rcline46

Since the plan gives the OPTION of a SH match, why can't the plan also give the option of current/prior testing? Each employer needs to be tested separately anyway, AND in order to have a SH match, the plan is required to use current year testing. So if those with the match are current year, then the option must exist to permit any employer to use current year testing! Recheck the document.

Aha! If testing with Otherwise Excludible Employees, the K test and the (a) test change, and said employes may get Top Heavy, but NOT Gateway (depending on your document).

Ed, there is something unusual happening. It is possible the company was running a Cash Balance plan with a non-qualified plan component should the contributions produce a benefit over the 415 limit. Also, the law changed last year requiring full vesting in the Cash Balance plan after 3 years but that would not directly affect this situation. Your sister has been out for 3 years. Just maybe the company is now treating her as disabled which could trigger immediate vesting the excess plan. This is a plan document issue which your sister should get a copy to review. If this were the case, then maybe there should also be a distribution. Our problem is not the facts you have given us, it is the information you do not have. The advice for your sister to at least have a conversation with XXX and even to engage an attorney is what should be done in this case. At least the attorney could get the documents and your sister's specifics to see what is happening and if there are any alternatives.

I think we all have a problem here. Based on your first post, your sister never made over $100,000 and so never exceeded the pay the IRS allows to be used for benefits. Something is missing here. It is highly unusual for a non-executive to have such an employer funded plan and not know about it. In addition, I cannot determin if the $10,000 is the entire FICA, in which case your sister's portion would be $5,000, or just your sister's portion. If your sister's portion is $5,000, that translates to a $65,000 (approximately) benefit for a plan I an suspicious of already. If your sister's portion is really $10,000 then that translates to a benefit of about $272,000! I agree that when amounts in a non-qualified plan are no longer subject to a substantial risk of forfeiture they amounts become subject to FICA. I also know that the amounts may not be available for distribution. When these two events coincide it is a problem. Your sister needs to find out how she came to be in the plan since either the explanation you received does not make sense, OR you sister has seriously misrepresented her income to you.

I love this one - THERE AIN'T NO SUCH THING AS A KEOGH PLAN ANYMORE! They had special rules which do not apply since 1983. Its been 24 years, get over it already!

No need to reference 414(s). It is a parent-sub controlled group, and it is treated as ONE EMPLOYER. So all pay with the EMPLOYER is counted.

First please explain 'reduced' and 'unreduced' so we don't end up discussing apples and peaches.

In my opinion, if the 'extra' contribution was not in excess of 404 and was in the plan prior to the plan year end you are stuck. It does not even rise to 'mistake of fact' because there was no calculation error. Just reduce the contribution by $40,000 for 2006. Oh, the owners can't max out? Tough. That'll learn them to prefund into the plan. They should use a money market account in the corporate name.

Man, this sure fits the definition of 'mistake of fact'. It is obviously a calculation error. See what your plan document says about this.

The acceptable amount of employer securities in a DB plan is 10% WHEN PURCHASED. What they become later is not relevant. Maybe a 'prudent man' issue but that is all.

I got the same question from one of our brokers today. Seems an accountant was telling their client they could contribute to a 401(k) because they did not have W-2 income. First, said accountants should have their tickets lifted. They are displaying GROSS incompetence. Second, Read The Free Document - see the definition of 'Earned Income'? This definition is in every document. It has been since ERISA. QED Strong message to follow.

Standardized or non-standardized prototype? Also look carefully at the adoption agreement because many of them state what the default will be if no choice is made.

Everett, I love long responses that do not answer the question. The answer is actually very simple. It is counted as a contribution in the plan for the year in which it shows on the participant's w-2.

As is usual with the IRS, they DID NOT ANSWER THE QUESTIONS! If an employee is FIRED, then that date is is clearly the end of employment regardless of benefits such as sick time, vacation time, severance paid after that date. What the IRS failed to address is the question of what if someone announces that the last working day of the year will be last day they work for the employer. If the last day of the year is a holiday, and they receive payment for that day, then I would clearly say they are employed. Now if the employee says 'I will not return to work in January' I would argue they are employed Dec 31. Is 'my last day will be Dec. xx' translate to the previous statement? The IRS did not answer the question. Is 'I quit' equivalent to 'you're fired'? The IRS doesn't have a clue. Therefore, administrative firms have their own policy - some keep them in, others leave them out. What does your software do? If you don't know, try it. I have never heard one way or another on any audited plan that the IRS has taken a position.

