jkharvey

401(k) Plan has 3% nonelective safe harbor contribution provision. Document is Corbel prototype language. I don't know why the ER has done this, but they are not making elective deferrals. Are we required to make the 3% safe harbor contribution?

I recently received enrolled agent status from IRS. I need to find some sources for CPE and would like to hear what others are using for CPE to meet the Enrolled Agent requirements. Any and all suggestions are appreciated.

We have recently encountered this issue with two separate insurance/annuity providers and are not sure what to do. We are trying to find out if the insurance companies are in fact handling this properly. Scenario: Employee should have been paid out 80% of account balance in 2000. An error was made and he was only paid 60%. The insurance company will only pay the additional 20% as of the original date of distribution. No allowance to be made for gains and/or losses. In our case, it is the participant's favor because the account balance not paid out in 2000 actually lost money from 2000 to now. Is this correct? What is the reasoning and/or legal basis for not paying gains (if any exist) or not taking into account losses (if any exist) for such a distribution.

In the example that I gave, however, am I correct w/ my assumptions about how to compute allocations in final year before merger?

I am getting myself confused here. Company A sells part of its stock to Company B. Prior to the sale the companies are not related. As a result of the sale they are not part of a controlled group. A and B each have their own 401k/PS plans. Co. A wants to merge its plan into Company B's plan. Co. A needs to prepare an amendment to merge but do they actually have to do a separate termination amendment? Is Co. A's plan actually "terminated" as a result of the merger? If the merger occurs in the middle of a Plan Year, I'm thinking that Co. A will prepare a plan valuation based on compensation etc. as if the Plan Year were 1/1- date of merger. Is this correct? Does this mean that the 5500 would have to be filed as if this were a short year? Thank you.

Thanks for your help. In answering your questions, I need to clarify one point. When you ask if each group passes 410b, you mean where the benefiting HCE or NHCEs of EACH group only are counted in the numerator but ALL HCEs or NHCEs (plan in total) are counted in denominator? If that's the case, then one group does not pass 410(b).

401(k) SH Plan wants to be able to make different contributions to each of its two divisions. The allocation formula for each division will be the same. It will be a regular integrated formula. Basically what they want to do is give Division A the 3% SH minimum only. If they decide to give A a contribution one year, it will also be allocated under the same integrated formula. Division B will receive an additional PS contribution that will be allocated using an integrated formula. There are HCEs and NHCEs in each division. I know that they will have to pass the general test. I think that they can avoid the 5% gateway minimum for Xtested because of broadly available accrual rates. Am I correct with all of this? Something doesn't "feel" right about it. It doesn't look like any of our Corbel Adoption Agreements will work and if we did this it would have to be IDP?

PSP wants to amend and no longer allow life insurance as investment option. They want to have policies in effect currently removed as well as no longer allow purchase of new policies. Would this violate 411(d)(6). I don't see that the insurance would be a protected benefit but I want to be certain.

I need to add a piece of new information to my scenario. The Plan has terminated because the Employer was bought out by another group. In other words, the Plan Sponsor no longer exists. Thanks.

This was discussed briefly in 10/2002 but I need some clarification. Let's say that a calendar year Plan terminates in 6/2003. The termination amendment calls for cessation of benefit accruals (PSP) and proposed date of termination of 6/30/2003. Let's assume that all assets are paid out before 12/31/2003. Based on the 10/2002 discussion on this board is the scenario I have described a short plan year that requires proratioin of certain limits? If so, which limits? Are these correct: 401(a)(17) prorated SSWB prorated Vesting Credit prorated 415 limit prorated

I need to confirm my interpretation of this. The provision in the regulations that allows a Plan to use rate banding (Quantech's term) to test for nondiscrimination does not apply in cross-testing? Am I understanding it correctly that the use of rate bands (grouping of allocation rates) only applies when testing the allocations and not the allocations as converted to benefits. I'm not sure if I have made sense here. For Quantech users, the scenario is like this. Cross tested plan. When running the nondiscrimmination test select the following options: Accrual (versus allocation) and rate banding. Thanks.

Thanks for all of your help. Talking this through has helped me find my error. My spouse's rate group doesn't pass RPT and I would need to use ABT which won't work at all. I knew it was too good to be true.

Sorry for the confusion. Basically, here is what I have. It is very similar to the small plan posted above. There are 2 HCEs (doctor and spouse) and 5 NHCEs. The Plan document provides for 2 separate groups for contribution purposes, Dr. and all other employees. The spouse and all NHCEs receive a 3% contribution for 401(k) Safe Harbor and 5% discretionary contribution. The Spouse defers $12,000. The Doctor defers $12,000, receives 3% 401(k) Safe Harbor and receives $22,000 discretionary PS contribution. Traditional cross testing won't work because the spouse's rate group can't pass the test. I restructure into two components. First component has Doctor and 2 NHCEs w/ the highest EBARS. Second component is spouse and remaining 3 NHCEs. The Spouse's component passes ratio percentage test for 410(B) so first hurdle is met. The 401(a)(4) requirement is met because of the uniform allocation formula. The Doctor's component doesn't meet safe harbor uniform allocation formula and must use general test (cross-testing in this case). This component has one rate group (doctor). All of the NHCEs in this component have EBARS greater than the doctor's EBAR. This component passes 410(B) using ratio percentage test. The 401(a)(4) test is also met because the rate group meets ratio percentage test. Is this making sense now?

