imchipbrown

A 501©(3) organization has the following plans: 403(B) Salary reduction agreement up to 15% of pay 403(B) Match up to 5% of pay 401(a) Integrated 5% to TWB, 10% over TWB Got a guy making $73,440 in 2000, who wants to defer the max. The way we see it, he'll get $3,672 match and $2,472 401(a) (partial year comp). His hire date is May 1, 1999. Prior exclusions are $9,498. Comp $73,440 times 20% times service 1.67 years less $9,498 prior exclusion is $15,031. $15,031 less 401(a) and match is $8,887 for the exclusion allowance. (The 401(a) is subject to vesting, if it matters. Also, all contributions are to TIAA/CREF, though under separate contracts for the 401(a) and 403(B) portions). Letting him defer $10,500 is OK under the 415 limits. What are you supposed to do, if anything? Educate the employee of the "C" election, warn him that he's losing a future potential "A" or "B" election, nothing? Any help is appreciated.

I agree that limiting the deferral is the easiest/best solution. However, the employer is in no position, at least currently, to determine whether it will make any discretionary contribution. It's hard to tell the participant he has to stop, no wait, start, no stop.

I have a client with Safe Harbor 401(k) and Age Weighted Profit-Sharing. One of the employees is currently deferring 20% of pay and getting a 3% non discretionary match. Their plan document and the prototype I use both seem to say the same thing: If the Employer Contribution would put ANY participant over the maximum permissible amount, the contribution must be scaled back. Does this sound right? Sounds like the tail wagging the dog. (The Plan doesn't have a maximum deferral percentage hard coded into it.)

You imagine that you drafted the plan with the meanest eligibility requirements possible; age 21 and one year. Entry date would be twice a year. Or one entry date nearest completion of the Year of service.

I agree totally with RLL. But, unless he's the IRS Commissioner, I file the 5500. It's just too risky not to. I'm talking about the $25/day, $15,000 max penalty that could be assessed. Better safe than sorry?

It's irrelevant now that there are no more 5500-C/Rs, but for what it's worth, I filed a "C" with no assets for the first plan year. Next year, I filed an "R". IRS rejected the "R". I assume they contended that the second year was actually the first.

Whose Employer ID number do you put in Part 1, line 2? Let's say I've got the plan assets in a Schwab account. An employee leaves and gets paid out of the Schwab account. Is the payor Schwab, the employer, the trust? I can't stand this Schedule. It seems totally useless!!

A client of mine had an ESOP in the early 80's. It was amended to become a Profit-Sharing Plan. The two sons of the founder were the only participants and have 100% of the stock in the plan. One of the sons left the company to pursue other interests, and his stock holdings outside the plan were being redeemed. Remaining participant son calls me up and tells me the corporation was disolved. What do I do about the $200k of "stock" I'm carrying on the books?

Phil and Derrin You guys are great! The amount of time you've spent on this is truely appreciated. I've got a real world, not hypothetical (and seemingly increasingly common) situation. The employer is a high tech startup. As part of the compensation package, the employees have been given options to buy company stock. Employee X might have an option to buy 10,000. The big BUT is, he must be with the company one year before he can exercise his option on 2,500, another year for the next 2,500, etc. Why this is of any concern to me is in determining whether Employee X is a key employee for Top-Heavy testing. How can it be determined if Employee X "owns 1/2% interest in value" of the company? What is the value of the option? We've established a 401(k) Plan. If Employee X is the only one to make a deferral, how do I tell the employer, the kid down the hall just made the Plan Top-Heavy, and you need to come up with 3% of pay for all non-key employees? Sorry for rambling.

Rev. Rul 89-64 specifically states that "A" resigned from his position and still had an option after a fixed period of time. I'd like opinions on whether an option which has a time element (vesting over 4 years) but also an employment element (must be employed to vest) is or isn't a "Conditional Option", to cite Derrin's fine work. (Sorry to post this again. My browser wasn't showing my previous post above, and I assumed I'd been "moderated out". Probably would serve me right!)

Maybe this is beating a dead horse, but what about stock options that don't vest if you're not employed? It's more than a passage of time issue. By the way, fine answers, especially the chap who dug up Rev Rul 89-64, and Derrin, of course.

I think you have to do ACP testing if there's a match.

