PMC

What if they amended the plan to have a short plan year for 2001 ending 3-31-01. Wouldn't they only be on the hook for contributions based on compensation for the plan year (now short)?

Re- the cessation of benefit accruals - Employer wants to merge their MPP into their PSP. Both have calendar year/ plan years. They are both on a Standardized AA. They want to merge effective 4-1-01. The MPP calls for an employer contribution of 4.5% of each participant's compensation for the Plan Year. Can the employer merge the plans as of 4-1-01, fund the MPP through that date, based on participants' compensation through 4-1-01? (All proper notices, 5500, GUST amendment will be done for the MPP.)Basically ending the MPP plan year at 4-1-01. Or, would the employer have to continue to maintain and fund the MPP throughout the calendar/plan year and use the compensation for the entire year and then merge the 2 plans at the beginning of the next plan year?

Look at IRC Sec. 72(p)(2)(A)

Thanks. I guess the only reason I could think of for not making a 401(k)plan effective the first day of the plan year would be to avoid having to include employees who may have terminated before the "effective date" and have already met any requirements to share in any profit sharing allocation. But then again, if that's an issue for the employer can always draft the plan to avoid that.

For a new start-up plan - is the effective date of the plan basically irrelevant, for this discussion, if the plan defines the plan year as the calendar year and the limitation year as the calendar year/plan year? There would be no pro-rating for 415. And there would be no pro-rating of the 417 comp. limit since everyone obviously becomes a participant during the first year?

Thanks for the responses but I messed up. The first line in my question should have read Company A is being purchased by Company B. So Alanm, looks like you answered the question in your last sentence.

Company A is in the process of purchasing enough stock of Company B that they will consitute a controlled group. Company A intends on terminating its 401(k) plan prior to that transaction and distribute the assets to participants. After the sale is finalized a new 401(k) will be established but ONLY for the employees of Company A (Company B has a 401(k) but the employees of Company A will not be eligible to participate in that Plan and vice versa -(410(B) has been satisfied). 1. Does the fact that they are now a controlled group and the old Plan was maintained and terminated by one employer (i.e. Company A) and the new Plan is established and maintained by a new employer (i.e. Company B & Company A controlled group), permit a distribution of elective deferrals from the old Plan and starting up a new one within 12 months of the distribution, even though this new Plan is just for Company A's employees? 2. Would it make any difference if the new Plan was drafted with the "employer" being defined as "Company A and any other member of the controlled group adopting the Plan" but it excludes any other member from participation in the eligibility requirements? They do not want to continue the old Company A plan. How do you think the IRS would view this? The intent is clearly to terminate and distribute and start a new plan just for the employees of Company A.

Two separate entities constitute a controlled group and each of them have maintained separate (almost identical)plans. Both are on Standardized Prototype documents. They now want to merge the Plans into one. If they use EPCRS (SVP) and go before the IRS, practically speaking, what do you think the IRS would require?

Why can't you do what MDavis said? 411(a)(10)says a change in the vesting schedule can't reduce the accrued benefit. Keep the participant 100% vested in the accrued benefit (as of X date) but apply the new vesting schedule to the new contributions (tracked separately). The potential here is to create the old class year vesting for certain participants for a couple of years. But then do what David says needs to be done - if a participant has at least 3 years of service as of the date of the change they pick the schedule under which the nonforfeitable percentage is computed under the "Plan" (i.e. pre-and post amendment date accrued benefit, not just the pre-amendment accrued benefit).

What is the procedure for filing 5500s for merged plans in the following example - 3 plans with the same plan years (1-1) intend on merging effective 1-1-01. Separate testing and 5500s would be completed for each of the 3 plans for their respective 12-31-00 plan year end. Do you then have to complete a final 5500 for each of the 2 merging plans (#1 and #2) for January 1, '01 (a 1 day 5500) reflective of the fact they have merged into plan #3? Or is there a procedure or some permissable method of doing the 2000 Form 5500 for these merging plans (1 & 2) and attach a statement saying they are merging into plan #3 on 1-1-01?

