Lori Foresz

Hi, Does a former employer have to be related to the current employer in order to credit service with the former employer (for eligibility purposes) under the new employer's plan? I understand that the crediting of past service must not discriminate, but that a 5-year safe harbor rule applies. So, can the owner of a company be granted one year of prior service with his former employer but make all the employees wait 1-year to enter. The answer would seem to be no, but can't find it anywhere. If anyone can help, that would be great. Thanks Lori

A similar question to ponder. An owner of a corporation also has an unrelated "side" business that generates Schedule C income. He has PS plan for the corp and a SIMPLE plan for his self-employment income. Can he get the full $40k under both plans? I am thinking yes, but couldn't find anything specific. Any help is greatly appreciated.

Hi, Sorry for being unclear. He is questioning having to give the gateway to employees who have less than 2 YOS but greater than 1 YOS. I thought that was referenced in the final regulations, but I"ve searched and can't find it. I think this concept may have first been introduced in the preamble to proposed regulations and evolved through subsequent commentary and interpretation outside any reglations. Does this sound familiar? I have all kinds of reference materials that say an employee who benefits under the ER portion of the plan and is not otherwise excludable must get the gateway. But, I can't find it in the final regs. AGHH!' Thanks for your help!

Okay. Now I've got an ERISA attorney asking me to cite the regulation that requires this. I printed out the final regs and couldn't find reference but I know I saw this somewhere. Was it in the preamble to the proposed regs? Any help is greatly appreciated. Thanks

Yeah, sorry, I did kind of get greedy with you. I appreciate your help!

That's kind of what I thought. So, basically, if you are a top heavy 401(k) plan, a 2-year wait for the PS gets you nothing except that the less than 2 YOS people only need to get the minimum gateway and not anything in addition to the minimum gateway. So, you need to have a separate rate group for employees with greater than 1 YOS but less than 2 YOS and provide them only the gateway minimum. But would these people be 100% vested in the contribution? I suppose the document has to be designed to have a 2-year cliff vesting schedule so that people who waited less than 2 years are not fully vested?? Thanks, Mike!

If a cross-tested top heavy 401(k) plan has 2 yr eligibility for the PS, but 1 YOS for the 401(k) and top heavy, do the 401(k) only people need to get the gateway even though they are not eligible for the profit sharing? I am slightly confused on this. It would seem no, but since they are not otherwise exludable and are benefitting under the ER contribution, my mind keeps saying maybe yes. Any help is greatly appreciated. Many thanks

Hi, So it will excuse the excise tax? I am trying to find that without my code book. I will search for it. Many thanks Lori

Thanks. The plan is a PSP, but I would presume the answer doesn't change because the safe harbor contribution is required to be made to the PSP. So, basically, unless the DB contribution is less than 25% of pay, the DC contribution is never deductible. That seems harsh, but I guess the IRS is not always kinder and friendlier. Thanks

Hi, I definitely know that the definition of plan compensation does not dictate the definition for deduction purposes. For example, plan comp could exclude overtime, bonuses, yadeeya....but deduction comp is a differently defined animal. BUT, I still don't know if the employer can take into account compensation before the effective date of the plan to determine deductibility. Where is my ERISA outline book when I need it. Thanks for the input.

Hi, I am researching the dedutible limit when an employer has both a DB and DC plan and at least one participant is covered by both plans. There seems to be a special rule that if the total DB and DC contribution is greater than 25% of pay, the excess amount can not be deducted. The problem is the the DB minimum funding requirement is greater than 25% of pay, and the DC plan is a safe harbor plan that has to make the safe harbor contribution. As I understand the special rule, the safe harbor contribution would not be deductible and an excise tax would apply for that year and EACH year thereafter until it is able to be deducted. Does anyone know if there is some way around this? HELP. Many thanks

Hi, New plan established 4/1/03. Can the employer consider compensation paid prior to 4/1/03 in determining the 25% deductible limit? The definition of plan compensation excludes compensation prior to the effective date of the plan, but for deduciton purposes, I was hoping to use full year pay. Any help would be greatly appreciated. Thanks!!!

Hi, Thanks everyone. The amendment was to freeze accruals as of 6/30/2003 including top heavy minmum benefits. The only participants in the plan from 1/1/03 thru the freeze date were Key Employees. They did not accrue additional benefits during 2003. The top heavy minimum benefit is based on years of participation, but the actuary is telling us that even though she wasn't a participant during 2001 and 2002, she still needs to accrue a top heavy minimum bnefit for those years when she comes into the plan on 7/1/03. (since the plan is frozen not terminated). It would seem that top heavy minmum benefits would only accrue when she actually becomes a participant and that the only accrual would be for that year not prior years, but I must be misunderstanding this. It seems so strange to me and we were all surprised. This is a crazy business.

