DP

I'm setting up a new Safe Harbor 401k Plan effective 1/1/03 for a dental practice that began 1/1/03. The 401k portion will be effective 10/1/03. A non-elective contribution will be allocated to all participants who worked 501 hours if terminated or are an employee as of the end of the year. Eligibility is Age 21 and One Year of Service. In order to make contributions for 2003, we were allowing all employees as of 1/1/03 to enter the plan on that date if they had met the age 21 requirement. There was one fill-in employee who was on the payroll 1/1/03. This employee will not work 500 hours during 2003. From what I understand, this fill-in employee will become a participant as of 1/1/03 and will be entitled to the 3% Safe Harbor contribution. She will also be entitled to any non-elective contribution if she is still employed as of 12/31/03. Am I on the right track here? Thanks.

The $12,000 deferral was not deposited because Dr. B did not want Dr. A to get the contribution due to him embezzling money. A check for $12,000 was actually written to the broker, but Dr. B refused to send it.

Our office has a takeover medical practice who has a calendar year 401k plan in 2002. Dr. A, who was part owner, deferred $12,000 in 2002. Dr. A also stole big bucks from the practice and there is a lawsuit in the works. Due to Dr. A's theft of company money, Dr. B refused to fund Dr. A's $12,000 deferral for 2002. Our position is that the $12,000 must be funded to the plan no matter what is happening within the company. Any other thoughts?

Thanks, Tom. I didn't know about this list of corrections to the manual. That will be helpful to me.

I checked the ASPA PA-1A Notebook under Lesson 10 - IRS 415 Limits. This is taken directly from their notebook: Dollar Limit - For limitation years beginning on or after January 1, 2002, the dollar limit is $40,000. Thereafter, this limit will be increased in $1,000 increments each plan year. There is also a table of dollar limits for each plan year which shows $41,000 for Plan Year End 12/31/2003. Here is another quote from that same section: The annual addition limit for the plan year ending December 31, 2003 is the lesser of 100% of compensation or $41,000. This notebook says it is the 2003 edition.

We have a client, age 68, who has $1,000,000 + in his PS balance. Approximately $950,000 of this balance is from a rollover. The client takes random taxable distributions each year from his PS balance, usually amounting to around $50,000 to $75,000 yearly. His plan is held with a brokerage firm and they process his distributions. The brokerage firm has never withheld 20% Federal tax or 4% required state tax from these distributions. The broker says it is optional for the client, and the client always says no tax. Even though these distributions are coming from Rollover money inside a PS plan, are they not still subject to the mandatory 20% Federal tax?

I have the material at home so can't check the printing date. I received it from ASPA only several weeks ago. It is stated as a fact in their material, not as a projected amount. I also did a Google search this morning and found several websites that say the 415 limit is $41,000 for 2003.

In the ASPA QKA study material, several times it mentions the 415 limit for 2003 is $41,000. I was surprised to read this. Is the limit not $40,000 for 2003?

Yes.

Here are a few more details about this company. The discretionary match will be retroactive back to 1/1/03. No participants have terminated during the year. The company is in a financial crisis. However in their PS plan there is an unallocated account containing suplus pension money which was to be used over the next few years. The company is wanting to drain this surplus account by giving the employees a large match for 2003 - approx 300% match for the hourly employees and about 160% match for the salaried employees. The president of the corporation wanted to forego his match so more of this surplus money could be allocated to the staff. They wanted the hourly employees to get a larger match since they have been laid off, and this was the company's only way of helping them. The salaried employees will still be drawing a paycheck for a few more weeks/months so they decided on a lessor rate of match for them.

RCK, This company is in the process of closing their plant. The hourly workers were laid off last week. The salaried workers will be terminated within a few weeks.

The current plan allows for a discretionary match proportionate to elective contributions. (It has not been restated for GUST.) We were going to amend the plan outlining the two rates of match and omitting the HCE from receiving a match. All accounts are 100% vested.

I have a small manufacturing client with a 401k Plan. The plan has a discretionary match which has never been funded. No last day rule. There are 16 employees: 1 HCE, 10 hourly employees, and 5 salaried employees. Due to the economy, the company recently laid off all their hourly employees. They are wanting to make a discretionary match for 2003 where the hourly employees get a higher rate of match than the salaried employees. Also the HCE does not want to receive a match. I plugged in the numbers and all ADP/ACP tests pass. Am I overlooking anything with the two rates of match between the salaried and hourly employees?