Thanks AndyH. Your point is exactly why I'm concerned about this one. It looks like both rate groups (one rate group for each component plan) will pass RPT and not need to proceed to the ABT. For the component plan of the doctor I pulled in 2 of the NHCEs who had received the 5% allocation. This component plan and its one rate group pass coverage. 2 NHCE benefitting/5 total NHCEs / 1 HCE benefitting/2 total HCEs. The wife's component plan passes ratio percentage w/ 3 NHCEs benefitting/5 total NHCEs / 1 HCE benefitting/2 total HCEs. If, in fact, the spouse's component plan passes 401(a)(4) because of safe harbor (looks like it passes anyhow because of RPT) then there is a whopper of a contribution for Doctor and spouse versus 3% 401(k) safe harbor and 5% gateway for the NHCEs.

The reason I'm still confused is this. The Regs say that the component plan must meet 401(a)(4) as if it were a separate plan. This would include using the safe harbor uniform allocation formula. If a plan meets this safe harbor, then rate group testing is not needed. Corbel's 2002 Cross-Tested Plan Specialty Workshop program materials include an example where each component plan met the safe harbor and did not go any further w/ rate group testing. Of course, in this example the components were designated based on separate divisions of the corporation and not on assogmomg specific NHCEs to go along w/ specific HCEs based on the EBAR amount needed to pass some form of restructuring. Perhaps this is the difference, I don't really know. I would appreciate any light anyone can shed on this for me.

Another question about this design. AndyH posted that the spouse's component plan was being tested on contributions. Are you saying this because Rick W. used the terms "safe harber dc plan" when he described how 401(a)(4) was passed for this component? In other words, if all of the NHCEs and the spouse are receiving the same % of compensation (let's say 5% since that meets the gateway), this component passes w/out further testing, right? The other component plan, the Doctor's part, has NHCEs who also receive only 5% as their discretionary contribution, but this component is cross-tested and the Doctor's rate group passed in this instance. I know that Rick's example didn't use 5% but to keep things simple I'm assuming that all NHCEs receive the 5% (gateway) of compensation as their contribution. The Doctor then receives an amount that takes him to $40,000 total. I just used this concept for one of our small doctor/spouse plans and I'm amazed to see it work. Doctor has maxed at $40,000 and spouse defers $12,000 out of $15,000 total compensation. I'm afraid I'm missing something.

Quick question related to your plan design. How do you define groups in the plan document? You have staff1 and staff2 receiving different allocation percentages so it seems to me that they are in different allocation groups that would have to be identified in the document. Thanks

The plan currently provides for distributions to be made "as soon as administratively feasable after termination of employment". ER wants to amend to provide for distributions "on or after April following the Plan Year of termination of employment." Would making this change violate 411(d)(6)? Can it only be made for terminations after the adoption of the amendment or can amendment be made retro? The "administratively feasable" language was put in the GUST amendment in error and ER wants the language to read "on or after April".

I'm trying to run through all of the possible consequences for this problem. Plan was effective 1/1/1994 but the adoption agreement wasn't signed until 8/1/1995. I know the following would be true, but what else? 1. ER Contributions are not deductible until participants are vested. This occurred in 1994-1995 so the statute of limitations has expired for the corporate return. 2. Contributions are taxable to participants when made. Once again, statute of limitations has expired on participant returns. 3. Trust is taxable. Is the portion of the trust related to the 1994 contribution taxable until distributed? 4. Distributions from the 1994 contributions, are not "qualified" for rollover. If rolled into any IRA or other qualified plan, could have a problem. What am I not considering? Thanks.

Am I correct in understanding that if a participant has accumulated PS contributions that are more than 2 years old the 25% limitation for life insurance premiums does not apply? If this is correct, are the excess premium payments considered taxable distributions to the participants? The blue "Pension Answer Book" implies this may be the case.

The employer is a govt. contractor and over the last several years the contracts have dwindled. This has meant that in each of the last few years employees (plan participants) have been terminated. Some years the numbers that have terminated have been sufficient to warrant partial termination. In this last year, however, the number was just below the 20% guideline for partial termination. Would it be correct to say that since the ER has history of "partial terminations" that even though the 2001 standing by itself doesn't look like a partial termination, it actually is? I want to play it safe and tell the ER this is a partial term. and vest the affected participants. The ER, however, doesn't want to do this if it isn't absolutely necessary.

The rule of parity applies only to a nonvested participant. I want to be certain I understand what is mean by nonvested participant. If a participant terminates with 60% vesting and receives a full distribution of the 60%, then rehires 15 years later, is he considered a "vested" or "nonvested" participant for purposes of rule of parity? I'm thinking he is a "vested" participant because he was vested at the time he terminated. Is this correct? If he is a "vested" participant, then rule of parity will not apply to him and he must be given credit for years of service prior to break and be allowed to participate retroactive after meeting 1 year eligibility. Am I correct here?

A newly established plan wants to provide that anyone employed before the effective date of the plan is automatically 100% vested in account balances. All other participants must follow 2/20 vesting schedule. The part I'm having trouble with is that of 5 employees who were employed before the effective date of this plan, 4 are owners. Is this a situation that must meet the 401(a)(4) testing requirements?

I'm getting myself confused here. The employer's taxable year ends 9/30. The P/S 401(k) plan's year ends 12/31/01. The employer fails ADP and wants to make a QNEC for 12/31/01. The QNEC should be deductible in the employer's taxable year 9/30/02 because that is the year it is paid. Correct? The ER has already filed tax return for 9/30/2001. Any P/S contribution for the 12/31/01 would also be deductible in 9/30/2002? When would the 12/31/01 contribution have to be made?

The document we use provides that employees must be able to revoke a salary reduction election at any time. The ER can chose how frequently they want to allow other modifications to be made. The client wants to know why he has to allow revocations at any time. I'm not finding this requirement in the Code or Regulations. Is this a statutory requirement? If so, what is the cite? Thank you