R. Butler

See Notice 2000-3, Section D.III. Q&A.1. You can amend a 401(k) plan during the year (but no later than 30 days prior to the plan year end) provided you mett certain requirements.

Can only amend to safe harbor nonelective in '04 if they gave the "maybe" notice before the beginning of the plan year.

Agreed, I didn't read carefully enough. Many practioners, howver, would actually still apply that exception to the safe harbor rules because there is no guidance one way or the other. Silence doesn't mean you can't apply it. I have never thought about it & don't know what I'm not sure what I'd do. In all circumstances I would feel more comfortable if there was a legitimate basis to reject the loan.

That exception has been in the regs for awhile; it is found in 1.401(k)-1(d)(2)(iii)(B). I only recommend using that exception in very limited circumstances.

2004, but why did it go into a corporate account?

As Archimage points out you need to check your document. The top paid group election & the ADP/ACP testing method are separate choices & not dependent on one another.

Regardless of the prototype issue, I didn't think you could have an hours requirement to receive a top-heavy minimum. 1.416-1, M-10 states that "Those non-key employees who are participants in a top-heavy defined contribution plan who have not separated from service by the end of the plan year must receive the defined contribution minimum." Obviously I'm only guessing, but the document is probably pretty clear on this. The document probably contain minimum accrual requirements that pertain to either Non-keys or to Participants. If the document says top-heavy minimum for non-keys than a key employee isn't required to get the contrib. (although be careful if there are other profit sharing contributions, as Tom Poje points out there isn't an hours requirement for active participants in a standard prototype document). If the document says top-heavy to participants, then he should get it.

The plan requires an audit if there is more than 99 participants at the beginning of the plan year. If there less than 100 participants at the beginning of the plan year than audit generally not required, but beware of the small plan audit rules.

I have had similar situations a couple of times. In each case I ran eligibility & then after posting the tranasction I went into the Census Data & coded the employee ineligible. It may not be the only solution, but it is an easy solution.

Agreed.

Archimage, I know that many practioneers will do you as you suggest, but I've always been concerned about what basis there is to forfeit a deferral. I adopt the treat it as a 402(g) excess theory because that really is what it is most akin too. Although I don't treat it as a "mistake of fact", I can follow the logic, I just arrive at a different conclusion. Other than lost participant scenarios, I can't find a basis to ever forfeit deferral money. Also, I have difficulty with the fact that really half of the correction takes place apart from the plan. There is nothing within ERISA that I am aware of that requires the employer to make the participant whole (I realize that the participant does have remedies, just not within ERISA). It just seems cleaner & more logical for the entire correction occur within the plan.

As svatty suggest we treat excatly like a 402(g) excess.

I agree with svatty. I would refund the excess deferral to the participant. I also agree with svatty that forfeiting the contributions is not a good option. After my own research & consulting with other attorneys, I came to the conclusion that refunding the deferrals in these instances is a "reasonable & appropriate" correction. You will get others, however, who strongly disagree.

I hate forfeiting participants in these sitiuations, but assuming all avenues to find the participant have been exhausted (and I would first try commercial locator services as rcline suggests) & the plan document allows for it, then I agree with mbozek; you should forfeit the balance.

1. You do not adjust the W-2 for an excess deferral. 2. If the corrective distribution is made by 4/15 it is taxable in the year in which originally deferred. Any gain adjustment would be taxed in year of distribution. If corrective distribution is made after 4/15, the excess deferral is taxed in both the year originally deferred & the year of distribution.

It may not be off the mark; we just don't handle it that way. Unfortunately, I have seen very little guidance on specific correction methods other than the plan amendment correction method found in all of the EPCRS Rev. Proc. Most plan sponsors don't want to amend & make the employee eligible, treating it like a 402(g) failure seems like a "reasonable & appropriate" correction method to me.

I rarely do the 1099's, but I am fairly confident that we treat exactly like a 402(g) excess. We use the 1099-R & use code 8 (at least I think code 8). I would not treat deferrals by an ineligible participants as a mistake of fact, even if the payroll clerk entered an incorrect hire date.

Tom Poje, I initially thought the same thing about the notice & a new plan (& that may be the case), but I looked at IRS Notices 2000-3 & 98-52 & I never saw an exception to the reasonable time rule for new plans. Could have just missed it. MarZDoates, If you do amend, be careful to consider how you handle forfeitures if the Plan Sponsor is looking for the top-heavy pass. Although I have not seen any formal guidance, many believe that reallocated forfeitures will kill the top-heavy pass.

I'd be hesitant to say inclusion of an ineligible employee is a mistake of fact. I use mistake of fact only for typo's and maybe math errors.

Why terminate? Just amend to add the safe harbor 401(k) feature. Make the safe harbor 401(k) feature effective 02/01/04 & avoid the 30 day issue.

We don't forfeit the earnings; we distribute the earnings just like with any 402(g) excess.

I've been getting this for a couple of quarters now. It is fairly useful.

A couple of things: 1. I am assuming you no longer work at the old job. Is the money still in the old employer's plan? If yes, it is unlikely let you keep such a small amount there. It sounds like you want to keep it invested. You probably want to roll over into an IRA or your new employers plan. 2. If you are no longer employed at the old job you cannot contribute to that plan. You can set up an IRA or a Roth IRA and make contributions to that. You probably should go to your tax preparer or an investment advisor that you feel comfortable with & let them give you advice. They'll be able to sit down with you and analyze your financial situation. Ask a lot of questions until you understand exactly what they are advising you to do & why they are advising you to do it.

We have treated like a 402(g) excess in the past.

In your first situation, if the cure period is over I see no basis top avoid a default. However, I have seen a contrary view in a prior post. http://benefitslink.com/boards/index.php?s...t=0entry63728 I agree with you that there is no default in the second situation.