Richard Anderson

I see T-4 as saying that in years after the termination no further accruals are required. But, in the year of the termination, I think that the top heavy contribution, or any other contribution that has accrued at the time of the termination, must be paid. Also, I don't follow the logic that a person is not employed on the last day, since the plan terminated.

I'm not sure I understand Kirk Maldonado's post. If a loan is taken out on 1/1/2001, and the first of 60 monthly payments begins on 2/1/2001, then the last of the 60 payments will occur on 1/1/2006, exactly 5 years later. But the same result does not occur if the first of 260 weekly payments occurs on 2/1/2001. In that case, the last payment will not occur until late in January 2006; several weeks past the five year period. Is that really an issue to anyone? I don't know. But, I'm sure that lots of loans with weekly amortization schedules are going a few weeks past 5 years. 72(p) states "such loan, by its terms, is required to be repaid within 5 years." It doesn't say 5 years from the first payment date, or 5 years and a few weeks extra if you need it. If you interpret 72(p) literally, then a weekly loan repayment schedule of 260 payments would have to have the first payment commence no later than one week after the loan origination date. Bi-weekly payments would have to have payments begin two weeks after the loan origination date, and monthly payments one month after.

From the original post "paired plan (MPP +PSP)" I would think that these are standardized plans; if so they would not have 1000 hour and last day provisions, and could not be amended for 2001.

saiyer Publication 560 does not address what your document says; it may allow contributions if there are not profits or retained earnings or it may not. You must follow what the plan document says. IRS advise over the phone will have the same problem. Even if you get accurate information from the IRS, they will tell you what the law is; while your plan document may be more or less restrictive than the law. As rcline46 suggests, you need to employ someone who understands qualified plans and will interpret your document in order to advise you.

Tom The 2000 edition of the ERISA Outline Book states that he 415 limit must be pro rated if the initial plan year is a short year and the plan defines the limitation year as the plan year. Are you saying this is incorrect? You would ignore the plan's definition of the limitation year and instead use 12 months for the first limitation year; and not pro rate?

Most plans I have seen define the limitation year as the plan year. rcline46 is correct about the 415 limit NOT being pro rated if the limitation year is defined as a full 12 month period, such as the calendar year. But, if the limitation year is defined as the plan year, it has to be pro rated for a short plan year. But I disagree about $170,000 not being pro rated. If the plan's definition of compensation that is used for allocation purposes is less than 12 months for a plan year, then the 417 must be pro rated (reg 1.401(a)(17)-1(B)(3)(iii). There is an exception to the proration rule if the plan limits compensation to the period of participation, but this exception is only valid if the normal compensation period for the plan year is 12 months. Therefore, if the normal compensation period for the plan is a 12 month period, no proration is necessary for an employee that participates for less than the full plan year.

A 401(k) plan has discretionary profit sharing, and the owner wants to do quarterly allocations and deposits of a 4% ps contribution. Employees have seperate accounts and investment control. As of the first quarter the owner has over $170,000 comp for the quarter. Can the allocation to the owner be $170,000 x 4%; or must the $170,000 be pro-rated. If it is not pro-rated, the owner gets his full annual ps allocation in the first quarter, and everyone else gets their contribution in four quarterly pieces.

Will defining comp as calendar year comp rather than plan year comp work? I'm not sure how that would work if the plan terminates prior to the end of the year.

Question 2 I agree with rcline46, volunteer work probably does not make a spouse an employee. How does this plan define hours? It may refer to hours paid, our plans do. If so, the spouse probably has always had 0 hours if she was paid 0. Also, if she is in the plan and you need to give her an allocation of less than 3% in order for the plan to pass testing, make sure that the plan allocates the top heavy contribution only to NHCs. I would leave her in a seperate class; at some point if employee demographics change, you may be able to give her a substantial contribution. Since her being in the plan is what is allowing the plan to pass, you need as much flexibliity as possible in allocating contributions to her; leave her in a seperate class.

Bob R I don't think that you can exclude someone for part of the year. If they are excludable up to 12/28, for example, but at 12/29 are no longer excludable; then they are not excludable for any part of the year. Do you have any reason to believe that comp and deferrals may be excluded for part of a year (ignoring of course, that excluding comp before participation may be provided for)?

If the plan is effective 11/1 and plan year ends 12/31; and plan defines comp as plan year comp, then for the first short year the contribution will be calculated based on only Nov and Dec comp. Yes, the 30,000 415 limit will be pro-rated if the limitation year is also the plan year. But, 415 is not what is going to limit the contribution for the HCEs in this short plan year. The 401(a)(17) compensation limit of $170,000 must be pro-rated for two months; therefore, maximum comp for plan use will be $28,333.33. So, the contribution for someone with comp at or above the pro-rated 417(a)(17) limit will be $1,416.67 (28,333 x 5%). This is well below the pro-rated 415 limit of $5,000. Why wasn't this plan set up with an effective date of 1/1?

