rcline46

The IRS has stated at the ASPA conference very clearly and concisely - NO PAY, NO PLAY. They are excluded from testing and are not entered into testing as zeros. Acquire the IRS Q & A from the 2000 conference. Or if Mr Poje is really nice he might chime in here.

If the match was hardwired into the document, then you are required to give notice under 204h even thought in a profit sharing plan if you are reducing future accruals. If your document actually stated the match to be on a pay period basis it would not be different for the notice. That said, I really doubt your document actually states the match will be DEPOSITED with each payroll! Therefore, you owe the match, but can deposit it later. If I were an employee, and knew of the financial difficulties, I would be screaming for deposit of any match earned and not deposited, also watching deposits of my deferrals. Do not delay the deferrals. Dealing with the DOL for unauthorized use of employee or trust assets is very unpleasant.

Yes. Think of it this way. The 15% DEDUCTION limit is under 404. Not for profits do not take deductions. THe same applies to the 25% MPPP or combo plan limit under 404. The limit is the 25% annual additions under 415, which INCLUDES deferrals in the definition of pay. 404 currently EXCLUDES deferrals it its definition of pay.

If this is one plan document, then I would not proceed without an IRS letter of determination. If two separate plans, then participant must 'waive' out of one of the plans. 401(a)(26) is not a problem. Plans cannot be aggregated for testing because elig and vesting are different. Employees in opposing plans must be tested as a 0 in 'waived' plan. Could be complications. I see administration problems, but I really don't see anything illegal. BUt I would require the scheme to be submitted to the IRS for their approval.

A plan cannot require more than a 1 year wait for entry into a 401(k) and an employee cannot elect out of the wait. There can be a 2 yr wait (100% vesting) for match / psp contributions. What is this employer trying to do? Did he hire an ERISA atty for advice on this arrangement?

If directly or with attribution the person owns less than 50% of the other company, and there are no controlled group or ASG relationships involved, then a person can have separate 415 limits for separate incomes. An exception to this rule occurs if the other plan is a 403(B) plan. This is like a teacher or doctor who also has their own income. the 403(B) is treated as THEIR plan and 403(B) contributions count against applicable 415 limits.

The IRS has declined to issue any regulations relating to seasonal employees since 1974. Total reliance is given to 1000 hour rules or elapsed time rules. With a 3 month eligibility, it is true that these seasonal employees will enter the plan. Kristina is correct that if the plan is using elapsed time rules for all purposes, not just eligibility, the situation will be different. Absent MR tellilng us otherwise, I am assuming that the 1000 hour rules apply. I also assume the plan contains deemed cash out rules. Now to Kristina's crucial question, when does an employee become a former employee? If an employee is laid off or on a leave of absence, I would not consider them former employees until the lay off (assuming intended to be temporary) of leave expires and the employee does not return to work. In the case of seasonal employees, and I do have clients, including a golf course, with seasonal employees, the operation terminates the employees at the end of the season. Next season, if the employee wishes to return to work they are hired without doing an application. In between there is no employer/employee relationship. If they did not participate in the plan they had a deemed distribution. Without a break in service, they are immediately eligible upon rehire. But at 12/31 they are NOT included in the 5500 count. That is how we handle it.

If mailing, must be postmarked. Otherwise only deposit slip into plan account will work. Check date is irrelevant.

Over 60% is top heavy. The plan is top heavy. Have client consult ERISA atty if he will not accept your findings. I am assuming you did add backs for previous years to get best results.

If you allocate 35,000 to an HCE under a cross tested PSP only, the rate is about 20%. If a 401k is involved and the HCE gets 10,500 in 401k, then the crosstested PSP piece drops to 24,500. In the first case minimum NCE is 5%, in the second case the minimum is 1/3 of 24500/170000 and is less than 5%.

It could be that the insurance is not voluntary. In this case the participant could not surrender it. However, in most profit sharing plans the insurance is voluntary (ie participant directed) and could be surrendered. Such action would not necessarily be prudent due to loss of death benefit, and the insurance probably out performed the other investments in 2000 and looks like it will for 2001. Dropping insurance really needs to be discussed carefully.

I agree MoJo. Make the bankruptcy trustee take responsibility for the plan, include any known payroll deficiencies. Notify the B T of your fees and that you will not work for free. Note that you MIGHT get some fees from the plan. Tell the participants that they need to contact the DOL with the name of the bankruptcy trustee as you will not act on your own. You are not a fiduciary and cannot authorize distributions. Then hope it doesn't take 2 years.

