Richard Anderson

From baxterdale's second post: "Ironically, I just spoke with the individual at the company today. She remarked again that they want to make the matching contributions but are concerned with the proper method of doing it. This individual also told me that an ERISA attorney is working on it." It seems to me from the above that the company knows that it has made mistakes and is seeking advise on the proper way to correct. It may be taking longer than it should or longer than baxterdale thinks it should, but the company seems to be proceeding properly. Also, if the match is discretionary, the plan document probably states that the matching contribution will be made by the due date of the employer's tax return, which could be as late as 9/15/2001 for a corporation's calendar year 2000 plan. baxterdale, PWBA = Pension and Welfare Benefits Administration, part of the Department of Labor.

Doesn't 1.401(a)(4)-2(B)(4)(iv) allow for a plan to limit a participant's allocation to a plan specified dollar amount or percentage of compensation without violating the safe harbor. I don't see why a plan couldn't have an allocation limit of 25% of comp. What am I missing?

David, Very generous of you to share with others. If you don't mind sharing twice, my email is randerso@nhspa.com or fax is 302-479-8810. Thanks.

I don't remember ever seeing this in a plan document before. Does anyone know of a document that has this feature or where I could find the proper language to use in order to amend a document to allow this? More facts: The NHCE that wants to do this will first become eligible for the plan on 1/1/02.

Per The Pension Answer Book: "an employee's elective contributions are treated as not having been made pursuant to a cash-or-deferred election if they are made pursuant to a one-time irrevocable election by the employee to have a specified amount or percentage of compensation (including no amount of compensation) contributed by the employer to the plan for the duration of the employee's employment." How does this work? 1. Does the plan document have to address this? What if the plan is silent on the issue? Are there prototypes or volume submitter plans that address this? 2. How would an irrevocable election to contribute be handled by payroll? The same as elective deferral? What about W-2? 3. Can an otherwise safe-harbor PS or 401(k) do this? 4. If the plan is general tested I assume that the irrevocable election is tested as a non-elective contribution. Is this correct? Here are some specifics: The plan is a safe harbor 401(k) that provides 3% non-elective. The person interested in doing this is a NHCE with compensation of $90,000 (20% election). He wants to make a $20,000 irrevocable annual contribution. Any help on how to do this would be greatly appreciated. What other issues are there?

If the plans pass coverage separately, then they may be tested separately for non-discrimination. If they must be aggregated to pass coverage, then they must be aggregated when testing for non-discrimination.

Mary Ann, Thanks for the reply. You say "Only a spouse can roll an IRA into his/her own name." Well it was rolled over into an IRA in his name. Does that mean that the entire "rollover" amount is taxable in the year that this "rollover" occurred? Additional facts: This was a traditional IRA and the original owner had been taking minimum distributions for several years. The original owner dies and son inherits. Son continues to take minimum distributions for two more years, then decides to move the IRA to a different broker. The original IRA is closed out with a check written to Son. Son then within a few days deposits this check into a "rollover" IRA that is in his name. Son's intention is to continue minimum distributions from this account. This "rollover" occurred early in 2000 and Son has not filed 2000 tax return yet.

A professional corp. is owned 100% by the doctor. The doctor has several part time employees, none of whom have ever worked 1000 hours. The doctor and wife are the only ones who have ever had an account balance in the plan. This plan is several years old and has always filed a 5500EZ. Is it correct to file a 5500EZ under this situation? I think that it is a "one participant", but, i'm not sure.

A person inherits an IRA from his parent. If the person rolls that IRA into an IRA in his name, what are the consequences? I think that that exemption from the 10% early penalty no longer applies. What else?

Don't forget that this plan is top heavy and all plan participants still employed at year end must receive the top heavy minimum contribution. Small plans like this work very well as Safe Harbor; since a 3% contribution must be given as top heavy anyway, the safe harbor contribution just makes that 3% contribution 100% vested. Of course there are other requirements as well for a Safe Harbor 401k. And now, it seems that the safe harbor match will satisfy the TH contribution requirements also.

Two corporations (A and b) form a brother-sister control group. Each corporation has a 401(k) plan that benefits only it's employees. Each plan is identical. Each plan has the same employer contribution rates. Each plan will pass 410(B) on it's own or aggregated. Must the plans be aggregated for the ADP test or may they be tested separately. If they may be tested separately, are only the employees of Corp A in the ADP test of Corp A.

Can a paired standardized money purchase plan be merged into a profit sharing plan after amending the contribution in the MP plan to 0% of compensation? Or should the MP plan be terminated, and then the assets transferred to the profit sharing plan?

If the 97 TH allocation went only to Non-Key employees, then the contribution would either need to be reallocated according to the plan document (including Keys) or an additional corrective contribution should be made for the key employees.

