stephen

The company agrees that the deferrals to the non-qualified plan should not be included in the compensation for the 415 calculation. However, regarding the return of the deferrals the company proposes to run a current availability test. If the plan passes the current availability test the fact that there is a non-uniform rate of match is ok. Their document, as written, does not allow for the match associated with the 415 excess to be reduced. Doing so would create an operational defect. Does this mean they do not have to follow Section .08 of appendix A of the self-correction rules?

You can also access it via BenefitsLink. (Do a search from the home page)

Whoever sends in the year end data has to sign verfiying the correctness of all of the data provided. We also have the following statement print on each page of our census verification the client recieves as part of the year end allocation report: If any infomation is either missing or incorrect, please advise us at once. Thank you.

There is not a excise tax for 415 refunds paid after 2 1/2 months following the plan year. (There is an excise tax for ADP/ACP refunds.) However, please note the participants must get the associated gains returned to them along with the refund. Why are you returning employer match due to 415? I have seen plans return deferrals (with associated gains). However, the associated matching contributions are generally put into a suspense account and used to reduce future matching contributions.

At the earliest it seems the exams will be broken up into parts in 2003 or 2004. Regarding the readings ASPA made the Pension Answer Book suggested reading. I would encourage you to read the ERISA Outline Book readings. ASPA used to offer a C-1 teachers guide that had 4 practice exams along with an outline for teaching the class you might find useful. (i'm not sure if this publication is still available) I believe Cheryl Morgan offer's an online class through pensionedunet.com (maybe).

Has the IRS gotten around to providing a new sample notice yet? Does anyone have any idea on when they will?

Thank you Tom, I calculated the reduction simultaneously (reducing both match and deferrals together). The ESOP is not leveraged. This is a cash contribution only for this year. I will look up .08 of Appendix A of the self correction rules and send a copy of this to the client as well. Stephen

I agree with dubya. You no longer have to test the otherwise excludables separately.

I think you should be able to return the overpayments to the participant. I would not introduce after tax contributions to a plan that did not already have them. Does the plan allow for after tax contributions?

We are administering an ESOP paired with a 401(k) plan administered by a well known insurance company. I calculated 415 refunds based on their being returned from the 401(k) plan. In several instances involving HCE's the amount of 415 excess causes the employee to be reduced below the matching percentage (50% up to 6%). So I calculated the deferral plus matching percentage that would cause the employees to max out their 415 and suggested the employer return the deferrals with earnings and use the match with earnings to offset future contributions. However, they propose to return only salary deferrals. My contact at the TPA says their prototype basic savings plan was approved by the IRS and they are following the document. If the 415 excess is corrected in this manner there are several HCE's who will be receiving a discriminatory matching amount as they will receive more than 50% up to 6%. I am using The ERISA Outline Book and corresponding IRS code as my source - Chapter 5 Section II D2c (Suspense account method (Method #3) page 5.41, Chapter 5 Section II Part E #5 (amount of excess attributable proportionately to elective deferrals and matching contributions) page 5.45, and Chapter 11 Section XII part E 3 page 11.247. Additionally, the TPA believes that due to SBJPA deferrals to the non-qualified plan should be included in the Gross Compensation for 415 purposes. I understand SBJPA changed 415 compensation definition to include elective deferrals described in 402(g)(3) (i.e. elective deferrals under a 401(k) plan, 403(B) plan, SIMPLE-IRA, SARSEP, 125 Plan or 457 Plan).(ERISA Outline Book p 1.64 Compensation definition Part A 6) Include deferrals to a non-qualified plan. I think not. I appreciate your help and input.

Why does it matter? It is a good idea to run the plan on the same tax year as the employer and have the limitation year coincide. There may be certain instances when it is advantageous to do otherwise. But to me it's a better question to ask how many plans have the same year end as their employer's tax year. In my case it's been about 99%.

Tom, Does your respoinse mean you think there needs to be two separate key employee determinations even though this is the first plan year?

We use the PA-1 manuals from ASPA. They cover all of the basics and give you permission to make copies of the manual for in-house use. Each spring we hold a PA-1 class for all new staff members. The class meets every other week and covers 4 chapters per class. At the end of the class we give all of the students the option to take the exam and get the PA-1 certificate. The cost for the PA-1 is $250 plus shipping and copying costs. Much cheaper than sending employees to a conference. I think you can get the PA-1A on-line at http://www.aspa.org I believe Corbel also has an Introduction to ERISA 3 day class that covers the basics. (When I attended the class it was Pension Publications of Denver.)

Before correcting, are you sure the employee was required to take a minimum distribution? (Was he/she a 5% owner? and or terminated or could they have opted out of the distribution?) Maybe the participant opted out of taking the MRD...

I haven't heard anything yet. MGB what is going on?

I did not mean to imply that the 404(k) didvidend is a scam I thought that may have been what QDROphile was implying or afraid of doing without having a Determination Letter. I understand dividends are earnings not employer contributions and did not mean to cause any misunderstanding regarding this issue either.

I heard a rumor at the ASPA conference that there could be a GUST extension. Leave it to MGB to keep us informed.

Regarding the "scam" issue: Think about it this way- The plan has been around for a while. The HCE's have lots of company stock in their accounts (perhaps a disproportionate amount from the NHCE's). Now you can allocate a dividend to the plan based on the stock holdings and get a deduction for it. Thus it may be possible to make a huge contribution to the HCE's and not be discriminatory.

I think it would be ok as you are allowed to discriminate against HCE's as much as you like.

There is an article in the September - October 2001 issue of The Pension Actuary that discusses this topic (p 18). What if the plan amends to include matching contributions for Top-Heavy calculations? Then there would potentailly be a benefit lost for non-key employees. What about due to the changes of definition of Key employee or changing from a five year look back to a one year lookback a plan dropping out of Top Heavy status. The author goes on to say that these are problems for a db plan not a dc plan. Another thought regarding amendments if you are looking to eliminate or reduce a Money Purchase contribution for next year that amendment and the 204(h) notice (no later than 12/15/01) will need to be completed by 12/31/01.

I completely agree with RLL!

I agree with your interpretation of using the "old rules" you are not required to follow the new rules until the the final regs are published. Maybe by the end of the year.

This seems doable. I cannot think of a way to get them any more money into the plan without establishing a db plan.

I expect there will be lots of "former key" employees for the 2001 determination year. Be prepared to exclude the from the test.

Generally, the entire matching account vests on the same schedule. I cannot imagine trying to track any other method. For plan years beginning after 12/31/01 new matching contributions have to vest on a three year cliff (0,0,100) vesting schedule or a 6 year graded (0,20,40,60,80,100) vesting schedule.