rcline46

Terminate the plan. However there may be ramifications to that also.

iquazza, The situation where the payroll service claims that a contribution is a catchup contribution and stops the match is a failure of the payroll company. Quite simply, the regs state that a catchup can only be determined at year end. Therefore if the payroll service cuts off matches when one reaches $13000 is an incorrect interpretation of the regs. Now you and I both know that the amount over 13,000 will be a catchup. Appearences and foreknowledge aside, it just ain't at the time, and matches must be made. They are NOT being made on catchup contributions, because it has not been determined that they ARE catch up contributions! So my statements are not in conflict. So an error is being made by the payroll service, and the client must correct that error. Mathematically, under proper plan design, one cannot give a SH match on a catchup contribution. For the really astute, there is an exception to every rule. If the plan has an employer contribution of any kind which when combined with the deferral will exceed the 415© limit of $41,000/100% of pay, AND you document says to return unmatched then matched contributions FIRST, AND no catch up has been made, THEN it is possible to get a Plan Limit catch-up which has been matched.

There are so many preconceived notions floating about it is incredible! First - it is a really poor plan design where a Safe Harbor plan imposes ANY limits beyond the 402(g) limits, so I will have to immediately dismiss any and all arguments speaking to plan imposed limits. Second - since it is impossible to have a deferral which fails a 402(g) limit AND is less than 6% of pay, it is impossible for any Safe Harbor match to exist on any catch-up contribution. A regular match can of course exist on a catch-up. That leaves us with only the question of whether you are doing Safe Harbor matches on a per payroll, monthly, quarterly, semi-annual, or annual basis - which is a document issue. If the matches are being remitted with each payroll, then a 'true-up' or 'match patch' must be calculated on the frequency specified in the document. On anything other than an annual match it is a fact that those who reach their 402(g) limit at any time other than the last pay of the year (or who may have at any time a deferral rate which is not at the Safe Harbor limit) will receive a LOWER match than someone who does perfect timing. This is supported by the regulations and not an error. Now if the payroll service being used by the client does not permit/calculate matches according to the regulations, the client will have to make corrections. IE if someone is catchup eligible and is deferring a full $16,000 and the payroll service cuts matches off at $13,000, then they are flat out WRONG and a correction must be made. It does not matter if someone defers a full $16,000 on January 1, catch-ups as a matter of regulation are not determined until year end.

I fail to see where any catchup contribution was matched in your example. The $13,000 represents 13/85 or 15.29% of pay and the catch represents the 3.53% of pay from 15.29 to 18.8%. Therefore if every payroll deferral were matched with the basic match, no amount over 5% was ever matched. Now if this person were not catchup eligible, and matches were on a payroll basis the sure enough, they would get a smaller match that someone of the same pay who did the 13,000 deferall over 26 pays. Tough nuggies. That's what the document says. Don't prefund. Or make the match at year end and all the problems go away. (or a match patch)

Would be interesting to see the document language permitting termination of the plan. Do not know how you can have a 'prototype' 403(b) since a 403(b) is not a qualified plan and therefore would not have had the IRS review a mass submitter document. Maybe you are not looking at the correct document, and just maybe you don't have a 403(b) plan.

The correct answer is to read the plan document. Whether it is a frozen account or active account does not matter. What matters is the plan document. If hardships in the document do NOT refer to the safe harbor rules, but are determined administratively, there very well may not even be a suspension of benefits. If hardships are not mentioned in the document then a hardship withdrawal cannot be taken.

Regardless of 1,000 hour rule or EOY rule, a participant in a MPPP has earned the right to said contribution and it is part of the account balance, whether deposited or not.

Although I agree with you, if an attorney writes a letter directing you to perform certain actions in a plan, it is my belief that you are 'off the hook' if the IRS or DOL later determine the actions to be incorrect. To bolster your position, a letter to the client stating your objections but that you will act according to their instructions would be most helpful.

Well, operate as a sole prop, establish a 'uni-k' or whatever the particular fund house calls it, roll in the $ and borrow. As long as the 'uni-k' rules are followed, cost is next to nothing, under $100,000 no 5500 EZ needed, can be done VERY inexpensively. Of course the first employee blows the whole thing up.

To have a deemed IRA, the plan as a whole must have a trustee who is authorized to act as an IRA custodian. That means individual trustees (owner, etc) are not allowed for deemed IRAs. You need to read the regs the IRS published on them. I don't think any corporate trustee would approve of IRA monies in a vehicle which is only sold to 401(k) or other qualified plans. In fact, IRA money would instantly 'blow up' the product as you describe. So... Ask the question of the investment provider, and ask the question to the proper trustee of the plan.

Change of health insurance permits change of 125 elections. I don't see how terminating the plan does anything at all.

