R. Butler

Should be correctable under SVP. See Revenue Procedure 2000-16, Appendix A .04

I agree with the previous posts, the insurance agent may have alterior motives. To answer your second question, second-to-die policies covering the participant and the participant's spouse are permissable.

I agree with Shafter, except I may try to give the employee the lesser of the Rev. Proc. 2000-16 remedy and the actual percentage on the enrollment form.

May not be an issue here, but we often have similar scenarios. An HCE will decide to self-direct, but NHCE's will not be given the same opportunity. That is a definite no-no. If self directed invetstments are permitted, make sure it applies to both HCE's and NHCE's and make sure the investment policy is communicated to all employees.

My understanding is that the initial question asks whether or not it a breach of fiduciary duty to correct a mapping mistake as of the date the mistake occured, even though some participants may have benefitted by the mistake. I have not found anything in the law the suggests there is a breach of fiduciary duty in that situation. Although I do understand Jon's concerns, it does not change the answer to the question. Also, Jon does not consider that the plan sponsor may not have an option in chosing the correction method. The party responsible for making the correction will likely choose the least expensive permissable option.

I agree with Kirk. We have several plans with daily allocations. Unfortunately errors will happen occassionally. The recordkeeper always goes back and corrects as of the date of the error. We have researched this issue and have not found anything that prevents the recordkeeper from correcting in this manner.

It is my understanding that as a general rule participants should not be charged a fee for processing a distribution upon termination. Is there a problem with the investment company charging a check fee? If so, how can the plan sponsor correct the situation without moving the money? I assume the check fee is probably O.K. My concern is that the investment company does not call it a check fee, but rather it is clearly labeled an administrative fee. Should the plan sponsor be concerned?

Thank you for all of your replies. I spoke with McKay & Hochman. Docman does seem like a good program, my only concern is the cost. The maintenance fees are similar, but the initial installation fee is significantly more than the competition. Is the program that much better than Autodoc, Accudraft and the others?

We are considering various pension document software. I have heard through the grape vine that there is a program called Doc Man that is very good. Has anyone heard of it? If so, where can I get more information about it? Is it worth the price?

LCARUSI is correct that merely because a money purchase contribution is made more than 8 1/2 months after the plan year does not necessarily mean that it is not deductible. Tax-deductible contributions must be made by the due date the employer's federal tax return, including all valid extensions. The rules regarding deductibility are independent of the minimum funding standards.

I may have misunderstood the question. However, if the plan is not really treating as the match "forfeiture" but merely taking it away from the participant, the answer still does not change. A couple of concerns. 1. Where does the money go? It should not revert to the employer. Possibly could reallocate, but limits in the document or elsewhere may not make reallocation feasible. 2. If you can reallocate. What do you do with the earnings on the contrib? They shouldn't really shouldn't stay with the participant. If there is a loss what do you do? If accounts are self directed you shouldn't allocate the loss to other participants. I just wouldn't allocate on the participant level during the year in this situation.

I have never had the situtation. Notice 97-45 clearly defines the look back year as the 12 month period preceding the determination year. I have not seen guidance suggesting the definition of look back year changes just because there is a short plan year.

Matthew, I agree with you that 30 days notice is not necessarily required. But just FYI the 30 days comes from Notice 98-52. The notice does not say you have to give 30 days notice, but if you do you will be deemed to meet the "reasonable" requirement. It seems to me that if the IRS wanted December 1 to be a "hard and fast" date they could have put it in unambigiuous terms. Every other date requirement in every Notice reegarding safe harbor plans is a set date.

I would not allocate the nonelective contribution at the participant level until year end. If the participant never completed the 1,000 hours is it really a forfeiture? This may be an issue if forfeitures reallocate. There is a possible issue regarding the timing of forfeitures. When do forfeitures arise under your document? Is it the earlier of payout or 5 years break? What if the participant had not been paid out? It definitely would be an issue if participant is rehired and the document has a forfeiture restoration provision that is triggered?

