Lori Foresz

Hi, ER ceases all contributions to SIMPLE plan as of end of 2004 and put a 401(k) in place 1/1/05. Does the SIMPLE need to be officially terminated prior to 2005 in order to avoid the exclusive plan rule or does the fact that no EE accrues a contribution under the SIMPLE make it okay? I seem to recall this is the case. Additionally, I presume that if EEs have participated in the SIMPLE for 2 years, they can roll their money into the 401(k) regardless of whether they or the plan have terminated since there is no restriction on SIMPLE distributions. Is this a correct understanding? My SIMPLE knowledge is a bit lacking. thanks much!!

Thanks again. I think I am getting it. The only way a catch-up could not trigger a top heavy min is if ALL of the deferrals were reclassified as catch-up in order to pass the ADP test, which would mean the max allowable deferral of the HCE group would be zero, which would mean zero participation by NON-HCE. But, if any of the HCE deferrals are allowable deferrals, that amount would trigger a THM. Sound right? Thanks again

I guess I poorly phrased my question. The plan is top heavy so the owner is not contributing. However, we thought she could at least put in a 3k catch-up if it doesn't trigger a top heavy minimum contribution for the staff. There is some Non-HCE participation but not much. Does this scenario change the fact that a catch-up does not trigger a TH minimum contribution to Non-Keys? Thanks everyone!

Thanks everyone. Actually, the document we inherited says that benefits are not available to pay benefits of EEs of all adopting ERs which - may be why the prior TPA took the collection of single ER plans approach and multiple Forms 5500s were filed last year. The issue is more than just more work in preparing multiple Forms 5500. If the MEP has over 100 participants, but each ER files a separate Form 5500, you are avoiding the audit requirement. That can be a substantial cost savings. Clear as mud. Thanks again

Hi, Plan fails ADP and entire amount of deferrals will be returned to the KEY HCE. The KEY is over age 50. Plan is top heavy. Can the KEY HCE retain 3,000 of the excess contributions as her 2004 catch-up or would this trigger a top heavy minimum contribution for the staff? Help is greatly appreciated.

Hi, This is exactly the debate I have been having internally but I believe that it is accepted practice for PEOs to have plans designed this way- the looks of a multiple ER plan (i.e one plan document) but treated as a collection of single ER plans for Forms 5500 (and audit requirements). What gets me is that why would any employer take on the expense of adopting and maintaining a plan document if they could just adopt an IDP of an unrelated employer and continue to file as a single ER small plan? Seems odd. My final question if anyone can help is who would be the actual legal sponsor of the plan(s). The Form 5500 says the CO but the document says the PEO? An attorney is telling us one of the COs can't set up an ESOP if they participate in a 401(k) plan of which they are NOT the sponsor. I'm not sure why but am still researching that one. Thanks everyone!!

Help. Plan document is structured as a multiple ER plan but individual adopting ERs are filing Forms 5500 as single ER plans. TPA is saying that this method is approved by the IRS but can't find any guidance. The multiple ER plan would have over 120 participants, but each adopting ER is very small (less than 20 participants) so no audit is being done on the plan as a whole. Have anyone seen this before? They said it is common with PEO plans to file separate Forms 5500 like this but have one common document. Any guidance is greatly appreciated.

Plan document defines compenation as W-2 comp less reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits. Er agreed to make settlement payments to employees for off duty meals not provided from 1999-2002. Er has been told to report the settlement payments on a 2004 W-2. Seems to me that this would then be treated as plan income. Does anyone have any thoughts on this? Experience? Any help is greatly appreicated. Thanks

Hi, What is the rule on the attainment of age 59 1/2? If you are 59 when you receive the distribution, but 59 1/2 when you file your tax return (or as of 12/31), is the 10% penalty waived? Can't find any guidance but I always presumed it was age at distribution that determined whether an exception to 72t applied. If anyone can help, that would be great!

Hi, Does anyone know if specific rounding rules apply for 401(a)(26)? If there are 13 nonexcludable employees, 5.2 would need to be covered. We have a plan that covered 5. Could we arguably pass by rounding down? Does the IRS require us to round up to 6? If anyone can help, that would be great. Thanks

To clarify, the QNEC would be allocated in the ACP test using the bottom-up prorta method(document allows) to the lowest paid participant regardless of whether that participant contributed and/or received a regular match. Plan Administrator is telling us only a QMAC can be made to satisfy the ACP test (not a QNEC) and the bottom up QMAC is allocated to the lowest paid person who received a match. Of course, this person is much higher paid than the lowest paid QNEC person, so the QMAC is much more expensive than a QNEC. Help is that correct? All I seem to find is that QNECs can be used in the ACP test.

Help. Seems I should know this (or be able to find the answer) but can't. Plan is failing both ADP and ACP tests. Can a QNEC to be made to pass the ADP test and then another QNEC made to pass the ACP test. The same QNEC would not be used twice. It seems so but just want to be absolutely sure. Thanks for the help!

