John A

What should a TPA do about a plan where the company has gone bankrupt, the plan sponsor cannot be located and the Trustee is a financial institution that is a directed trustee? Anyone ever had this situation or a similar one?

A controlled group decides to spin off one of the companies in the controlled group. The spun-off company will adopt its own DC plan, and all of the DC accounts in the controlled group will be transferred to the new plan. Must the new plan credit vesting and eligibility service with the controlled group prior to the spin-off?

Tom, thanks for the reply. I realized I raised a very similar question twice before: http://benefitslink.com/boards/index.php?showtopic=7636 http://benefitslink.com/boards/index.php?showtopic=4886 In reviewing these threads, I believe the answer is that yes, the top-heavy minimum allocation is included in coverage testing (and then in a second test is excluded for determining whether or not safe harbor is okay). I had just not thought previously about the case where the top-heavy allocation was the only allocation.

Technically, must the top-heavy contribution allocation in a defined contribution plan meet 410(B) coverage testing? I know it would be extremely unusual for the plan to not meet it, but is there any exemption from coverage testing? I'm thinking in particular of a 401(k) plan in which the only contribution other than the deferrals is the top-heavy contribution, and there is a last day requirement for top-heavy.

If the forfeitures of a target benefit or money purchase plan exceed the contribution formula amount, what is done with the forfeitures that exceed the amount? Can they be placed in a suspense account? Does it matter if the forfeitures exceed the formula amount because the plan sponsor made an actual contribuiton in addition to the forfeitures?

The debate continues. http://benefitslink.com/boards/index.php?showtopic=8735 http://benefitslink.com/boards/index.php?showtopic=4809 http://benefitslink.com/boards/index.php?showtopic=5141 http://benefitslink.com/boards/index.php?showtopic=4951 http://benefitslink.com/boards/index.php?showtopic=8574 http://benefitslink.com/boards/index.php?showtopic=3951 http://benefitslink.com/boards/index.php?showtopic=10478

In a defined contribution plan: If forfeitures are used to reduce employer contributions, and the employer makes a contribution that, together with the forfeitures, would exceed the 404 deductible limit, has the employer made a nondeductible contribution? Or can the forfeitures be placed in a suspense account and used to reduce a future year contribution? Is the answer different for money purchase and target plans as opposed to profit sharing, 401(k), and ESOP, etc.?

Which of the "good faith" amendments provided in IRS Notice 2001-57 for EGTRRA need to be adopted before 12/31/02? Do any need to be adopted (if they are to be used for 2002) on or before 12/31/01?

I don't see why not. If you amend both plans to have calendar year plan years, I believe the EGTRRA limits would apply to the 2002 calendar year plan years. Anyone disagree?

Tom, what are the following rules for (when do they apply)? 1.401(k)-1(g) (3) Treatment of plans with different plan years. If the cash or deferred arrangements that are treated as a single arrangement under this paragraph (g)(1)(ii)(B) are parts of plans that have different plan years, the cash or deferred arrangements are treated as a single arrangement with respect to the plan years ending with or within the same calendar year. 1.401(m)-1(f)(1)(ii)(B) Highly compensated employee eligible under more than one plan. The actual contribution ratio of a highly compensated employee who is eligible to participate in more than one plan of an employer to which employee or matching contributions are made is calculated by treating all the plans in which the employee is eligible to participate as one plan. However, plans that are not permitted to be aggregated under §1.410(B)-7©, as modified in §1.401(k)-1(g)(11), are not aggregated for this purpose. For example, if a highly compensated employee with compensation of $80,000 may receive matching contributions under two plans of an employer, the employee's actual contribution ratio under each plan is calculated by dividing the employee's total matching contributions under both plans by $80,000, unless the plans are required to be disaggregated. In that case, the actual contribution ratio of the employee under each plan is to be calculated by dividing the employee's matching contributions under that plan by $80,000. See paragraph (B)(3) of this section for the treatment of certain multiple plans. For plan years beginning after December 31, 1988, or such later date provided in paragraph (g) of this section, if a highly compensated employee participates in two or more plans that have different plan years, this paragraph (f)(1)(ii) is applied by treating all plans whose plan years end with or within the same calendar year as a single plan.

Does anyone know of a plan sponsor that maintains 2 separate 401(k) plans that have different plan years? Why would an employer do this? How is ADP testing done? If the two 401(k) plans normally had no employees in common, but some of the participants from one of the plans had to be added to the other in order to pass 410(B) coverage requirements, would the ADP test be done using all participants from both plans, or could the ADP tests be done separately for each plan, aggregating the ADP for only the participants who deferred (or were eligible to defer) to both plans?

