R. Butler

This issue has been discussed before, but I'm not following the responses very well. We have a safe harbor 401(k) plan that uses a $1 for $1 match up to 4% to meet safe harbor. Can an additional subject to vesting match also be given? From reading responses to prior inquiries the answer is yes, but I am not following the logic. Notice 98-52, Section VI.B.4.b states that a plan fails to satisy ACP safe harbor if the plan provides for matching contributions that could exceed 4% of compensation. Its seems to me that the safe harbor provision eats all that up and there can't be an additional match. What am I missing?

I have a profit sharing plan (no 401(k) provisions, etc.) with year end 12/31/99. The profit sharing contribution was not decided until 3/1/00. It is my understanding that in determining top heavy status for 2000 I only consider invetsment account balances at year 12/31/99. I would not consider the profit sharing contribution for the 1999 plan year because the BOD did declare by the dtermination date (12/31/99). I have been told that I am wrong and that I should include the profit contribution in determining status for 2000. Is this alternative view correct? Thanks in advance for any guidance.

Can a top heavy plan exclude bonuses from compensation?

Thank you. I was pretty sure that was correct, but just needed some verification.

We have a safe habor plan using the 3% nonelective contribution. The plan also has a subject to vesting match of 20% all the way up to 100% of employee deferrals. I am fairly ceratin that this plan meets the ADP safe harbor, but fails the ACP safe harbor because matching contributions can occur on deferrals in excess of 6% of comp. I have been advised that this plan meets both the ADP and ACP safe harbors. The person advising claims the match cap only applies when using the match to satisfy safe harbor. Am I correct? If I am correct to I test on the entire match or just the portion on deferrals in excess of 6%.

You mention the plan is top heavy. I just researched this issue; for mid-year entrants a 3% subject to vesting contribution would have to be provided on the portion of their wages earned prior to their entry date. Notice 98-52 states that the 3% contribution can be counted toward top heavy requirements, it does not say it satisifies top heavy by itself.

Thanks rcline46. I read the thread; do you think that thread says something different or maybe just answers a different question? Although the intial question does state that the plan is top heavy, none of the answers address the issue. They merely state the basic rule that you can exclude comp prior to participation for the 3% safe harbor contribution. That is correct. The additional contribution I ask about isn't the safe harbor contrib., but whether an additional 3% subject to vesting contrib. is required for the portion of the year the new entratns were not participants. Upon further research I tend to agree with Richard and Kristina. Notice 98-52 specifically states the the 3% can be counted toward the minimum contribution requirement for top heavy plans. It does not state it satisifies top heavy by itself.

We have a safe harbor 401(k) plan utilizing the 3% nonelective contribution. The plan has quarterly entry dates and includes only wages earned for the portion of the year in which you were a participant. It is my understanding that the 3% contribution can be used to satisfy top heavy. It is also my understanding that the top heavy minimum contribution must be based on compensation for the full plan year. If I have mid-year entrants, do they get the safe harbor contribution for the portion of the year in which they were a participant and a 3% subject to vesting contribution for the portion of the year prior to participation?

It is my understanding that corrective distributions of excess contributions and excess aggregate contributions are treated as "distributions" for purposes of determining top heavy status. My basis for including is that such corrective distributions would be considered annual additions. It has been presented to me that such distributions should not be considered distributions for top heavy purposes? Is there a solid basis for this point of view?

I would also be careful that the document even allows you to use the match to meet top heavy. I have seen more documents that don't allow it than do allow it.

If every fund option available to participants lost money for the time period(s) in question then are not any gains to allocates. Hypothetically you may be able to adjust for a loss, although I'd be careful about doing that. If there are late deposits for multiple pay periods, I would double and triple check to be sure that there is a loss for each period in question. Good luck.

Company A and Company B have adopted a Multiple Employer Plan. Person Z is a long time employee of Company A. Person Z quits Company A and goes to work for Company B. Does Person Z have to re-meet the eligiblity requirements with Company B? Also forfeitures under this plan reallocate. Should forfeitures of Company A employees be reallocated to only Company A employees or should they reallocate to all participants reagrdless of employer?

rcline46, I tend to agree with you that the plan document should determine the entry date for applying the statutory exclusions, but we are probably are in the minority. Just FYI, Tom Poje gives a good analysis of this issue in a previous question "Cam maximum statutory entry date..." If you click on the "more like this one" link you'll see it. (I can't figure out how to do a direct link in my reponses.)

Person Z owns 100% of Company A and 5% of Company B. There are no controlled group or affiliated service group issues. In 1999 Person Z defers $10,000 into Company B's plan and $10,000 into Company A's plan. Is Company A deemed to have notice of the 402(g)excess by virtue of Person Z's ownership? If it is we must distribute, if not we can't distribute.

Employer has a calendar year 401(k) Plan. Can the employer amend to a SIMPLE 401(k) mid-year and avoid a top heavycontribution? I believe the answer is "no", any amendment would be effective the following January, but I am not positive.

John A. Thank you for your response. I never really considered that it may not actually be considered a deferral. It doesn't change my opinion, but at least I understand the logic behind the other view. I also agree that the best way to get definitive answer is someone to go through VCR and make the IRS decide, but that may not be likely. Most administrator's will use APCRS.

I don't see the basis for forfeiting a deferral contribution. I would distribute the ineligible deferrals plus initerest on the deferrals. If available I would rely on APCRS; if APCRS isn't available you probably have to use the Walk-In CAP.

My main concern with forfeiting a deferral is that it is entirely inconsistent with any other correction method for similar type violations. Also, part of that remedy involves an action entirely apart from the plan, making the person whole. I am not at all convinced that the part of the remedy can be enforced. It don't see how it is covered by laws governing qualified plans.

The reference that PC uses says the exact opposite of the Q&A reference Tom Poje provides. Interesting.

In response to whether or not there is distributable event; we have always reasoned that the operational failure that creates a distributable event. One problem with the "negative payroll" method described is that gains/losses attributable to the deferrals are not properly handled. Another concern with the "negative payroll" method described is that it isn't consistent with the correction methods for similar type violations. Violations such as 415 excess, ADP/ACP failures, 402(g)failures, etc. generally require refunds, forfeitures, and/or recharacterization.

Steve, Do you have an exact cite on the 2 loans per year limit? I have reviewed the final loan regs issued 7/31/00 and I just don't see that limit. I am probably just missing it. Thanks

Is there a limit on the number of loans that a participant can take? Another administrator told me that the IRS recently limited the number of loans per participant to two. I have not seen anything indicating that there is a legal limit on the number of loans which a participant can take.

We are in the process of making a new year end checklist for our administrators. Are there any examples on the internet just to get some ideas? Any guidance is appreciated.

We treat it the same as a 402(g) excess, but we have never been able to find specific guidance on this issue.

Nonsense. That would have been big news by now.