Earl

I have a client that uses a Bank as the Trustee of his plan. As I understand it the client is not required to hve a fidleity bond. In completing the Sch I, should I check "No Bond"? If there is a cross reference to the Schedule P which names the bank and is signed by the bank, I guess the DOL could tell that the "plan" was not required to be covered by a fidelity bond. That cross reference seems unlikely to me. And what does "covered" mean? I would guess that the plan is not named on the banks bonding policy. or... would you say yes and try to obtain the amount of bonding that the bank has? or just assume that the bank has $500,000 of bonding in place and enter that amount? Just seems like an obvious reject for audit item if I say "no Bond".

is that a Geo. Bush joke?

I think I am trying to change the direction a little bit. Maybe I should start a new thread, but... I am talking about a two group plan and it is comp to comp within the groups. But due to demographics, say all the HCEs are younger than all the NHCEs, cross testing produces no positive disparity between the two groups so it defaults to allocation non-discrim (rather than benefits non-discrim). What I think I am hearing here is that you can imput disparity on the allocation and end up with (essentially) an integrated allocation rather than a comp to comp across the board for all employees of both groups. Thus, I could reduce the plethora of documents that I am sponsoring (and paying for monthly) to one, a cross tested VS doc, because, worst case, it could default to a salary ratio allocation with imputed permitted disparity (essentially an integrated design). Is this true?

Andy - So you are saying that a cross tested allocation that blows up due to, say, all the HCEs being younger than all the NHCEs, can default to integration rather than salary ratio. Actually, I think you are saying that it defaults to salary ratio but you can still imput disparity on that salary ratio allocation and be non-discriminatory. By doing so, I think I am trying to default directly to a safe harbor allocation method that is deemed non-discriminatory rather than defaulting to salary ratio (which is a safe harbor allocation method that is deemed non-discriminatory). If this is ok, it looks like I could always use a cross tested plan document because, worst case, it defaults to integration.

thanks Mike... looks like i took that out of context and ignored the "aggregate". Looks like I could have saved that one client (with the wife in the plan) a little money.

Remember Gateway increases when an HCE gets over 25% Under the gateway, if the aggregate normal allocation rate of the HCE with the highest aggregate normal allocation rate under the plan (HCE rate) is less than 15 percent, the aggregate normal allocation rate for all NHCEs must be at least one-third of the HCE rate. If the HCE rate is between 15 percent and 25 percent, the aggregate normal allocation rate for all NHCEs must be at least 5 percent. If the HCE rate exceeds 25 percent, then the aggregate normal allocation rate for each NHCE must be at least 5 percent plus one percentage point for each 5-percentage-point increment (or portion thereof) by which the HCE rate exceeds 25 percent (e.g., the NHCE minimum is 6 percent for an HCE rate that exceeds 25 percent but not 30 percent, and 7 percent for an HCE rate that exceeds 30 percent but not 35 percent). The final regulations provide that a plan is deemed to satisfy this minimum aggregate allocation gateway if the aggregate normal allocation rate for each NHCE is at least 7½ percent of total compensation determined over a period otherwise permissible under the timing rules applicable under the definition of plan year compensation.

1.401(k)-1(a) ...A cash or deferred arrangement is part of a plan for purposes of this section if any contributions to the plan, or accruals or other benefits under the plan, are made or provided pursuant to the cash or deferred arrangement. Sounds like deferrals can be made pursuant to a deferral arrangement. No arrangement, no deferrals.

are you proposing to set a 2002 deferal limit on the HCEs in February 2003? and isn't 5k 10% of 50k? I think your error is when you say: If you fail the ADP test and have HCEs over 50 you can recharacterize some deferrals as catch-up. That is only true if the 50+ would be due a refund. You can't recharacterize his deferral to avoid a refund to someone else.

I guess thats what we get for talking about Top Heavy....

the doc might also say that only non-keys get a TH min. If you give the forfs to only non-keys, you might end up owing very little to get them to the 3%.

Regime change begins at home.

reminds me of when top heavy regs came along. didn't anyone tell Bush that Roth 401(k)s were already slated to be created. God save Cross Testing!

upon further review.... I think I ran it out before my software was updated with the new SS numbers, however: 147,367 - bottom line Sched C 7,367 - deductible OASDI 140,000 - earned income (28,000) - excluded 112,000 - plan income x .25 28,000 - PS contribution 12,000 - 401(k) 2,000 - cud, if eligible 42,000 - 415 limit, if cud eligible concur, or am i still off base? thanks

I believe that bottom line sched C of $152,304 ($147,236 in 2003) will allow the 415 limit in a PS/401(k). If you split the company contribution into PS & match rather than just PS, I don't think it gets you anything extra. They both are excluded from income and count toward 404 limit the same way. The safe harbor issue is irrelevant with no employees.

not to be mean or anything....

