John A

First date of new company existence is 7/1/00. Effective date of 401(k) plan is 1/1/02. To determine HCEs for calendar year 2002 plan year, would the dollar amount be prorated since the employees only had the possibility of 6 months of compensation, or would the determination be made using the full dollar limit?

wmyer, Why do you think the Safe Harbor 401(k) provisions can be used for a short plan year in this case? I know there are exceptions to the full 12-month requirement for the first years that plans will be Safe Harbor 401(k) plans, but where is the exception that allows a plan that has been Safe Harbor for a full plan year, and then changes the plan year, to the full 12-month requirement for the short plan year resulting from the change?

mbozek, I agree with you, but I need stronger language to convince a client. So far, the cites you give would establish that the plan does not need to get the spousal consent to waive the QJSA form of payment. However, the cites do not specifically say that spousal consent is not required to receive a distribution, only that spousal consent is not required to waive the QJSA form of payment. The client has an adviser telling them that if they do not require spousal consent, the plan could lose its tax-qualified status and the plan would be open to law suits from spouses. At the advice of some TPA at some time, the plan always required spousal consent in the past. So I am trying to figure out what I can point to that will state in crystal clear language that spousal consent would not be required for distributions and loans for this plan. Any further cite ideas?

I'm confused. I thought that, in this situation, the requirement of 1.414(s)-1 (d)(3)(i) would have to be satisfied by making adjustments to the compensation used. Even if the ADP/ACP tests pass using a definition that satisfies 414(s), the 1.414(s)-1(d)(3)(i) test could still fail if you used the failed definition to determine the match in the first place. I don't think you can move on to benefits amount testing using a definition of compensation that satisfies 414(s) if you used a definition of compensation that failed 414(s) to determine the amount. What am I missing? I was missing 1.414(s)-1(a)(2): ... even though a definition of compensation permitted under section 414(s) must be used in determining whether the contributions or benefits under a pension, profit-sharing, or stock bonus plan satisfy a certain applicable provision (such as section 401(a)(4)), except as otherwise specified, the plan is not required to use a definition of compensation that satisfies section 414(s) in calculating the amount of contributions or benefits actually provided under the plan.

http://benefitslink.com/boards/index.php?showtopic=11606 I'm not sure the above thread truly gets you to an answer, but I have raised basically the same question before. Let me know if you think the above thread (and the ones it leads to) get you an answer.

Belgarath, thank you - I've looked at both, but I don't think either of the cites you give gets to the conclusion. The cites do get you to what plans are not subject to QJSA and QPSA, but I think spousal consent is a separate (though related) issue. The portion of the reg you cite does mention that spousal consent IS required for a change to a non-spouse beneficiary (for a plan to meet the requirements to not have the QJSA and QPSA apply). So the questions in my post still stand. Is there a cite that specifically says consent of the spouse is not required for distributions and loans in a plan that meets the requirements described in the cites you give?

RCK, thank you but I don't think the cite you give gets to the conclusion. The cite does get you to what plans are not subject to QJSA and QPSA, but I think spousal consent is a separate (though related) issue. The cite you give does mention that spousal consent IS required for a change to a non-spouse beneficiary (for a plan to meet the requirements to not have the QJSA and QPSA apply). So the questions in my post still stand. Is there a cite that specifically says consent of the spouse is not required in a plan that meets the requirements described in the cite you give?

My understanding is that spousal consent for a distribution or loan is NOT required in a profit sharing (or 401(k) plan) that provides only for lump sum and installment payment forms, makes the spouse the 100% beneficiary of the death benefit, does not have transfer money from a J&S plan, and is not used to offset a DB plan. Is that correct? Did I miss any other requirement to avoid spousal consent? Is there any problem with a plan adopting a policy of requiring spousal consent if it truly is not required by the terms of the plan? Can anyone provide a cite showing that spousal consent is not required in the situation listed above?

My understanding is that spousal consent for a distribution or loan is NOT required in a profit sharing (or 401(k) plan) that provides only for lump sum and installment payment forms, makes the spouse the 100% beneficiary of the death benefit, does not have transfer money from a J&S plan, and is not used to offset a DB plan. Is that correct? Did I miss any other requirement to avoid spousal consent? Is there any problem with a plan adopting a policy of requiring spousal consent if it truly is not required by the terms of the plan? Can anyone provide a cite showing that spousal consent is not required in the situation listed above?

Can defined contribuiton plan documents provide that a layoff is a distributable event? Or does a layoff have to be considered a termination of employment for a laid off participant to receive a distribution? Excerpt from 1.401-1 (B)(1)(ii): (ii) A profit-sharing plan is a plan established and maintained by an employer to provide for the participation in his profits by his employees or their beneficiaries. The plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plan after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment.

Greg, I'm not sure I can answer your question. The employer decided on a plan design of a 3% nonelective safe harbor contribution, with an additional profit sharing contribution above the safe harbor amount that will be based on "typical" requirements, like last day and 1,000 hours. None of the profit sharing will be dependent on deferrals. The employer will of course issue the safe harbor notices and will provide SPDs explaining the contributions.

How does one find out what a payer's state no. (line 11 of form 1099-R) is? The 1099-R instructions say, "The state number is the payer's identification number assigned by the individual state." What is the process by which an individual state assigns the number? Does the payer apply for a number (similar to applying for a federal EIN)?

If there is a change in Plan Year for a safe harbor 401(k) plan, does the plan automatically have to do ADP/ACP testing for the short plan year created, and then automatically resume non having to do ADP/ACP testing for the next full 12 month plan year? Is the plan automatically exempt from the safe harbor notice and contribuiton requriements for the short plan year created by the plan year change?

