imchipbrown

I'm still wondering whether that buys me anything. If I say we'll satisfy current year ADP, does that mean I have to do a "traditional" ADP test for 2000 (which may or may not be better than 1999's numbers), or is the Safe Harbor in effect for 2000?

Here's what I'm not clear about. I'll give a specific example: Employer currently maintains a 401(k). The Plan is Top-Heavy, so for the HCEs to defer, they must put in 3% regardless. I say, let's make the 3% fully vested. Then we can call it a Safe Harbor nonelective contribution, satisfy Top-Heavy, and HCEs can basically defer anything they want. But wait. A1 says "a plan that provides that it will satisfy the current year ADP testing method.." The Plan in question uses prior year testing. Even were this not the case, the above sentence seems to imply that the Employer, in the year making the switch, still needs to satisfy the ADP test. Or, like I say, I'm having a dickens of a time understanding this wording.

Looking at adopting a safe harbor method (3% nondiscretionary) in an existing 401(k) Plan. I can't interpret Notice 2000-3 to my own satisfaction. Section III A-1 seems to be saying that if you amend in the current year, you still have to pass the ADP for the year. So what good is vesting a 3% contribution when it's useless in the current year. It looks like A-9 lets you off the ADP testing hook if you get notices out before May 1, 2000. Thanks for comments.

I have a client that is switching investment vehicles. Previously, he had a pooled account with six or eight mutual funds, mostly no-load. Because of the time needed to administer the plan, they're switching to an insurance company product for investments, statements, etc. The Trustee's only concern is that the employees will be absorbing an "invisible" charge at the switch. Basically, their account balances get invested in mutual funds at a slighly inflated share price. Anyway, the Employer is amenable to making up roughly half the hidden charge. It'll be about $10,000, so the employer wants to allocate $5,000 on an account balance basis. I've seen some cases where IRS has allowed additional contributions to true-up a fiduciary breech and the like. Is this do-able? I'm fairly sure that highly comp'ed employees have larger account balances, but also may be smaller in proportion to pay.

Thanks, Tom. I've never done this before, but I'm getting to a clearing in the fog of the regulations. Very fortunately, looks to be a Volume Submitter Doc and Keys DO get TH contrib. What I'd never considered was that you could make an additional contribution and allocate it solely to those whose match didn't get them up to 3%. Being too math-oriented, I saw it as two separate allocation formulas, the second (fill in the holes) being discriminatory. Stepping back, I guess not. I guess I'm not THAT old a dog to learn a new trick. Anyone, answers to whether this is self-correctible?

Sight unseen, I agreed to take over administration of a 401(k) Plan. Prior "Administrator" provided zilch. Reconstructing records, I see a Top-Heavy Plan in 1998, no minimum contribution, and Key Employee deferrals and match of 2.7% (was in effect 3 months of 1998). Testing for 1999, I'm calculating ADP for NHCs based on 3 months deferrals/3 months pay. Is this Kosher? 401k feature added to long-existing PS. I want to self-correct Top-Heavy contribution for 1998. Comments? Company asked if Match in 1998 could be used for Top-Heavy. I know, legally it can. But practically? Match was 50% of first 6%, which isn't in the document. It's deferral ratio. Self correct? If I use the Match for Top-Heavy and pass 401(a)4 (doubtful), then I have no LOW ACP % for 1999. I've thought of using HCs Match for TOP-Heavy, but this won't pass 401(a)4. I know, a doozie.

Good question, Kirk. Not that it's on point, but my experience is that "the last man standing" does quite well. Sure he's bearing distribution costs, but he's also collecting lots of forfeitures. If I'm the last man in the above example, I'm probably the employer. I'll pay out of the company, getting a deduction and preserving my tax-deferred account.

No. Must say, it's the first one from Benefitslink. With all the complexity Dave's built into the system, some things are bound to slip through the cracks.

There will not be another R year until two thousand and thRee, so don't worry about it.

Agreed. Further, he can max his Keogh. 404 and 415 limits are per Employer, not employee, unless controlled.

No kidding! DOL hasn't revisited SAR reporting since 401(k)s became popular. Did you know you aren't supposed to give out SARs in "R" years? Beats me with a stick.

Matching contributions can not be used for Top Heavy purposes. I'm at home, so don't have a cite handy. If it's in doubt, just post "I doubt that!" and I'll find the cite tommorrow.

