actuarysmith

I also have some interest in the accrued-to-date method. However, I have no real practical experisence in its' use. Is it generally a true statement that it is most useful when you have had a DC plan in place for a number of years that used either integrated or comp/comp allocation formulas? It seems to me that this is the only case when using accrued-to-date would really make a difference.

I had a very much needed laugh at your expense. Thank you for sharing this story! I have had a day or two much like you described. Mine involved three different sets of people over the course of a few hours, so maybe it wasn't as bad. 1. I had a conversation in the men's room that I thought was private. Much to my dismay one of the stalls was not empty after all! The person in the stall was not necessarily the topic of conversation, but was related to the issue we were discussing. It was a very ackward moment when the third person emerged to wash their hands. 2. An hour later I was on the elevator. I made the classic mistake of asking a complete stranger "when she was due". Turns out she was not pregnant! I NEVER ask that question anymore. 3. About an hour later, on the elevator again, I commented to a complete stranger about how cute her little daughter was, and I asked how old she (the daughter) was- Turns out the daughter was actually a son!! I don't say much to women on elevators anymore...................

The Corbel prototypes allow (if elected by the employer) all or a portion of any cash bonus attributable to services performed during the plan year, and which would have been received by the participant on or before two and half months following the end of the year to be deferred into the plan.

What does the document say? If you are using a model 5305 SEP document, they generally don't require any minimum hours or end of year employment. Therefore, a contribution is probably required regardless of the termination of employment.

I was following this thread and all of the sudden somebody threw in a question about starting a 401(k) mid year when they already had a simple. Pardon my French, but what the HE-- !! does that have to do with this thread???????

I am not aware of any pending legislation to allow this. Non-profits can now sponsor a 401(k), but plan conversion is an entirely different matter. Further, after doing some research on 403(B)s, it turns out that plan termination does not constitute a distributable event under a 403(B) like it does on most other retirement plans. This means that an employer cannot "terminate" a 403(B) and allow participants to rollover funds to the 401(k). Now that EGTRRA allows 403(B) rollovers to 401(k)s, it appears that this will only apply to participants with a 403(B) balance at another employer.

W E F H S P L When E F Hutton Speaks People Listen Haven't seen one of those commercials in years...................

I concur with MWedell.

I agree with your conclusion. I don't understand why the attorney would be advising this - what advantage to the employer would result from this convoluted approach? Further, if the bonuses are run through payroll, all payroll taxes including federal tax withholding would be required to be paid, unless the employer deposits the money directly. They must do their own payroll - I can't imagine a payroll company would allow this.

Tom beat me to the punch. I was "number crunching" and came to the same conclusion. This would only seem to work with a very generous matching program. Maybe a safe harbor 401(k) would be a good candidate. Otherwise the withdrawal penalities would eat up all the benefits to taking a loan in the first place.

Sorry gang- you are correct. I had it exactly bass akwards.......... I found the proposed regs issued last fall and re-read them.

JEHMIG- again, the service came out with something in the last few months that clarified all of this. I wish I could remember the actual site. I think it may have been a revenue ruling. You don't need anything to "TRIGGER" the availablitiliy of the catch-ups. The service stated that if an HCE was 50 or over, you could first deem any deferrals made for the year as catch-up contributions up to the catch up limit. It is not as though you have to contribute to some magic number first, and then count anything after that as catchup. Again, there is nothing that triggers catch up contributions. The easiest way to look at it is to say that the first dollars in are always catch up contributions until the limit is reached. Then they become regular 401(k) deferrals subject to all ADP and ACP tests. Find this revenue ruling and read it. you are making this harder than it is..................

Ditto. That was my guess also - it is nothing more fancy than a new comp plan aimed at law firms. It's all in the marketing! .................

I don't want my previous post to be misunderstood. Our firm clearly advises our clients that GUST restatements are mandatory. It does not matter whether or not the plan is terminating. However, we will sometimes come accross a client that is absolutely worked up over having to pay additional fees when they terminate. We inform them that the IRS requires that the document be changed, but if they instruct us in writing to NOT restate, and they sign a hold harmless agreement, then we will usually go ahead and process the distributions. We make if clear that they are taking a big risk, and potentially putting all plan participants at risk as well. I did not want to leave the impression we were suggesting to "roll the dice and take your chances with the IRS" or that we were advocating betting against the odds of being audited. Many times the clients will go ahead with the restatement when we inform them that we will require them to sign a hold harmless agreement. I guess we could easily get into a discussion of ethics and morals. should we tell clients that we will refuse to process distributions if they do not restate? Many clients will go ahead and make distributions without our help. They may try to apply the vesting schedule (even though the plan is terminating and everyone should be 100%), or they may screw up on withholding, etc . Which is better?