There are at least 3 possible reasons a plan administrator might want to allow this: 1) To save having to do a 1099-R 2) To save the time and paperwork involved in cutting a check, distributing it, and then accepting it again (but would still need the paperwork for the rollover election) 3) To prevent the need to sell an investment the beneficiary might want to keep as is (although that would probably mean the plan would have to require in-kind distibutions) It is hard to imagine why the IRS would think this would be a disqualification issue. The answer would have been a clear no before EGTRRA changed the rollover rules.

For qualified plan purposes, if a plan sponsor employs illegal aliens, unless the plan document specifically excludes "illegal aliens," wouldn't the plan have to include the employed illegal aliens?

Thanks to all who responsded. Fortunately, the client decided to do what Fredman suggested, which makes more sense to all concerned. The initial thought from the client was to do a safe-harbor match and offset the profit sharing by the safe-harbor match. Initially, they wanted the safe-harbor contribution to go only to those who deferred. But since they wanted everyone to get 5% profit sharing contributions anyway, it made more sense to do the safe harbor nonelective contriubution rather than the safe harbor match. The small price they pay for this, which might have been avoided with the original intent, is that participants who do not defer and who do not meet the last day and hours requirements for the additional (non-safe-harbor) profit sharing will still get a contribution.

My understanding is that a plan sponsor may choose to rely on either the 1987 proposed regs or the 2001 proposed regs for determining Required Minimum Distributions due by 12/31/02. Is there any guidance on how a plan sponsor must specify this choice, and if there is any consistency requirement regarding the choice? [Can an employer rely on the 1987 regs for some calcs, and the 2001 regs for other calcs? Once an employer has relied on the 2001 regs for some calcs, can the plan sponsor decide to change back to 1987 regs for other calcs on a go-forward basis?]

MWeddell, Thanks for the response. In this situation, the employer wants to have a guaranteed 5% of profit sharing contribution, but reduce it by a any contributions made under a match formula of 100% of the first 3% of pay. So everyone will end up with 5% of employer contribution - it will just be split differently between the profit sharing and match sources. Do you think that's permissible?

FYI: http://www.benefitslink.com/cgi-bin/qa.cgi...d=144&mode=read Does anyone have experience with correcting a top-heavy failure by filing with the IRS for correction approval? What day has the IRS treated as the day the top-heavy failure occurred? Also of interest: http://www.benefitslink.com/cgi-bin/qa.cgi...atabase=qa_401k although this does not seem to address the issue for nonprofits.

Employer wants to adopt a profit sharing formula of a set percent of compensation, reduced by any matching contributions a participant receives. Is this a permissible profit sharing formula?

If a plan sponsor has 2 defined contribution plans, what contributions are included towards the cross-tested (5% or 1/3) gateway? If there is a cross-tested 401(k) plan with a profit sharing feature, and a money purchase plan, do money purchase plan contributions count toward the gateway? Does this depend on whether or not the plans are aggregated for 410(B) purposes? What if the money purchase plan is the cross-tested plan? Am I correct that QNECs and safe harbor 401(k) nonelective (usually 3%) contributions generally count toward the gateway? What about top-heavy minimum contributions?

If a plan participant is on unpaid leave of absence at the beginning of a plan year, terminates employment during the plan year, and receives no compensation during the plan year, is the participant included or excluded in ADP testing?

If 2 people are participants in the same qualified plan, and one is the 100% beneficiary of the other, can the participant's account balance simply be transferred to the beneficiary's account balance upon the death (on or after 1/1/2002) of the participant? If the beneficiary is the spouse, does the plan have to provide for accepting spousal rollovers in order to do the transfer? Can the amount be considered a trustee-to-trustee transfer, or would it have to be considered a rollover?

Company A: Been in existence for many years, never had a plan in its history. Puts in a 401(k) plan effective 8/1/01 with an initial short plan year of 8/1/01-12/31/01. Company B: Brand new company - first day company is in existence is 8/1/01 and puts in a 401(k) plan effective 8/1/01-12/31/01 with an initial short plan year of 8/1/01-12/31/01. Questions for each of the plans above (Company A and Company b): For determining key employees, are any of the compensation amounts (officer, 1% owner) prorated? For determining the 1/2% owners in the top ten, what compensation is used (compensation for what period)? If the plan is determined to be top-heavy for the 8/1/01-12/31/01 plan year, what compensation must be used for the 3% top-heavy contribution? Is the contribution 3% of compensation from 8/1/01-12/31/01, or 3% of compensation from 1/1/01-12/31/01, or something else? Also, my understanding is that the top-heavy determinaiton for the 8/1/01-12/31/01 plan year is based on pre-EGTRRA rules with a determination date of 12/31/01, and the top-heavy determination for the 1/1/02-12/31/02 plan year is based on EGTRRA rules with a determination date of 12/31/01. I have tried to review previous threads on these questions, and I have been left uncertain of the answers. Thanks for any answers and especially any cites. Have these questions been discussed at ASPA or other meetings?

If a plan sponsor is 9 months late in depositing 401(k) deferrals, and chooses to use the Federal short-term rate + 3 interest rate option, how is this applied? The Federal short-term rate changes quarterly. Should the changes be taken into account? For example, say the Federal short-term rate + 3 is 8% in the quarter in which the deferrals should have been deposited, 7% for the next quarter, and 9% for the next quarter. Should the 8%, 9% and 7% rates be used? Or should the 8% rate be used for all 9 months? Has anyone had experience with the DOL on this issue that involved more than one quarter?