Adding the fee to the loan allows the participant to 'recoup' the loan fee. Taking it from the account is a direct and unrecoverable expense. I have never had a DOL or IRS auditor challenge taking it from the loan proceeds. Also, the loan paperwork discloses it is taken from the loan.

I don't think it is quite that clear. At least I have not found a regulation on point. We all know that service with any member of a controlled group counts as service for any other member of the controlled group. What is undefined is whether or not service prior to becoming a member counts. I look at it this way: If Bob buys Bill's stock and thereby acquires Bill's company, everyone in the company retains their service credit. In my mind, if Newco buys Otherco there is no difference and everyone in Otherco retains their service in Otherco. Now since they retained their service, and now they are a part of a controlled group, their service with Otherco counts as service with the CG. Predecessor employer rules are not part of this since the employees did and still do work for Otherco. So I think the aforementioned employee has 4 years and 4 days since he changed employers AFTER the acquisition.

There are several items in play here. The law provides what is possible to include in anyone's plan, but the plan sponsor is free to implement something more restrictive than the law. So - the law provides that the maximum 401(k) contribution (actually the maximum is in 408(g)) is the lessor of $15,500 OR 100% of pay. The law also (EGTRRA starting in 2002) provided that those 50 and over can contribute an extra $5,000 to a 401(k) plan - the catch up contribution. However, no plan MUST permit these things to happen. I strongly urge you to get a copy of the most recent Summary Plan Description from your HR department. You should have received on in the last 4 years, but you can request a new one for free. The explanation you received was true prior to 2002, but the changes effective in 2002 removed ALL of the reasons you were given. Almost every plan was modifed for the 2002 law (they were required to be restated by September 30th 2003). They did not not have to make their plan more liberal. My experience has shown that many in HR never read the changes in their documents and are giving bad information to participants. So, I repeat - get a copy of your most recent Summary Plan Description and read it.

My experience with relius is that it wants to apply the rule EVEN IF the person(s) in question have been participants for many years. Also, it can create severe underfunding in small plans restricting the lump sum payment at normal retirement. It is a bad regulation.

You must give notice AND give the employees at least 30 days to adjust their contribution level from the date of the notice, even if the 'normal' rules do not provide for a change during this period. The notice should have been given the instant the amendment was requested. Remember, the (Dec 1) 30 day notice is a SAFE HARBOR date, another date may be reasonable based on facts and circumstances.

Actually you have it backward. The DB contribution, regardless of % of pay is deductible. The question is how much of the DC contribution is deductible. In your example, would 4% or 6% be deductible. In no case would the 10% be deductible. Most believe the law says that the 6% would be deductible. Some more conservative people say only 4%. Until the IRS clarifies the rule in writing, you can make up your own mind.

As long as you were an employee in any 3 of the prior 5 years for 2004 and forward, and you made more than $450 during 04 and each year thereafter, you were/are eligible for the SEP plan and due a contribution. THis is spelled out IN DETAIL in the SEP document your employer has. The plan could be a SIMPLE and not a SEP, or it could be a qualified plan. All have their own special rules so you need to first verify the correct type of plan.

I would post the PSP and let the document handle the 415 error. I don't care if the IRS 'frowns' on it, although you do need to be aware of it. There ain't notin in official writin on it.

PIP - I agree you can get an FDL on a plan which incorporates catch-up contributions, and states that the deferral limits for HCEs are 0%. There is nothing intrinsicly wrong with such language. The larger question is did you ask for a specific ruling on whether under this document, if an HCE actually made a deferral that it would be considered a catch-up? This might have to be resolved with an audit or a Private Letter ruling. In the ERISA Outline Book, did Sal give a specific reference where this would be permitted, or was it just an editorial comment? It would appear (for now) that you, and many others, ASSUME this is the result that would be blessed by our friends at the IRS. I would not permit a client to do this unless the signed a full disclosure, hold harmless letter.

There are 4 conditions for a catch-up. You are working with a plan imposed limit. If you do not permit elective deferrals, and a catch-up IS an elective deferral, how can you just contribute a catch-up? That is the catch-22 on a catch-up.

I fail to see how such a provision allows the HCE to make ANY contribution, of which a catch-up is a contribution. So my vote is that it cannot be done.