We have a DB plan that was frozen in 2003 because an older employee would become eligible for the plan and the cost would be too high. The plan is top heavy as the only eligible participants (prior to the employee becoming eligible) were the owners. The plan had a 2 YOS wait. We are now being told that the employee needs to accrue top heavy minimums for 2001 and 2002 since she worked over 1,000 hours. So, even though the plan was frozen for all periods since her DOP, she is still due a top heavy benefit for the year. Can someone confirm that this is true and provide some rationale? I would think that top heavy accruals wouldn't start until she actually enters the plan, but I may be wrong. DB plans are not my forte. Thanks for any and all help!

Hi, MBozek. I am a bit confused by your last sentence but I am new to the non-profit arena myself. 403(b) plans that contain only salary deferrals may or may not be considered ERISA plans depending on the amount of ER involvment, but I didn't think that whether they were ERISA or non-ERISA plans affected the Form 5500 filing requirement. I thought only church plans were fully exempt from filing. Am I wrong? Please let me know or else I might get myself in trouble. Many thanks!

I have a copy of last year's data request letter for a Form 5500 for a welfare benefit plan. Our standard letter asks for the number of active plan participants as of the end of the plan year including those who have not elected coverage. I want to change this because even though the instructions are vague, I think only those who have elected coverage (even if they don't actually receive any coverage) should be reported as active participants. Does anyone agree or disagree? Thanks!

And I will chime back that yes one can readily determine the value, but it is not readily determinable on an ESTABLISHED MARKET as the question literally asks. I agree that alot of preparers (including me) have not reported trust deed and other non-participant loans when answering this question. But, there are probably those who think that they should. Thanks for the input.

Thanks for the reply. I agree that a reasonable value can be determined for the loans, but if you read the question literally, the market value of the deeds are not readily determinable on an established market. I guess I think of an established market as the stock market but there may be another way to look at it. It seems like we would be stuck checking yes and listing the fair value of the trust deed since it it's value was not set by an independent third party. We would then list the current outstanding principal balance as the fair value, presuming the participant could prepay in full at any time with no prepayment penalty. I hate to do it since it might risk an audit, so any other arguments would be welcomed. Thanks in advance!

Hi, I need a basic lesson on how trust deeds are treated for purposes of the Form 5500. The way I understand it, a trust deed is a note that is secured by property. Is this treated as a loan (other than to participants) on the Form 5500? Is it treated as an asset that does not have a readily determinable market value? Is it considered a single debt that needs to be taken into account for the 20% question? I'm thinking the answer is yes to all three, but if I could get some confirmation, I would feel better. Many thanks!

I'm not sure where to post this but came across a unique situation. A DB plan purchased a trust deed from a participant who happens to be the 100% owner of the employer who sponsors the plan. 1. Is this a participant loan subject to the rules of 72p? 2. If not, then is this a prohibited transaction (sale between the plan and a party in interest). I don't see trust deeds much and wasn't able to find any information in any of my research guides. If anyone has experiene with trust deeds and the rules, please let me know what you think. Many thanks

Hi, I thought that you don't have to H&W plans with < 100 participants if they are either fully insured, self-funded, or a combination. Over 100- all must file. I think your first sentence <100 Insured, 5500 Schedule A might be incorrect.

What about if it is a pension plan that terminated in the prior year? Would a Schedule B be required or is that no longer applicable? I thought that a B was not required if the plan was terminated or frozen in a prior year, but I'm not completely sure. Just a thought.

Okay. So the rule is that if assets go over $100 during the year, a filing is required. Last year was the first plan year and the plan filed on the accrual basis. If we could act like a cash basis filer this year, it would avoid the filing. I wonder if it is okay to switch from accrual to cash seemingly for the purpose of avoiding a filing. Any thoughts? Thanks for your input.

I am reading the instructions but am still unclear. Is a Form 5500-EZ required for the year if the beginning of year assets are $70k and the end of year assets are $110k?? It seems to be based on prior year end of year assets, so, no for this year, but yes for next year. Can anyone confirm? Please let me know. thanks

Hi, Just one comment. Doesn't line 15a * .9235 also need to be reduced for 1/2 of the SE Tax to arrive at Compensation for plan purposes? Then, you also have to decrease that number by the amount of er/matching contributions to actually get Earned Income?? Just curious.