rcline46

It is highly probable under this scenario that the second plan would be considered a successor plan, and vesting must pass back through the original plan. Also, on termination everyone in the plan would be 100% vested.

In general, no. The plan may define compensation as while a participant, so only comp from the effective date of the plan may count. If the limitation year is 12 months then the 401(a)(17) limit does not get changed.

The addition of the 401(k) feature itself is a major amendment probably requiring a full restatment. Do you have a 'snap on' 401(k) amendment? The Safe Harbor needs notices but no amendment until the end of the Remedial Amendment Period, so don't worry.

As long as there was no predecessor plan, it is ok to have different vesting years definitions in different plans of the same employer.

See similar thread from GMEDLEY for differing points of view.

In my opinion - the PLAN terminated 3/31/00, the trust continued only to pay distributions. Without a detailed look at the regs, I think a new PLAN (401k) can be started on 4/1/01. But check the regs.

You stated the document says all comp for a participant. Some docs state only comp while a participant. If full year comp, then you have another question - is match defined on a pay period basis. Chances are it is not. So - full year pay, full year match - this is what is known as a 'true up' or 'match patch'!

No, the plan cannot establish the minimums. The only solution is offer a 'brokerage' account someplace that has its own minimums. That way the plan is offering but an outside party is setting the restrictions.

Actually, why would the effective date for a plan be anything other than the first day of the plan year? As long as it is SIGNED before the year end, it is legal and avoids all of this discussion. Even for 401(k)s, the effective date can be the first day, just that deferrals cannot begin before the plan is signed. For you question, the answer is no proration. Just watch definition of compensation. If 'while a participant' and you make the effective date other than first of year, you could be forced to use less pay than desired.

You ain't gonna like this. You are now the proud sponsor of TWO profit sharing plans and TWO money purchase plans. According to the IRS your sole prop never really goes away regardless of income, and it is a controlled group with your corporation. The STANDARDIZED plans you adopted automatically include all members of a controlled group. Sooooo, you old plan is sitting there waiting for, nay, demanding a contribution. I have seen this many times especially with doctors. My worst case was 4 sets of plans (MPPP / PSP) each opened at different times with different mutual fund companies. My suggestion is to immediately rescind the new plans and have the deposits returned as mistake in fact. This may be stretching the law a bit, but Schwab did you no favors by allowing you to install the plans. Then contribute to the old plan. 10% MPPP and up to 15% PSP. When you have the time (and you will have to in 2001 anyway) amend the old plan for self direction and whatever else you want. FUnny thing is - you will be using the same docs I just said to rescind! Except you will be marking them as an amendment of an existing plan!

Of course the document rules (providing there is a LOD or Notification letter.) However, in all of the documents I have read doing takeovers, not one used the option to do a short year for an initial year. Even when adoption agreements gave the option for a short year, the underlying document is very clear that the first year is NOT a short year.

Why did you not adopt the old plan into your new company? That would have been perfectly legal. Terminate the MPPP because that would kill the 15% for 2001 if it matters to get it to 10% with a new plan. Otherwise just amend for 2002 and be happy. What happened to the old plan? Did you know it might still be very active and alive for 2000? and you might have more problems than you realize! Richard Anderson responded to the Pub 560 item. Now I am really concerned about the old plan!

Still ask nicely. If former boss is recalcitrant, mention your only other solution is to go to the DOL and ask them to check on the contribution. Good luck.

First, ask your employer nicely if he 'forgot' to put in the match. Don't threaten or be nasty, do it privately. If you have problems, then contacty your local DOL/PWBA office for advice. They may follow up. You may be put under pressure. However, you cannot be fired for exercising your ERISA rights. Its a VERY nasty lawsuit against your employer by the Feds if he does retaliate.

If a plan is not adopted, then it does not exist. That is the legal end of it. Insist on seeing a signed copy, and make sure the dates are consistent. On takeover plans, we will not go forward without a signed prior plan document. (A LOD and usigned will suffice, because a signed copy had to be presented to get a LOD)

Simple. Write a letter detailing all of the failures on compliance and operations. At the end of the letter resign from any additional work, refund any unearned fees. Send it registered, return receipt. DO NOT UNDER ANY CIRCUMSTANCE DO ANY MORE WORK UNLESS THE CLIENT AGREES AND PAYS TO CLEAN IT ALL UP UNDER CAP. You could be sued by the participants for complicity in the crimes and for covering up fiduciary failures. Do they have a case? Not yet under current cases and regulations. But it will be VERY expensive to defend youself. Give Reisch and Luftman in California a call. If they will talk to you without a fee (this is their specialty, defending TPAs who don't know enough to come in out of the rain) they will tell you the same.

The investment company must have the document on file. If they don't then they are guilty of malpractice, and possibly a fiduciary breach because they are treating it as a qualified plan when it isn't. 1. Get to the compliance department of the investment house and explain what you need. They are VERY sensitive to exposure while the sales offices don't care. 2. Get after the client. If they can't produce anything (remember that last item had to be dated in 1994 unless a special extended period) insist on non-amender CAP. Its really not too expensive.