I, for one, have never met an irs auditor that would be able to figure out that 60 payments could be more than 5 years.

since no one has said anything, I will take a crack at it: I think you would have to: 1. amend the 2002 945 by filing 941-c. I would explain the dating error on the explanation section as well as.... 2. call the irs (with 2848 on file) and tell them you need to correct the quarter credited date on a deposit/part of a deposit. this will prevent any problem with the 2003 reporting but will create a problem of late payment for 2002 so you will have to.... 3. pay the fine for late payment of 2002 tax when they contact you. hope that helps....

awesome... thanks for the help. couldn't find anything in my document in the Top Heavy section, but then the idea of amending the vesting schedule... and there it was, with specific reference to change due to top heavy. Thanks. Earl

12.31.01 plan is not top heavy for 2002. Participant terms on 2/15/02. He is not paid by 12/31/02. 12.31.02 plan is top heavy for 2003. Vesting Sched goes from 7-yr to 6-yr. Does the terminated participant get a 1 year bump in vesting due to the new top heavy status? thanks...

I would review that document provision. Are you sure that is what it says? My initial reaction is that the person is in the plan. There may be accrual issues, but for ADP they are in. If you want to keep her out, give her an employment classification and exclude that class from participation. One person shouldn't create any coverage issues.

check Code Sec. 72(m)(3)(B) I think it says any policy with a death benefit in excess of the cash value (which includes term). My understanding of their not providing the cost is that they can't handle doing the math [(death benefit - cash value) x cost/thousand], so they push it off on the TPA/CPA or whoever will stand up and do it.

There's a PTCE that allows for the purchase by an employee (not taxable, plan has same value before and after). Or it could be surrendered (not taxable, CV stays in plan). Or it could be distributed to a term'ed ee (taxable event).

Effective after 2005, employers may allow employees to make "Roth" contributions to 401(k) or 403(B) plans. An employee would be taxed immediately on such contributions, but (as with Roth IRAs), both the contributions and earnings generally would not be subject to tax upon distribution from the plan.

Seems pretty clear to me that the answer is no. I don't understand why, if it were a Partnership, it would be exempt, but it seems to be the case. What gives you pause? Who May File Form 5500-EZ You may file Form 5500-EZ instead of Form 5500 if you meet ALL of the following conditions: 1. The plan is a one-participant plan. This means that as of the first day of the plan year for which this form is filed, either: a. The plan only covers you (or you and your spouse) and you (or you and your spouse) own the entire business. (The business may be incorporated or unincorporated); OR b. The plan only covers one or more partners (or partner(s) and spouse(s)) in a business partnership. 2. The plan meets the minimum coverage requirements of section 410(B) without being combined with any other plan you may have that covers other employees of your business. See the instructions for line 14c for more information. 3. The plan does not provide benefits for anyone except you, or you and your spouse, or one or more partners and their spouses. 4. The plan does not cover a business that is a member of: a. An affiliated service group, b. A controlled group of corporations, or c. A group of businesses under common control. 5. The plan does not cover a business that leases employees. For an explanation of the technical terms above, see Definitions on page 3.

(This says "met min. age/svc", does not say "and entered the Plan") Tom - The 3 possible ways of interpreting this technique have always scared me. Plan with 21 & 3 mos/quarterly entry: Full time NHC EE is hired 8/15/01. For 12/31/02 ADP test, you are saying that IRS seemed to say he is in ADP test. And that if he was hired 10/15/01 the answer is the same? (i.e. no entry date is considered, only 12 months of service). And then "when discussed from the floor" they seemed to say that he could be excluded in either case because you could assume dual entry dates, regardless of actual quarterly entry? (I don't know what discussed from the floor means.) Personally, I use no entry dates and see if I pass, if not I proceed to use plan entry dates and see if i pass, if not I proceed to dual entry dates. There is some judgement on moving to each next level but that's the process. (If I can avoid a $35 refund using dual entry dates, i risk it. If the refund would be $5,000 i don't get so bold.) Thank you for your opinion and information.