We have a client who has a calendar year SH PS 401k plan. About a year ago, the client transferred in surplus pension assets from a terminated DB plan. We have slowly been using the surplus towards the SH match. Now, due to the economy, the client is wanting to terminate the PS plan and distribute the remaining $28,000 in surplus assets to the participants. Is there any particular method in distributing this money? I wasn't sure if it could be used an an Employer Non-Discretionary Contribution, or as an additional Employer Match. The terminated DB plan recently came up for a random audit by the PBGC. Should we wait until the PBGC closes the audit before adopting a resolution to terminate the PS plan? Can a SH PS plan be terminated mid year? We were hoping to get all the assets paid out before 12/31/03 to avoid going into another accounting year. Also the client may want to reestablish the SH PS 401k plan in a year or two if his business picks up. Would this cause a problem? Thanks for any help.

Lynn, Yes that is how I was planning to handle it. The client was questioning me to make sure the In-Service Distribution provisions would not be retroactive back to 1/1/03. Thanks.

I am getting ready to restate a client's PS 401k calendar year plan for GUST effective 1/1/03. Early in 2003 one of the participants (aged 59 1/2) called the plan broker and asked for an in-service distribution. Without checking the broker mailed the participant a check without a Trustee authorization or without withholding taxes. The plan does not allow for in-service distributions so after many heated discussions, the broker agreed to put the money back in the participant's account, and the brokerage company would take the loss. Now the client has decided to add In-Service distributions at the age of 59 1/2 for all accounts. I was adding this provision to the plan along with the Gust restatement effective 1/1/03. Since the In-Service distribution provisions will now be available, how does this affect the erroneous distribution made to the participant earlier in the year? Since the GUST restatement has not been signed, will the In-Service distributions not be available to participants until the date the restatement is signed? Thanks for any advice.

I just ordered a supply of blank 8109-B coupons and received them this week. Try sending a request to this address: EADC PO Box 85074 Richmond, VA 23261-5074 I have the same problem getting clients to pass on the coupon booklets to our office. We also have to withhold state tax, but at least our state allows you to print a coupon online. I'm also curious to hear a response to the suggestion you proposed.

GBurns, On our records, the cleaning check is posted to "Maintenance Salaries" while the other is posted to "Regular Salaries".

We just acquired a takeover plan where I'm questioning how the match had been calculated. This is a 401k plan with a 100% match up to 5% of compensation. The definition of comp used in the plan is W-2 wages. One employee gets two checks each pay period. One is for her regular salary of $999.35 and the other check is $99.29 for office cleaning. Both checks are subject to taxes and will appear as W-2 wages. This employee has elected for a 7% deferral ($69.95) to come out of her regular check only. When I calculate her deferral percentage I get a total deferral of 6.37% ($69.95 / total comp of $1,098.64). I figured the Match as $54.93 or 5% of $1,098.64. The previous TPA calculated the match as $49.97 or 5% of $999.35. Which is correct? Thanks.

A client has a Safe Harbor 401k Plan. The only money sources are the 401k deferrals and the Safe Harbor Match. They are wanting to add Hardship Withdrawal provisions to the plan. If a hardship withdrawal is taken from the deferral contributions, are the deferrals stopped for 6 months or 12 months? I keep reading conflicting answers. Must the 10% federal tax be withheld or is that optional? Thanks.

We have a SH PS 401k plan that only allows for distributions after termination, retirement, disability. Each participant has a self-directed account with a large brokerage company. One of the participants (still employed) called the broker directly and asked for an $800 distribution from her account. The broker made the distribution directly to the participant without asking for the Trustee to sign any papers. No taxes were withheld. I found this distribution the following month when I was reconciling the monthly brokerage statements. The Trustee of the plan was furious that the broker made this distribution without any authorization. The broker has now agreed that his company will give $800 back to the plan since it was their mistake. The broker is wanting to put the $800 into an unallocated PS account. My position is that the $800 should go back into the participant's account to make it whole since she wasn't eligible for a distribution. Needless to say, this has caused turmoil among the other participants in this plan. Should this be handled in a different manner?

The husband of a participant in a PS 401k has signed a beneficiary form consenting that the participant may change her designated beneficiary without his consent. Does this beneficiary form have any bearing if the couple divorce? Can the husband still obtain a QDRO on his wife's PS 401k balance? I wasn't sure if when the husband signed the beneficiary form, he was giving up all rights to her money.

I have a client who has a one-person PS plan with merged MPP assets. He is age 55 and wants to start taking distributions from his assets. If we amend his PS Plan to a Normal Retirement Age of 55 and allow for distributions at his NRA, can he get access to his merged MPP assets?

Thank you. That's exactly what I needed.