Your manager is correct. Definition of key employee is found in IRC 416. If an employee is one the 10 largest owners (provided ownership is at least 1/2%) having compensation in excess of the annual addition limit than they are key.

In regard to the December 1 date of the notice, how strict is the IRS going to enforce that date? Technically Notice 98-52 does not require a December 1 date, but rather a "reasonable period of time before the beginning of the plan year" The Notice goes on to state that the requirement is deemed to be satisfied that requirement if notice is given at least 30 days before start of the plan year. We always tell our clients December 1, but I've always wondered under circumstances where December 1 isn't feasible. Maybe we takeover a plan late in the year and by the time we get all the files it is December 3, is the plan really out of luck?

Employer adopted a profit sharing plan in 1986. The plan is a standard prototype. Employer failed to include one of its employees (that we know of) since the inception of the plan. We intend to file under SVP. 2 questions arise immediately: 1. Employer's CPA is convinced that since payroll records must only be kept for 7 years that the correction can be made just for 7 years. The employer actually does have records back to 1986. I find no basis for the CPA's position. Notice 2000-16 is clear that correction must be made for all taxable years. Am I missing something? 2. The employer omitted the employee because the employer felt that it could exclude all employees that did not average 32 hours/week. My concern is that there are others that were excluded and the employer is not telling us. I have never filed under SVP, VCR, etc. The submission requirements require that we explain how the faile arose, procedures in effect at the time etc. Is the IRS likely to see this as a red flag and audit the entire plan once the SVP is over?

I don't know that there is a code section. Generally all income is subject to tax unless specifically excluded. Employee deferrals are specifically excluded, loan repayments are not. The general proposition that loan repayments are not subject to income tax is more of a withholding issue than a qualification issue. I'd ask the employer's CPA or payroll provider. Your specific situation becomes a serious qualification issue if the employee intended that the prior withholding to be deferrals.

Loans should be repaid with after-tax money. Not only is this a plan issue, it is a payroll tax issue. Furthermore, the TPA should not go back and reclassify prior deferrals as loan repayments. If the participant intended the salary reductions to be deferrals, the TPA is essentially taking away that participant's right to participate. Its even a bigger issue if there was a match on those deferrals.

We do very little with church plans? It is my understanding that the requirements of a church are as follows: 1. The church or association of churches tax exempt under 501©. 2. Substantially all persons included in the plan must be clergy, or employees of the church. 3. The plan can't be established primarily for the benefit of church employees who are employed in connection with an unrelated trade or business as described in 513. Is there any requirements besides these?

Everyone in this particular thread is much more intelligent, or at least more analytical, than me. Having said that, I agree with Tom Poje. I have always interpreted the dollar amount for a "look back year" to be the dollar amount for the calendar year in which "look back year" begins. For 2000 the look back year is 1999. At the beginning of 1999, $80,000 was the threshold. It just seems to interpret it otherwise means that the definition I rely on for the "look back year" is incorrect.

I strongly agree with Bill Burke. The letter of the law may only require segregation, but if the money is not invested within a few days it will likely be considered a breach of fiduciary duty. If deferrals are not segregated timely, the DOL requires as part of the correction that participants be credited with lost earnings. Although sponsors have some latitude in calculating the lost earnings, it is generally accepted that the calculation will be based on rates of return from the investment accounts. This gives me a clue that money should be invested in individual accounts ASAP. If the money did not have to be invested ASAP then lost earnings could be based merely on the rates paid by an interest bearing checking account.

I am sure that we all agree any information given to participants should be as simple and clear as possible, but we do need to strongly encourage the participants to read all forms carefully and to ask questions if they don't understand. While the distribution scenario Dave Baker gives is unfortunate, if the notices given to the participant meets the letter of the law I seriously doubt that any administrator, investment advisor, etc. would accept additional liability.

We do need to make our enrollment forms as clear as possible, but reallistically if 97% of the people get it right, I may still end up ridiculing the 3% that don't.

The excess deferrals will still be a "corrective distribution" regardless of when it occurs. You stated that at least one of the plan documents does allow the participant to allocate the excess to that Plan. If both documents are the same the participant should be able to choose.