Earl

Initially I was focused on the issue of accruing the right to an allocation method. So I was not clear and complete on the plan specs. The document actually says if employed on the last day get a contribution regardless of hours. If terminated, must work more than 500 hours. So this case is clear. Starting a second plan (I would be restating anyway) is a good idea. It will make the transition from the payroll provider's plan easier, I think, regardless of the accrual issues. Thank you

If there is also a "last day" requirement would it be OK? thank you

If I take over a December year end plan today (November), can I change to "each in own" from "salary ratio" for this year? All the participants have met the 500 hours requirement but does that entitle them to the allocation method when they met the 500 hrs requirement or just an allocation? Thanks

Actually, the question is can he withdraw a contribution to a SEP that is not (technically) an excess contribution. The contribution is within the deductible range but he now does not want to contribute the amount that he deposited (in Jan 2011 for 2010). And he does not want to carry it forward for the current year because he wants to set up a Profit Sharing Plan. Reading pubs 560, 590 & IRS website it seems to me that he can. Most telling items I found were 1) 590, page 32: If you made IRA contributions in 2010, you can withdraw them tax free by the due date of your return..... 2) IRS website: Employers contribute under a SEP plan to each participant’s SEP-IRA, and a SEP-IRA is generally no different from any traditional IRA. (this is the issue you pointed me toward - so thanks for that) So I am comfortable with the idea that it is subject to IRA distribution rules rather than qualified plan distribution rules (which would not allow it since this is not a mistake of fact, just a bonehead play.)

Thanks for your thoughts. Very helpful and appreciated. Although I am still not clear on how an employer can make a Traditional IRA contribution to an employee's Traditional IRA without reporting that payment as W-2 wages to the employee. Otherwise the employee would take a deduction for income never received. And how would the employer deduct it? But that is not really the issue here and maybe you are not referencing changing part of the SEP contribution to a TIRA contribution.

Thank you - Am I correct that this would require changing the contribution, $49,000, from a company contribution to W-2 pay since IRAs are personal contributions? So I could convert it to W-2, tell the custodian it is $5k for 2010 and $5k for 2011 and then telling the custodian to refund the rest as an excess contribution. If done by filing of 2011 personal return there would be no penalties. Sound right? Any opinion on ability of company or individual to just tell the IRA to refund the (now) unintended amount? If it were a Qualifed Plan I think the answer would be "can't return the money" as it would not have been "a mistake of fact" or any other legal reason I can think of. But an IRA? I am going to call the IRA company when they open Monday to get their "party line response". Thanks again.

Employer makes a 20% contribution to himself in Jan 2011 for 2010. Then discovers the EE contribution is more than he can afford. Can he withdraw part of the contribution from the SEP (note it is not an excess contribution) to a level he can afford for the employees? He does not want to apply some to 2011 as he is adopting a PS/401k Plan. (I guess he could lie to the IRA company and tell them it is an excess contribution and get it back, not sure even about that. Trying to be honest as a first option.) Thanks for any ideas or information.

Good point about the 1,000 hours (and the IDP issue - and EPCRS says open to 403b plans for certain issues so not sure how that works) although I am not sure someone could work 1,000 hours without having 20 hours in at least one week of the year. So they would get a contribution for that week and would be benefiting. Although this goofball amendment actually says "official schedule of at least 20 hours a week" so someone working an official schedule of 19 hrs a week (19 x 52 = 988) but getting 12 hours of overtime during the year have 1,000 hours and would not get a contribution. So that would be a violation. I think they have a new attorney so I will put this in my testing letter and hope someone pays attention. Thanks for your comments on this. And since I am new to 403bs, since this is a company contribution wouldn't have to be a plan subject to ERISA?

I have a 403b plan that has adopted an amendment to the accrual requirements. It used to say 1,000 hours required but they were funding pay to pay. I pointed out that was a conflict. Their attorney amended the plan so that "for the contribution for any pay period the Participant has an official work schedule of at least 20 hours a week for that pay period." Disregarding the fact that it became an individually designed plan, how would this be tested? There were about 4 (of 150 participants) whose schedule changed mid-year. So they stopped getting a contribution at that point (saving the ER about $0.75, but I digress). So for 410b they are in the numerator and denominator and coverage is 100%. Can't be that easy. The contribution is a hard wired 7.5% of pay. Would it become non-uniform allocation rates and must be 401(a)(4) tested for non-discrimination? Or maybe it is a Benefit/Right/Feature so I would NDC test it? Thanks!

