Brenda Wren

How do you handle a situation where a large employer (over 100 participants) came out of a multiple-employer plan (PayChex) in 2000 and transferred existing assets to their own trust. Client insisted they utilize their existing plan document with PayChex. Reviewing the document, I couldn't see why they couldn't use it. Plan name was the ABC 401(k), not PayChex 401(k). Then the issue arises on how to handle the 5500 reporting. In 1999, Paychex filed the 5500 and Schedule H based upon ALL participating employers. Only a Schedule T was filed on behalf of my client (as well as all other participating employers of course). So when I prepare Schedule H for my client for 2000, do I show beginning balances even though the assets at that time were in a separate trust inside the multiple-employer plan? Or do I show beginning balances as zero and a transfer of assets from another plan? Does the answer to this question depend upon the document issue above? :confused:

CGBS - Manulife will not default the loan until they are advised to do so by the employer. As a TPA, I feel obligated to bring this to the attention of my client. But I don't find out about it until it's too late. I have given Manulife a "wish list" and one of the things I asked for was a report detailing loans and the last date a payment was received. Perhaps if enough of us fuss, we can get some action!

Thanks, Tom. So your opinion is they are Former-key, right? Does that mean I take their distribution out of both sides of the fraction...disregard it all together? Or does that mean as a former-key, their distribution remains on the key side?

The two partners owned more than 5% in 2000, but not on 12/31/00 and not at all in 2001. I understand under EGTRRA that 2001 is the lookback year for identification of key status....Notice 2000-56.

I have an odd situation I can't seem to figure out even though we have received guidance on this issue from Notice 2001-56. A law practice "divorced" in 2000 and 2 of the 3 partners received distributions in 2001. The 2 partners owned no stock in 2001. I understand that distributions in 2001 are taken into account for the 2002 top heavy determination. But are the former partners considered Key, Non-key or Former-key? It doesn't appear that they would be Key under EGTRRA (no stock ownership in lookback year), but it seems odd that I can use their distributions to essentially bring the plan out of top-heaviness. Any thoughts?

We've probably all come across it. I don't know of any relief. Many employers choose to pay the excise tax to avoid this headache for employees. Just another STUPID rule if you ask me.

Thanks, T-Bone. Do you think it would be unreasonable to ignore the controlled group issue altogether for the transaction year and test the plans separately? In my case, the purchasing company has no desire to make any changes with regard to anything concerning the plans. They say "business as usual". In fact, I only assume another plan exists because the purchasing company is so large (thousands of employees).

KateSmith, I don't have an answer for you, but am very interested in this topic. I have not been able to find any guidance on exactly how you are supposed to test a plan in the year of an acquisition. Like you, I am the TPA for the company that was acquired. I have found that there appears to be some relief in the transaction year and the year following as far as coverage goes, in that you can treat the plans separately, but this relief does not extend to nondiscrimination testing. I also noticed that Ilene Ferenczy is doing a session on this exact topic at an upcoming seminar. Maybe she's out there somewhere and can help us??? In my case, a merger of the two plans will not occur in the transaction year and is not even being considered at this point. I think that's a moot point anyway.

Check out thread on 7/27/01: http://benefitslink.com/boards/index.php?showtopic=10923 By the way, I believe Corbel has since changed their position on this matter.

Does anyone know for sure when the 415 limit increase (100% to $40,000) kicks in for non-calendar year plans? The Corbel webcast speaker's opinion is that it kicks in for plan years ENDING in 2002. I believe his opinion is based upon the COLA adjustments for IRC 415 being effective for plan years "ending in". If this is correct, that would mean 401(k) plans with a June 30 year end could start deferring 100% of comp now. However, I have also consulted with local ERISA attorneys and they do NOT agree. EGTRRA is not a COLA adjustment. Any other opinions out there?

Exactly when do the new top heavy rules kick in for calendar year plans? Since the determination is made at year-end for the next plan year, would the new calculation actually affect the 2003 plan year rather than the 2003 plan year?

Employee is complaining to employer on 3/15/01 that there were no 401(k) deductions from his paychecks during 2000. Employer is unable to find written modification of his deferral election. But employee isn't concerned until tax time. Employer argues that because (1) employee didn't "notice" this for 24 pay periods and (2) he was invested aggressively and would have suffered market losses anyway and (3)there was no match applied to the deferral that the employee has not suffered. What, if anything, to do?

This guy would never put in a fully vested contribution! I just wanted to see if anyone had ever dealt with this type of reasoning before. I do have lots of clients that will make distributions from the corp to save on commissions, etc. Just never in the case of an excess contribution refund. And then the question regarding APRSC...that was asked just in case I won my argument with this jerk. oops...is my frustration showing???

Thanks to all. Appreciate your humor, actuarysmith! Excess contributions were the result of a failed ADP test, but for 12/31/98! Correctable under APRSC?

Client refuses to remove excess contributions from the trust. He would rather simply reduce what he remits to the trust for future contributions and pay the distribution to himself from the corp. I'm not really fond of this client and need a good argument as to why this won't fly...something other than "IRS wants to see a paper trail".

Couldn't they just say they aren't extending the deadline but they will not be assessing penalties either? I've heard the rumor, too.

I have an HCE terminating and requesting distribution. Plan typically has a testing problem (using current year method). Should I allow him to take 100% of his account balance? How do I handle a test failure if he has already taken his money and rolled it to an IRA?

I have a client who accepted a rollover check on 6/24/00. The check (which was dated 4/27/00) was drawn from another qualified plan and was made payable to the trustees of the new plan. The Plan Administrator proceeded to obtain investment instructions, etc. Today is 7/5/00 and the check is now ready to be deposited to the trust. Do I have a problem with the 60-day rollover rule?

When a participant "buys back" his forfeiture, do I establish an after-tax or pre-tax account for him? Assuming the answer depends upon the source of the money coming back to the plan, i.e. IRA rollover or personal funds, do I have any responsibility to verify the source? What if the source is both?

Any idea when the new forms will be released by IRS for 2000? Any word from vendors, i.e. Hyper Prep?

Givens has been sued many times for his so-called "advice". Last I heard he was battling cancer. I always understood that if you didn't pay back your loan, interest continued to accrue until a distributable event occurred. Doesn't sound like a loophole to me!

Be careful. Watch for language in the document such as "a deferral election may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election". We interpret this to mean that a mid-year entrant CANNOT play "catch-up".

I agree. Trust # should be used. The important thing is that the 1099-R's and the 945 and the number used to deposit the taxes are all the same and will tie together when reconciled by IRS.

One common practice is to "sweep" the forfeiture account just prior to calculating and contributing the match contribution. In your case, yes, I would use the $1,000 forfeiture towards the next contribution. Although I don't like unallocated funds at all, in this case it appears you may be forced to show the $1,000 as a liability at year-end and use it to reduce next year's match. Alternatively, you might be able to allocate the $1,000 as an additional match if it's a discretionary match. [This message has been edited by Brenda Wren (edited 11-24-1999).]

Dave - help!....somehow this was submitted many times!!!