rcline46

There is no requirement under 416 to PERFORM a Top Heavy test, ever. 416 and the regs tell you HOW to perform the test, what vesting to use if you are Top Heavy, and what contributions MUST be made to a Top Heavy plan, and to whom. Since the failure to provide Top Heavy benefits is not a nice situation for a plan, and testing is so easy, why would someone NOT do the testing?

Blinky and Tom are right of course, it would not work in all cases. From the information given, the age weighted deposits for the two lower ees is greater than that of the new comp, so they are getting more than 3% (also we do not know if it is for 2001 or 2002) in the age weighted. They could be against the 25%/100% limit either with the shown allocation or the increased allocation under the age weighted design. Also who is checking the 15%/25% of pay deduction limit? Please folks, these calculations are done by trained profesisonals. Don't try this at home!

Ah, the ee/participant problem. Sorry ted - I did say participant and you said employee (with a 21/1 plan!). You did not say participant as mke correctly pointed out. They are not entitled to a contribution because they are not in the plan.

In an age-weighted plan ratios would work. In a new comp plan probably not. Why? Ahhhh the professional secret! Which I will not disclose. Those who have studied cross-testing and plan design will know, those who haven't ..... get professional help. Do it yourself appendectmies lead to peritonitus, which is usually fatal.

Top Heavy contributions are required for ANYONE eligible for the plan and employed on the last day of the year. There is NO hours requirement permitted. In your case the 17 year old participants must get Top Heavy unless the plan specifically states those who have not satisfied the statutory (21/1) eligibility rules will not receive the T/H contribution. I would be the farm your plan does NOT specify that, and if it did I would want to see the IRS LOD that it was ok.

The first part of the problem is that if the ee were employed in 2000 and made more that $85,000 with your company, he/she would be an HCE for 2001 regardless of pay in 2001. The second part of the problem is use of TOP PAID GROUP determination, which may take an otherwise HCE and make them an NCE. Third part of problem is if the ee owned or was deemed to own more that 5% of the company in 2000 or 2001, then they would be an HCE regardless of pay or Top Paid Group. I think we need a bit more information to make the determination. However, the reason given is just plain wrong.

To RTK - Your reading of the 401a26 regs are correct as far as it goes, but you cannot forget the -2b regs quoted earlier. Of course consent is required to change the J & S annuity into a LS on plan termination, but that is not the question. The question is whether the lump sum of life annuity restriction is 'lifted' if the participant has already elected the J & S and is now merely consenting to LS, not choosing LS. As was noted this idea is 'way out there' (GGG), but so was reducing LS values upon conversion to GATT!!!

This is 1.401(a)26)-2(B): Frozen plans. A plan under which no employee or former employee benefits (within the meaning of §1.401(a)(26)-5(a) or (B)), is a frozen plan for purposes of this section and satisfies paragraph (a) of this section automatically. Thus, a frozen defined contribution plan satisfies section 401(a)(26) automatically and a frozen defined benefit plan satisfies section 401(a)(26) for a plan year by satisfying the prior benefit structure requirements in §1.401(a)(26)-3. For purposes of the rule in this paragraph (B), a defined benefit plan that provides only the minimum benefits for non-key employees required by section 416 is a frozen defined benefit plan. The first sentence says it all. The second sentence tells how and states "a fronzen db plan satisfies 401a26 by satsifying prior benefit structure.." Therefore no 401a26 problem. Ever. As for my second contention I have already stated there is nothing which specifically states it can be done. It is that there is nothing which specifically prohibits the distribution under the conditions given. (at least I have never found anything)

Hi AndyH. First, the way I read 1.401(a)(26)-2b, a frozen plan satisfies -3 (the prior benefit structure rules), not that it must satisfy -3. Second, I do not see any violation of 411 nor of 417. Remember, a J & 100S payment stream was selected and started. Sometime later the plan itself was terminated. The situation is then in the hands of the trustee as how to best settle the liabilities of the plan. I have not seen any requirement that the trustee MUST purchase an annuity unless the participant demands it.

Of course you are skeptical! But as I said, I have had more than one ERISA atty research the matter, and they cannot provide a cite as to why it cannot be done. Remember, and this is the critical issue - THE PARTICIPANT DID NOT ELECT A LUMP SUM.

Regardless of the normal form in the plan, any other benefit must be an actuarial equivalent of the benefit. Usually the normal form is a life annuity or a 10 year certain, so the equivalent j & S is a smaller benefit. The lone exception is a lump sum payout. That amount cannot exceed the value of a life annuity at the 415 limit. Therefore, if the normal form happened to be a 100% j & S at 415 limit, ALL other forms will produce the exact same monthly benefit since no benefit can exceed 415! Therefore, if a participant were to pick a lump sum benefit, it would only be at the life annuity value, not the J & 100 s value! Example - value of j & 100S might be 1.6 mil while value of life annuity might be 1.1 mil. If the participant elected lump sum, they would get 1.1 mil, the $500,000 would be left in the plan. The question is what happens if the participant elected the normal form of j & 100s? The plan is obligated to keep the 1.6 mil in reserves and pay the benefit. After 6 months, the sponsor terminates the plan. The trustee is then obligated to provide the j& 100s benefit. Suppose the trustee decides not to buy an annuity, but instead satisfies the obligation by distributing the annuity to the participant. The participant then gets the 1.6 mil, not the 1.1 mil! (adjusted for benefits paid of course) on the 401a26 I am home. will have to check at work. I know I could use benefitslink, but...