I think we're being a little reactionary here, at least in terms of the Employer. I think the 15 days (or 31, or whatever) is the limit for separating the deferrals from the general assets of the Employer and sending them of to the investment company. The investment company should follow their instructions re: whose account/how much/what investments, thereby getting whatever commission, fee, etc. they're due. I think the Employer has done its job. If its taking this long to get invested, its time for a new investment company. No, I'm not an investment company :-{

The question hinges on whether the employers have to be aggregated. The 415 limits are what an employer can contribute (assuming DC Plan here) for an employee. If he's an "Employee" of Emergency Services and an "Employee" of someone else (including himself), he can get 2 (or more) $30,000/25% contributions. Key section is 415(g or h). I'm at home, forgive me. By the way, I work for a pension company. If I charged you for this advice on my own time and you actually paid me, I could make a contribution to my own plan, if I own less than 50% of the pension company, and we're not an affiliated service group. Of course, if I billed you $120,000 for changing a lightbulb under "Chip Brown Lightbulb Service, not Affiliated in Any Way with Pension Company"...?

I'd just like to thank Mr. Chambers for joining the discussion group. I've been cruising the questions and found a few "opines" already. We need fresh blood. BTW, I agree. I've been through several audits where Client has been quite irregular in repayments. We advised some to pay the loan off before the audit date, others to get current. The auditors (all IRS) were all OK with it. I think our auditors (won't name the District) are looking for gross abusers, not nit-picking. That's what the DOL is for.

You probably don't believe it, but I don't think you've given enough info for a response. What's the specific problem? (I assume there's a problem, or you wouldn't post.) Usually, with a discretionary match, forfeitures are allocated in the same way as the match, so assume the forfeiture is an actual contribution and allocate accordingly. As the surgeon general advises, please check your plan document for adverse conditions that may apply. [This message has been edited by Chip Brown (edited 02-10-2000).]

I'm still waiting for the 1999 5500s ;-}

How about a simple plan amendment allocating the forfeitures on a salary ratio? Might make the document "individually designed" but most sentient life forms would see an approved plan with a simple amendment.

Who's the named beneficiary of the life policy?

I'm in the office now, and find that the book I was referring to is "Taxation of Distributions from Qualified Plans". I had originally posted "I'm not at the office, but if the Retirement Plan Distributions book is a blue with gold embossed cover, Hard Bound leatherette job, I've got it. It's excellent. I've had other people ask if I've got it, and come by my office to research from it. It's basically organized Code and Regs (no small feat), but the extensive footnotes are what make it worth its place on the bookshelf. (God, I hope I'm talking about the right book). My gripe is that it costs about a hundred bucks, then gets supplemented about every 3/4 year for roughly the same price. For $100, give me a new darn book and get rid of the supplements!!!!" [This message has been edited by Chip Brown (edited 12-27-1999).]

I'd say, you've got 8.5 months to meet minimum funding requirements, and excise tax if you don't make the deadline, so get the additional money in. As for deductions, I'd say you could amend the return or take the deduction in the current year (subject to any max deduction limits). Small amount... is amending worth it? Maybe only if deduction will be lost due to 404 limits.

Edward Jones & Co. has one, too.

By the way, I've started doing Age Weighted Profit-Sharing Plans (welcome to the party). The Annuity Purchase Rate seems totally irrelevant. The formula says to calculate a benefit of 1% of pay at NRA, divide by the APR to find a lump sum, then discount this back to present value. Mathematically, it doesn't matter if you divide by 1, 10 or 100, or if you made it 1, 10 or 100% of pay. Just my two cents.

I've got a spreadsheet in Excel that will calculate APRs for IAM 71, GAM 71, IAM 83, UP 84 and GATT (GAM83 50/50). I know, I'm huge.

Affiliated Service Groups and Controlled Groups are different animals. Attribution (as noted above) will be key to whether there's a controlled group. There's a rule somewhere in 1563 about attribution within a company doesn't necessarily carry outside it (don't have my books with me). This my bear some fruit. ASG rules require at least one company being an FSO or A-ORG. Check the Code to see if any qualify as either. (It's always good to keep the Code open when looking at these rules... mucho confusing). We all might be able to help with more info.