I think an effort must be made to collect the overpayment from terminated, paid out employees who received too much. The effort will likely be unsuccessful. The employer should make the plan whole (with corrective contributions) for the overpayment to terminated participants that can not be collected. An employer who adopts a standardized prototype may rely on the letter issued to the plan's sponsor.

1) I believe reallocation would be the proper way to correct. Also, the reallocation should include gains or loses. I don't think that this failure would be considered insignificant, therefore, self correction is not available. 2) Yes, this is a qualification failure. It is a failure to follow the terms of the plan document.

One of the requirements in order to use the terminated with less than 501 hours exclusion is that "The employee fails to accrue a benefit or receive an allocation under the plan solely because of the failure to satisfy the minimum period of service or last-day requirement". If the employee is a member of an excluded class (such as hourly) then that person did not meet the above requirement, therefore can not be excluded from testing because they terminated with less 501 hours.

No distributible event has occurred, if the participant is still employed by any employer who has adopted the plan.

Rob Vidovich, Your plan document may or may not allow matching contributions to satisfy top heavy minimum requirements. What does the plan document say? Even if the plan document allows the matching contribution to satisfy the TH minimum, it usually is not practical to do so. Because, if you use the match for TH minimum, then you can not use it in the ACP test. That will usually cause the ACP to fail much worse. For example, if an employee gets a match equal to 4% of comp, you can (if your document allows) use 3% of that match to satisfy the TH requirement. But, when you do the ACP test that employee will be tested as if his match was 1%.

Thornton, 1563 does not require attribution from shareholder to corp.

I agree with rcline46 and R. Butler. There is not sufficient information to determine if an ASG exists here. An A-Org is a service organization that meets both of the following two requirements: 1. The A-Org is a shareholder or partner in the FSO. 2. The A-Org must either regularly perform services for the FSO (first service organization) or must be regularly associated with the FSO in performing services for third persons. By attribution, the C-Corp owns 100% of the S-Corp and the S-Corp owns 50% of the C-Corp, so 1 above is met. But, 2 above must also be met.

The audit of a 401(k) plan does not have to be signed by an actuary. As rcline46 points out it is usually done by the firm's CPA. Also, if the plan has 250 eligible employees, then it has 250 participants, even though only 75 defer.

I found this on Corbel's website: http://www.corbel.com/news/pensionupdatesd...tail.asp?ID=132 Form 5500 – Schedule R Alert (4/25/01) Recently, a number of practitioners have contacted us regarding DOL error letters they are receiving with respect to the Schedule R (Form 5500) and conflicting advice on how to correct the problem. Specifically, the DOL correspondence indicates an employer needs to address the minimum funding questions on the Schedule R even though the plan for which the employer is filing the Form 5500 is a 401(k) plan. Some government representatives on Help Lines have suggested an employer should complete Schedule R for a 401(k) plan by checking the "N/A" box under question 4. However, the Schedule R and the instructions clearly indicate that profit sharing plans, ESOPs and stock bonus plans do not complete any questions beyond question 2. The proper method for correcting or avoiding a DOL error letter regarding this issue is to properly complete question 8a of the Form 5500. Many practitioners completing Form 5500s for 401(k) plans are including code "2J" for 401(k) plans but are not including code "2E" (profit sharing plan), "2I" (stock bonus plan), "2O" (non-leveraged ESOP) or "2P" (leveraged ESOP) because the employer is not making a profit sharing contribution or because the practitioner thinks the 401(k) code is sufficient. Although practitioners generally use the term "401(k) plan," the 401(k) rules require that a 401(k) arrangement be a part of a profit sharing or stock bonus plan. Therefore, a practitioner should always include code 2E, 2I, 2O or 2P with a code 2J. Charles E. McLaughlin, DOL Chief of Returns Processing, has informed us that by including codes 2E, 2I, 2O or 2P, EFAST will not expect any responses after question 2 in the Schedule R. Likewise, if the employer does not include the appropriate codes, EFAST will expect answers to the minimum funding questions. A practitioner preparing a Form 5500 for a 401(k) profit sharing plan should include both code 2E and code 2J on question 8a of Form 5500. Note: We discuss questions such as this one in our Form 5500 Workshop. If you are interested in attending our Form 5500 Workshop, you may access the schedule under "Events."

Also, if my memory is correct, if a calendar 99 year plan fails the ADP test and does not correct by distribution by the end of 2000, the only self correction method available is probably QNECs.

J. David Wright, We mark 2E on all 401k and profit sharing plans, whether a ps contribution is made or not. I don't think that they are asking whether a ps contribution was made, they want to know the features of the plan.

Can't the plan limit contributions to a maximum dollar or maximum percent? Have the same age weighted formula with a maximum of 25%. The plan would have to pass general test. This might make it subject to the gateway test, also. Best solution might be class allocation, as you suggest.