MGB, you have been driving those English cars too long! Now I am a simple person. If I can test a distribution against the account balance method to see if it satisfies RMD, then what have I done? Pick a distribution out of thin air, pull it from some dark place? No way. It was calculated from the account balance method! I don't care what the IRS tries to say - if we can test against a method, then that method is acceptable and therefore a reasonable interpretation. What you said looks like doubletalk! Shades of 1984! And you are better than that!

Provide a copy of the latest 5500 and SAR. That is the disclosure required. Trustee must provide at their own risk anything above what is required. In fact, I would not deal with participant at all! Make them go through the Plan Administrator!!!!!

Reg 1.416-1 m(10) This lists the reasons you cannot use to not give a TH benefit. Movement to an excluded class is not amoung the reasons. Therefore, you can exclude from TH benefit because there is nothing that says you must INCLUDE them. It is so obvious that no specific reg need be written. In my opinion of course.

I do not think said employee is entitled to a TH contribution. Reason - I do not think that the change to an ineligible class in the current year is any different to having changed to an ineligible class in a prior year. I view the 416 regs saying that if the ONLY reason a participant is not benefitting at the end of a year is due to lack of hours, they will receive the TH benefit anyway. This is not true with the aforementioned participant.

If you are using software to do this, contact your software provider for an explanation of how it is done in their software. It does vary by vendor. If you are doing it by hand, review the methodology in Sal Tripodi's ERISA OUTLINE BOOK. Also read the Code as noted by Tom, and the regulations. Then document your interpretation and do it.

Can you say ABSOLUTELY!!! By placing them in an interest bearing account he has: violated the participant direction procedures by liquidating before the participants request funds; and remove 404© protection for that portion of the plan by acting as trustee; and subjected himself to a lawsuit for poor investing.

Now lets get this straight - I have to put the 'expected' corrective distribution on the 5500 The 5500 is due July 31 (or October 15) I actually do the testing on November 1 and distribute by 12/31 (all legally) So I have to put the number on the 5500 already filed? Or do an amended 5500? Not very likely. Accountants LOVE to make extra billable work. IT AIN'T THEIR FORM. Follow the IRS rules.

PensionAdministrator - since you go through all of that - how do the rates compare to prime plus 1? What if your client is not in the same city you are - do you call 3 banks in the nearest city to your client? Otherwise - what justification do you have for charging the rates used in Des Moines, Iowa with the rates charged in Los Angeles, CA - or South Los Angeles? Or Harlem in NYC vs Bronx? Or credit unions vs local banks vs large banks? Or small towns with only 1 bank! You will get widely different rates under these conditions. While admiring your persistance in getting rates, it is a luxury most TPA firms just don't have. That is why prime or prime plus 1 is so popular.

Very not right. Is legal counsel advocating submitting to IRS? Are they willing to indemnify the plan/sponsor if it goes bad? See what IRS says on a John Doe CAP inquiry and go from there. Have corp put $ in and execute a corp make notes (ee was taxed). Pay back SS taxes.

Was the person a top 25 HCE or just top 25 paid??? Makes a difference!

If the FNs do not have a W-2 then they cannot defer. The only negative is that they will count in all testing as zeros - maybe. Jim Holland's position that no income means not in 401k testing, not even as zero seems to override so they would not even be zero's! It looks like Mr. Holland just eliminated the need for the non-resident alien no source of US income problem. You also have the 410 merger / acquisition period to fix the document. I don't see a problem here.

I see a failure to follow the document issue occuring very quickly - if the document says the person has to work 1,000 hours AND be there at end of year, then the money cannot be allocated until the person has satisfied the conditions. Then the document will discuss how the contribution is to be allocated. Bet it does not say the plan sponsor decides who gets the contribution. If you have an 'pooled' account (not one those 401k mutual fund accounts) I see nothing wrong with leaving the money in the plan. At year end you allocate the contribution. Any gains or losses would be allocated as part of the overall gains/losses. If you have a participant directed plan, then I think you have a real problem holding the money in the plan. It fails the participant direction procedures in addition to failing the allocation problems above. Can you say disqualified plan?

We use Pensiononline extensively for DC proposals. We can enter deferral % or amts. Can use up to 5 classes any way you want, included a class getting -0- contribution. We have never had more classes for a proposal. And we have had HCE's in all of the classes at various times. NO proposal system is automatic, and you always want to check you answers, very easy to do with Pensiononline. Relius proposal is NOT integrated and HORRIBLY expensive. Relius proposal DEMANDS soc sec nos., pension online does not, a HUGE advantage. We have yet to find any real good advantage for Relius proposal. Go with pensiononline until Relius gets its act together. In my opinion of course.

Why not contribute cash and buy the stock after it is valued? That way the exact $ deduction is determined. What, no cash? Tough, go borrow it. Ifn yuz doesn't extend yuz gotta take da lumps.