ASSUMING the plan were properly frozen prior to the Dr. joining the group (accruals and participation) then I disagree with AndyH's thought that 401(a)(26) can come back. When the plan was frozen, 100% of eligible employees had meaning accruals under the plan. After the freeze, no eligible employee can have a meaningful accrual - the plan is frozen!!! Therefore the exception does not apply. The exception is that the 401(a)(26) meaningful accrual must be true BEFORE the plan is frozen for the plan to continue to satisfy 401a26 after the freeze. Is the plan overfunded on a J & 100S benefit value, paid currently? If not, change normal form and retirement age if necessary, start distributions, and in a few months terminate the plan. Since the plan has a liability, IMNSHO, it can then pay the J & S. The rule requiring lump sums at life annuity only is when the participant elects an option. Here the participant is not electing the option, the plan trustee is discharging an obligation at plan termination. My ERISA attornies have said no to this, but can find no explicit reason why not. They say no because the cannot find anything that says the CAN do it. Too conservative!

Write to the owner stating the distributions were incorrect, and include a letter to be signed and sent to the broker. At the same time notify the terminated ees that they were overpaid. Give the owner a short time (say two weeks) to comply. Prepare plan records correctly with a receivable for the overpayment. If Dr. does not comply, resign. Write to owner exact reason for resigning and place copy of letter in file.

The IRS has never issued any regulations on seasonal employees so you must follow all of the existing regs. Usually leased employee rules won't work due to size of seasonal force. If no employee works over 1,000 hours you will be home free. Otherwise you will have testing issues in the year following the year of 1000 hours if the employee works over 500 hours. Judicious selection of plan year might help in keeping them under 1000 hours, but plans years off corp fiscal years can present their own problems.

Also remember to let the elig transaction calculate prior entry dates.

All those swell things for 2002 have ABSOLUTELY NOTHING TO DO WITH GUST! ! ! ! These things are all related to EGTRRA and you can do an EGTRRA amendment before you do the GUST restatement. However you will have to REDO the EGTRRA amendment with GUST or you lose it.

LLCs are a recent development in the business world. There is very little official guidance on them. In one of the Q & A columns it is implied they are not a 'real' corporation. I would posit that if ownership exists, and the owners receive a W-2, what else would it be? It is NOT a sole prop, it is NOT a partnership. Could it be an 'association'? Does anyone really know or has conservatism set in? (Note, this is not necessarily a bad thing!) I would suggest spending the money to get an IRS letter ruling on whether LLC interest can be placed into an ESOP in the same manner as corporate stock.

No. Management fees do not fall under settlor responsibility which the plan should not pay anyway. Any 'deposit' to the account should be treated as a contribution which will lead to other problems such as pre-funding, maybe voluntary contribution failing the ACP test (and probably not in document anyway), blowing 415....... Have the broker bill management fees directly!

You have answered your own question. If there are no services being performed, then there is no employee/employer relationship. Therefore the person is NOT an employee. Also read the definition of compensation in the document - I would be it refers to services rendered in some fashion. If not an employee, then they are terminated and treated as any other terminated employee.

I don't think state treatment of LLC is relevant. The LLC for federal purposes can elect to be treated as partnership or as corporation. I have not studied LLCs. However, if for federal purposes it is a corporation, I do not see why it cannot have an ESOP. Note that if a corporation, the owners would be receiving W-2 income, not K-1 income! Our experience is that 99% of LLCs are treated as a partnership.

First, activate the document Second, copy the document to new doc (it will assign new code, can keep original name) - may want to make sure special language is copied! Third, activate new doc and select new checklist is necessare (IE go back as if starting fresh and select the copied plan and click on the new checklist if changing it). Make you changes or whatever. Old doc is still there under old code, and new doc is there under new code.

The person who drafted the notice could have been a bit clearer. If the ONLY reason you file a 5500 is to attach ONLY a Schedule F, then you do NOT file. If you attach any other schedules, you continue to file but do not attach the Schedule F.

Also note that if the 401k/psp plan is all 100% vested, you might not have any forfeiture allocation language in the document! Check and add if necessary!

The termination of any qualified plan is the same - see instructions to form 5310. DB plans are just a bit more complicated. And Vanguard is right, the plan should have been in compliance with all laws in effect in 1999 to be terminated properly. My opinion is that the plan still needs to be in compliance and a an amendment should be adopted. As to filing with the IRS, recommended but not required.

you will not find anything, anywhere from the DOL (who is in charge here) or the IRS on participants paying their own fees for termination calculations and distributions. The DOL advisory letter from 94 on QDROs states one cannot charge a participant for exercizing their ERISA rights. Most take that to apply to distribution fees also. The DOL at both the ASPA convention and the Mid Altantic conference this may has stated they have no official position at this time, but they are looking into it.