stephen

Is it expected that when completing Top Heavy Test for 2002 for a calendar year plan (determination date 12/31/01) that we will use the new rules (like what happened for the HCE rules in 1998)?

Under existing law the 415© limit applies to plan year's ending in that year: For example in a plan with a 2/28/01 year end I have applied the $35,000 limit. When will the $40,000 limit apply for this plan?

ASPA also sponsors seminars on Form 5500. Their website is: aspa.org Our firm has also purchased the 5500 Preparer's Manual co-written by Joan Gucciardi, Melanie N. Aska, and Janice M. Wegesin for the last couple of years and have found it to be very helpful.

I am interested in learning more of the details and intricacies involved with the New S-Corp ESOP restrictions and how they work. How does this rule apply for non-calendar year plans? How is the ownership determined for the unallocated shares in the ESOP? What planning options are available between now and December 31, 2004? (We would like to help our clients avoid having a non-allocation year and maintain their S-Corp status where possible.) Is it possible to set up a stock option plan or complete additional ESOP transactions to dilute the ownership? Could you: - sell the stock to other employees' accounts - take a distribution - transfer to a profit-sharing plan (and pay UBIT) - have the company buy back the stock Are there some situations where your only option will be to revert to C-Corp effective 1/1/05? Or terminate the ESOP effective 12/31/04?

The instructions for the Schedule R seem to indicate that the Schedule R does not need to be filed for plans without Money Purchase provisions and all distributions being made in cash using the employer's EIN. Any comments?

Upon further inquiry with the client I was told the employee terminated at the end of April. He is only recieiving severance pay. He no longer works for the employer. I feel this makes him inelgible for a contribution for this plan year (unless he is rehired).

Employee is recieving 3 months of severance pay Starting May 1 (to July 31) for a plan with a June 30 year end. The plan requires you to be an Employee (or on approved absence) with 1,000 Hours of Service and be an Employee on the Allocation Date. Employee defined as any common-law employee of an employer. A leased employee, as described in section 414(n) of the Code, is not an Employee for purposes of this plan. Is this person eligble for a contribution?

Check your plan document as it should tell you when to forfeit.

To get an QKA designation through ASPA you only need to take 5 exams. They are: PA-1 (2 parts) and Daily Exam (both take home exams), along with C-1 and C2-(DC)) both multiple choice exams. The ASPA designations are pension plan specific (Profit Sharing and 401(k) included). To get the CEBS designation there are 10 exams and they cover a much broader range of employee benefits (Human Resources, pension plan, economics, etc.) I hope this helps.

It seems to me that the 415 limit for 2002 for a 51 year old would be $41,000 (or 100% of pay if less). $40,000 limit plus the $1,000 make up contribution. The deferrals won't count against 404 limit, but are still included in 415 limit.

Could the company elect to revert to C-Corp status effective 1/1/2005?

Think about this... An employee works part-time at a second job making $4,000 annually and defers 50%, 75% or even 100% of compensation into the 401(k) plan. What a boost to the ADP test this would be.

Does anyone know of any planned changes on the reporting of test results? I know several people who have taken the C-3 exam multiple times and the only response they recieve from ASPA is "You have a received a 6." It would be helpful if you would get your original test back with an answer key or at least some response so you'd know what areas you need to work on.

I believe ASPA is planning on splitting the C-1 exam (as well as the C-2(DC) and C-2(DB) exams) into two parts each. Has there been any announcement regarding an expected timeframe for this to occur? (Presumably once they split into two parts each students will get to purchase 2 study manuals and pay for 2 exams...)

Cindy, I'd be interested to hear more regarding how the DOL calculated the "lost earnings".

Does anyone have a good source for finding historical values of LIBOR rates? (Specifically, April 28, 2000)

yes.

Can't you use the current stock value for determining 415 limits? For example, the share value drops from $100 to $50 (possibly due to the large loan the company took to purchase the shares). If a partcipcant is being allocated 20 shares then for 415 purposes you can use 20 x $50 = $1,000 instead of 20 x $100 = $2,000.

Note, 25% deduction cannot be used by an S-corp.

So wouldn't it make sense to design your matching contribution formula to only match deferrals that are not returned due to either excess deferrals, excess contributions, or excess annual additions?

I have three follow up comments: 1. MWEDDELL States: "Here are the regulatory cites I referred to in my first post. While they don't expressly refer to match related to an excess annual addition, I believe the IRS would apply the same analysis." He is referring to 1.401(k)-1(f)(5)(iii) and 1.401(m)-1(e)(3)(vii). Could someone explain why the IRS would apply the same analysis to excess annual addtions returned? 2) Is there a discriminatory rate of match? (There have been several comments on this but no cites.) 3) Would everyone agree that there are no IRS cites that directly address: "If Salary Deferrals are returned to 415 limits what should happen to the matching contributions associated with the deferrals?"

If Salary Deferrals are returned due to 415 limits what should happen to the matching contributions associated with the deferrals? Is there a discriminatory rate of match? (If yes on what basis?)

RLL, The attorney is referring to 1.1042-1t Questions and answers relating to the sales of stock to employee stock ownership plans. The answer to Question 2 part 3 says "For purposes of this calculation, stock that is owned, directly or indirectly, by or for a qualified plan shall not be treated as outstanding." In our case it makes a difference as they are considering an employee to be a 25% shareholder under 409(n) based on the above logic regarding unallocated shares not counting. On the deduction issue it was not a mistake of fact. (nice thought though).

I am currently faced with the following situation: We have a client who's attorney feels that in an ESOP where 96% of the stock is unallocated and the outstanding 4% is owned by one individual, that the individual owning the 4% is considered a 100% owner because you don't count the unallocated shares in the ESOP. The attorney is referring to a private letter ruling or some outdated regulation that she says makes this perfectly clear. (By the way their previous attorney had the same view.) Can someone please help me explain to her that this person is not a 100% owner? I've been trying but to no avail. To make matters worse she is advising the client that they include retroactively a controlled group company they acquired Jan. 1, 2000 to help them avoid paying the 10% excise tax for exceeding their 404 Limit (They overdeposited by $1,000,000. $850,000 of which was deposited on the last day of the plan year - March 31, 2000). We tried to explain to her that the IRS would view this as a reduction of benefits to the employees of the original company as their accrued benefits would be "watered down" by the addition of the other employees. Could they possbily claim ignorance on the deposit and say it should have been made the following day? Any suggestions? (Of course this is a takeover case)

Assuming you combine two plans into one document. Could you set up a profit sharing plan with 401(k) and matching components, paired with a 5% money purchase plan and use the match to offset the money purchase contribution? For example: $10,000 in match could be applied to the $20,000 owed for the money purchse contribtuion leaving a balance of $10,000 owed to fulfill the balance of the Money purchase contribution?