For what its worth, I called the DOL about this because the people who entered on 1/1 put the plan over the 120 threshold. They told me they count and the plan had an audit requirement.

Sort of related question: We have a question about a client - trying to determine if they are subject to an audit requirement for the 5500 for 2010 . 12/31/2009 form 5500 Participant count as of the end of the year (line 6): 120 Employees who became Participants on 1/1/2010: 15 Is the Participant count as of the beginning of the 2010 year (line 5 Form 5500) 120 or 135? Thank you

The same attorney who prepared the VS prepared the SH amendment. If you can't trust your attorney....

I give them material. They want a qualified plan they follow my instructions. There is no requirement that the TPA have a copy for it to be in place. Besides I usually talk to all of them in September/October/November anyway to be sure of their situation for this year and next. Its only a couple hundred people over 3 months - only takes a couple minutes on that issue. I would figure that is scalable for a larger company. "I am going to lock you into a 3% contribution although I don't have to because I don't trust you to sign a piece of paper every year." Is that your sales pitch?

I have a mail merge set up from my database that I run and print every year. Click click click - its real easy. Have to mail a notice anyway.

GMK - the plan says the money is owed and comes from forfeitures and contributions and then AA has an elected provision to use earnings (wouldn't elect in a self-directed account plan). GBurns - the plan document says forf Participant or Beneficiary money if lost. Details what is required to be a lost participant.

Sort of begs the question of why would someone have a SHNEC plan without using the maybe notice process. (Other than convenience for the TPA) Then this problem never comes up. Always wondered about that.

You know, it does have a "Safe harbor-top-heavy exempt fail-safe" section that says "blah, blah, allocate forfeitures blah, blah, first to reduce Safe Harbor Contributions". I guess I forgot the first rule, CTFD. (check the freakin' document) Cool.

"He has an estate; it's the plan proceeds. " Understood. Thank you

I forgot - no beneficiary. No estate - "He has nothing but an apartment". I hate to give to the state. But if I have to I guess I have to. Document says we can forfeit but that seems to screw the sponsor. Maybe he deserves to be screwed since he didn't keep Mom's address. Presumably (not cretain) she is alive but do not have an address or SS# for a search. Maybe when she gets word of death she will turn up.

Participant dies. No spouse, no kids, Mother's cell phone is disconnect and have no address for her. Plan is 401k and SH only. I think we could forfeit but can't use toward the SH, I believe, so reallocation as PS would create tiny balances and blow the TH exemption creating a required company contribution. Is only thing to do amend plan to pay fees from plan and use it to pay me? If it is more than one year's fee can you hold it in suspense (I think no but not sure if specify use to pay fees)? Thanks

Same thing happening with me. I am responding directing the IRS to DOL FAQ 38 regarding "processing stopped" status being filed for filing deadline purposes. Happened a few times so far. No responses from IRS yet.

I did this on a takeover a while back. The plan was audited because of the unresolved back and forth regarding disputed integration provisions in a IDP that I withdrew. The auditor told me the IRS wanted to be sure that the disputed provision was never used. So if you withdraw a plan prep for an audit.

Thanks

Guy owns 100% of a business. Marries an employee, so employee becomes KEY and HCE. EE-new spouse has a daughter who is also an employee. He does not adopt her. Does daughter become Key and/or HCE? Thanks

I had a client file 10/13/10 - 2 days before the 10/15 deadline. For some reason I had started saving the pdfs from the DOL website last October. The pdf shows the same name on the left and right and the date 10/13/10. As you know (or as I understand it) EBSA populates the date field and converts the UserID to the actual name on the left. Everything looked good and I moved on. Now the client gets a letter from the IRS saying late filing and a fine. I go to the DOL web site now and the name has been cleared and replaced with "Filed with incorrect/unrecognized electronic signature." The 10/13 date is still there. I can't believe it but I will be certain to download and save the 5500s upon submission going forward.