John A

I'm not sure this changes my mind about MWeddell being correct, but page 8.26 of the 1999-2000 ERISA Outline book states, "If the plan fails the ratio test, the employer has two choices - expand coverage to pass the ratio test or pass the average benefits test." This would seem to imply that the employer is not obligated to do the ABT and could choose to simply expand coverage if desired. However, I do not see any cite.

In a plan that covers only Salaried employees, can Hourly employees be excludable due to 500 hour/ last day rule? If an Hourly employee has satisfied the age/service/entry date requirements for the plan, but terminates employment with less than 500 hours in a plan with a last day requirement for a contribution, is the employee excludable? The rule seems to be that the 500 hour/ last day rule can only be used to make an employee excludable if the employee does not get a contribution "solely" because of the failure to meet one of those requirements. Since the plan described above would cause the employee to not get a contribution because of being Hourly, that would seem to indicate the employee should be includable. However, some sources seem to indicate that the 500 hour/last day rule can be applied before considering any other reasons like employee classifications.

Can an employer allow a participant to have a Self-Directed account "frozen" to any new money, and not allow the rest of the employees to have one? Any cite?

Yes, it is difficult enough to keep up with beneficiaries. I was hoping I might be able to tell an employer it could not be done, instead of having to convince the employer that it is a bad idea. Thanks.

Does anyone know if a plan is or is not allowed to designate different beneficiaries for different sources (1 beneficiary for 401(k) deferrals and a different beneficiary for profit sharing)? Any cite?

This probably falls under the category of beating a dead horse, but what about the interest and mortality tables used to convert contributions to a benefits basis? Surely the plan sponsor can choose an interest rate and a mortality table (and whether or not to use salary history)to do the testing and then test on that basis, correct? The sponsor would certainly not be obligated to try several different combinations of interest rate and mortality table to do the testing (even though one combination might result in passing while another results in failing), would it?

pax, you are correct about it being a DC plan. The PBGC has made handling this situation in a DB plan much better. RCK, your solution works in some instances, but carries the risk of "tainting" the existing plan with any problems that existed in the terminated plan. Has anyone treated the money as abandoned property?

I'm aware that there have been several threads on missing participants. However, I have looked through several and have not found what I am looking for. A plan sponsor has one participant left to pay to complete a plan termination. The participant is due less than $25 and the plan sponsor has gone through has exhausted the means of trying to locate the participant. In this situation, what should the plan sponsor do (try to find a bank that will take the assets)? Does the amount of the distribution to the missing particiapnt affect what you would tell a plan sponsor to do?

My understanding is that 457 plans are not subject to ERISA title I, are not subject to bonding requirements, and are not affected at all by the new small plan bonding requirements for nonqualifying assets. Am I correct?

MWeddell, The consensus does seem to be that the plan sponsor is obligated to try every possible method to meet 410(B) before using the fail-safe language unless the plan document language clearly indicates otherwise. Clearly, if any method is found in which the plan passes, no further testing is necessary. However, the consensus seems to be that if the plan fails on a contributions basis, the sponsor is obligated to go on to test on a benefits basis (again, unless the plan document clearly says to only test on a contributions basis - the sponsor cannot choose to test only on a contributions basis if that basis fails). The fail-safe language can only be used after every conceivable way of passing 410(B) has been tried.

If an employer wants to make a profit sharing contribution and allocate it as of 12/31/00, by when must that contribution be made strictly for allocation purposes? I realize the year of deduction and the year the amount is treated as an annual addition have rules laid out, and may cause contributions that are allocated in one year to be treated as annual additions and/or deducted in a different year. But I do not know of any rules restricting allocation dates. Could a contribution made on 12/31/01 be allocated as of 12/31/00? How about a contribution made on 1/15/02? Any cites? Thanks for any input.

For the new small plan audit rules, when does the bonding requirement on nonqualifying plan assets have to be in place? Is it enough for the bond to be effective as of the last day of the plan year? Would it have to be effective on every day of the plan year? For plan years starting May 1, 2001: if a plan has 15% nonqualifying plan assets as of April 30, 2001, when does the plan need to meet the additional bonding requirement in order to avoid the audit requirement?

MWeddell, I'm not sure I completely agree, and maybe I'm understanding my own question a little better. It appears to me that a plan sponsor has a choice of testing on a contributions or benefits basis. If the sponsor chooses to test on a contributions basis, the formula is then definitely determinable, and it appears to me that this choice can be made without ever checking on whether the plan would have passed on a benefits basis. Part of my question was whether or not the plan sponsor could make this choice and then do the test based only on this choice, or whether the sponsor was obligated to test on a both a contributions and benefits basis to establish a 410(B) failure. Are you saying that the employer does not have a choice, but is obligated to try all available testing methods?