A lesson learned the hard way. Never buy qualified plans from someone who only wants to sell product to make a commission. They do not understand qualified plans and only offer standardized prototypes, which will burn you again. You got what you paid for. Bet you didn't read the document carefully (how could you on 12/29 when you were desparate!). Unless you terminate the Money Purchase plan (bet Schwab can't explain what happens for contributions when you terminate mid year!) you are already stuck for 15% in 2001. Of course if you can afford the 15%, there is no problem. Better read the Profit Sharing document. It might state you need profits or retained earnings to contribute. Find a pension administration firm. Their reputation depends on correct advice because you can sue them. Try to sue Schwab for misleading information. SOme firms advertise on this site, ASPA has lists, and their address is on Benefitslink. (I am on the east coast so this is NOT a solicitation!) Good luck, really.

Thank you Tom Poje. There is a tremendous amount of misinformation and misunderstanding on this topic. Until I read Kevin's stuff and reviewed the regs, I was under the same misimpression that a short initial year is a short plan year. That just ain't so!

You are working with several items: 1. 402(g) limit of $10,500 on a calendar year basis 2. Definition of partnership income 3. Deposit of partners deferrals 1. Easy, as long as you know what calendar year the deposits are in respect of. 2. This is easy, the partners income, like that of a sole prop, is defined as earned on the last of the partnership year. Therefore the income is defined as being earned on 4/30 even if not determined until later. This also means that the deferral rates must be in place no later than 4/29. The partners CANNOT decide what to put in AFTER 4/29. Even if their income is not known until much later. 3. Once the income is finally known, Say next Jan 31, they must follow the regular ASAP deposit rules, and the deferral is in respect of previous year. If they are following the deferral election rules, then this is just fine.

The crucial decision in a short year is based on what the document defines as a limitation year, and then the definition of compensation. All documents I have seen define the limitation period as 12 months for the first plan year. The only time it is less is if the plan year changes. Therefore there is no proration in the first year of the $170,000 or the 25%/$30,000 (now $35,000) limits. If the document defines pay as while a participant, then the Nov - Dec pay is all that counts. You MUST read the document carefully. And you must read the regulations relating to limitation years.

Question 1 - I agree with Richard. I have a plan with 2 flat $ classes and an age based class (father and son). Watch top heavy and 25% rules. Will not work in 2002 - bummer! Question 2 - There are VERY few who feel volunteer work by a spouse amounts to being an employee. It would be far better to pay her and contribute -0- to her class. In the RIS Q &A at ASPA concering a sole prop with 0 net income, the Jim and Dick show feels that person would not be in the tests at all. It hinges on how one intreprets 'or entitled to be paid' in the regulations.

We are not the first to discover the regulation leaves much to the imagination! As Tom Poje was trying to point out, if a person is required to be a participant (statutorially included!) can you exclude them from the test as statutorially excludible? It is my belief that the IRS would not approve anything like 6 mos after 1 yos or any variation thereof. Just like they won't approve anything that looks like part-time exclusion. A LOD is acceptable proof I am wrong. My position is that once the latest possible entry date has passed for an employee, they cannot be statutorially excluded. Jim & Dick want it to be first entry date.

Reasonable people may disagree.... The eligibility rule in ERISA is quite simple. You cannot make someone wait MORE THAN 18 months to enter a plan. (Ignore 2 year wait). You cannot, to my knowledge, get a document approved which states the eligibility is the completion of 18 mos of service. What follows is predicated on this. THe maximum age and service requirement is 21 and 1 year of service. The latest date of participation allowed under these rules is 1/1 or 7/1 following. Therefore anyone hired from 1/2 to 6/30 will enter the second 7/1. That is a statutory participation date. I see no support for 18 months (except for the 1/2 hire). The Jim & Dick show has stated it is their opionon that if the plan entry dates are more favorable (date of event, monthly, quarterly) you must use the plan entry date which follows the statutory 21/1. My opinion is you can use the 1/1 or 7/1. The fact that Mr. Anderson's software uses the 18 months is a decision made by that company, and Mr. Anderson is NOT indemnified if they are wrong. Note that Mr. Anderson is entitled to his own opinion, but I would strongly recommend he, or anyone else confused here, to get their own ERISA counsel to comment. I certainly do not want to have to pay the penalties for a bad interpretation on my part.

I disagree that the person can be 'statutorially' excluded. This person has met the 'most stringent eligibility' requirements under law, and must have been employed on a plan entry date. As shown before, they have 1 year of service (and age 21) completed on March 1, 2000. A plan cannot keep someone out beyond 18 mos, so the most stringent entry date would be July 1, 2000. Once in, tested of course. The IRS at ASPA was making noises that the first plan entry date (date of event, monthly, quarterly, anniv nearest) should be used. Maybe Mr. Anderson could explain why he believes you can use the statory exclusion?