Richard Anderson

If I understand the prior posts correctly, then I disagree. After tax contributions will always have to be tested. And, if the only after tax contribution is made by a HCE, it doesn't pass. If the conditions are met, then the match on an after tax contribution does not cause the plan to fail the safe harbor, but the post tax contributions must pass the ACP separetely.

I agree with rcline46, From 5500 instructions defining "Participant" "...Active participants also include any nonvested individuals who are earning or retaining credited service under a plan. This category does not include (a) nonvested former employees who have incurred the break in service specified in the plan or (B) former employees who have received a "cash-out" distribution or deemed distribution of their entire nonforfetable accrued benefit." The phrase "nonvested individuals" clearly does not intend to include someone with no accrued benefit who is zero vested in that zero benefit. But, even if you believe the intent is to include a "nonvested individual" with a zero account balance, then they fit (B) above. They have a "deemed distribution" of their zero account balance. I see no intent in the instructions to include in the definition of participant a terminated participant with no account balance.

The document we use says that the employer will not allocate a contribution to a participant, if that allocation will result in a 415 limit viloation. The safe harbor rule for having a uniform allocation rate has several exceptions. One exception is that if the lower allocation rate is caused by any plan limit (such as a dollar limit or a percentage limit), the plan does not fail the safe harbor requirement. The 415 limit is an example of this type of plan limit on an allocation.

You are not wrong.

Neither are protected benefits and can be eliminated.

Kristina, The account balance at the time of the QDRO is an accrued benefit, that was earned for prior service to the employer (service while married to the ex-spouse), although it may not be fully vested at the time of accrual. It is doubtful that the ex-spouse's attorney would agree to a QDRO that limited the ex-spouse's benefit to only vested benefits.

Calculate on the whole account balance, but the alternate payee then has the same vesting as the participant. If the alternate payee wants (and the document allows) an immediate distribution, the distribution is for the vested portion of the alternate payee's account. If the participant further vests in his account, so will the alternate payee in his or her account.

I think that the employee can give the employer tip money to cover other deductions such as federal withholding and SS. Example: the employee has $500 in non-tip wages this pay period. Federal withholding and SS is $400. The 401(k) deferral is $350, but here is only $100 left after deducting federal and SS withholding. If the 401(k) deferral is deducted first, I think the employee can give the employer the money needed to make the federal and SS withholding deposits. Maybe someone else will confirm if this is OK. In the above example, the deferral could be any amount up to the total non-tip wages for the period. Be carefull with excluding tips from compensation. If this is a safe harbor 401(k) you won't be able to exclude tips in the definition of comp, unless the definition can pass a non-discrimination test. It is unlikely to pass since the HCEs in the plan probably have no compensation from tips. Also, if the plan is not a safe harbor 401(k), if you exclude tips from the definition of comp for deferral purposes, you still must include tips in the defintion of comp used for ADP/ACP testing. Unless, the non-tip definition is non-discriminatory.

I don't think that tip money already in the employee's hand can be contributed to a 401(k) plan as a pre-tax deferral.

Thanks, Kristina

I agree that the financials on the 5500 can be on either accrual or cash basis, but I am unsure as how to report a change from accrual to cash. Or, is it even nessecary to report the change? If changing from accrual to cash, can you use a beginning balance that is different from the ending balance on the prior year's 5500?

quickfox, It will make no difference about forming a corp or not. The distribution causes the taxable event and the 10% early penalty.

Since the DH is male, maybe DH is Daughter's Husband?

lforesz, If the definition of compensation used for allocation purposes is less than 12 months, then the 401a17 is prorated. This would always be the case for a short plan year for the 401(k) part of the plan. If the 1st plan year is 6 months long, the plan could define compensation for the profit sharing contribution to be a 12 month period; in that case no pro-ration would occur for the profit sharing plan. But for the 401(k) part of the plan, compensation for deferrals is only for the period that the plan is in effect. Therefore, for ADP/ACP testing you would pro-rate for short plan years.

