Dave Baker

Nicely summarized, Tom! I'd add this footnote: if the plan has an integrated formula, you might not be able to contribute the whole 15%-of-total-compensation-as-adjusted number that Tom describes ... if there are lots of rank-and-filers, they would be getting something like 12% of pay and the highly compensated employee(s) would be getting something like 17% of pay.

Footnote: if you do park the money in an IRA temporarily, make it a brand-new IRA ... don't mix any existing IRA moneys or future $2,000-a-year type IRA contributions with the funds you've received from the 401(k) plan. (If the moneys get mixed, you probably won't have the ability legally to get the 401(k) funds out of the IRA and into the new employer's plan, due to a rule in the tax code.) [This message has been edited by Dave Baker (edited 03-07-2000).]

Carol Calhoun has a very nice chart at http://www.benefitsattorney.com/choice.html

Dunno any reason why the participant's beneficiary doesn't become entitled to the account immediately upon the participant's death ... if the beneficiary is the participant's wife, then the funds would be a part of her estate at this point. Filing an interpleader without any actual claim to the funds by anybody other than the wife's estate's beneficiaries might be a breach of the plan administator's duty to operate the plan according to its terms

Is the plan sponsor pitching the plan's match as effectively as it can? The best way I've seen to explain it is: "Where else can you get an immediate 50% return on your investment? That's a whole lot better than the 7% you'd get a year from now if you put the money in a CD down at the bank rather than contributing it to the 401(k) plan."

To back up one sec - does the money purchase plan allocate forfeitures among other employees' accounts, or apply them towards the employer's money purchase contribution?

Congratulations, and good luck! (From one sole prop to another.) PS - I still have more messages posted than you do. Nyah nyah. [This message has been edited by Dave Baker (edited 03-03-2000).]

But how would you confidently include the necessary GUST amendments, unless you get the IRS to bless 'em now? You'll need to do some kind of amendment to the document to bring it up to speed for the GUST changes even if a determination letter isn't applied for, and I'd hate to have an auditor get aggressive a couple of years from now as to whether a particular provision in the custom amendment was exactly worded the way he or she thinks it should have been. $225 buys a lot of peace of mind, to this attorney anyhoo. (Client in 2002: "Why didn't you tell me I could have avoided this disqualification or closing agreement sanction if I'd spent a couple of hundred bucks back in 2000 when you provided this termination amendment to me to sign?")

From the January 21, 2000 issue of Segal Company's Compliance Alert: Imminent Demutualization of MetLife May Affect Employee Benefit Plans (http://www.segalco.com/compliancealert.html)

Here's the official version, from the Internal Revenue Bulletin (PDF): http://ftp.fedworld.gov/pub/irs-irbs/irb00-06.pdf pp 572 - 576

[Reposted by Dave Baker as a separate topic, for "ak"] The DOL's discussion on the new forms just issued speaks about "fair value vs. current value" reporting for insurance contracts on the, e.g., Sch. A. It says that fair value does not apply for investment contracts with insurance companies which are, in part, "fully benefit responsive" contracts held by defined contribution plans with assets of $100 million or less. Question: Where did they get the $100 million dollar threshhold? I don't know of any such limit in SOP 94-4 and am not aware of any such amendment to the SOP. Does anyone know the answer.

The Department of Labor has posted the 5500 schedules in separate PDF files - much more manageable download - here's the link: http://www.dol.gov/dol/pwba/public/pubs/forms/fm99inx.htm

BenefitsLink reprint: BenefitsLink reprint of the text version of the notice (does not include any forms): [TXT] Official versions, from the Federal Register: Text version of the notice (pp. 5025-5074; does not include any forms): [TXT] Pages 5025-5074 (5500 and Schedules A through H): [PDF] Pages 5075-5124 (Schedules I and following, and instructions for Form 5500 and Schedules A through most of H): [PDF] Pages 5125-5143 (Remainder of instructions for Schedule H, Instructions for Schedules I and following): [PDF]

It's called Trust Officer's Power Pack, at http://www.bankinfo.com/Fundsm/trustpack.html. [This message has been edited by Dave Baker (edited 02-03-2000).]

Why not use this message board? That's the ideer -- if it needs to be improved, please let me know. Happy to help. Dave Baker Administrator

Are these nonstandardized adoption agreements, which have a "blank" to use to specify an excluded class of employees from being eligible? If so, I would think that filling in that blank (actually, amending the adoption agreement such that section so-and-so shall read as follows effective 1/1/2000, etc.) would not cause the plan to be individually-designed. It might cause the employer to lose "reliance" on any already-issued determination letter for the plan, with respect to the amendment anyway - heck, submitting this to the IRS for an updated determination letter would be smart.

In doing your 15%-of-compensation calculation, are you being as generous as allowed -- specifically, are you counting the compensation of participants who could have deferred but didn't? And using W-2 comp, not just comp as defined in the plan document (which might exclude bonuses, commissions, etc.)?

Ouch. Anything helpful in the plan document, maybe expressly conditioning contributions on their being deductible under Code section 404?

Have the plans amended to specifically exclude the individual? Even though the plan sponsor is adopting such amendments at the request of the individual, it would seem to carry a lot of weight that the exclusion legally was the decision of the plan sponsor. (This wouldn't hold up if the LLC is controlled by the individual, though.) Seems to make it look a lot less like an election, getting around the deemed cash-or-deferred argument the IRS talks about in the first coupla paragraphs of the 401(k) regs.

Under old but still applicable IRS regs, a tax-qualified retirement plan must be designed to be "permanent," as distinguished from being set up as a short-term tax shelter for one or a couple of unusually good years. (Section 1.401 something or other.) For example, I think the IRS audit guidelines for terminating plans ask the examiner to see whether the plan has been in effect for at least 10 years, and if not to see whether there is any good business reason for the termination. There is no such rule for a SEP (governed by a different Code section -- 408, not 401), so that's definitely the way to go in this situation, I think.

This sort of design seems clever to me -- I guess the ability to put in a last-minute deferral feature, which HCEs can take advantage of more easily than non-HCEs, is a big reason why the IRS has special rules for SIMPLE IRA plans (can't be put in after October 1 for a given calendar year). But I don't think there would be any such rule for your basic 401(k) plan. Heck, I understand that 401(k) plans used to be written to allow deferrals ONLY from bonuses, before it was clear that salary deferrals would be acceptable to the IRS. (I was barely out of high school then, though, and thinking about other things, so I'm not sure.)

Test

Could you type the exact language of the plan in this regard?

I found one article online that has some of that kind of information -- Minimum Distribution Requirements (IRAs and Qualified Defined Contribution Plans)

Any language in the plan allowing a reversion to the employer, I wonder? This actually happens sometimes in money purchase pension plans, and happened more frequently back when such plans were not allowed to reallocate forfeitures among other participants' accounts and instead had to use them to reduce the employer's contribution. I guess you could amend the plan to specifically allow for reallocation of these funds if it doesn't already so provide.