Disco Stu

I am in agreement. There have been more than a few threads on these boards regarding salary deferrals after passing the $160,000 comp threshhold. I may have stopped reading them after the 100th opinion on the subject, but I believe the consensus (as well as my opinion) was in keeping with your assertion.

$160,000 is the maximum amount that can be considered as compensation for the purposes of a pension plan. There are different limits for contributions that are made to plans. The two simplest limits are the limit on elective deferrals and the annual additions limit. For 1999 the elective deferral limit is $10,000. This limits the amount of salary that an individual can defer into a 401(k) arrangement. The annual additions limit is the lesser of $30,000 or 25% of compensation. This limit applies to all contributions made to plans on the behalf of an individual participant. If you could be more clear about what types of contributions and what limits are in question, we will be able to offer more meaningful advice regarding any needed corrections.

Why do you need to refile? It's OK to file a full 5500 even if you're entitled to file a C/R. As long as you answer "yes" to the question about being exempt from the audit requirement you can file a full 5500 without an audit attached.

I am in agreement with the previous two posts that concluded that the match vesting schedule would still apply, and I would not be dissuaded by the language that you have quoted. I have two rationales for my line of thinking. First, I don't think you could take away a benefit that had already been accrued (100% vested match) and make it subject to a vesting schedule just because the employer is trying to find a cheaper way out of a top heavy problem. Secondly, and more generally, you are simply TESTING the benfit under 401(a)4 instead of 401(m). The 401(a)4 general test is only concerened with the amount of the benefit and whether that benefit is non-discriminatory. Whether or not the participant is vested in the benefit at this time is not relevant. If the employer is nervous about this they can always fund the 3% top heavy minimum in addition to the match. But I don't think that I could justify yanking the match and puting into a source with a different vesting schedule.

I am trying to decide how to apply the net unrealized appreciation rules in the case of a leveraged ESOP. My facts are as follows... The company got a $1,000,000 loan to buy 500 shares from an owner. The loan is paid in 10 annual installments (variable interest rate). Based on the chosen share release method, 50 shares will be released each year. The possibilities that I am considering are that the basis of the shares is... 1. $1,000,000 always 2. The cumulation of the contributions made to the plan to repay the loan (principal + interest) 3. The fair market value of the shares on the dates that they are released. I'm inclined to think the #1 is correct, but I wasn't sure from reading the regs if any of the examples specifically applied to a leveraged ESOP. In addition, there is cash contributed to the plan. When employees terminate employment they are not given the opportunity to take shares from the plan. Their shares are purchased with the cash in the plan and the shares are redistributed to the remaining employees. I am also inclined to think that these shares would retain their original cost basis because they have not left the trust. But again I haven't found concrete information to support this. Any cites and input would be appreciated. p.s. I do realize that since the plan does not allow a distribution in shares that NUA doesn't apply. I just prefer to track the basis in case the employer changes their mind about the distribution policy in the plan.

I concurr with Stu as well. The 402(g) limit is strictly a calendar year deal.

I agree with Connie, and would add that the 2 1/2 month deadline only applies to correcting a 401(k)/401(m) test failure. It does not apply to salary deferrals returned to correct a 415 excess. My understanding of 415 is that there is no specific deadline for correcting a 415 problem. Any 415 problems should be corrected within a reasonable time after their discovery. In practice I think it is wise to fix any 415 problem within 12 months of the end of the limitation year involved. No 5330 needed.

I have a plan that I administer that uses exactly that language to accomplish that goal. I'd have to check my files to be sure, but I'm almost positive that they got a favorable determination letter on the plan.

Jeez, I'm in the wrong line of work. This guy's 1st paycheck is for $160,000 (or more)? You are right, that the next time this person would be able to defer is 1/2000. I'm assuming that this person had not made any other salary deferrals during the 1999 calendar year. The calendar year 402(g) limit for 2000 will apply to any deferrals made after 1/1/2000. This limit may or may not remain at $10,000 for 2000. There's really nothing stopping this participant from deferring the max for 2000 right away in 1/2000, but as a practical matter, it may be advisable to have this HCE wait until the after the start of the 8/1/2000 plan year. Unless you have a lot of slack in your ADP/ACP tests, having $20,000 (or more) of deferrals in a single plan year for an HCE could cause problems in those tests.

I agree with Paul. You should definitely get a Summary Plan Description. Your employer is required to provide you with one. That will tell you what you need to know regarding timing of distributions. It's possible that you may have to wait even longer than Paul speculated. It just depends on your particular plan. If the stock of your employer is not pubicly traded, it is probablt only valued once a year. Some ESOPs, to avoid a cash crunch for the company, make former employees wait 5 years before they can receive a distribution. If this what is referred to as a leveraged ESOP, you could have to wait even longer...until the ESOP loan is completly repaid. Get a copy of the SPD. It will clear things up.

