R. Butler

Thanks Appleby, I will give this a try. http://www.benefitslink.com/boards/index.php?showtopic=12107

O.K. I found the thread I mentioned in the prior post. Again I can't figure out how to insert the link. If you hit the "Search" button, search just the message boards using the name jin.limledoux (He is the original poster). The message thread is called $170k Limit. Its the only post he/she made, so it should be the only thread you see. If you use the thread QDROphile sets forth the logic to the conclusion. Hope this helps.

A participant doesn't necessarily have to quit deferring because he/she hits the $200,000. The Plan may require it, but the I don't see where the law does. Example: If a participant hits $200,000 in June he has been deferring 4% that would be $8,000. Absent a provision in the Plan to the contrary, the participant could continue to defer until he $11,000. If this is your question, I know that there is prior post pertaining to this, I don't know how to insert links or I would find it for you.

I'm not sure I understand the question, but the determination period for Compensation is defined in the Plan Document. It doesn't necessarily have to be the Plan Year. The 402(g) deferral limit is a calendar year limit.

SIMPLE 401k's can have a loan provision, SEPs and SIMPLE IRAs cannot.

I am submitting a Demo 5 for a basic cross tested profit sharing plan. Basically I am just going down the Schedule Q, demo 5 instructions line-by line. Two lines I an unsure of: 1. Line 2 asks for a definiton of testing service. I am sure this is simple, but I don't know what they want. 2. Line 8 asks for defintion of 414(s) comp and a demonstration showing that the demonstration as nondiscriminatory. Is it sufficeint to just state the Plan uses a safe harbor definition for 414(s) comp.? Thanks for any guidance.

It beats the old way. I started in 1996, learned the old rule and then one year later they change it. I wish they would have changed it in '96 & I would have never had to go thru the agony of learning the old way.

If the employer has a 5% in owner in the current year than there would be an HCE.

"...Secondly arent many of the expenses you mention, e.g., benefit packets, participant inquiries, distribution requests settlor expenses that cannot be charged to the plan? Q are 5500 costs a settlor obligation because it must be filed by the sponsor?..." I would disagree that any of these expenses are settlor expenses. Settlor expenses are not expenses incurred becasue the Plan Sponsor is meeting a DOL/IRS requirement, but rather just the opposite. A settlor expense results from voluntary acts of the Plan Sponsor (i.e. Establishment or termination of Plan, design studies, voluntary amendments, etc.) Assuming the fees are reasonable, I don't see why all of the expenses BFree lists could not be properly charged to the Plan.

KJohnson I haven't seen any guidance recently on the "consisting soley of" requirement. I have asked several other administrators, attorneys, etc. and I get different answers. We are running up on 12/31; I hope we get guidance soon. As to the second part of your post, if we are worried about the discretionary contribution provision, couldn't we still merge and provide in the merged document that there would not be a profit sharing contribution. We avoid the vesting problem that way.

mbozek, I would disagree that the Participant bears no responsibility, but its irrelevant to the question. Sandra Pearce's question asked whether the loan could just be brought current. I don't see any thing in case law or regs that would allow her suggestion. Even your initial post to this thread suggests that just resuming payments is not an option at this point.

No you are not correct. The lookback year is the 12 month period preceding the first plan year.

If you don't mind let me know what they tell you. Its an issue that doesn't arise frequently and always helpful to have as many ideas as possible if and when it does come up.

Probably could have corrected if caught before June 30, 2002, but now we are beyond the cure period. Although Plan Sponsor should have started payroll deductions ultimately some responsibility does lie with the Participant. He/she knew the payments were not being withheld and did not mention anything for 6 months.

If the loan was not bona fide it is considered distribution. If the distribution would not have been allowed under the terms of the Plan it is an improper distribution. If the participant repays the improper distribution in full there would be no taxation. A lot of "ifs" though.

I am not familiar with Clark v. Community, but from the brief facts set forth a tax-qualified plan was not involved, that is a significant factor here. You may still end up with the same result. The correction for an improper distribution is for the participant to return the proceeds. A new loan may be issued, but it would be totally unrelated to the first loan. Again, as mbozek points out, consult counsel. An argument may be made that there isn't a bona fide loan, but its not clear to me that thats the case. There are several factors to consider, including evidence of a loan agreement, whether security was provided, etc.

I don't necessarily agree that you can rescind the loan and start over. You possibly could argue that there was no bona fide loan (repayments never began and were never demanded), but as mbozek suggests you should contact counsel to this issue. If you determine that there wasn't a bona fide loan then the entire amount should be treated as an actual distribution. If there wasn't a distributable event, than I suppose you would treat the same as any improper distribution.

Much2Learn, I apologize. I misread your question. I immediately deleted my repsonse, but I guess you still saw it. As I think about it though my answer wouldn't change. Many documents have provisons preventing the use of match to meet top heavy. If the document doesn't have such wording, I don't see why you couldn't apply the match to top heavy. Sorry if I confused you by dleting the initial response.

I agree with Mike Preston. Don't include if not subject to minimum funding (unless first year). If we have a straight profit sharing plan with a fixed formula we don't include in top heavy, how is the safe harbor nonelective any different? Only possible exception is for 401(k) deferral receivables. Deferrals might be considered plan assets even though they are not actually deposited by valuation date.

I essentially agree with lkpittman, probably can offset the loan. Check the loan provisions and make sure that termination triggers repayment. I've seen documents that actually allow terminated employees to continue to repay (or at least are silent on the issue). In such cases termination of employment doesn't automatically mean defaulted loan. Just to answer your questions on deemed distributions. Interest does continue to accrue at the stated rate. It is "phantom" interest and will not be taxed again at loan offset.

Rev. Proc. 2002-47 contains all requirements and fees. There is a checklist at the end of the Rev. Proc. serves as a nice "step-by-step" approach.

I assume you mean the difference between a loan default and a deemed distribution. A loan default is triggered by the provisions of the loan document. Generally loan defaults occur to due termination of employment or failure to repay. However, review the doucment; the document should list events that trigger a default. If at the time of default, the participant has money available for withdrawal, the available balance is generally used to offset the loan. If there isn't a distributable event, the loan cannot be offset and instead will be treated as a deemed dsitribution. The amount of the deemed distribution is taxable to the participant at the time of default, however, the loan continues to be an outstanding loan and continues to accrue interest. In short the default is triggering event that leads to a deemed distribution.

After sleeping on this, it became clear to me that I was just reading the Relius report wrong. Relius does readjust the account for the nonvested portion of the loan and actually does come up with the essentially the same distribution amount as I do. I just needed to play with the distribution transaction and narrow my reporting period to see it.

See Rev. Proc. 2002-47, Appendix A .03. The permitted correction method is QNC's.

Thank you MGB. mbozek, I may be mistaken on this, but I though the SPD regs were generally not effective before the first day of the second plan year following 1/22/01.