I have an SAR prepared by TIAA/CREF for a plan year ending in 1997. Some notables: 1) It says "A total of persons were participants..." No number. 2) It says "The plan has contracts with TIAA/CREF. Total premiums were $xxx,xxx. 3) It says insurance info is included with the full report. Why I've included #s 2 and 3 is that, for the first time I can think of, the 1999 instructions for completing 5500 say "The adminiistrator.... is not required to ... attach any schedules to form 5500.

I think it's as clear as mud ;} 318(a)(4) says "If a person has an option to acquire stock..." My (sole) argument is, if you're not vested, you don't have an option to acquire stock. The option is contingent on a future event, subject to a substantial risk of forfeiture. I don't have the resources to back up my mouth on this one, but thanks for calling me on it. This must have come up before.

I have to agree with PJK (or at least would argue the same). I think a similar situation is when a startup issues stock options to its employees. Typically, these options vest over time, say 25% per year. So, before your first complete year, you don't really have an option. This can be important for determining who's a Key Employee. One half of one percent is a pretty low fence to get over. [Edited by LCARUSI on 07-11-2000 at 04:39 PM]

I've got a case where the institution has a fiscal year end of 6/30. We check 415 limits for the fiscal year. As I understand it, we must also check 415 limits on a calendar year basis for exclusion allowance purposes. The question is, how to determine the annual additions. There's a 403(B) with 5% match and an integrated 5% + 10% 401(a) plan. The Plans state that contributions are credited on the last day of the Plan Year. In practice, contributions are being made monthly to eligible employees. So, for the employees calendar 415 calc, would you add up contributions made during the calendar year, or the contributions creditted on 6/30, plus the deferral for the calendar year, or something else. Thats in advance.

Most of our plans also use the Employer ID. The important issue in my mind is to make sure the deposit is coded as a 945 deposit.

What kind of Plan is this? You say there've been no Employer Contributions. If no key employee received any contributions (or made no deferrals under 401(k)), no contributions would be required.

As the thread grows, we learn... I've conceded the 500 hr and last day stuff already. JF brings up a great point about compensation definitions. My reading is that it has to be a fairly standard 414 definition and uniform. The scheme could fall flat on it's face if comp in excess of x dollars were excluded. There may be other problems that I haven't thought of. Barring these caveats, why are we still talking about the three and the seven? I'm talking about the ten. I know a lot of you are probably sick of this topic rising to the top of the topic with each of my posts, but I've not yet reached the unclearable hurdle. I'm also wondering where Baker stands on this. Too busy improving the site, I guess. What a forum!

I think we've taken our eyes off the ball here. My idea is simply a 10% MP with 30% (thanks for correcting my math) first year of participation vesting. No fancy accounting, no trying to separate out the 3%. We know it's in there somewhere. That's all that's important. Trying to identify which dollar is the 100% vested 3% is needless mental gymnastics.

Thornton, I started another thread "Another Safe Harbor Question" that I feel answered the question. Just don't believe Alf when he/she says "clearly" states.... ;-}

I was thinking more of the 3% non-discretionary, not match. What I see as the beauty is that the 3% (100% vested) wouldn't have to be separately accounted for. It's a a good point that I've "given away" 14% of the remaining 7% by virtue of accelerating the vesting from the "normal" 20% to 34%, but in practice, I'm sure the dollar figure is small. As well, I'm giving terminees with less than 500 hrs a contribution. But again, when I put the pencil to it, the numbers are trivial ('cuz it's not My Money). My glance at the regs doesn't seem to mandate a "separate" 3% vested contribution. Under the Safe Harbor Match (which I'm not talking about here), IRS saw fit to allow equivalencies. And, I've actually put participants in a better position.

Let's say I have a 10% MP Plan with 1 year wait and no last day or 500 hours/ termination requirement. I want to use this to satisfy a Safe Harbor. What would you think if made the vesting schedule 0,34%,40%,60%,80%,100%. My thought is 10% times 34% equals 3+% vested contribution, and easy admin. Any darts to throw?

Thank you for the answer. How about if you just bite the bullet and say "We WILL make a 3% vested non-elective contribution each year". I think the supplemental notice would go out the door. Any opinions on whether an annual notice would be required?

Nice calcin' and good news.