Thanks rcline46, Doctor A knows that the terminated plan will be 100% vested. But, I'm trying to find any authority on whether the new plan can exclude service before the effective date of the new plan. Do you know where I can find any guidance on how successor plan rules affect vesting?

Two doctors (A & b) have separate practices, but they share employees and both are adopting employers of profit sharing plan AB. They decide to go their separate ways. Doctor A takes half of the previously shared employees with him, and Doctor B takes half of the previously shared employees with him. (None of the employees were physically cut in half) Assets are spun off from Plan AB to create Plan B, which has Doctor B's employee's assets. Plan AB now has the assets of only Doctor A's employees. Doctor A wants to terminate Plan AB and start a new plan. For vesting purposes, he wants the new plan to exclude service before the effective date of the new plan. Everyone would start over again for vesting. Is this OK? It seems to me that it is not OK, but I'm not sure why.

The answer is yes and no. If the plan is a 401(k) plan that is top heavy and the HCEs have deferred, then the top heavy minimum is required. Therefore, I would include the accrued TH contribution as part of the account balances for 12/31/2000 for 2001 TH test. If the plan is a non 401(k) profit sharing plan with a discretionary contribution, then the contribution could be 0 and no TH minimum would need to be contributed. Therefore, do not include the accrued TH contribution if the contribution is discretionary.

Thanks QDROphile; That's what I thought. I just took over this plan. It looks like the prior administrator believed that the QDRO money could be distributed after rollover without the 10% penalty. That's why they kept the QDRO rollover as a seperate source, so that she could take distributions without the 10% penalty. In fact, she has been taking distributions for the past 3 years, and the 1099's were coded as "early with exception". Those distribution total about $400,000. 10% of $400,000 is $40,000. (sigh) I love takeover plans.

A spouse rolls a QDRO distribution to another qualified plan. If the spouse takes a distribution from the current plan, can that distribution be from only the QDRO portion of her total plan assets? Does the QDRO exception to the 10% early penalty still apply? The plan allows in-service distribution of rollover assets. She has QDRO rollover, and non-QDRO rollover assets in the plan. These have been seperately accounted for as differrent sources. Can she take a distribution of just QDRO rollover money? Or should a distribution of rollover be pro-rated as part QDRO and part non-QDRO? The plan document is not much help, only says allows in-service distribution of rollover account.

The earnings, although not deductible under 404, are deductible under Section 162.

mo again, I was responding to sodbuster.

I treat match accounts the same as profit sharing for hardship purposes. If there is no time period necessary for a 401(k) hardship or a profit sharing hardship, why would you think that there would be for a match?

I believe the contribution would be required.

sodbuster, No one yet has answered your question, so I'll tell you what I think. 1.401-1(B)(1)(ii) lists the events that will allow a distribution from a profit sharing plan. They are: 1. After a fixed number of years; 2. After attainment of a stated age; or 3. Upon the occurrence of some event, such as layoff, illnes, disability, retirement, death, or termination of employment. In order to allow for distributions only one of the above three conditions must be met; you don't have to meet all three. Hardship distributions fit the number three condition; it is the occurence of an event. I don't believe that the money has to be in the plan for any period of time to be eligible for hardship distribution.

Here's what I think. Both plans should be put back in the same position that they would have been, if the mistake had not occurred. To do that the amount that plan B owes to plan A should come from the accounts of those who received the excess forfeiture allocations. They are the ones whose accounts were allocated too much and who benefited from earnings on the forfeitures. Current forfeitures would be allocated to a different group of participants. If current forfeitures are used to pay the earnings, then new participants are harmed. They pay for the mistake by getting a lower allocation of current forfeitures, but they did not benefit from the original mistaken forfeiture allocation. I would make the correction only from the accounts of those who were allocated the wrong amount of forfeitures in the first place. I would allocate current forfeitures per the plan document.