pbarrett

We have a takeover plan (401k) that has numerous participant loans. When a loan is made, the funds are actually withdrawn from the participant's mutual fund. A loan account is set up to track payments and is considered an asset of the plan. We have found two participants who took loans in '99. Both participants stopped making loan payments in 2001. Both employees are still employed. The employer felt sorry for them because they are paid very little and felt it was the right thing to do because "it was really on their money anyway." We are now going to report the loans as defaulted. My questions are: 1.) Do we report the outstanding loan as of the date of the last payment and add interest on? 2.) Do we just carry the balance and accrue interest (don't report) every year? 3.) When the participant quits, how do we then report it? We cannot adjust basis because on both participants hardship withdrawals have taken place so the only remaining asset is our loan account. 4.) Am I correct in thinking you cannot rewrite a loan in default unless you are still in the cure period? Please help!! We're trying to get the 1099R out at least by the 2/28 deadline. I know we should have had the employees copy out already. Thanks, Pat

We have an employer (2 owners) who always fails the ADP test (no match). Each year both owners must take a corrective distribution of around $5000 each. They also receive a cross tested ps contribution. Their CPA has suggested that they add their wives to the payroll. Pay them each $2000 and do not have them defer. This will enable the plan to pass the ADP test. In addition, they want to have the wives in a separate class in the new comp portion of the plan to help the two husbands with the new comp allocation. To me, this seems somewhat "suspect." However, I am rather conservative. Does it seem appropriate to have them in the same group for ADP testing but in a different group for new comp allocations? I'd appreciate greatly any feedback.

We have a client who has had a ps plan with us for years. Effective 11/01/02 he added a 401(k) feature. The owner would like to know how much he can defer (estimate only) for the 2002 year. The document states compensation is for the entire year. Here are my basic question: 1.) Can I use the new rule that allows you to assume the non-highlys contributed 3% since this isn't really a new plan? Thanks for any input.

Help! We have a client who wants to get rid of his 401(k) simple plan and replace it with a nonstandardized 401(k) plan. Currently, deferrals and match contributions are made on a payroll basis. I'm thinking of using restating the plan to a nonstandardized 401(k) effective 7/1/02. Does anyone see any problems there? Any special notices required?

We have a one-man mp plan we want to restate to a ps plan. Originally, we thought we would make the effective date 1/1/02 for the restatement and have the assets renamed as of 12/31/01 so we could do a final 5500. Now we are thinking we can't have the one-day lag period. If we restate and retitled the assets effective 1/1/02, would we have to do two 5500s for the mp plan? One for '01 and a final for the one day in '02? I think I am just confusing myself. This can't be that complicated. Help!

If we're merging the mp into an existing ps and preparing the amendment and 204(H) in a timely fashion, any need to do a SMM (summary material mod.)?

Let's assume we have a top heavy 401(k) plan with an 60 year old owner who does not defer because he does not want to have to make the minimum top heavy contribution. Can he make a $1000 catch up contribution for himself and a -0- deferral whereby avoiding making a top heavy contribution? (Assume the plan allows for catch up contributions). Does the max deferral have to be hit before you can allow for catch up contributions??

We have several 12/31 paired mp & ps plans that our clients would like to merge into one plan. Assuming the joint life and vesting subjects are not an issue and we complete the merger paperwork correctly by 12/31/01, how and when do the funds need to be combined? I am assuming we can update the mp with the gatt provisions and merge into the ps by 12/31/01 and we'll be ok there on paper, but what about the assets. Most of our mp clients don't contribute until the last minute, which will be in Sept 2002. Should the funds be combined on 12/31/01 and then when the contribution receivable arrives simply allocate it to the appropriate participants-- or should we combine only on paper and move the assets in 2002 after the contribution posts to the mp? Bottom line, does the mp money need to zero out of the trust by 12/31/01 to avoid restating the entire plan? Any feedback or suggestions would be appreciated!

We are beginning to start contacting our clients about the restatement process. We have found out that the nonstandardized document we will be using (Corbel) will no longer need to be submitted to IRS. Now we are kicking around in our office the idea of switching all of our clients currently using the standarized to non-standarized. Can anyone think of an advantage of staying with the standarized document? Any thoughts would be appreciated.

We are a TPA firm and presently prepare annual particpant statements for the participants in all of the 401(k) plans we administer along with SPDs and SARs. In addition, these same particpants are sent quarterly cash investment statements that reflect current market values. The annual statements are run on a plan year basis, and reflect vesting etc. I was recently at a seminar and found that most of the TPAs have stopped the annual statement and only send the quarterlys. Our "document" is rather vague as to what the reporting requirements are. What is really required. What do most TPAs send out? Your thoughts would be appreciated.

We recently took over an existing 401(k) plan. The sponsor is a sub-s corp. While preparing the '99 valuation, I have discovered two loans were made to the owners. Any ideas on how to proceed? The loans were both made in '99. The plan has well over 100 participants so it will also need to have an audit done. Any thoughts would be appreciated.

