R. Butler

Assuming the plan document does not specify otherwise, the participant in your example could defer 23.5% as long as the dollar amount of employee deferrals does not exceed $10,500.00 in a calendar year.

Prior to this year I we have taken the position that Rudy sets forth, mutual funds are not a single security, however, I was told at a recent conference that mutual funds do count as a single security for purposes of that question. That position is also taken in the 5500 Preparer's Manual by Joan Gucciardi. We are not going to amend past returns, but from this point forward we are going to consider mutual funds a single security.

On Schedule I, Part II, Line 4j, if there are several funds with more than 20% of total assets, do I attach a Schedule and list each asset and amount separately or do I just put one total amount in line 4j?

Fred Benefits, If you want to e-mail me. I will reply with the link. Your address isn't stored on the message board.

http://www.irs.gov at the bottom of the page click forms & publications scroll down until you see prior year forms and pubs. click on the link. it should work just like you were getting current forms.

Mr. Lesser It has always been my understanding that the deferreal could not exceed earned income, but the employer portion plus the deferrals could exceed earned income. I am fairly certain that I read this in The SIMPLE Answer Book or some such reference book, but I could be wrong. Do you have a cite for your answer?

The partially vested people will likely have to be 100% vested...In regards to employees who terminate with 0% vesting, does the document indicate that there is a deemed distribution at termination? If so they probably should have forfeited when they terminated. If a participant forfeits prior to plan termination I would not make them 100% vested.

The IRS website allows you to download prior year forms to at least 1993. Go to http://www.irs.gov

The key word is "intending". If the employer is diligently trying to meet the 404©requirements than the answer is yes. Most of the requirements are fairly straight forward and the employer is either meeting them or not. You definitely don't want to lie on the form, but it is my understanding that a no answer is more likely to trigger an audit.

If you are relying on the safe harbor I wouldn't reimburse for expenses that have already been paid. My reasoning is twofold: hardship withdrawals are only available if there is an immediate need for one of the specified expenses. If the expense has already been paid then there is not an immediate need for the specified expense. Secondly, if you reimburse you are heading down a slippery slope. Where do you draw the line? Do you give a hardship withdrawal for expenses that occurred 3 months ago? 6 months ago? one year? I would agree with actuarysmith that alternatives means of payment must be reasonable. If the participant hadn't already paid the hardship withdrawal may be an alternative, but not after the expenses have been paid.

DDD lump--If the individual for which the medical expenses are paid is a dependent on the participant's tax return you should be O.K. I would also disagree with actuarysmith that the fact the participant has paid with a credit card is irrelevant. Reg. 1.401(k)-1(d)(2)(iii)(B) actually contemplates participants borrowing from commercial sources prior to obtaining a hardship withdrawal. If it is reasonable for the participant to obtain the money from a commercial source, the participant must do so. The key is whether or not it is reasonable. The fact that the participant has already paid the bill leads me to agree with Rudy.

I would start by looking at the document. Generally the document will be specific as to allocate contributions. Absent guidance in the document, probably should allocate as follows: 1. Make an allocation of contributions and forefeitures to each participant equal to 3% of his/her compensation. 2. Allocate to each participant's account in the ratio that his/her compensation in excess of the integration level bears to excess compensation of all participants. The integrated allocation should not exceed 3% of excess compensation. 3. Remaining contributions and forfeitures should be allocated to all participants in the same ratio that each participant's compensation plus his/her excess compensation bears to compensation plus excess compensation of all compensation. The allocation under this step should not exceed maximum disparity rate minus 3%. 4. If their is anything left allocate it pro-rata to everybody.