When a plan sponsor maintains a 401(k) plan, and also maintains another DC plan with a different plan year than the 401(k) plan, what special issues must be considered? How are 415 limits determined (if the limitation year for each plan is the plan year of that plan)? How is 404 deductibility determined? How is 410(B) coverage determined? I am aware that for 416 top-heavy purposes, the plans are aggregated by using the determination dates that fall within the same calendar year. To determine ADP and ACP tests [if the 2nd plan is also a 401(k)] the plan years ending within the same calendar year would be added. To determine who is an HCE, plan years beginning in the same calendar year would be aggregated. Are there other issues that require aggregation of the plans?

When "recycling" shares, must all cash in the plan be used, or is it okay to use just the contribution amount, and leave any existing cash in the plan alone? Is consistency required, or could all cash be used at one time, and only the cash from the contribution another time?

pax - nice link. One last point that reflects my personal bias - give 10% of your income away. It may not make sense, but there is something about it that actually does help with financial planning, and there is something about it that adds to one's "wealth."

John G - I'm not sure it's a debate since I have yet to disagree with anything in your posts. One quick note - even "general market index funds," which I agree would be good choices, have lost 15% to 20% over the last year. That does not make these funds bad investments - it just points out that even good investments can lose quite a bit over a short period. As you point out, many people will have 10, 20 or even 30+ years in retirement, so they have time to make up the loss. And if they do not need to touch the principal anyway, it may not be a problem. But no one I know can truly predict whether than 15% to 20% loss will be recovered in 1 year, 5 years, 10 years, or longer (although the longer the period the more likely that the loss will have been recovered). Nicki - John G has offered some good advice. Start now.

Okay, I am confused. First, I did not think it was possible to terminate a 403(B) plan. Has something changed? How does one terminate a 403(B) plan?

John G - good post - Nicki should find it helpful. But what you really point out is an additional area that bothers me - often there is no discussion of planning for the spending (retirement) years. That $1 million accumulation at retirement could easily become $900,000, $800,000 or less one year later, even with reasonable investments. However, putting the $1 mil into a guaranteed interest rate (like a 30-year bond, or purchasing an annuity) subjects the retiree to inflation risk, and could be just as bad in a high inflation time. I agree that a person of any age should have at least some assets in stocks, but I would still say that a person near the peak of their accumulation (last few years before or first few years after retirement) should consider each type of risk, and may want to be somewhat more conservative than someone who is just starting to accumulate. Also, there are many stories currently of people who are planning on working to a later age than originally planned, because the recent market doldrums have left them with much different accumulation projections than the projections they had counted on 1 or 2 years ago. Any projection is almost guaranteed to be wrong, but they are useful if they are used as "course corrections" (I need to save more, I need to learn to invest, I need to protect against inflation, I can't withdraw as much as I thought I could each year, etc.).

pax, there are 2 things that always trouble me about accumulation projections of periodic additions to an account: 1) there is a large difference in the accumulations depending on when higher and lower rates are earned. While the accumulation of $10,000 over 10 years at 5% and then 10 addtional years is the same as $10,000 over 10 years at 9% and then 10 additional years at 5%, this is not true for periodic additions. $10,000 at the beginning of each year at 5% for 10 years and then an additional 10 years at 9% is approximately $478,000, while earning the 9% first and then the 5% is about $402,000. Yet both would be the same average "rate of interest" over the 20 years. 2) A substantial portion of the total accumulation projection is due to the last year or few years of the accumulation, and no adjustment is made for the possible need to be more conservative in the last few years. I realize that any projection that is not tailored to an individual is necessarily oversimplified, but I do wish the above 2 areas would at least be discussed in popular financial planning books.

Do the 2001 Required Minimum Distribution (RMD) proposed regulations apply to RMDs from 403(B) plans in 2001? For 401(k) and other qualified plans, a model amendment is provided, but it does not appear that any similar amendment is available to 403(B) plans. Does this mean that 403(B) plans must use the "old" rules for 2001, but the "new" rules for 2002?

How is the participant count determined for a frozen 401(k) plan? Can all employees who have not met the eligibility requirements and reached an entry date as of the date of the freeze be ignored?

Can either of the following situations be corrected by retroactive plan amendment: 1) In a 401(k) plan, deferrals were limited to 2% - 15% of compensation. Plan document did not specify the 2% minimum. 2) Plan was valued quarterly. Plan document specified annual valuation and did not give the option of other valuation dates. In both cases, the plan has been operated consistently for ten years or so. If retroactive plan amendments cannot be done, what would the corrections be? What IRS program under Rev. Proc. 2001-17 would be used?

May K-12 schools offer any plans other than 403(B) plans?

The following link may be helpful: http://www.benefitslink.com/cgi-bin/qa.cgi...d=118&mode=read

pax, that assumes that the employer might change the plan in the future or there might be a change in the law that would make it beneficial to have the sources tracked separately, and we all know the law never changes and plan sponsors never amend their plans.

JK - Misguided belief that tracking assets together rather than accounting separately will result in less paperwork.