R. Butler

Business entity is an s-corp. The owner makes well over 170,000. I've done some further research and have pretty much come to the conclusion that we can do this for 2001 as long as we get the safe harbor plan set up, including notices by 10/1.

Employer has a SEP; wants to estalish a Safe Harbor 401(k). It is my understanding that this is permissable as long as the SEP doesn't use the 5305 model agreement. The contributions to the SEP would reduce the deductible amount to the 401(k). Here is my situation: Owner makes 170,000 and is the only person eligible under the SEP. We can do the SEP contrib. at 15% and get him 25,500. There are two other employees making 35,000 each. Neither will defer, but will receive 1,050 for the 3% nonelective. It seems to me the owner can also get a 5,100 nonelective contribution and then defer 3,300. This keeps the total company contribution at the 36,000 limit (240,000*.15). I just want to make sure that the owner can receive 15% under the SEP and still receive an additional contribution from the 401(k). Thanks in advance for any guidance.

I know that under current law that if an employee does not render services to the employer at any time during the five year period ending on the determination date his/her balance is disregarded from the top heavy test. We have a situation where the owner of an s-corp took herself off the payroll five years ago. She still is somewhat involved in daily operations, she just doesn't take a salary. Can we exclude her from the top heavy test?

There is a loan deferrment avaiable for military service. See IRC 414(u).

I am fairly certain you can do an additional matching contribution even if you use the 3% nonelective safe harbor. The additional match would be subject to the "4%/6% requirements" to which Chris refers. See Notice 98-52 Section VI.D. Examples 2-4.

Self employed's can definitely sponsor a 401(k). The self employed owner can defer. In most cases we handle the self-employed contributes a flat deferral amount each period, but be careful that the self-employed will have earned income at the end of the year (not an issue in the cases we handle.). Comp. for a self employed is generally defined as "earned income"; it may be already be specified in the plan document regardless of the what is checked in the adoption agreement.

See DOL Reg. §§2580.412-23 thru 2580.412-32.

See Reg. 1.414(s)-(1)(d). Beware, however that NHCE's must still be permited to defer enough compensation to realize the full matching contribution.

Employer wants to adopt a Safe Harbor 401(k) Plan for 2001. Employer has never had a plan. It is my understanding that as long as the plan is adopted by 10/01/01 (it is a calendar year plan) we are O.K. My concern is the notice requirement. If we can get a notice to all employees by the 09/10/01 would that be reasonable considering the employer just decides to adopt a plan on 09/06/01?

It seems to me that the end result of the error is that ineligible employees were included in the profit sharing allocation. Generally, the safe harbor correction is to retroactively amend the plan to to provide for inclusion of the ineligible employees. See Rev Proc 2001-17, Appendix B for details.

We have fiscal year plan with a 9/30/00 year end. Completed all the work. ADP & ACP tests both failed, refunds were made. Employer now informs us that the salaries provided us were incorrect. With the new salaries ADP test fails, but not as bad; the ACP test fails worse. The net effect is that the HCE's received to large a refund. It is my understanding that the appropriate correction is to have the HCE's return the excess amount received. Is that correct? Assuming the proper correction is to return the excess amount received, can I net the ADP and ACP test differences against each other and have the net excess retruned or do the HCE's have to return the ADP excess and get another distribution for the ACP excess. Example: HCE received a total of $200. $100 for the ADP test, $100 for the ACP test. Should have received a total of $180; $60 for the ADP test and $120 for the ACP test. Can I have the HCE return the net difference of $20 or should the HCE return $40 for the ADP excess and receive an additional check of $20 for the ACP excess?

As long as an employee is eligible to make deferrals he/she is treated as benefitting, even he/she doesn't actually defer. If the NHCE's are eligible and just choose not to make deferrals, I don't see a 410(B) problem.

I agree with Moorhan's decision to just file the 5330. The penalty is generally nominal so it is better to error on the side of caution. I am kind of puzzled why some of us think that a check must be cashed before the deposit can be considered made. My understanding is that contributions are generally considered made when they are mailed. Case in point are profit sharing contributions. I am unaware of any DOL guidance that would suggest a different rule 401(k) contributions.

I agree with both of Tom Poje's previous repsonses, but I will say that most of the commentaries I have read suggest that if a plan contains a safe harbor it meets top heavy. The commenatries don't seem concerned with additional employer contributions. I don't know why that is.

Employee deferrals merely must be segregated from the employer's assets. If the employer can show that the money was in fact deposited with the custodian on particular date, the fact that it wasn't invested by the custodian is irrelevant in determing whether the contribution was remitted timely. The question is whether or not the custodian received the check timely? I do agree pmacduff that the employer is on shaky ground if there was simply a delay in the mail.

A couple of things stand out to me: 1. If payroll periods are more frequent than monthly the employer is likely late on several payroll periods. Contributions must be remitted as soon as they can reasonably be segregated from the employer's assets. In no event will a reasonable time exceed the 15 business day of the next month rule. The DOL has taken the position that contributions can generally be remitted within a few days of each payroll period. 2. Did the custodian receive the check timely and just fail to invest it? If the custodian received the check timely and did not invest the money timely, the contribution was not late. There may be other issues in this case, but not a late deposit issue.

See §613(d) of the Act. It appears that a plan consisting soley of elective deferrals and the safe harbor matching contribution would not be considered top heavy.

Out of my own curiosity I just asked an agent I that I know why the PSA's. She gave me two reasons: 1. Cost. By putting a large bulk of money with a Mutual Fund they can negogiate lower expense ratios. 2. A more streamlined process. Evidently the insurance company can replace the money manager without necessarily replacing the fund. (I'm not really sure what this means.)

I don't know if there are any advantages. Our firm happens to handle several plans with various insurance companies and just from working with those plans I know that this often how they do business.

Plan has: 1. Different service requirements to enter the plan, and 2. Different rates of contribution for each class (i.e. some classes don't get a contribution, some get a 5% contribution, etc.) If I enter each person into different divisions, where do I specify in Relius the different entry requirements and the different contribution rates? Thanks for your help.

Are you positive that the Plan is investing directcly in the mutual fund? It is my understanding insurance companies often purchase the mutual funds indirectly through an account that invests solely in the mutual fund desired. The account used as the purchasing agent contains the assets of several plans. This would make the arrangement a PSA.

Assuming the "2 plan concern" is vaild, couldn't the same result be accomplished by adopting the profit sharing plan first and then merging the plans?

We have a takeover Plan that has 5 different classes of employees. Eligibility and contribution rates differ based on class. What is the best way to initailly build the case on Relius?

We have converted an MP plan to a PSP w/ 401(k) without making everyone 100% vested. We rely on the reg. PAX cites

Under current law a surviving spouse may rollover a distribution only to an IRA, but as Kowen points out EGTRRA does permit a surviving spouse to rollover to a qualified plan (See §641 of the Act). The EGTRRA rollover provision does not take effect until plan years ending after 12/31/01 and the spouse's plan would have to allow the rollover.