Richard Anderson

On line 15 of Form W-2 the Pension Plan box should be checked if the employee was an "active participant" for any part of the year. Where can I find a definition of "active participant."

A SMM is not required each year. The participant will know what was allocated to his group when he or she gets the annual (or quaterly or monthly, whichever is done) statement that shows the contribution to his or her account. I would think that most employers, once they have determined what the contribution will be, tell the employees what the contribution will be for that year. In a discretionary PS plan (cross tested or not) there is no required notification of the percentage contribution, but most employers informally announce it to employees. The total contribution to the plan is disclosed in the required annual Summary Annual Report.

For a new plan there is still a look back period for HCE determination. If the employee had over $80,000 comp from the employer that maintains the plan in the prior 12 month period, he or she is an HCE in the first year of the plan. If the employer did not exist during the look back period (ex., new corporation formed) then the only HCEs for the first year would 5% owners. If the employer was formed at the same time the the plan was formed, then no employee has comp in the look back period; if there are no 5% owners, then there will be no HCEs in the first year of the plan.

I don't think that failure to provide the notice timely is a disqualifying defect, therefore it would not be eligible for correction under EPCRS. The consequence of not providing the notice timely is that the plan must pass the non-discrimination tests, without relying on the safe harbor protection. If the consequence of not providing the notice timely was disqualification, then correction would be available under EPCRS.

"wife works for Co. A, but not an HCE." She is wife of who? If she is wife of 5% owner, she is HCE.

Of course the 20% rule does not apply if the employee is a more than 5% owner.

Where can I get the AICPA self-study course on ERISA?

On a calendar year plan a participant terminates with over a 1000 hours before the end of the plan year. The computational 12 month period for a year of service for vesting is the plan year. Does the participant receive another YOS for vesting? Somewhere I think I remember reading that the determination of Years of Service for vesting is made at the end of the computational period. What does that mean? If someone terminates before the end of the computational period, but with over 1000 hours, do they get another YOS or not? The Pension Answer Book states that the 7th Circuit Court (Coleman v Interco) ruled that an employee would not receive credit for a YOS even though the employee worked over a 1000 hours because the employee terminated employment before the end of the 12 month period. Our software gives everyone with at least 1000 hours another YOS for vesting, without regard to when they terminated, and that is how we have always administered plans. Is anyone not crediting employees who terminate with at least 1000 hours with another year of service for vesting?

Can a plan be terminated and then all assets are transferred to another plan of the employer? Must the participants be given an option of taking a distribution from the terminated plan?

What needs to be done to terminate a SARSEP? The employer wishes to start a safe harbor 401(k) in 2001.

We have a takeover plan that has three classes for allocation. 1. HCEs 2. NHCEs under 45 years old 3. NHCEs 45 and older The HCEs get 415 max. The NHCEs 45 and older in the past have gotten an allocation of only the 3% TH minimum because they are not helping the plan pass 401a4. The NHCEs under 45 get the minimum to pass 401a4 (currently about 7%). This plan was designed to give a smaller contribution to older participants, and has done so for the two years since being amended for the allocation classes. Anyone have any thoughts on this. Will the IRS have any trouble with the definition of allocation classes at restatement time? From the document language they might infer that the purpose of the allocation classes is to give the older participants a greater contribution, just the opposite of the real purpose.

Thanks Big Guy. What if the amendment also states that the contribution will have some minimum vesting, such as 20%?

The original post has a typo; the person that was ineligible that I need to bring in is a NHCE, not HCE. Sorry about that.

I have not ever done this before, so I am a little apprehensive about it. In a small cross tested plan one of the young NHCEs that is needed to pass a4 has terminated before becoming eligible. If the employer allocates 3% to all eligibles in the NHCE class, the plan will fail a4. Can the employer make a corrective amendment to give a 3% contribution to a named ineligible employee? The plan will pass if this person also gets a 3% contribution. If this works, can the same approach be used to pass ADP/ACP test? That is, pick one or two terminated employees, and amend the plan to give them a QNEC in an amount necessary to pass ADP testing.

A "hard wired" QNEC is a QNEC that is not discretionary, but that is a required contribution specified in the document.

