R. Butler

Doesn't 1.401(k)-1(e)(3) require separate accounting of elective contributions?

We have just called it "safe harbor nonelective".

Not only are their fiduciary issues, but what institution will actually set up an IRA without the participant's signature?

An employer can't maintain both a SIMPLE and another qualified plan. From your facts it seems like you have a controlled group. All members of the group are treated as a single employer.

Genearlly ADP/ACP failures can be self corrected. See Notice 2001-17, Appendix B for permitted correction methods.

I think BYenk is referring to a SIMPLE plan. Compensation is defined in the document for a safe harbor plan. Generally the same compensation definitions are available for Safe Harbor plans as with all traditional qualified plans. See Notice 98-52, Section IV. B. for guidance.

It is a prohibited transaction for a party in interest to deal with income or assets of a plan in his/her own interest (IRC 4975 ©(1)). Loaning money to clients would seem to be a prohibited transaction. I agree with the last post. If this actaully occurring, it is a very serious problem.

EGTRRA has eliminated the restriction on plan loans to sole propreiters for plan years beginning after 12/31/01. I have also read commentaries and other posts on this message which suggest that the IRS will waive prohibited transaction penalties on loans made to self-employed's prior to 1/1/02 if the loan would have been allowed under the new law.

If corrections made more than 2 1/2 months after the plan year end, the employer would also be subject to 10% penalty tax on the excess contributions.

Do you have a cite for 15 year limit in the regs? In the Final Regs. issued 7/31/00, I see an example in Q-8 where they issue a 15 year period, but I have never seen anything that specifically states a residential loan can't be longer than 15 years. Thanks for your help.

I hope your right. I just don't read it that way. All of the limits are referred to in (3)(A). The reference to 401(k)(3) is in (3)(B) and it appears to be there only to state that the catch up is not included in the ADP test. I have my J.D. I am more of a textualist. I don't like to try and find the collective intent of 535 members of Congress unless the law leads to an unconstitutional result otherwise.

We always list all of the trustees and just have one sign.

I guess my questions then is, does a failed ADP test restrict deferrals? I don't really see it as restricting deferrals in the same way that 402(g), plan doc. limit, etc. restricts. Particularly since you don't have to refund deferrals to fix the test; the sponsor could correct with QNEC's.

Does §631(5)(B) allow the participant to elect a "catch-up" contribution if he/she hasn't deferred the maximum available under 402(g) and the doument? My initial understanding is that the participant cannot make a catch-up deferral until he has maxed his deferral out under the plan doument or code limit specified in §631(3)(A)(i).

Pursuant to §631(3)(B) of the Act, it does not look like the catch up contributions factor in the ADP test. A match is not required on the catch-up contributions. If a match is made, it looks like it would factor in the ACP test. I don't see anything that states otherwise.

63 year old participant dies. Has 3 beney's Wife gets 50%, D1 gets 25% and D2 gets 25%. I want to make sure I understand when distributions must begin under 401(a)(9). ( The document seems to pretty much justs restates the Code rules). From my understanding three options as to the timing of the distribution: 1. Beney's may elect to take installment distributions over their respective lives. The distributions would have to begin no later than the first year following the year of the participant's death. 2. Beney's may elect to take a lump sum distribution. The distribution would have to be made no later than the end of the fifth year following the year of the participant's death. 3. Beney may elect to commenece annuity distributions by the end of the year in which the participant would have turned 70 1/2 years of age. Am I understanding the timing rules correctly? Tahnks in advance for any help.

To answer the original question the passive trustee should file a Schedule P.

Bzorc has stated the key point. The only real purpose to file from a trustee's standpoint is to start the statute of limitations.

To my knowledge the big changes where the revisions to the definition to key employee, the modification of the 4 year look back rule, 401(k) safe harbor plans won't be top heavy and matching contributions can be used to satisfy top heavy contrib. requirement. I have not read anywhere that key employee deferral contributions don't count as employer contribs. for top heavy purposes.

Yes. It is possible to have a plan without any key employees.

I don't want to belabor this too much, but if there is no deadline than how can than there be a failure to provide minimum top-heavy benefit to non-keys? If there is no deadline than there is no failure to provide minimum benefits. Note that 2001-17 Appendix A clearly implies that there is a failure to provide....

I agree with PAX. There is no basis for returning the deferrals. And even if you could return them; distributing to the HCE wouldn't work because it is still factored in the test.

There has to be a deadline, otherwise you would never really have a failure to make the top heavy minimum. I am fairly certain that the top heavy contribution would have to be made by the last day of the year following the year for which it is required (i.e. top heavy contrib. for year end 12/31/99 would have to be made by 12/31/00). This is the same rule we use for QNEC's.

Does the 8 1/2 months apply to contributions to all qualified plans or to just to those subject to minimum funding standards? I thought it only applied to those plans subject to minimum funding standards. I do agree that for deduction purposes the contributions must be made by the due date of the employer's federal tax return including all valid extensions.

Currently profit sharing plan contributions are limited to 15% of net compensation (Wages less Employee deferrals). Contributions for the 15% limit include not only employer match and profit sharing contributions, but also employee 401(k) contributions. Under the new law profit sharing plan contributions will be limited to 25% of gross compensation (Employee deferrals are not subtracted from compensation). Furthermore the 25% limit only applies to employer match and profit sharing contributions. These two amendments significantly raise the amount that can be contributied by employers to a profit plan. Currently, an employer wanting to maximize contributions must maintain both a money purchase and a profit sharing plan. The new law eliminates the need of maintaining the money purchase plan (at least from a tax deduction standpoint). How it can benefit HCE's really depends on your document and company demographics. You should check with your current administrator. Hope this helps