DP

I have a Safe Harbor 401k Plan with the Basic SH Match. The document says the match is calculated on a pay period basis with the true-up being made quarterly. If a participant starts his 401k on 9/1/04, when I calculate the true-up, do I use the entire quarter's compensation, or compensation from when the 401k started on 9/1/04? I've thought so long about this that I have myself confused. Thanks.

I did a little investigating and the only change is that this dentist became a full-time employee back in August 04. Previously she had only been working about 12 hours a week. I agree that she never should have been classified an independent contractor.

I have a dental practice where one of the dentists has been a 1099 employee for the past few years. On October 1, 2004, this dentist was switched to a W-2 employee. They have a calendar year SH PS 401k plan with a one year eligibility. Semi-annual entry dates. Do I treat this dentist as if she were hired by the company on 10/1/04 or can I count her years of service as a 1099 employee? Thanks.

The wives get W-2's. All appropriate payroll taxes are being withheld from their pay.

GBurns, Both of these wives received paychecks for several months in the spring of 2004. They were filling in for the Office Manager who was terminated. And they occasionally receive a paycheck throughout the year for filling in. But neither of them work 1000 hours in a plan year. You have a point as to the $14,000 being earned in the month of December for each wife. That may be hard to justify if audited.

Blinky - one other question . . . The Top Heavy contribution for the early entrants only goes to the participants who make 401k deferrals? If they didn't participate in the 401k, then they have no money in the plan, therefore no Top Heavy minimum?? Thanks.

I have a medical practice with a 3% Safe Harbor PS 401k plan with a 12/31 year end. Currently it has a 1 year/age 21 eligibility with entry on 1/1 and 7/1. Plan is top heavy. They always give a match, plus an additional employer contribution. There are two shareholder physicians. Their financial advisor told them that they need to pay the wives $14,000 in December and defer the entire amount for 2004. My only problem is that both wives work less than 500 hours a year. The doctors thought we could open up the 401k to immediate eligibility, but that means all the early entrants would get a 3% Top Heavy contribution if they are still employed at the end of the year. The plan document says the Safe Harbor contribution will be given to all participants eligible to make elective deferrals and who meet the maximum eligibility requirements under IRC 410(a). I understand this to mean that the early entrants could get the 3% Top Heavy, but not the 3% Safe Harbor since they haven't met the eligibility for the employer contribution or match. This is also a cross-tested plan, so would the early entrants have to receive the additional Gateway contribution if they haven't met the eligibility for the employer contribution? Could the plan be amended effective November 1, 2004 to a 3-month eligiblity for the 401k portion with a monthly entry date? Wouldn't this allow anyone who has met the eligibility to enter the 401k portion of the plan on 12/1/04? My head's spinning! Thanks.

I'm still here and have taken no action yet. The unvested amounts for the two staff members are around $800.00 each. I just heard that the doctor will probably be selling his practice to the hospital by the end of the year. Nothing definite yet.

Well I do know the two staff members were fed up with the doctor. That's why they both quit. So I guess his actions did prompt their terminations. I'll go ahead and vest them 100%. Thanks!

Yes, the Safe Harbor is 100% vested, but they also have Employer contributions which fall on a vesting schedule. Sorry, I should have put this in with my facts.

I have a doctor's practice who had two staff members. All three were participants in a Safe Harbor 401k and are 20% vested. The two staff members terminated their employment in June 04 leaving only the doctor as a participant. There will be no more employees to enter the plan until July 1, 2005. I was thinking ahead to making the distributions for the two terminated staff members. Would this be considered a partial termination even though there was no layoff? These two employees terminated on their own free will. Should I make them 100% vested? Thanks.

Thanks to both of you for your advice. Now, please help me with this. The associate dentist makes $150,000 in Corp. A and $180,000 in Corp. B. How would you calculate his 3% Safe Harbor contribution for both corporations? Would it be a contribution of $2,795.45 (45.45%) to Corp. A and $3,354.55 (54.55%) to Corp. B? This would give him a 3% Safe Harbor contribution total of $6,150.00 (3% x $205,000) for the plan year. Each corporation would be deducting their share of his contribution. Thanks.