Tom, thanks for the reply - it's helpful. We use about 3 different software packages, but mainly DATAIR and Trustmark. If the plan has always been on DATAIR and we've done the administration for the life of the plan, then DATAIR handles everything well. I'm not so sure about Trustmark's 410(B) capabilities. And I'm not so sure about DATAIR when it's a takeover situation. Sometimes it would be a lot cheaper to just add a person, rather than do a complex ABT, especially if it has to be done every way possible. Does Qtech/Relius automatically do the ABT on both a benefits and contributions basis, with and without permitted disparity, Accrued to Date, etc. (I believe DATAIR does)?

If a plan fails the ratio percentage test, it may still pass using the Average Benefits Test. However, the plan document may specify that if the plan fails 410(B) coverage testing, then additional participants will share in contribution until 410(B) is passed. Before bringing in additional participants, do you generally do the Average Benefits test on both a contributions and benefits basis? Do you do the Average Benefits test both with and without permitted disparity? Do you do all the methods, including the Accrued to Date method? Do you use Excel to do Average Benefits testing? What software do you use? Thanks for any input.

Follow-up question: Plan year: calendar year. Limitation year ends January 31. Tax year ends March 31. Employer gets extension of due date for tax return to December 17, 2001. In what limitation year(s) would the following contributions be treated as annual additions (all of the contributions are allocated as of December 31, 2000 under the terms of the plan): Profit sharing contribution on December 31, 2001. Profit sharing contribution on January 14, 2002. Profit sharing contribution on January 16, 2002. Profit sharing contribution on January 17, 2002. Profit sharing contribtuion on January 18, 2002. Thanks for any thoughts on this.

Richard, thanks for the correction. I agree with you (Rev. Rul. 66-144). However, I would like to add: If the tax return has been filed prior to requesting the extension, then the contribution is due by the due date of the tax return without extension. (If a timely request for an automatic extension to file is filed before the return is originally due but after the tax return is filed, the period for making deductible contributions will not be extended - IRS Letter Ruling 8336006). And I think I stated it incorrectly the first time because I've known of situations in which the return was filed expecting a contribution to be made, and then the contribution was not made. So I was probably remembering the policy of a company I used to work for. Sorry about that. And again, thanks for the correction.

When determining the maximum 5-year repayment period for a participant loan, does the 5-year period start on the day of the first payment, on the origination date of the loan, or on some other date?

Tom, I'm not sure I agree, unless I'm misreading what you're saying. I thought a contribution was only deductible if it was actually made prior to the filing of the tax return. So, for example, a contribution made for a 1999 plan and fiscal year would have to be made by September 15, 2000 at the latest (since that is the last day - with extensions - for filing the tax return) to be deductibe for 1999. The reg would seem to say that the employer contribution could only be counted as an annual addition for 1999 if made on or before October 15, 2000. Did I misread something?

Under the new, simplified Required Minimum Distribution (RMD) regulations: 1. If the RMD is being paid to a participant and a spouse more than 10 years younger, and the spouse dies, does the calculation change to using the uniform table, or do calculations continue as if the spouse had not died, or how are future RMDs calculated? 2. If the participant changes the beneficiary to or from a spouse that is more than 10 years younger, does the calculation change based on the new beneficiary? 3. If the participant dies after the Required Beginning Date (RBD), are calculations of RMDs to a spouse beneficiary different depending on whether the uniform table was being used or the rules for a spouse more than 10 years younger were being used?

An owner wants to buy a REIT held by the profit sharing plan of his company. Is this a prohibited transaction? Is there any way for him to own 100% of the REIT (his profit sharing source share of the REIT is currently over 50%)?

Agreed. And I apologize if I sounded antagonistic or overly defensive. I am simply seeking what to do in a situation that should not have happened in the first place.

Hans, the problem with the obvious solution is that there are takeover situations in which someone else has already invoked the BIS rules for a 401(k) plan and there are rehires before the plan has been amended to remove the BIS rules. Thus, the obvious solution is not a solution at all concerning what to do once the situation has regrettably occured.

Is there any statutory rule against the "one-year hold-out rule" for a rehired employee as applied to 401(k) deferrals? What happens if a 401(k) plan does have a one-year hold-out rule and the rehired employee participates retroactively? Is the plan sponsor then required to make QNEC contributions under self-correct for the rehired employees inability to defer during the hold-out period?

An ESOP allows a distribution of company stock. What information is required from the participant in order to make this election? What options does the participant have (can the participant have the stock certificates mailed to a rollover institution)? Is there anything else that should be considered when distributing company stock from an ESOP?