The individuals who have only 3 months service are in fact participants and are benefitting under the plan. Sure the employer did not have to be that generous and allow them in. But they did. Therefore, they are paricipants for determining a partial plan term.

Not sure exactly what the question is..... However, we deal with exclusively discretionary class plans (new comp, cross-tested). I don't know why anyone would hard code an allocation formula in a document. Anyway, our SPD's just define the groups, not any sort of percentage or ratio compared to the other allocation groups in the plan.

The obvious answer is that the service could disqualify the plan. Then it becomes and issue of all deductions being disallowed and all benefits immediately taxable to participants. The client must ascertain the chances of being audited against the fees you charge and the amount of tax-deductible money at stake in the plan. I would definitely make your client sign a hold harmless agreement. This would state that you had advised them they should restate and they chose not to. These are exactly the kind of clients that will bite you in the butt.......... If they are ever audited, they would probably try and bring you into the whole mess and suggest to the IRS that you did not force them to restate.

In order to exclude leased employees from your plan, the leasing company has to provide for at least a 10% of pay money purchase or profit sharing type of contribution. I have not seen many leasing companies that provide benefits at that level. You could not use 2 year eligibility, but "grandfather" yourself. That would be a clear violation of discrimination in benefits, rights and features. However, if the leased employees don't have much service with you yet, and you have had the company for a few years then you may count past service for eligbility and let yourself in right away.

You must be referring to a straight age-weighted uniform accrual rate type of profit sharing plan. These don't work in a large number of situations (mulitiple owners, receptionist aged 55, etc. etc.) However, the "table" you are referring to can be generated by almost any commercial admin system. Use a GAM83 mortality table (post retirement only) and an 8.5% interest rate. If you are talking about New-comparability / cross-tested plans with different rate groups, there is no "table" - the testing is much more convoluted than that...........................

MNR - You seem to be mixing and matching concepts and ideas. Where the trust assets are invested, whether or not you have PSP provisions, and whether or not employees have the right to direct their investments are all seperate issues. Don't confuse the plan, the rights and features, and the assets. You could leave the PSP funds where they are and continue to have PSP features in the plan, or not............... You could leave the PSP funds where they are and continue to have employer direction, or change to employee direction. You could move the funds to whereever the 401(k) funds are, and have employee or employer direction of funds. Again, there is no need to eliminate the PSP features. Leave them in the plan. The employer is under no obligation to contribute. If the employer is worried about fiduciary liability, consider allowing participant direction of investments.

Yes, of course. However you do not need to "roll over" the balances into the 401(k). You may leave them where they are, add 401(k) features to the plan, eliminate the employer discrestionary contribution language. Don't confuse where the money is parked with what the plan is - I hear this all the time. On a prospective basis, you would have 401(k) features only. Why do you want to eliminate the profit sharing plan features? There is no obligation for the employer to contribute in this manner anyway. You could retain the option in your document, but just have the employer choose not to contribute.

If you read the law, HR 1836, it clearly states that catch up contributions do not count against 402(g), 415 limits, 404 limits. It also states that Catch-up contributions will not cause a plan to fail the ADP and ACP tests. Late last year, or early this year the service came out and provided guidance that if an HCE was affected by ADP/ACP testing and was over age 50, contributions would first be characterized as catch-up (up to limits) and any amount left over would have to be refunded.

I have a slightly different twist on this question- If a pastor designates a portion of his current "W2" income as housing allowance, is that considered compensation for retirement plan calculation purposes? In other words, if the church board states that each pastor is to receive a 6% of pay retirement contribution, would you calculate the 6% based upon gross pay (including the housing allowance), or would you calculate it using net compensation (excluding housing allowance)?

I am working on a small 403(B) plan for a church. In addition to regular staff, there are three pastors that declare a portion of their income as a housing allowance. Hows does this play into the definition of compensation for the retirement plan? How does it play into any benefit or contribution limits ?( 404,515, etc.) The church board retirement policy has been to fund 6% of pay, based upon gross salary (including the housing allowance). Do you see any problems with this approach?

I concur. This would be considered a PT - it stinks! I only wish they had a message icon with someone holding their nose............