mming

The instructions for Form SS-4 seem to make a trust ID# mandatory, as rhp pointed out. I'm guessing most clients of TPAs are like mine - you can get the number for them, tell them how and why to use it, and most will still register their plan investments under their EID#. Thankfully, in the majority of such instances the IRS doesn't catch this. However, once in a great while we do receive an IRS letter stating that 'Joe Client owes us a ton in back taxes, penalties, etc. because we've noticed he's never paid tax on any of the dividends, interest or capital gains on the investments in this corporate taxable account'. It usually gets straightened out without the client having to pay anything, but only after you've twice explained what the intention of the investments were to half of the IRS. Avoiding this potential frustration is another reason to get a trust ID# now. One more reason is that you may be the unfortunate one to get an IRS agent who won't let it slide as an "innocent clerical error" and demands payment. We haven't seen this happen yet, but you never know. [This message has been edited by mming (edited 05-16-2000).]

Hoard1 - I don't think you can retroactively adopt a 401k plan, i.e., deferrals shouldn't be made unless the doc has been executed and made "official". Why not make the plan effective currently, even if it means having a short PY?

Thanks everyone for your responses. rhp, it happened during PYE 12/31/99 and fortunately the extra deferral amount is only about $400 (associated match is about $200). Doc is silent re deferrals for ineligibles.

The employer somehow allowed an NHCE to begin making deferrals to their 401(K) plan about four months before that employee met the eligibility requirements. The employer even made a quarterly match for the employee before her date of entry. Should the employee be given back the deferrals that were made before her DOP and revise her W-2 (consider it a contribution in error)? A 402(g) violation did not occur, so it can't be treated as an excess deferral. It happened to an NHCE, so it seems it shouldn't be treated as an excess contribution. What is the best way to handle this? Would giving the match back to the employer also as a contribution in error be advisable (overall match made throughout the year for her exceeded what she should have been allocated)? All help much appreciated.

Can participants who have self-directed accounts be offered individual life insurance policies withing their 401(K) plan? The type of insurance being considered by the trustee would be term, so it would be purely an expense item from each participant's account, not an "investment" as there would not be any cash value accumulating. Would there be any discrimination issues, e.g., assigned risks having to pay higher premiums for the same benefit that non-risks are getting? The agent says that males could pay less for insurance through the plan since unisex rates must be used to be nondiscriminatory(?). If that's the case, I wouldn't think any of the females would want to pay the higher premiums this would create for them. I'm also guessing that, in light of the 25% of contribution limit for premiums, a participant would lose their insurance coverage if they stopped deferring. I don't know that much about insurance, but it seems that its advantages are usually outweighed by the complications it causes in qualified plans.