Once allocated to a participant's account, isn't it a violation of 1.411(a)-4(a) to "unallocate" that amount, and generally why with plans that have any restrictions tied to who receives the allocation, the contribution is "allocated" annually?

An employer just discovered that their 401(k) plan has included individuals who are illegal aliens. They are now being deported. If those individuals made any elective deferrals, should they be returned to those individuals? What about any earnings on deferrals? Forfeit along with any employer contributions made on their behalf?

Regarding the Profit Sharing and Money Purchase scenarios under 414(h) - Under a MPP an employee could not withdraw those 414(h) "pick-up" prior to termination of employment. But if it is a Profit Sharing version can an employee withdraw those 414(h) "pick-up" contributions since they are considered employer contributions. Also, is it possible for an employee to suspend 414(h) contributions (e.g. for hardship reasons) under either the mandatory or irrevocable scenarios discussed above?

What about an employer who doesn't have a 401(k) plan now but adopts one with an effective date retro to 1-1-00 with a plan year of 1-1 to 12-31, deferrals beginning on 12-1-00 (document signed by then) but defining compensation for the entire plan year so they can maximize deferrals (would all have to come from December's paycheck). Can that employer adopt it as a safe-harbor 401(k) for the 2000 plan year making a 3% nonelective to all eligibles throughout the plan year? Notices distributed by 11-1-00. Notice 98-52 says the plan year must be in existence for at least 3 months, which this one is. Or would the IRS look at this plan as an existing PSP (even though it wouldn't exist until 12-1-00 when adopted)and adding a CODA effective 12-1-00, in which case the October 1 date would have applied? Or, would they look at when the deferrals could have commenced (12-1-00) as say the 3-month period hasn't been satisfied?

What are some of the typical cost of living adjustment methods you have seen applied to retired employees benefits in a DB plan? Other than tieing the adjustment to the CPI are there other typical methods used and do you see them generally applied to individuals who have been trired for 5,10,15 years and are there varying amounts applied depending on how long the individual has been retired?

There may be reasons why an individual would leave their account in their former employer's plan. If their account is small then they would be cashed-out. But if their account is $5000+, how is a $20-25 annual per head charge viewed as a "significant detriment" to that individual? It actually could be one of the better options they have and they are the ones consenting to leave it in the plan and incur that expense. Say the plan sponsor wants to go that route and willing to go through any facts and circumstance examination the IRS imposes, is it anything that would have to be tested under BRF?

A plan sponsor wants to pay an annual per participant charge for active participants but wants to have terminated participants who leave their accounts in the plan pay those same expenses. Would this have to be tested as a BRF? Other comments?

Before elective deferrals can be made to a plan with CODA, the plan, or amendment in this case adding the CODA, needs to be signed. See 1.401(k)-1(a)(3)(ii).

Similar question to the original - what if the plan has a last day requirement now but wants to amend during the current plan year to add 1000 hours too? Would this be permissable since no one has accrued the right to the contribution until the last day anyway?

This wasn't the specific question but 2 companies within a controlled group each maintaining a "Standardized" Prototype?

Wouldn't it be more of a payment of an expense levied against the plan vs. a contribution made to the plan?

An employer employs both union and non-union employees. It sponsors a 401(k) plan just for the non-union employees. The union now wants a 401(k) but the employer maintains they will not include them in their current plan nor will they be the sponsor of any new plan the union employees participate in. There will be no "company" contributions to the union plan and apparently this is not subject to the collective bargaining process. All the members of this union are employed at this particular company. The union maintains that they can sponsor a plan. Is this correct and do they just assume all the duties and responsibilities that an ordinary corporate plan sponsor would?

Does this mean that a governmental 414(h) plan could not designate a range of employee before-tax contributions (employer pick-up) from say 2%-5% because it would give employees the option of choosing to receive certain amounts (anything over the 2%) directly instead of having them paid to the plan? So 414(h) plans can only have one designated percentage that MUST be contributed?