We have a client who will need to have an audit done. The client (employer) would like to engage the CPA firm that handles the corporate books. Is that permissible? Also, does it matter if we prepare the 5500 and schedules or the can the auditor? I called a couple of firms in our area known for doing plan audits and one quoted a bid that included the completion of the forms and attachments and the other firm said it was our job to do the 5500 and they simply do the attachment. Does it really matter? As you can tell, we normally only handle plans with less than 50 participants so this is all new to me. Thanks for any info.

We have a frozen 403(B) plan. The investments are self directed by the participants in mutual funds via a group annuity insurance product. Presently we gather all the quarterly statements and produce an annual statement for the participant, an SAR, and a 5500. Because these particpants receive quarterly statements from the insurance co and the plan is now frozen, I am wondering if there is any need for us to prepare an annual participant statement. It is very time consuming and from what I have been reading, it appears to me it is not even required. What are the required participant disclosure requirements? Any info would be appreciated. Thanks.

We established a new 401(k) plan effective 1/1/99. According to the way our software counts (quantech), we had 131 participants at the beginning of the year. We were hoping to put -0- and avoid the audit because of the new plan status and no assets in the plan as of the first day of the year, has anyone seen any hard and fast rules on this? I have received differing opinions as to whether or not we can put -0-. I would appreciate any thoughts or guidance on this matter. Thanks.

We have a plan with numerous participant loan in it. The employer asked that we "forgive" one loan that an active participant has on the books. (The participant is having financial difficulties.) The loan has been paid via payroll deduction. Can we just write off the loan and report it as a distribution? If in-service distributions were permitted (they are not in this plan), would that make a difference? Any help would be appreciated. Thank you.

We have a plan with a 1/20 vesting schedule. The employer wants to change it to a 3/20 schedule. I am looking for clarification on the 3-years of service election rule (i.e., "each participant who has completed 3 years of service may elect to stay under the old vesting schedule"). It is my understanding you can never take a vested benefit away. To clarify, based upon the above facts, say we have a participant with 2 years of service and is currently 40% vested, can the employer take the participant to -0-% because they do not have the right to make an election to stay with the old vesting schedule?? I am thinking the 3-year rule must be used perhaps with plans that have a 5-year cliff. Any guidance would be appreciate! Also, when changing vesting, do you generally tie the amendment to new participants entering the plan after a certain date or simply go on those employees hired after a certain date.

In the past, if you had a plan that started let's say with 95 particpants and then eventually ended up with more than 100 particpants but less than 120, you did not need to have an audited report sent with the return (you could still use the 5500 C/R series). With the new 5500, will that provision still be available?

We have a 401(k) plan that was established back in '95. We have always tested on a current year basis. This year is the first year they have failed the adp testing (no match is made). I have heard it is possible to use prior year numbers for testing the '99 and then it is still ok to flip back to current year for the 2000 year if we so desire. Is that true? Thank you.

We have a few employees past age 70.5 who are receiving annual distribution of their RMD with no withholding being taken. All of these employees were set up on the distribution payout in the 94 and 95 years. It is our understanding if the payout started prior to '96/'97 years, we're ok not withholding. All distributions are based on life expectancy, recaluation basis. Are we ok on these payouts because they start so long ago, or should we start withholding?

We did an amendment to freeze a 403(B) plan effective 12/31/98 and then established a 401(k) plan for the employees. It is our understanding we cannot terminate the 403(B). I am wondering now if the 403(B) monies should all be considered 100% vested, does anyone have an opionion? Also, aside from filing the 5500, should we be providing an annual statement to all the participants in the frozen 403B plan? They are receiving a statement from the insurance company that reflects gains etc. Please help. This is our only 403B plan and we are really in the dark with all the rules and regs. Thanks.

We primarily use standarized prototype docs that have been issued an opinion letter (dated 6/1/90)by the IRS. When completing the 5500 (Q 22a) we answer yes that it qualifies under code 401(a). We use the date of our opinion letter for 22(B) as we have no determination letter. We have been told by a pension atty we should leave 22 b & c blank because we have only the opinion letter. I feel the form would reject without a response. Anyone have any ideas here?

We have an existing profit sharing plan that excludes union members. One union member, who has worked for the employer for 5 years, dropped out of the union last month. The plan has a one-year eligibility requirement. When can this employee enter the plan? A year from the date they left the union? Do we give credit for prior service? Do we exclude all salary paid while the employee was in the union? Thanks for your assistance.

We have a potential new client who has an existing simplied 401(k) plan. It was effective 1/1/98. The client would like to tack on a new comp (cross tested) ps feature for the '99 year. The existing document is not ours but it appears to say the maximum ps disparity rate is 2.7%. Is this standard? Any problems regarding testing in setting up a stand alone new comp plan? Has anyone set up a simple 401(k) with the new comp feature within one doc? Any suggestions would be appreciated.

We have a client who presently has a 401(k) with a discretionary profit sharing contribution option. It is a calendar year plan. The client would like to amend the profit sharing allocation from a straight allocation based on comp to a cross tested plan effective for the '99 year. We are using a standarized document. Isn't too late for the '99 year?

A client phoned and stated they have an excellent employee with a 401(k) participant loan who was in a serious car accident and will not be back to work for 4 months. The payroll will run out in 2 weeks and the employee is flat broke (cannot afford to send personal checks in to make the loan payments). Is there any way to avoid having the loan go into default and reporting it on a 1099R? Any ideas out there?