stephen

To determine HCEs for 2005 you look back to 2004 compensation and 2004 compensation limit. Thus, if an employee earmed more than $90,000 in 2004 they are an HCE for the 2005 plan year. Most adoption agreements allow for the employer to elect top 20% rule which limits your plan to 20% HCEs. For example a firm that has 100 employees half of which earn more than $100,000 is only required to include 20 of them as HCEs if they make this election. Note, this is a very simple example and can only be made prospectively. Also, if the company is already making an employer contribution of some knid they may want to consider a safe harbor plan as this would allow them to avoid ADP, ACP and Top Heavy Testing for years in which they are safe harbor. I only have the last 10 years CODA posted at my desk and 1997 was $80,000.

In a privately held company it would be very rare for the valuation and much less likely that the annual report will be completed in the first 90 days of the plan year. It seems unfair to make an employee make the election without knowing the current fair market value. It is my experience that most practitioners allow the participant to make the diversificaiton election once the share value is known.

FROM LAST WEEKS EBIA WEEKLY- QUESTION: Our 401(k) plan provides for hardship distributions using the safe harbor events, and we have amended our plan to add the two new safe harbor events permitted by the final regulations under Code Section 401(k) that are applicable beginning this year. What documentation should we require for all safe harbor events, including the two new ones? ( Contributing Editors: EBIA Staff. From EBIA Weekly 3/16/2006. ) ANSWER: As discussed in more detail below, your plan should require (as a condition to receiving a hardship distribution) completion of a hardship application and supporting documentation that reasonably demonstrates the occurrence of the hardship event, the financial need, and the dollar amounts involved. Assuming that your plan uses the safe harbor for deeming that the participant lacks other resources to satisfy the financial need, no documentation on this point will be required. (Under the safe harbor, the participant must have obtained all currently available plan distributions--including loans and ESOP dividends--and must be prohibited from making any deferrals or after-tax contributions for at least six months after receiving the hardship distribution.) You should retain all hardship applications and supporting documentation in the plan files so that they are available to support the plan's decision in the event of an audit or dispute. Here are our suggestions of appropriate supporting documentation for each of the six permitted safe harbor distribution events. ==> Medical Expenses for Participant or Dependent. We suggest that you require a copy of the health care provider bill, along with an insurance company benefit statement denying coverage for at least the amount being requested. If the expense has not yet been incurred, you could require a signed letter from a doctor or other health care provider verifying the need for treatment and the approximate cost. Some plan administrators wonder whether the HIPAA privacy rules apply to medical documentation held by a 401(k) plan. Typically, the HIPAA privacy rules will not apply to a 401(k) plan because a 401(k) plan typically is not a covered entity. But HIPAA will affect the extent to which a covered entity (such as a health plan) may disclose information to the 401(k) plan. Participants are permitted to disclose their own health information (for example, an explanation of benefits in support of a medical hardship request) to the plan. But health information held by your company's health plan or a provider generally would be subject to HIPAA and could not be disclosed by the health plan or provider to a 401(k) plan without the participant's authorization. Once information is provided to the 401(k) plan, whether by the employee or by a health plan or provider pursuant to an authorization, it will not be subject to the HIPAA privacy rules. Other privacy requirements may apply, however, so as with all personal information, it should be handled in a confidential manner. ==> Purchase of Principal Residence. We recommend requiring a copy of the signed purchase agreement. ==> Twelve Months Tuition and Related Costs. We suggest requiring either a bill or a letter from the educational institution, verifying enrollment of the participant or the participant's dependent. The bill or letter should include actual or estimated costs of tuition, room, board, and related expenses. ==> Payments to Prevent Eviction or Foreclosure. For this event, we think you should require a copy of the formal legal document giving notice of the eviction or foreclosure that is required under applicable state law. Generally, a legal notice would state that if the overdue rent or mortgage payment were not received by a specified deadline, formal eviction or foreclosure proceedings would be instituted. ==> Burial or Funeral Expenses. This is one of the new safe harbor events permitted under the final regulations. We recommend requiring copies of the death certificate and the bill from the funeral home showing costs of the burial or funeral. ==> Repair to Employee's Principal Residence Qualifying as a Casualty Deduction. This is the other new safe harbor event permitted under the final regulations. We suggest requiring evidence of the casualty (a description or photograph), a copy of the repair bill, and proof that insurance proceeds did not cover the amount of the casualty expense claimed as a hardship.

LIKE HERE

I agree with WDIK!

If you are you still talking about a plan year that ended 12/31/2005 and the document said no matching contributions for HCEs and that is what you did you cannot amend it now to provide for contributions for those HCEs for the previous plan year. If your document says all employees get the safe harbor match they should have already received it per the document.

FWIW, If I understand your scenario I think you can look back to 2004 and apply otherwise excludables to the ADP test if it gives you better results. Unlike changing testing method from Prior to Current or utilizing top paid group for which the amendments have to be signed by the end of the plan year in which you are making the change for you can change form year to year whether you apply the otherwise excludable rule.

Does this also apply to making the Top Paid Group Election? Once again the ERISA Outline book (2004 edition page 1.202) 2.b.1c) Timing of election says it is ok to make this change as long as it is withing 9 1/2 months after the end of the plan year - the regulatory deadline for making amendments for coverage testing. Or perhaops this is still ok to amend? Thanks, Stephen

Yes

You continue to count inservice distributions for 5 years. Thus, his distribution would continue to be counted for five years.

