cpc0506

Definition of compensation for S-Corp is w-2 earnings. Cannot use any K-1 earnings. So 401k should have been withheld from payrolls.

We have a client who had a SARSEP for the first half of 2011 and froze the plan per the IRS instruction as of June 30, 2011 and then established an 401k plan on July 1, 2011. Can anyone provide guidance on how testing is done? Is the DP Test for the SARSEP run for the period 1/1 to 6/30/11 and a separate ADP Test for the 401k plan? Or. do the plans have to be tested together and a single ADP Test run for the entire year? If anyone has some guidance on this issue, it would be appreciated.

Do you mean scenario 2? Scenario 1 has monthly entry dates, so 11/1 and 12/1 would be eligible entry dates.

I thought it was the officer test that limited the number of key employees. THat is, if there are 30 or less employees, you only need to include 3 officers in the test. 31-500 employees, limit officers to 10% and over 500 employees, limit number of officers to 50.

I took and passed and was not surprised -- nervous but not surprised. Good luck. Where the questions very similiar to the 2009/2010 exams? And congratulations.

Hello, has anyone taken the ERPA (both I and II) this exam period (1/6/12 to to 2/17/12)? Interested in knowing how similiar to the 2009 and 2010 practice exams provided by AIRE? Any big surprises? THanks

I have a new plan effective 11/01/2011. Short year is 11/01 to 12/31/2011. Eligibility is 21 and 1 YOS Scenario One: Plan entry dates are defined as: First day of the month coinciding with or next following date requirements met I believe that the entry date for this new plan can be 11/1/2011 or 12/01/2011 if an employee meets the age and service requirement. Am I right? Scenario Two: What if plan entry dates are defined as: First day of Plan Year or first day of 7th month of Plan Year coinciding with or next following date requirements met. In a newly established plan that is effective 11/01, is the entry date 11/01 since the first day of the plan year in this instance is 11/1/2011 and there is no second date since there is not a seventh month in the short plan year? Or are there no newly eligible because no one was able to enter on 1/1 or 7/1 since the plan was not in existence at that time? And for 2012, the entry dates are then 1/1 and 7/1. Scenario Three: What if the plan was effective March 1, 2011 with short plan year 3/1 to 12/31/2011 and the plan entry dates are defined as: First day of Plan Year or first day of 7th month of Plan Year coinciding with or next following date requirements met. In a newly established plan that is effective 3/01, is the entry date 3/01 since the first day of the plan year in this instance is 3/1/2011is the first day of the plan year and there is a second date of 9/1 since there is a seventh month in the short plan year? And for 2012, the entry dates are then 1/1 and 7/1. There are the issues that cause me rethink why our sales force does not make all new plans effective 1/1 and forget about short plan years. The effective date of the deferral and match feature can always have a different date. Thanks for your help.

Client 'might' employee someone in the future. But, you're right, by the time the client hires someone, the plan will be top heavy at that point regardless, since the client will own 100% of the assets and since the document is new comp and the client intends to max out each year, it will be a longer time, if ever, that the plan would NOT be top heavy. My next question would then be: what is considered a 'related rollover'?

Maybe I need to add another piece of information. Employer X is a sole prop and the only employee of Employer X is X. And X will be rolling the SEP to the new 401k plan. Does this make a difference?

Employer X terminates a SEP one year. Employer X adopts a 401k Profit Sharing Plan the next. This plan allows for rollovers. SEP money is expected to be rolled into the new plan. Is a SEP rollover considered a 'related rollover' for top heavy purposes?

Has anyone out there taken either of the ERPA exams this January? Was the exam similiar to the sample exams from 2009 and 2010? Any advise? Thanks. Kathy

How is the profit sharing allocated in the orginal plan? Is it class allocated by partcipant? If so, there is no need to add a new plan. If not, the client can adopt a new plan but they will incur the cost of a new document and an additional Form 5500 for 2011 and any later years that the plan has assets.

I do believe that there might be an issue if the company is sold to another company that has a 401k plan. That is why the plan must be terminated before the sell of the business. The date of purchase is set for 8/8/11. Is this not a merger/acquisition issue? My concern is what is the defintion of compensation. We use w-2 compensation, so in instances when the pay earned is from one period, (say 12/22/10 to 12/29/10) but paid in the next period (Jan 2 , 2011) this compensation paid on 1/2/11 we consider 2011 compensation. Is this not the same issue or am I reading too much into the dates? Thanks for any guidance you can give.

I have a client who is being bought and wants to terminate the plan before the purchase. Supposed date of close of company is August 8. Payroll runs from 7/24 to 8/6, with payment date of 8/13. Is it okay for a check that is dated later than the plan termination to have deferrals?

Correct. The plan isn't Safe Harbor 401(k). Sorry I missed that in the orginal thread.

I did not think that you could make changes to a safe harbor plan mid year especially with the safe harbor provision of the plan.

We have a number of new clients who have documents from another Document provider. We are asking that the clients change their document to our doucment provider. I thought a read a discussion recently (but cannot find) that you should not restate a safe harbor plan during that year as it affects the safe harbor status of the plan. Does anyone recall reading this thread?

I have a client who provided information about the plan to two employees who have met the eligibility requirements to enter the plan. Both reviewed the plan and both declined participation. Can these employees be removed from the plan for testing purposes? It is currently a safe harbor match plan and top heavy (satisified by SHM) but what if the employer chooses to make a profit sharing contribution? Will these employees be required to get a contribution?

Help. Have a client who never returned the funds for a failed ADP Test for 2008. They also did not have an audit done for the Form 5500 for that year (large client over 200 employees). They are now trying to fix he 2008 Form 5500 by attaching an auditors report. The auditor asked if the funds were returned for the failed ADP Test. Of course, they were not. What are the options the plan has to fix the 2008 failed ADP? I know that we have passed the one year mark but they have also passed the 2 year mark as well. Please advise. Thanks.

Actually, I may have misspoken. The failure was on the ACP side of the test, NOT the ADP side of the test. So it does only have to go to participants who received match. RIGHT?

Ok, so it appears that I need to provide a 1 to 1 QNEC for the entire amount-vested and unvested. When does the deposit need to be made and who gets the funds. Right now there are 85 'eligible' participants and only 20 actually participate. Can I give only to those who participate? They have individual accounts and I would hate to have to tell the client that he will have to set up 65 new accounts due to this failure.

I have a client is is having trouble passing the ADP Test. The owners of company A (our client) are partial owners of another company B (not our client). There is no control group issue. Owners receive compensation from both companies. Company A has a 401k plan. Company B has a simple IRA plan. Can the owners make contributions to both Company A's 401k plan plan and Company B's Simple Plan?

I have run into a similiar issue with a fiscal year plan. We discovered that the client never took our advise to remove the matching funds for the failed ACP Test and now they will have to make a QNEC to the plan in the amount of unreturned funds. My question is: the return considered of vested funds of $2500 and unvested funds of $1000, which were to be moved to the forfeiture account. What is the 1-1 contribuiton needed - just the 2500 or is it the total of vested and unvested funds of 3500? Thanks for your help

what exactly is meant by: the §401(a)(17) compensation limits must be prorated (I took this language from the IRS newsletter)?

Hello. We have a client who has asked if he can remove the 2011 Safe Harbor 3%. Has the IRS given approval that this can be done in 2011 like in prior years for financial hardship reasons? Any thoughts? Thanks