The loans need to be repaid ASAP. It will continue to be a prohibited transaction until it is repaid. A 5330 must be filed. The tax is assessed on the accumulated interest on the loan. Here is where it gets sticky; a separate prohibited transaction has occured for each year the loan is outstanding, therefore for Year 1 tax assessed on the accumulated interest for Year 1; for Year 2 tax is assessed on accumulated interest (Year 1 + Year 2); Year 3 tax is assessed on accumulated interest (Year 1 + Year 2 + Year 3), etc. You can probably file one 5330, but be sure to calculate tax correctly. Unless the loans are very large the excise tax usually isn't all that bad, your real problem is getting the owners to repay the loan. Hope this helps.

I agree with PJK. If the DRO specifies that a payment is to be made to an attorney it is not a QDRO. No payments should be made under the DRO. At a minimum payments made under the DRO "as is" would have adverse tax consequences, it possibly could be an operational failure if there is not some other distributable event.[Edited by R. Butler on 08-16-2000 at 04:40 PM]

Kirk, just to further expound on PJK's conclusion, the reg you site does seem to indicate that 408(B)(6) does not provide an exemption for fiduciaries receiving consideration for their own personal account in connection with a transaction involving the assets of the plan. I would also point you to 2550.408(B)-2 example 6. It presents an example similar to SMB's situation. The example indicates that a such a situation would be a prohibited transaction. Even if you do determine that there is not a prohibited transaction, in this situation I would be very concerned that if the assets don't peform well, a participant could present a strong case that there was breach of duty in selecting the company. If Parent participates in the decision to invest with Son you have a problem. I hope this helps. [Edited by R. Butler on 08-10-2000 at 04:45 PM]

I am fairly certain the 10,500 is not pro-rated. The limit is not really a plan limitation as much as it is an individual limitation.

We have always taken the exact opposite position of Actuarysmith. Our position is based on the fact that a prohibited transaction occurs when a fiduciary causes the plan to engage in a transaction that constitutes the use of plan assets by or for the benefit of a party in interest. We reason that since broker gets a commission or fee the plan assets in effect benefit the broker, in your case a party in interest. If the investment products that the "son" represents do not perform well in comparison to similar products, you may have a big problem.

The employer must make a qualified nonelective employer contribution to the plan on behalf of the excluded employee equal to the ADP of the employee's group (ie, HCE or NHCE). The QNEC in essence takes the place of the lost deferral opportunity. If the plan provides for a match on deferrals, the match must also be given on the corrective QNEC. Earnings on the amounts must be calculated , contributed and allocated to the eligible employee. I know the rule, but as far as how you actually calculate the earnings, I really don't know if there is a hard rule. Absent a bright line rule to the contrary I would figure an average gain rate for all participants and use that percentage to calculate gains for the excluded employee. Hope this helps. Rick

For the year 2000, the Employer must have given written notice to all Employees that Employer MAY CHOOSE to adopt a Safe Harbor Plan utilizing the 3% nonelective safe harbor contribution. If Employer does in fact decide to adopt, the Employee Notification must be given to all employees by December 1, 2000. Must use the 3% nonelective for Safe Harbors formally adopted after the start of the year.

I think it was a PLR, but I am not positive. If Z was 21 or older there isn't any attribution for controlled group purposes, so maybe the employers aren't related anyway. You probably already know this, but just in case, you want to make sure that there weren't any contributions made to the IRA besides the rollover from the qualified plan.

Did Z own any part of A? If not, it is definitley not a related rollover. Even if Z owned part of A my answer probably does not change. I don't have a cite, but I am fairly certain that the IRS has taken the position that situations similar to what you have described are unrelated rollovers.

For part 2 of the question, we have always handled it in the same manner that Mr. Poje suggests. Return the deferrals plus any earnings to the participant.

You do use the welfare benefit code for life insurance even if it is a DC or DB plan. Page 14 of the 5500 instructions gives an example of this exact scenario.

Federal tax withholding is mandatory on eligible rollover distributions in excess of $200.00. In the states of which I am familiar, state tax withholding is optional. I suppose state wuthholding rules could vary from state to state.

Most documents allow provide the option of using forfeitures of employer matching contributions to be used as a discretionary match. This would exclude people who do not defer.