I see no reason that you couldn't do what you want, as long as the document language spells out what you are doing. The only contribution that has to be 100% vested is the safe harbor 3% to NHCEs. The document would have to specify that the 3% non-elective safe harbor contribution only goes to NHCEs. Any other discretionary non-elective contribution could have a vesting schedule attached to it. Also, the document would have to allow additional contributions by class or group, as a new comparability type plan does. Two classes could be set up; HCEs and NHCEs. The employer could then made a non-elective contribution of 3% (or any other amount that will satisfy 401(a)(4)) to only the HCEs. Even if you assume that a set up like this will have to pass a4, if the HCEs get a 3% contribution, there will only be one rate group if the plan is tested on a contributions basis. Every HCE will be in the rate group, and so will every NHCE, therefore it passes 401(a)(4) discrimination testing. Are any of the adoption agreements for prototype plans allowing to choose between 100% vesting or a vesting schedule for the HCE 3% contribution if the HCEs also get the 3% safe harbor?

An employer has two plans, a MP and PS. The MP plan was terminated and received a D letter on the termination. All assets of the MP plan were then moved to the PS plan in a trustee-to-trustee transfer, as if it were a merger of the MP and PS plans, not a termination. Shouldn't the participants have been given the option of taking a cash distribution or rolling it to the PS plan? The plan document says that on termination of the plan the Employer will direct that the plan assets be distributed to the participants. Can (or should) the MP assets, that are now in the PS plan, be distributed since they should have been distributed when the MP plan terminated?

The employer got the employee to sign this form, thinking that it was a waiver of participation. This employee was part time, but was going to work over 1,000 hours, so in order not to have to make a top heavy (or any other) contribution, the employer had the employee sign this form. The form the participant signed says that she elects not to participate in the plan; it mentions nothing about deferrals or the 401(k) portion of the plan. It states that the election will remain in force until revoked in writing by the participant. The plan has ignored this employee up to now. She has not been included in any tests (ADP or 410(B)). Now she is working full time and they want to "revoke" the waiver. What could the purpose of this form be? I don't think it was intended to be used as a valid waiver form. Could it be that it was intended to be used in a contributory DB plan?

Can a waiver of participation be revoked by the participant? I'm looking at a form that is titled "Election not to Participate". The last paragraph of the form states that the election will remain in effect until the participant revokes the election. I thought that a waiver of participation had to be non-revokable. Also, if there is a valid waiver of participation, is the participant included in the ADP test? 410(B) test?

We have a takeover plan. The prior TPA determined that the 1999 ADP test failed and instructed the client to distribute the excess contributions; which was done before March 15, 2000. In reviewing the 1999 ADP test I noticed that two HCEs were incorrectly classified as NHCE. The test actually now passes, since one of these HCEs deferred zero and the other deferred 2.33%. Since the ADP test actually does not fail, how is this corrected? Do the HCEs return the distributions? If so, then I assume that they would amend their 1999 1040 to reflect the higher deferred amounts. If the distributions are returned, should a 1099 be issued? Just to complicate this further, two of the eight HCEs that received the distributions are now terminated. How should their situation be handled?

What I want to do is allocate the QNEC to only new participants who entered the plan mid year and terminated shortly thereafter. I want to allocate the QNEC to those with the least comp after plan entry. The QNEC allocation will be the 25% of 415 comp, but testing will use comp from date of entry. This creates QNEC contributions that greatly exceed the testing comp. This creates considerably more leverage than the 25% of a bottom up QNEC. I'm not sure how to word the allocation formula in the document. Could the document say that the QNEC will be allocated first to the participant who will have the greatest ADP testing percentage? Next, to the participant who will have the second greatest %, continuing until the plan passes the ADP test?

Does a QNEC contribution allocation need to be definitely determinable? Or, if the QNEC goes only to NHCEs, can the document not state the allocation formula, and state only that the QNEC goes only to NHCEs? The allocation if made to only NHCEs, cannot be discriminatory.

Is it possible that the quoted statute is referring to non-qualified plans?

I agree that a "corrective" distribution of excess deferrals and earnings are not eligible for rollover. But, if the excess is not distributed as a correction, but is distributed 10 or 15 years later when a distributible event occurs, is that distribution eligible for rollover? I seem to recall that "corrective" distributions are not eligible for rollover. Since this would not be a corrective distribution, then I think it is eligible for rollover. Also, if the excess deferrals are not eligible for rollover, which plan is required to keep track of the excess and earnings?

R Butler Reply to Questions: 1. The document has such a provision 2. The participant gave no notice The only reason that we even know that the participant deferred into two different plans is that we administer both plans. However we noticed it well after April 15.