R. Butler

I maybe understanding your question also. Again to restate the rule FICA taxes are treated differently under the 125 plan than under the 401(k). FICA taxes must be paid on salary reduction put into a 401(k) plan, but not on salary reductions put into a 125 plan. A 401(k) plan is merely one benefit that is offered under the cafeteria plan. The administrator must keep track of where each person's salary reduction is going. The portion that goes to the 401(k) would be subject to FICA. Your question presents a good example of the difficulties in administering the 401(k) plan though the 125 plan. There are also many issues realting to nondiscrimination testing that makes this setup a poor option

It is my understanding that generally fees can't be charged for a distribution to a terminated participant. The investment company charges a check fee on all distributions from the plan. This raises 2 questions: 1. Is there a problem with the check fee? I don't think there is, but I could be wrong. 2. The investment company summarizes the distribution on the check stub. Recently the company has relabled the "check fee" as "administrative fee". I definitely do not like the new wording, but maybe its nothing. Should I be concerned?

FICA taxes are indeed treated differently under a 125 plan than under a 401(k) plan. FICA taxes must be paid on salary reduction dollars into a 401(k) plan, but not on salary reductions dollars put into a 125 plan. My question is why would you want to run your 401(k) through the 125 plan. I know combining the plans results in one compensation package, but it is so much more difficult to administer.

You only file one Schedule P for the trust.

To my knowledge the IRS has not issued guidance on this specific issue. Several attorneys have advised us to treat it similar to 402(g)excess. If the excess from an HCE include it in ADP test; if it is from an NHCE do not include it in ADP test.

I'm not sure how all the TPA firms operate, but we pretty much know if the plan intends to comply 404©. We prepare the actual 404© Notice and 404©Resolution at our office. Obviously any TPA knows the investment options and we also have sufficient conatct with the investment rep. to at least have a grasp as to whether investment education requirements are being met. I guess my comment really is that if the client hasn't made an effort to comply, then the sponsor did not intend to comply for the year in question. As Mr. Mahoney states the easiest thing to verify is whether 404© notices have been given to all participants. If the notices are not even being distributed then I don't see how a plan sponsor intends to comply.

This may not be an issue, but if this is a calendar year plan, the contribution is already late for minimum funding purposes regardless of the due date of the employer's tax return.

You seem to actually have 2 questions: 1. Is 404© worth the effort? -- Yes. There is not a reason not to at least make the attempt. Most of the requirements are in practice anyway (3 core investment options, minimum of quarterly transfers, financial education, etc.). Hypothetically, meeting the requirements offers protection against liability, but even if it doesn't you are not worse off for making the attempt. 2. How is the question answered on the 5500? -- If the plan is intending to meet the requirements then enter "2f". Does the plan offer 3 core investment options? Does it allow for quarterly transfers? Is the 404© notice being given to all participants? If the plan is doing these things then the plan likely intends to meet 404©. Hope this helps.

Unless the employer is a tax exempt organization, you are correct and someone else is incorrect. The deductible amount to the profit sharing plan is 15% the deductible amount to the money purchase plan is the amount necessary to meet minimum funding standards (in your scenario 3%).

Allocations (forfeitures + contributions) must equal the lesser of 3% of eligible comp. or the highest allocation rate to an HCE.

Plan excludes union employees. Several participants have joined the union. These participants have account balances. On question 7 of the 5500 how should these employees be classified?

Thanks for letting us know the outcome. Do you think the same course of action should be taken if an HCE erroneously received a corrective distribution. We have a takeover plan where the prior administrator did not run the ADP/ACP test correctly. Corrective distributions were made based on the "bad" test. In reality the test passed.

Generally no. When did the plan year end? Employer may be able to request a waiver of minimum funding standards, but the request must be made timely. Such a request is time consuming to complete and is costly.

Employer failed to remit deferral contributions for 9/99 - 12/99. The employer has now remitted the contributions, but still must make up lost earnings. What is the best way to calculate those earnings?

I agree with MWeddell. Failure to make a payment when due in accordance with the terms of the loan is generally considred a default at the time of the missed payment. However, the plan administrator may allow a grace period, and the default will not occur until the last day of that grace period. The grace period cannot extend beyond the last day of the calendar quarter following the quarter in which the payment was due. You should start with the loan document and perhaps the loan agreement signed by the participant. Does the loan program or loan agreement provide a grace period? If it does use that grace period. If the document and/or agreement is silent then the plan administrator may use grace period set forth in IRS Reg. §1.72(p)-a,Q-10. I would reccomend defining the grace period in the loan document just to avoid confusion.

An employer has just noticed that an employee was inadvertently not allowed the opportunity to defer at 1/1/00. The plan document states that a partcipant can commence deferrals on 1/1 and 7/1. Since this person was not given the opportunity at either of those dates, is there a problem with letting the employee commence deferrals now? Obviously if we could allow the employee to defer now the employer is stuck with only a partial year correction under Rev. Proc. 99-31. Thanks for you help.

Technically it is an eligible rollover distribution. However, my question has always been why? If the participant is electing a roll over than is it really a hardship?

We have a profit sharing plan adopted in 1999. No contributions were made during 1999. It is my understanding that a 5500 still must be filed. However, it has been expressed to me that since there is no money, a trust has not been established and the 5500 filing is not required. Which view is correct?

Schedule H, Part I states that you do not enter the value of the portion of an insurance contratc that guarantees during this plan year to pay a specific dollar benefit at a future date. We have always taken the postion that this means we should not include the cash value of life insurance policies held by the plan. I have a one person plan that has always had less than $100,000 in assets and has never had to file. If I include the cash value of insurance assets exceed $100,000 at 12/31/99; if I exclude insurance assets are less than $100,000. Do I include the insurance as an asset file or not?

Does anyone know where I can find a "Special Tax Notice..." that has been updtaed for recent law changes?

For the most part the trustee is correct. Earnings on elective deferrals can only be distributed as part of a hardship withdrawal if they were credited to the employee's account prior to 12/31/88.

We have several profit sharing plans with 401(k) & 401(m) provisions. In several of the plans the (k) & (m) benefit all eleigible NHCE's and there is no profit sharing contribution made. In completing Line 3 do I complete separate Schedule T's for the disaggregated parts or do I just check 3(B) & 3(d)? Line 4 provides space for disaggregated parts, but I don't get to line 4 and Line 3 does not provide space for disaggregated parts. Any guidance is appreciated.

There is a book called Tax Facts that might be a cheaper alternative to the Answer Books. I would think if you are making recommendations to the plan sponsors on how to correct tests, you probably have a good understanding of how the tests work and you may be be able to read the regulations to get a firmer grasp. Practice doing the tests manually and see if you get the same results as your administration program, That is how I learned it. There are a lot of considerations involved, but the tests are not diificult. I don't want to sound condescending, but I would think your employer could afford at least one of the Answer Books. I work for a small firm and I know you don't get the best resource material, but how can you run a TPA firm without at least some material? As far as the job goes, you learn alot more in a small firm just because you have to. It sounds as if you work for a very small firm. You could probably find a small to mid size firm that pays descent money and still gives you the environment you want. Good luck.

Does anyone know of a good reference book for cross-tested plans? More specifically I want some material where I can actually learn to do the calculations manually.

For 401(k) plans there are only 2 limitations I am aware of: 1. Generally can't exceed amount of elective deferral contributions made to the plan. (Small exception for earnings earned way back when) 2. Can't exceed the amount of the need. I am not aware of any specific dollar amount limit.