I agree that there's a difference between a 2nd loan and a refinanced 1st loan. The question as it was posed said that a second loan was taken out. I guess we'll have to assume for the purposes of the discussion that the eligiblity for the 2nd loan was determined properly. What I specifically (and humbly) don't agree with is the assertion made in the post by sacobb that says that if you completely repay the first loan with part of the proceeds from the second loan, that the first loan somehow still exists and the 5 year repayment requirement is from the date of the first loan.

If your loan program allows participants to have more than one loan outstanding at a time, I don't think that the second loan necessarily has to be viewed as a refinancing. Maybe this is just a form over substance matter, but if a participant can legitimately qualify for the second loan, there is nothing in the regs that mandates what the proceeds of the loan have to be used for. They could buy a car with it, or they could use it to pay down an existing loan. If you have qualms about the form of the transaction (I personally don't), just make the two steps more distinct. In my view the grey area occurs when the loan program only allows for one loan at a time. I have heard plenty of arguements on either side of the refinancing arguement in that case.

You'll want to review your plan document for more specific guidance, but in general...you can use match to satisfy the TH minimum, but any match used for this purpose can't be used in the 401(m) test. This can create problems with the 401(m) test if you are only giving the TH contribution to non-keys. Sorry, but I don't have any cites at my fingertips for this. Someone can feel free to plop one in if they want.

One of the trust companies that our firm works with mails a 1099 along with every distribution check. I know that other companies do this as well. Doesn't seem like a great idea to me, but what do I know? Insurance companies have all the answers.

Yes, and if you round up, you're using the top 25%. At seminar I attended, the speaker told us to always truncate a fractional person. The reason being that if you ever rounded up, you'd be using greater than 20%. Frankly, that makes sense to me, but absent any specific guidance to the contrary, I share NDT123's opinion.

Go to the main BenefitsLink page and click on Q&A Columns. There is a Plan Defects area in there. Be sure to read the disclaimers.

I am in agreement with the previous post. Absent any plan language to the contrary, I don't believe the code would have anything regarding timing of distributions solely based on a ex-participant's status as an expatriate.

I can't argue with anything that you have said. In the larger companies that I deal with, this takes place pretty regularly. Often, however (and this is Mike's point) in a small company there is no one there to explain to the HCEs what is going on. Many small company managers and execs have neither the time nor the inclination to learn all these goofy testing rules. I can't blame them too much for that. I give them the info that I have and hope that they make the best of it.

I certainly agree with your point. It does happen that many people are confused by the situation. Given that fact that the people getting the refund are by definition the HCEs and generally the decision makers at the company, I've found it's better to give them as much information as possible up front. Many of these people have professional tax preparers. Some of them actually do understand the situation themselves. If they really do not underdstand why the distribution is taxable in a prior year, I can see why when January 2000 rolls around they would be irritated that they have to go through the time and expense of refiling their 1998 return. I would just as soon not be the messanger that get shot in that situation. I guess in short, my position is that more information is better than less. Those that are able to use the information would hopefully appreciate that their service provider was looking out for them. The others are going to be confused either way.

I am in agreement with previous post. I was unaware that a plan could allow a distribution of match in this scenario. It seems impracticable to have a provision like that in your plan. From year to year, you would never know if your match was non-discriminatory. Have you actually dealt with a plan that had such a provision? If I was in that plan, I'd be deferring $50,000 a year. [This message has been edited by Disco Stu (edited 03-11-99).]

It depends on the match formula. If there is a dollar for dollar match, then yes, attributable match would be forfeited. If there is a cap on the match, then you may not be returning matched salary deferrals. No need to forfeit in that case. Same deal with a returned ADP excess.

I'm not sure that I see 1-D, 2-D or 4-D in there. Additionally, I'm not sure how you could arrive at one of those combinations. 4-P isn't specifically mentioned either, although I would guess that if you can have a 1-P or 2-P, you could have a 4-P. I see 8-1 8-2 and 8-4 mentioned in there. I can't imagine what those would be used for. Can anyone enlighten me? [This message has been edited by Disco Stu (edited 03-10-99).]

If it isn't too late, it would be helpful to tell the affected HCE not to file his/her 1998 taxes yet. If they haven't filed yet, they can still get the taxable income on the 1998 return. The 1099 likely won't come for another 10 months, but as long as they have some documentation as to what the refund is for, they should go ahead and put it on their orginal 1998 return.

My company lets me direct all of my employer contributions. They are also kind enough not to charge me any maintenance fees for my loans.

My company directs the investment of employer contributions. They also charge maintenance fees for loans.