Yes, many changed to 401(l) offset so the formula became (hopefully) safe harbor and no testing was necessary. As pax mentioned, many safe harbor plans will not pass general testing methods, that is why they are used. If only a db plan, it can be tested on a benefits basis or a contributions basis. Usually will stick with benefits basis. Don't forget your friend -11(g) if you fail!

No plan has to comply with 401(l) even if integrated at some level or some disparity. If it does not comply with 401(l) then to prove non-discrimination it must pass the 410(B) and 401(a) rules either as cross tested or on a contributions basis. Imputing disparity may be used in this testing. 401(l) does give a type of offset formula but much different from the old rules. It is curious that we are seeing questions in 2001 about offset plans when amendments had to be done by the end of the plan year beginning in 1994!

Cites please? The 5500 participant explanation for 'retaining service' refers only to those deferred vested participants with account balances. It is not contemplated that it cover former employees who might someday return to work. For example, no one counts on the 5500 a former employee who worked over 1000 hours (actually 500 hours) and was paid therefore having a zero balance. This also applies to seasonal employees. If someone feels strongly they ought to be counted, then they should be able to point to a DOL regulation. If you want to follow the lay off regulations there is some consideration, but if no account balance then I still would not count them. Cites anyone?

Contributions are usually allocated in proportion to compensation, defined as annual 415/w-2/etc. There is no way allocating ANY contribution is legal BEFORE compensations are known. You have a failure to follow the document. Also, many documents consider contributions as part of a 'suspense' account until allocated. Allocating an 'advance' contribution to any one person violates the document provisions. Self-direction is irrelevant. Also, 35K grossly exceeds the 15% deduction limit if it ends up the Dr. has no employees at year end. There are many failures here - mid term allocations not provided for, not allocated according to terms of document, allocated only to HCE, exceeding 404 limits, probably others. If client will not follow rules, resign with prejudice. We have done so because YOU will be held responsible, read malpractice suit, if the plan is audited.

Start with failure to follow document. How was contribution allocated to HCE only? Allocation provisions do not permit this. Looks like disqualification to me. The fact it is discriminatory in a big way is secondary.

If you are a controlled group, then your SARSEP automatically includes all members of the group, and you may already be in trouble. A fundamental rule of thumb, if you are dealing with ANYTHING that generates a tax deduction deal only with experts. For qualified plans, mutual fund salesmen, insurance salesmen and accountants are NOT experts. Deal with a local pension administration firm.

After the last check the summer help have terminated. They are NOT employed at 12/31. There is no employer / employee relationship. However, you document had better say once eligibility has been satisfied, the become participants on date of rehire, so become participants next season. Note special break in service rules apply here. For 5500 purposes, you are under 100 lives.

This is not a Safe Harbor match, therefore the entire match amount must pass the ACP testing. Have your 'friend' quote what part of 98-52 makes it safe harbor. Then check the reference.

Hi Chuck, Reed here. I would consider ethics in two situations: a) Between professionals in servicing the same client, whether consecutively or simultaneously; b) Between professionals and their clients. I really don't think an ethical person could be not ethical in either situation, but quick thinking on the topic leads me to think the ethics may differ in some fashion. But I leave that to the speaker - YOU! Hope the change is all you hoped for and more.

Top Paid group is not one of the items covered by the RAP. That is, it is not new law so any changes must be by current amendment ( and maybe included in restatement).

In general, the use of the Top Paid group is to move highly paid employees from HCE to NCE status. In a Cross Tested plan, this would usually REDUCE the benefit they receive. Not a good idea to amend after year end to reduce benefits. In a 401(k) only situation, the goal is to move high percentages from the HCE to NCE group which would reduce the givebacks for the remaining HCEs. Since a lowered giveback means an incresed permitted deferral, then benefits have been increased for HCEs only after year end. Again this is discriminatory and prohibited. Oh, you say you increased benefits of those HCEs who fell out of the Top Paid Group? Guess what, they are STILL HCEs! and again discriminatory! TPG is a testing option and does NOT change HCE status, only where that HCE may be placed for testing! So, cannot amend after year end, and depending on rules in plan (ie a standardized prototype!) maybe not even now for 2001!

Assuming a w-2 employee, the answer is no, because the definition of pay (w-2, 415, or 3401) no longer includes any pay after year end. Even 1099 pay has to be done before year end. It probably would be counted in the next year if bonuses are included in the definition of compensation.

Yes it is too late for 2000. This is not one of the type of amendments that would increase benefits and / or funding.