Dr. X is a dental client who has three separate dental practices. Each practice is a separate corporation with Dr. X being the sole shareholder of all three. If Dr. X would establish Safe Harbor 401k plans for his practices, would he establish three individual plans? Dr. X has an associate dentist who works at two of the practices. The associate's combined compensation between the two practices is in excess of $205,000 annually. To calculate the associate's contribution would I look at his compensation from each practice individually, or is all his compensation lumped together? Dr. X's wife also has her own dental practice where she is the sole shareholder. What if she wanted a Safe Harbor 401k plan for her practice? Help!

With a partial termination, who all becomes 100% vested? Only the terminating participants - or all participants? Thanks.

All of our clients keep their Merged MPP money in the same brokerage account as their PS money. As TPA, we do the recordkeeping on how much is in the Merged MPP versus the PS. Earnings are allocated to each bucket of money on a prorata basis.

I have a takeover plan where one participant has a plan loan. There is no written loan policy for the plan. The loan papers she signed does not say anything about the loan being due upon termination of employment. The owner is terminating the plan as of 9/30/04 and will be closing his business as of 11/30/04. We were wanting to make distributions to the participants in October. Can I go ahead and distribute this participant's remaining account balance in October and give her until 11/30/04 (date of her termination) to pay back the loan? If she doesn't pay it back, then would the loan balance become a taxable distribution with no withholding? Thanks for any help on this.

Yesterday I electronically filed two 5500's with EFAST and they appeared to upload successfully. Usually I get a DOL acknowledgement file within five minutes of filing. As of today, I still haven't received an acknowledgement file for those returns I filed yesterday. Has anyone else experienced a problem with this? How can I find out if the files were actually accepted? Thanks.

The HCE is making a one-time irrevocable election not to be included in any part of the plan.

I have a very small Profit Sharing plan (7 participants) where everyone has their own self-directed account set up with various brokers. The plan has operated in this fashion for many years without a problem. The Plan Trustee would like us to create a letter for the participants to sign yearly saying "he (the participant) has reviewed the investments in his self-directed account and is satisfied with his investment choices". Also he wants a statement added to the letter saying that the participant is reponsible for his investment gains/losses. Has anyone else prepared a letter to this effect? Or can anyone offer any advice? Thanks.

I have a medical practice that consists of 6 docs and 43 staff. They started having financial problems this year and four docs quit. Two part-time employees (who were participants) quit this month since they were given an ultimatum of going full-time or quitting. I heard today that 1/2 of the staff will be laid off in November. I'm aware this would result in a partial plan termination, but what about the two part-time employees who quit in August? Would they become 100% vested due to the partial termination? Thanks.

Thanks, Tom. What about the 3% Safe Harbor non-elective contribution? The plan states it will be given to all participants (HCEs included). If this HCE has opted out of the plan, can we get by with not giving him the 3% SH contribution? This is a new plan effective 1/1/05. This HCE is opting out of the plan before it becomes effective.

Around the first of July I filed around 50 Form 5500's electronically with EFAST. I received the DOL Acceptance File for each return immediately after they were transmitted. I have not received anything else from the DOL. This is the first time I've used electronic filing and I'm a little paranoid. I'm also leaving this afternoon for vacation and won't return until after July 31. If I have the DOL Acceptance File for each return, do I have all my bases covered? Thanks.

I am setting up a new Safe Harbor PS 401k plan with a cross-tested contribution formula. One of the HCE's has opted not to participate in the plan. Do I use him for the general test or ignore him all together? Thanks.

Thanks for the answers. My problem is that the plan would never pass the ADP test on a short year since the two owners are the only ones making 401k deferrals.

I have a client with a Safe Harbor 401k Plan with a 5/31 year end. They are thinking about terminating the plan. I have advised them that the plan should be terminated as of 5/31. If they were to terminate mid plan year, then the short plan year could not be Safe Harbor. Right now the owners are the only participants deferring into the plan, so they wouldn't pass ADP for the short plan year. They only fund the 3% Safe Harbor, no other Employer contributions. Am I right in my thinking that a final short plan year cannot be Safe Harbor? Thanks.