K2retire

Not to drag this on endlessly, but that calls for another warning - unless you are very careful, if you set up your own plan and then want to put the investments with Vanguard, they are likely to set up a whole new "plan" instead of just opening an account to hold the money in the plan. You have to pretty much assume that they will try to screw things up and be on your guard the whole time. And that same caution applies to pretty much all recordkeepers, not just Vanguard.

Sometimes the vendor knows the rules, but assumes that the potential client won't understand the nuances. In that case they are just over simplifying -- you can have employees, just not ELIGIBLE employees.

What about someone who quits or gets fired on 12/31? Do you give her a 1/1 termination date because you can be employed and unemployed on the same day? For plans with a last day allocation condition, we always include participants with a 12/31 termination date. But some of the software I've used requires you to change it to 1/1 to make it work. This seems to be a similar situation.

Owner C who has $1,000,000 dollars a) does not want a statement saying that his Million is owned by someone other than himself But it is owned by someone other than himself -- it is owned by the plan and its trust.

There is also the practical issue of finding a recordkeeper who is willing to do it that quickly.

Be careful using box 1 of the W-2. Any pre-tax salary deferrals are excluded from box 1 and usually included in the definition of plan compensation.

I've heard record keepers say things like that in an effort to force the distribution from the other plan.

And based on the number of recent inquiries on the subject, someone is definitely peddling this concept.

It is my understanding that the taxable health insurance premiums are included in income for plan purposes if the plan defines compensation as either W-2 wages or Section 3401 taxable wages. I've seen conflicting information about whether it is included in the Section 415 definition of comp.

The one I saw most recently was a 401(k), not a 403(b), so the ERISA question is not applicable. The agreement between the client and the recordkeeper says the RK is not a trustee and has no discretion, but will process distributions, loans, etc. in accordance with the parameters set up by the plan sponsor.

Ironically, I tend to see the reverse of this issue: recordkeepers approving loans or distributions without involving the employer.

As a practical matter, if you allow someone to convert non-vested dollars, they pay the tax, then terminate without receiving any additional vesting, they have now paid tax on balances that will be forfeited. Not a good idea.

If they would change the top heavy exception to allow for forfeiture reallocation without triggering a THM (or limiting it to the forfeiture allocation) it would solve the IRS concern about vesting and most employers' concerns about not wanting to allocate the forfeitures.

Unless the record keeper issues the 1099 using their own EIN.

"500 Hours of Service within 12 consecutive months from the initial date of employment...shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements" You're ignoring the Italicized phrase. In my opinion, that means you have not met the requirements until you've worked 12 consecutive months.

Is the employer thinking that by doing this they won't have to credit the prior service and can save a few bucks on all benefits because he's a new hire with the other company? I've heard of that many times. They are always shocked to learn that it doesn't work that way.

If you're requiring 500 hours and 12 months of service, how could anyone enter before completing 12 months of service?

It is my understanding that 100% vesting is automatic upon attainment of NRA while actively employed, so if NRA is a flat 65, someone hired at age 64 would be fully vested on his or her 65th birthday (and anyone hired over age 65 would be fully vested in any accruals immediately). As noted, the law says the earlier of the plan's NRA or the later of age 65 or the 5th anniversary of the time of plan entry. So choice #1 in the original post would only be satisfactory if 65 and 5 years of participation occurs on or before the 5th anniversary of plan entry. Most of the time what we tend to call age 65 with 5 years of participation actually reads 5th anniversary of participation if you go back to the document.

If it is taxable, but not reported, does anyone ever do it correctly?

Has the plan been amended to recognize the new entity?

I've had several clients pay their young children to model for advertising. Coincidentally, they almost always earn whatever the IRA limit is. An eligibility age requirement could solve the issue.

Not an official response, but when I researched it in 1992 there was conflicting information. If the executor fees are reported on a Schedule C and self employment tax is paid, they should qualify. However at that time there was an exemption (that could still exist, I haven't needed to know since then) that said that self employment tax did not have to be paid on executor fees. In that case, the income would not count for plan purposes. I paid the SE tax and spread the income over 3 years so that I could contribute the 415 limit to a MPPP each year.

That sounds like an invitation to make another error to me!

You can't exclude their prior service. For example a participant with 3 YOS at the time of the amendment would be 100% vested in the old money and 40% vested in the new money.

That's the way I remember it.