imchipbrown

I'm getting involved with a take-over 401(k) Plan. One thing bothering me, which I've never seen, is the following match: 25% on the first 3% 50% on the next 3% The prototype we use says the matching percentage must decrease as the % of comp increases. Can't find any regs which make the above formula "illegal", though I bet it makes passing ACP more difficult. Anyone? Chip Brown

Can anyone add some insight to my query above? Thanks Chip Brown

I understand the catch-up contribution discussion, but have not seen any opinions about whether the profit-sharing deduction limit (15% or 25%), annual addition limit (25% or 100%), and compensation limits ($170k, 180K? or $200k) are equally a problem here in California. Any thoughts?

By the way, the IRS has posted a list of Document Sponsors who filed by 12/31/2000. http://www.irs.gov/bus_info/ep/mplist.html

That's what I was trying to say ten posts ago. Was hoping someone would come around to verify my assumption.

Spot on! Thank you Tom

I don't even think you need the certification. I'm in the same boat with some of my docs (except I did file by 12/31/00). My document provider says because they filed, they extended the remedial amentment period for our clients, even if they go somewhere else.

I spoke with my prototype sponsor (Datair) the other day and was told that, if your client had previously adopted ANY prototype whose sponsor filed for GUST before 12/31/00, you have an extended remedial amendment period until 12/31/02. A number of my clients were on the Datair prototypes because we didn't sponsor some types (DB and Target) but for this round, we'll sponsor all types. Datair told us that our clients, on their prototype, don't need to certify that they'll adopt our regional prototype. The rules are different for Volume Submitter documents.

I can't find this answer. We want to put in a brand new Safe Harbor 401(k) Plan (no prior plans) with non-elective contributions for a calendar year plan. It's past December 1, 2001. Will the notice requirement scotch the deal?

Oops, should have stated, it's a 403(B). Don't have an ADP. Wouldn't the non-excludible (age/service) PDFs be in the ACP test?

As a follow on, can I also test under 410(B) excluding employees who haven't done 1 year, age 21 - even if there is only a 3 month wait? I know that if you're allowed to defer under 401(k), you get a pass on 410(B). Can I assume that a match contingent on a deferral gets the same pass? Finally, (here's the rub) if some employees are excluded from the match (the Post Doctural Fellows or PDFs), I need to pass the ratio % or Average Benefits Test. The PDFs excluded from the match are allowed to defer. If few to none defer, do I get to say they're benefiting?

Thanks, Tom Just wondering. Do you know what a Post-Doctorate Fellow is? I mean, statutory employee or some other animal?

I'm working on a calendar year plan. I've been asked to project the 2002 ACP percentage allowed for the HCEs. There's been a lot of hiring the last few years, and employer doesn't match for Post-Doctorate fellows nor non-resident aliens. To make the numbers work, I've basically said, to be in the ACP test for 2001, you had to be hired before 7/1/00. (There's a three month service requirement, but I've got no HCEs to put into the separate group.) Rationale is that I could have a one year wait and an entry date of six months later. Just wondering if this is aggressive number grinding.

I've got a client with a 401(k) plan which when aggregated with other plans (mp/ps) is Top-Heavy. Turns out the Dad is deferring 3%+, which makes a 3% of pay contribution a requirement. (Dad is key solely by attribution - owns no stock). We've rounded up enough forfeiture money to meet 2001 allocations. For 2002, Dad will elect 0% deferrals. I thought the new law (EGTRRA) in 2002 was supposed to have a provision where deferrals by Key EEs weren't counted as employer contributions for Top-Heavy minimums. I can't see anywhere where this was enacted. Anyone know?

My understanding of the amortization method is that you take the account balance at or near the date payments are to commence and divide it by an amortization factor based on reasonable interest and life expectancy (basically, a loan calculation). Under this method, once calculated, the payment remains the same until 59 1/2 or 5 years if later.

I've been asked for advice on the following situation. An IRA owner under 59 1/2 begins receiving equal periodic payments when the account value is $1,000,000. He receives two or three years of payments under the amortization method. Through poor investing, he drives the account value down to $80,000. If he takes this year's payment, the account will zero out. Next year, there's no money to take his required payment. Is this a modification subject to recapture?

Sorry, Brian Knee jerk reaction on my part. Yes, I agree, securing the loan solely with the residence seems to make my cite moot.

Boberlander, I distinguished 401(k) loans from other loans before saying key/non-key secured/non-secured. Check out Code Section 72(p)(3), especially subsection (B)(ii).

Thanks, all. This Standardized Prototype has no check-off to limit deferrals to any percentage. Yes, LCARUSI, there were other employees, but we've used up that cushion. RCline46, I try to tell the owner not to defer 20%, but he pays the bills. Sorry, Tom, had a "senior moment" there with the 404© - meant to type 404(a)(3)(A). My main concern is whether the Plan's terms have been violated, and if so, what can be done without again violating its terms by taking some action not spelled out in the Plan. If excise tax is the "fix", that would be great.

RJM, Well said! Explained this to a client, who went ahead with the loan anyway. The thought was that the way real estate was appreciating around Northern California, she could live in her new house for a couple years, sell and pocket a couple hundred K tax free. (The house I bought four years ago would be way out of my price range today.) Sorry, all for straying off-subject.

Is it a good idea in any case? I don't think 401(k) loan interest is tax deductible, whether key or non-key, whether or not you secure the loan with the residence. For the gallery, could you pledge your 401(k) account (up to applicable loan limits) as security for the mortgage, maybe allowing you to get a larger first, and getting to deduct the interest?

I've asked this in "Correcting Plan Defects" but feel free to give this a shot. My client has a 401(k) plan. For the 2000 year, it was operated as a Safe Harbor Plan. There were 5 employees deferring from 5 to 20%. During the year, all but 2 employees resigned, leaving one employee deferring 15% and the owner 20%. The "cushion" created by employees who didn't defer a full 15% was used up by late October, and now contributions exceed 404©. The plan addresses several issues that may be corrected. We can create a suspense account if an employee exceeds 415 limits. Didn't happen. We can return excess deferrals. Under the safe harbor, there were no excess deferrals. The document does say "The contribution for any Plan Year by the Employer shall not exceed the maximum amount deductible...." however, it is silent on what happens if 404© is exceeded. Even if we "revoked" safe harbor, the excess deferral created would be too small to fix the problem. What can be done?

I have a takeover client that previously adopted a Volume Submitter document circa 1992. IRS auditor is asking for amendments required under UCA '92 and OBRA '94. Even though he's now with me, isn't his document still maintained by the former TPA, who would have added these amendments to the Volume Submitter document? Opinions? To my knowledge, client was never sent an "I'm giving you the boot" letter.

How about this? All these shananigans are done outside the Plan. At or near the end of a year, these "Bonuses" are calculated up. Employees are then given a Cash or Deferred election to put the money in a 401(k) account.

Harvey, Thank you very much for the time and analysis. I've been trying to find someone besides myself who doesn't think the 401(a) contribution is included in the calculation. To answer your other questions, the 401(a) is an integrated money purchase plan. All your other assumptions are correct. It seemed to me that this employee was being "punished" by having a partial year of service. Thanks again. Chip Brown