Help. Employer is on a volume submitter plan document and several related participating employers have also adopted the plan. Each participating employer decides whether to make a match each year and picks from three different formulas, one being 0% (or no match for the year_. Since I have never seen this before it makes me question whether it is possible. If the plan is able to pass the ACP test, the NDCT for the different rate of matching and, and 410(b) coverage treating the 0% EES are nonexcludable, are there still document design issues or the existence of many single employer plans being packaged as one plan? Any thoughts are greatly appreciated.

Having a tough time trying to figure out if my thinking is correct. If a cross-tested PS plan is established 9/1/04 with a short first plan year ending 12/31/2204, I realize I will need to prorate the compensation limit to $68,333. If the plan will be top heavy for the first plan year, can I give Non-Key EES 3% of compensation from 9/1/04-12/31/04 or do I have to use full year pay to meet the top heavy reqs. HCEs will only get 9% of $68,333 or $6,150 so I think this will meet the gateway minimum as long as the top heavy contribution based on short year pay is correct. Any guidance would be greatly appreciated. Thanks

Hi, I am new to the SARSEP world, so this may be a very simple question. ER has been making a 6% contribution to all employees but not capping compensation when determining the 6%. Is this okay? Help

Just curiouis. IF the SARSEP it terminated is this a distributable event that will allow the participants to roll balances into the newly established 401(k) plan or what can they do? Any help is greatly appreciated.

Hello, Employer has a grandfathered SARSEP and will be setting up a crosss-tested 401(k) PSP during the same year as the SARSEP in order to maximize disparity of ER contributions. They currently make a 6% SARSEP contribution on behalf of all employees. I understand that the 402(g) and 415 limits apply to the combined plans and we are keeping that in mind when determining the max contribs to the PSP. I also think (but am not 100% sure) that the contributions to the SARSEP (both ER and EE) are not included in the General Test (i.e. the ABT) portion of the PSP. In other words, SEPS are not part of the ABR testing group. Can anyone confirm this? Thanks so much!!

I need some ideas on how employers exclude temporary employees (i.e. employed via an agreement with a temporary staffing agency) if the plan has immediate eligibility? If you exclude them by class (and then define the class in the document) is this still treated as a disguised hours requirement like the exclusion of part-time employees? Or does it boil down to the fact that temporary employees are not common-law employees of the recipient employer and thus can't be eligible for the plan if the plan only convers common-law EES? I have been reading and reading but nothing is coming together. Any help is greatly appreciated.

Thanks. I see the problem and wish the IRS would allow elective transfers between 403(b)s and 401(k)s upon plan termination so that employees don't have to have two accounts under two separate plans. The employer makes contributions to the plan, so I believe it is considered an ERISA plan and limited reporting has been done. I too thought there was no such thing as a prototype 403(b), but this document clearly says "403(b) prototype" and is a Merrill Lynch doc. Perhaps it is not a true "prototype" (with IRS approval) just a boiler plate document to faciliate adoption. It is a small plan, so no audit issues and there are no HCES, so no ADP testing issues. The employees just want more investment flexibility besides mutual funds and we can't think of any way to do this without starting up a 401(k) plan. There are only six employees and all have balances in the 403(b) plan. No terms have bals. Unfortunately, it looks like they will have to start up a new plan but leave the 403(b) balances as invested. Rats! Thanks for the input everyone!

Not for profit has an ERISA 403(b) plan and they want to terminate and start a 401(k) in order to have more alternatives regarding investment types (i.e. stocks, bonds, etc.) I know that there is an issue regarding whether an employer can really terminate a 403(b) plan or if it has to continue forever until the last participant terminates or the ER goes under. I am reading the 403(b) prototype, and it expressively gives the ER the right to terminate the plan, however, Morgan Stanley is saying no. Has anyone ever terminated an ERISA 403(b) Plan? Is this possible. The client has been asked to get legal opinion (and we will suggest this) but I just wanted to get some thoughts so I wouldn't be sending them on a wild goose chase. Any help is greatly appreciated!!!

Pax, Thanks so much. I didn't even think about the PBGC website. I got it!

Hi, I was hoping someone would be so kind as to provide a copy of the sample notice in Appendix A of PBGC Reg 4011.1. Apparently, we don't subscribe to that service on our research software. Any help is greatly appreciated. Thanks!!!

MZOBEK, not sure why the disqualification would be a tax to the corp and also the the participant. Suggestion is to treat it as only taxable to the participant as a nonqualified deferred comp benefit and not the corp as well. Just thought I would add this :-)

The belief of the attorney is that the plan is essentially now a nonqualified deferred compensation plan and thus all assets are paid out to the sole owner as W-2. The participant has taken distributions in the past so remaining PVAB to assets is about 5% and surplus assets are around half a million. I appreciate all the ideas and comments.

AndyH, That concept has kind of tripped me up as well. He is limited by the 100% of comp 415. I think the ERISA attorney is thinking that by removing that limit and disqualifying the plan, the participant's accrued benefit now includes the excess assets and thus the disqualification taxes the participant on the total trust value. This avoids the reversion to the company. Thoughts?