Brenda Wren

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!!!

I ran into a case like this! Unfortunately, after the fact. They were on a standardized document. PSP contributions were permitted..nonintegrated, comp to comp. Matching contributions were also permitted. The DOL was already auditing the plan when we were called in. We called the local IRS auditor (anonymously, of course) and he said it was very possible that the IRS could deem the so-called match they contributed as a PSP contribution. Therefore, everyone would be entitled to the contribution, not just those that deferred. This created a $100,000 potential problem for the client! Not to mention the fact that they did not adhere to their document. By the way, all testing passed and it was not in any way discriminatory, but it violated the communications to the employees in the SPD.

I ran into a case like this! Unfortunately, after the fact. They were on a standardized document. PSP contributions were permitted..nonintegrated, comp to comp. Matching contributions were also permitted. The DOL was already auditing the plan when we were called in. We called the local IRS auditor (anonymously, of course) and he said it was very possible that the IRS could deem the so-called match they contributed as a PSP contribution. Therefore, everyone would be entitled to the contribution, not just those that deferred. This created a $100,000 potential problem for the client! Not to mention the fact that they did not adhere to their document. By the way, all testing passed and it was not in any way discriminatory, but it violated the communications to the employees in the SPD.

I ran into a case like this! Unfortunately, after the fact. They were on a standardized document. PSP contributions were permitted..nonintegrated, comp to comp. Matching contributions were also permitted. The DOL was already auditing the plan when we were called in. We called the local IRS auditor (anonymously, of course) and he said it was very possible that the IRS could deem the so-called match they contributed as a PSP contribution. Therefore, everyone would be entitled to the contribution, not just those that deferred. This created a $100,000 potential problem for the client! Not to mention the fact that they did not adhere to their document. By the way, all testing passed and it was not in any way discriminatory, but it violated the communications to the employees in the SPD.

I ran into a case like this! Unfortunately, after the fact. They were on a standardized document. PSP contributions were permitted..nonintegrated, comp to comp. Matching contributions were also permitted. The DOL was already auditing the plan when we were called in. We called the local IRS auditor (anonymously, of course) and he said it was very possible that the IRS could deem the so-called match they contributed as a PSP contribution. Therefore, everyone would be entitled to the contribution, not just those that deferred. This created a $100,000 potential problem for the client! Not to mention the fact that they did not adhere to their document. By the way, all testing passed and it was not in any way discriminatory, but it violated the communications to the employees in the SPD.

We like to limit the rate of deferral with administrative measures as opposed to the actual plan document. We word the document so there is no other limit other than those in the Code. But for all the reasons mentioned above, limits are needed in many cases. So we communicate this to the employees at enrollment meetings. Then we hopefully have eliminated "operational defects" when a participant defers 16% rather than 15%.

Is it OK to use prior year testing for ADP and current year testing for ACP and vice versa?

We agree that the 100% withholding is a very agressive approach, but have used it reluctantly in the past. We have limited the use to distributions under $50. No negative consequences yet. For larger amounts we have been using Info Solutions. They have been very quick and reliable, only charge $25 and don't require it up front. Fax # is 602-678-5361. There may be an internet source called 1800Search or something, but I think they charge $40.

I recently worked with an attorney who had submitted this problem to IRS via CAP. The method suggested by the attorney and approved by the IRS was to request the excess 415 from the terminated participant and if not received, report on Form 1099 as a taxable event for the affected year(s). Needless to say, the participants did not return the money. Now we have to report a corrected 1099 for the year in which the excess was distributed (difficult to locate 1996 tax forms!). It's also going to be a mess for the participant because unless he can convince his IRA custodian (he rolled his excess) to distribute the excess and delete the tax reporting, he will be taxed on the same money twice!