R. Butler

I don't the know the answer, however, just FYI there is a recent message thread that seems to arrive at a different answer from Benefit Maven. I can't figure out how to insert links, but if you hit your "More Like This" button and look at the thread that says Hardship Distributions you'll see a fairly detailed discussion of this issue.

I don't know if it all makes sense, but I do appreciate the detailed explained. Works still piling, but within the next few weeks I will print this out and study it thoroughly. Thanks again.

I can get it to zero, but the way Relius allocates doesn't make sense to me. Example--We do quarterly reports, calendar year plan. Person 80% vested in employer money, has $100.00 balance in employer money. Paid $80 in 10/00. In 12/00 gets $20 employer contrib., thus at 12/31/00 total balance is $40, vested balance is $16. We run forward to the new year...It seems to me that any gain/loss should be allocated pro-rata between vested and nonvested balance. The only way the vested balance should get to zero is if the netire $40 is lost. Maybe I am just missing something, but I just can't see why a gain/loss allocation should even consider amounts that were distributed in a prior period.

Appleby, I am confused by your corrective suggestion. You seem to be saying that a corrective contribution can only be made if deposited by the due date of employer's federal tax return for that year, including all valid extensions. My difficulty in your reasoning is this, if the contribution was made by the due date of the employer's federal tax return then there is no problem. The contribution is not required to be made until that date. Therefore why would the correction method be discussed in Rev Proc 2001-17 if it can't be made. I may be missing something, I just can't figure out what.

We have a terminated participant in a 401(k) plan. The participant received a distribution and subsequently an additional deferral and match contribution. Thus the participant has small remaining balance. When I allocate losses to the participant Quantech leaves him with a negative vested balance. I know why it happens, but is there any way to prevent it?

Under Rev. Proc. 2001-17 the appropriate correction method is to fund the undercontribution and make up earnings thereon. This maybe nothing, but your facts confuse me. If there are no employees in '98 and the plan requires at least one year wouldn't that mean the employees enter in 2000.

Richard, In your example why wouldn't D still be key. A key employee is any employee who during the current or 4 preceding plan years was an officer blah, blah, blah. D was an officer with comp. in excess of 50% of the DB limitation during one of the four preceding plan years.

Richard Anderson, Thank you for the reply, but I am little unclear. Although you don't explicitly say it both of your examples are the same. It seems to me that your position is that deferrals should be subtracted after applying the limit. Is this the position that you take?

We have a profit sharing plan for a sole proprietership. It has always been my understanding that to begin the calculation I start with Net C and then subtract 1/2 SE tax. I have come across a position stating that you should actually take (Net C *.9235) and then subtract 1/2 SE tax. Is this alternative view correct?

This is not a single participant plan. Basically what I do is as follows: Person A 200,000 10,000 170,000 Person B 175,000 10,000 165,000 Person C 20,000 0 20,000 In calculating the 15% I take (170,000+165,000+20,000)*.15. This is the maximum deductible contribution. Then I would deduct the deferrals and any match off the maximum deductible contribution to get the amount available for profit sharing.

In determining compensation for purporses of calculating the 15% maximum deduction limit do you subtract elective deferrals before the 170,000 limit or after. For example Employee A earns $200,000, defers $10,000, for 15% purposes is his comp. factored in at $170,000 or $160,000? I am fairly confident that you apply the limit after subtracting the deferrals, but I need some confirmation (i.e. in my example 200,000-10,000>170,000, thus comp. 170,000).

Deferrals to SEP are subject to the $10,500.00 limit.

The 3% cannot be used when imputing permitted disparity. (IRS Notice 98-52 Section VIII.B.

The proposed regs. state that they would take effect on the January 1 at least 6 months following the date they were finalized.

Safe harbor plans cannot impose a last day requirement as a condition for getting the safe harbor contribution regardless of whether the match or nonelctive contribution is elected. If we totally disregard top heavy requirements you are likely to be correct that the match is cheaper. However, I will just caution you not to disregard top heavy. Also, consider if participation can be increased merely by adding a match, or tweaking an existing match. May be able to pass ADP/ACP without safe harbor.

Just a guess, but it may have something to do with the basic premise that qualified plans must be established soley for the benefit of the employees. In sole proprieter, partnership, LLC scenario the owner-employee is the employer. In the C-corp. scenario the business is a separate entity, thus loans to shareholders are allowed.

Safe harbor matching contributions are only made to those employees that actually defer. Safe harbor nonelcetive contributions are given to all eligible participants regardless of whether or not they defer. Also, safe harbor contributions are given to bboth HCE's and NHCE's It is possible that if participation is low the safe harbor match will be a less expensive alternative, but it really isn't that simple. There are other considerations. Is the plan top heavy? The nonelective contribution satisfies top heavy minimum requirements, whereas the match does not. The nonelective contribution can be used in cross-testing. I guess in short you seem to understand the safe harbor contribution basics, but your conclusion isn't necessarily correct. There are several considerations relevant to determining whether to use a safe harbor match or a safe harbor nonelective contribution.

Couldn't they just do the match in the amount of the forfeiture?

It is an interesting question. Couldn't you actually draft it as a percentage of comp.? Couldn't you could say 3 to 1 on the first 1% or 6 to 1 on the first .5% of deferrals.

Doesn't the answer to the initial question depend on the actual due date of the return. If in fact the employer just filed early and the actaul due date has not passed, why couldn't the employer amend and contribute? It is my understanding that the contribuion must be made by the due date of the return. If the due date is 4/16/01 then I don't see any reason a contribution can't be made and deducted on an amended return.

As some of the above comments indicate the proposed loan regulations did indicate a limit of 2 loans given per year. The final regulations did not contain that provision. Therefore, we have taken the position that there is not a legal limit to the number of loans that can be taken in a year.

Specs inadvertently indicated post tax contributions were allowed. I did notice something else kind of quirky. When I de-selected "post tax contributions" it got of rid of the two it should have, but it also fails to "list" non-excludables that do not benefit. It includes them in the calculations, but it does not list them. It took me half an hour to realize that people were factored in the test, but not listed.

I use Quantech 6.0. I am working on a non-standard age weighted profit sharing plan. Two employees terminate with less than 500 hours so I don't include them in 410(B). When I tests Quantech correctly identifies the employees included in coverage tests under 410(B), however, when Quantech actually runs the tests it includes the 2 people who termed with less than 500 hours. Has anyone run into this problem? If so, how do I fix? Thanks for any help.

Can anyone recommend a good investment company/TPA alliance program that is available for small plans? We currently have a relationship with an investment company whereby we do the administration (i.e. nondiscrimination testing, 5500, document, etc.) and the investment company does daily valuation record keeping, provides a toll free number, internet access, etc. The program is good, but its not avaiable unless certain asset/contribuion requirements are met. We are looking for similar type programs available to small plans. Any help is appreciated.

It is not the first plan year. Thank you for your responses.