to do an interim val as of 2/28/03. (This is a straight forward ps plan, annual val, 6 participants, one HC who has 76% of assets.) The feeling was that the interim val would be in the best interest of the NHCE's due to the market being down. All were vested at 100% etc and distribution election packets were sent in March. The elections were made. The payouts were processed. The HCE was told not to remove his account balance until all the NHCE's received their full balances. The general consensus was the investments would drop. Of course, the opposite happened. Between 3/1/03 and today, the HCE has made almost $180,000. The participants funds were distributed June 4th. The HCE believes these funds are now his. In fairness, he said he would have taken the full loss. The assets are pooled, he guaranteed payment as of 2/28/03. Our firm is partially in error I believe because we held up the distributions until the last participant make his/her election. One particpant with over $100,000 waited over 70 days from the election date to get the funds. So.... any opinions as to what we do now? The employees portion of the gain would be 24% or $43,200. There are 5 participants with balances of $2,000 to $125,000. The doc is in order. We do not plan to submit for any type of determination. Help. Any thoughts would be appreciated.

Thanks Blinky & Tom. The info really clarified it for me.

The Dr. is 62. His ebar is 3.13%. The 3 NHCE's are receiving 7% of pay -- ebar 1.02, 5.37, 3.48 for an average of 3.29%. The plan is top heavy. There is no one eligible with less than 1000 hours so I think I am ok here because everyone is getting 7%. Our software system (Quantech) prints out both the safe harbor gateway and the minimum (minimum is 1/3). The safe harbor gives everyone 5%. Another question too if you all can figure out my first question is: Does any employer really state how much they want to put in before the year begins? My clients say give me the most and give as little as possible to the others. Oh, I run all the tests. I don't know why I run the average benefits tests other than to see how it looks. Any tips would be appreciated. Thanks!