You should have been given a copy of a Summary Plan Description (SPD). Find it or ask the plan administrator for a copy. The SPD will tell you when you are eligible for a distribution. It is common for pension plans to not allow distributions before attaining retirement age.

Question 1 What does the document say? You can't allocate contributions as a flat dollar amount if the document say to allocate comp to comp. If the document indeed says that the contribution may be allocated as a flat dollar amount or comp to comp at the employer's discretion, then I think that there may be a question as to whether the contribution is definately determinable. If the document says class A contribution is allocated comp to comp, and class B is allocated as a flat dollar amount; then I think that is OK.

For average benefit testing purposes I think that you must include contributions made to the plan without regard to whether subsequently a distribution was made to correct a failed ADP test. But if distributions are made to correct a 402(g) limit violation then I have been including or not including those distributions in the average benefits test based on whether the participant is a HCE or NHCE. If the participant is an HCE I include the 402(g) corrective distribution, if the participant is a NHCE I don't include the distribution amount. This is the way that 402(g) corrective distributions are treated for purposes of the ADP test, so I think it is resonable to treat the distribution the same for the average benefits test.

This may be the thread EMC was referring to: http://benefitslink.com/boards/index.php?a...=ST&f=19&t=7343

You would have to word the plan entry so that the person enters the plan on the earlier of the first day of the next plan year or six months after becoming eligible. Using just six months after meeting eligibility will not satisfy 410a4.

rcline I don't feel confused.

R.Butler I know that there are differing views on this, but do you know if there is any guidance that supports not using the exact 410(a)(4). If the document defined a statutory exclusions to be determined as of plan entry dates, then of course the plan document should be followed. But if the document is silent on how to determine who can be statutorily excluded other than possibly referring to 410(a)(4), I would use a literal interpretation. The software that we use will statutorily exclude using the 18 month rule, unless the person came into the plan on the first day of the plan year. If we used any other method, we would have to either test manually or find some work-around to fool the system into excluding who we wanted. Is there any software that lets you choose how to define the statutory exclusion other than the 18 month rule?

This person met the YOS requirement on April 1, 2000; therefore statutorily must enter the plan on the earlier of the first day of the next plan year (1/1/2001) or six months after meeting the YOS requirement (10/1/2000). The person terminated employment before meeting the statutory requirement at 10/1/2000.

MR If you mean can this person be excluded from the plan, then the answer is no; if the plan has dual entry dates, Jan 1 and Jul 1. The person must become a participant on the next entry date after satisfying eligibility. If you mean can the person be statutorily excluded for testing, the answer is yes.

Set up different divisions for the employer in the employer screen. For example define one division as HCEs and another division as NHCEs. Then each employee will be assigned to a division by whatever method you enter census data (manual entry, DER, ect.) The division is part of Status and service screen in census. Then Quantech allows you to allocate contributions by division. You can give 3% or 5% or whatever to the NHCE division and Quantech allocates that to only the employees coded as in the NHCE division. You can also allocate a dollar contribution instead of a % of comp. Then allocate whatever you want to any other division that you have set up, such as $30,000 or 15% to the HCE division. You can name the divisions whatever you want; owner, HCE, manager, NHCE, attorney, physician, nurse, ect. I don't know if there is a limit on the number of divisions that Quantech will accept; 5 or 6 is the most I have used.

I don't think I would deposit the withholding until the employer received it from the employee. What if the employer made the withholding deposit and then the employee refused to reimburse? If the withholding is deposited now, you should follow the same proceedure as if it was withheld at the time of distribution. Deposit the withholding along with Form 8109-B; and file Form 945 by the end of February. If the 10% you are referring to is the 10% penalty for early withdrawal, that is not required to be withheld; but if more than 20% is withheld by participant election, there is no need to specify that a portion of what was withheld is for the 10% penalty. The total amount withheld will be applied toward the individual's total tax liability when he or she files their 1040.

I'm unclear on the facts. If the mandatory 20% was not withheld; who is paying the withholding that you are asking about? When is it being paid?

The plan year (short or otherwise) is irrelevant for 402(g) limit purposes. The 402(g) limit is for the individual's tax year (almost always a calendar year). In your case if someone deferred 10,500 in 2001 before 5/31 that is OK, but he or she could not defer any more in 2001. It is possible to defer 21,000 in a plan year and not violate 402(g) in an off calendar year plan. If the plan year ends 6/30 for example, the participant could defer 10,500 in December (the only deferral for that calendar year) and 10,500 in January (the only deferral in that year). He has not violated 402(g), but has deferred 21,000 in the plan year.

Why terminate the plan, or merge into a new plan? Why not just amend the old plan into what the plan sponsor wants?