Does it have any affect if the participant signed the truth in lending statement and promissory note did they take out the loan or if a loan fee was taken out off the top?

I'm interested in what others have to say but I think since he took the loan his loan maximum is $50,000 - $50,000 = 0 until the 12 months has passed. Since his loan balance was presumably still 50,000 when he paid off the loan 3/11/05 he must wait until 3/12/06 to take out a new loan. The fact that he paid it off early does not change the fact that he took the loan or that his balance was $50,000 on 3/11/05.

Thus, I assume Sal has made changes to the section I quoted previously (from 2005) in the 2006 edition of the ERISA Outline Book.

Don't "forget" the HCEs "may" have to receive the safe harbor match. (added "forget" and "may" and changed to statement instead of a question 2/28/06 1:40pm)

As long as the plan was already a safe harbor plan providing for that matching formula and the match is provided as required by the plan document yes it is that simple.

I'm guessing since the poster included ROTH in the title of their post that this is referring to a Roth IRA...

Regarding changing from prior year to current year testing in the 2004 ERISA Outline Book (page 11.36) 3. "There is reasonable aregument that the employer could adopt an amendment at any time before the deadline for correcting a violation of the ADP test (i.e. 12 months after the close of the plan year). In other words, the IRS should treat the choice of testing method as one of the corrective techniques in the administrator's "arsenal". 3.a. "2004 Regulations do not address issue/IRS comments indicate narrow rule is contemplated...In the absence of guidance, plan sponsors (or their advisors) will have to decide for themselves what they believe is a reasonable interpretation of the law."

perhaps I worded it poorly- EX: Effective 7/1/2006 everyone who is eligible in the 401(k) plan who is not already deferring at least 3% will be set to 3% contribution rate. Thereby, leaving those deferring at more than 3% at their current level and including all participants. Or perhaps this is something that can only be done for newly eligble participants?

Could you do a retroactive automatic enrollment for 3% if the participant is not already deferring at least 3%. Thereby leaving those deferring at more than 3% at their current level?

The advantage would be the additional benefit (via earnings in their accounts) to the participants by the company paying the fees. I am unclear how a deduction for paying the fees would benefit an S-Corporation that does not pay taxes.

Nope, the discussion so far says the money will be recharacterized as a profit sharing contribution. What if the employer was not going to make a profit sharing contribution? Could this money then be set aside to be used to offset future matching contributions?

MANY THANKS!

According to http://www.wtplaw.com/News/articles.asp?NewsID=287 BEWARE OF TRANSMITTING SOCIAL SECURITY NUMBERS – HOW MARYLAND’S NEW SOCIAL SECURITY NUMBER PRIVACY ACT MAY AFFECT YOU AND YOUR BUSINESS 01/25/2006 Jennifer Ryan Lazenby Maryland’s new Social Security Number Privacy Act became effective January 1, 2006. The Act prohibits, among other things, the public posting of an individual’s Social Security number or the public display of an individual’s Social Security number. Very few employers or businesses actually contemplate posting Social Security numbers for the public to see, so at first blush the Act may not seem relevant to your company. The Act, however, is also directed at normally private actions that may become “public” through a breach of security. Transmitting an individual’s Social Security number by mail, facsimile or over the Internet is also prohibited. Practically, the Act will have a huge impact on Maryland businesses, probably far greater than ever expected by the legislature and the general public. The use of Social Security numbers is prevalent in today’s society. Social Security numbers appear on insurance cards, credit reports, tax returns and employment applications. There are some exceptions to the Act, including the use of an individual’s Social Security number if required by State or Federal law. Moreover, continuous use of an individual’s Social Security number may be permitted under certain circumstances if the user provides an annual disclosure informing the individual of his/her right to order, in writing, that the use of his/her Social Security number stop. Although the Act does not specifically define how violators will be punished, precautions should be taken to avoid civil liability and to protect the identity of your clients, employees, etc. If you use Social Security numbers in your business, provide the holders of the numbers written notice of the Act and inform them of their right to opt out of such use. Evaluate the effectiveness of your internal procedures. Make employees aware of the new law and regularly verify that your internet connection is secure. If possible, recode your records to use only the last four digits of Social Security numbers. Require an individual to complete a waiver if he/she asks you to forward information containing his/her Social Security number to third parties. The above outline is intended only as a broad overview of The Social Security Number Privacy Act applicability and does not constitute legal advice. I remember laws being passed that kept firms from printing Social Security Numbers on statements etc. However, it seems to me that this goes way beyond that. Do Maryland clients need to start using employee identification numbers when sending information via fax or internet? Our clients send in census data, contributions, etc. using the SSN as the identifier. Thanks, Stephen

Regarding what the plans definition is for plan income you should refer to the adoption agreement and plan document. We refer such compensaiton issues to the CPA and have them calculate the compensation. There have been many threads that have discussed this topic.

If the key employee does not meet the definition of key employee in their year of termination then they are former key that year and in future years unless they become a key employee again. If the key employee does meet the definition of key employee in their year of termination then they are key that year and former key in future years unless they become a key employee again.