Brenda Wren

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!