Alan Simpson

The answer is as follows: Each participant receives 3% of eligible ompensation off the top. (A gets $4500, B gets $2940, C gets $450 totaling $7890). Reduce the contribution of $9500 by the aloocated $7890 levaing $1610 to be allocaed to the participants with income above $65400 (TWB). Participant A's income above the TWB is $84600 and Participant B's income above the tWB is $32600. Making the income that the $1610 is to allocated against at $117200. Divide the $1610 by $117200 to receive a factor of .0137372. Multiply this by the participants income above the TWB (A gets $1162 rounded ($84600 * .0137372). This is then added to the 3% contributions making the allocation to Participant A at $5662 ($4500 + $1162).

The answer is as follows: Participant A: Deferral of $9,500, QNEC of $4,800 (eligible comp of $160,000 * 3%) give an ADP of 8.9375% Participant B: Deferral of $0, QNEC of $3,900 (eligible comp of $130,000 * 3%) gives and ADP of 3.000% Participant C: Deferal of $4,000, QNEC of $2,400 (eligible comp of $80,000 * 3%) gives and ADP of 8.0000% SUM of HCE ADP percentages (8.9375 + 3.0000 + 8.0000)= 19.9375%. Divide this by the number of HCE's (3) and the answer is 6.6458% rounded to 6.65%

The following are not eligible rollover distributions: (there are others not listed below) 1. Any distribution that is required under the minimum distribution rules. 2. Any distribution part of a series of substantially equal payments. Also, since RMDs are calculated off of the 12/31/XX balance the new IRA trustee/custodian would not be able to ensure that the correct RMS has been taken for 1999 since it would have no records of the 12/31/98 account value.

Let's play out this scenerio, EEs must work 1,000 hours to get a contribution and the rate is 8% for 1999. The company makes the contribution at that rate and goes merrily along. However, during 2000 the company decides to change the contribution rate to 5%. However, this decision is not made until late in the year after the employees have already worked 1,000 hours and are entitled to a contribution at 8%. Opps, the company is now MAD because someone forget to tell them to change the rate before the participants accrued the right to receive that benefit. Okay, to solve this problem the contribution rate will be decided upon by the end of, lets say, May since generically an employee must work almost half the calendar year to have worked 1,000 hours. But what if there are some employees working a lot of overtime and actually accrue 1,000 by the end of April. Should they get a contribution at 8% while the others get a contribution at 5%? Talk about PR problems with employees. Okay, to solve this problem the rate is changed to 1% every January. Note the plan will have to be amended twice each year (once to 1% and once to the percentage the company wishes to contribute). Sounds like an amendment nightmare to me. Now that we are amending the plan anywhere from one to two times a year how are you going to track the Summary of Material Modifications that need to be give to all participants/beneficiaries. (The definition of material cannot be found in ERISA or the regulations, however, the general view is that any amendment that changes the information found in the Summary Plan Description is material and must be disclosed in the SMM). Yes, you can forgo the SMM if an updated SPD is prepared and distributed within 210 days after the close of the plan year. So now we have to provide a SPD to each participant/beneficiary each year or the SMM. I am not saying that the response given by Richard wouldn't work, just that there are some pitfalls that must be considered. Therefore, to eliminate the accrued benefit and notification problems I still think that a PS plan is better. Besides, if the company is willing to commit to a small contribution rate for the MP plan, why not go ahead and install a PS plan and tell the EEs the percentage that the company intends to contribute. I have never heard an employee complain because the company contributed more to their account than what they were told. To sum up my lengthy response I would either put MP and PS plans in place OR only a PS plan. [This message has been edited by Alan Simpson (edited 04-29-99).]

Since you are going to a Master Plan and Trust Agreement I would suggest an amendment to the Plan/Agreement/Loan Policy allowing those mortgage loans existing at the time of adoption to be grandfathered in. If you do not have an early call provision in the promissory note I don't believe that you would be able to require the participant(s) to pay back the loan without some sort of default event occurring first. As far as the interest rate goes, what would happen to a fixed rate loan you made after conversion if the prime rate changes - you would not adjust the loan rate. Therefore, the interest rate of the loans should remain as stated in the loan agreement/promissory note.

If the employer wants to be able to vary the contribution percentage why not just put in a profit sharing plan?

A safe harbor 401(k) would allow the HCE employee to defer up to the maximum without having to worry about the ADP testing and possible refund of excess deferrals. As long as the matching formula would equal 100% of the deferrals up to 3% of compensation and a 50% match for deferrals from 3% to 5% the plan is deemed to satisfy the ACP test as well. If the match is not wanted the ER could use a 3% nonelective contribution for all eligible EEs (which is 100% vested at time of contribution). If the ER does not want a safe harbor plan then the following options are available to bring the plan into compliance. 1. Use of the prior year ADP/ACP testing information when determining whether the plan passes the testing for the current year. 2. Exclusion of the new product line employees from eligibility in the plan. However, the plan must still pass the coverage testing. 3. Use of a QNEC or QMAC to satisfy the failed testing of ADP/ACP. 4. Use of the Multiple Use Test to determine whether the plan passing the required testing without requiring a QNEC/QMAC.

Check the plan document, most of them include information on what to do when there is an omission of an eligible employee. I think it would be safe to assume you could use the same procedures for this instance.

I believe that you can accomplish the accruing of fees two different ways, and there may be others. The first way assumes that you are using the Confirmation Required on your transactions when they are posted to Quantech. You should post the fee so that it is allocated correctly with Confirmation Required selected. At that point the sell trades are created and waiting to be transferred from Buy/Sell to Pending and then to Ordered (Settled). Do not Settle the transactions, just keep them under Buy/Sell until you are ready to take the fee. Please note that the standard reports will not show the "accrued" fee so you will have to print your participant statements using the Custom selection under the Report Writer button in Quantech. Make sure to select that the unconfirmed transactions are included in the statement. Since we utilize custom statements for our plans this has not been a problem. While the participant statements should be correct they will not balance to the standard reports under Quantech. Therefore, you will have to consider this when balancing. When processing future trades remember to print the Trade Report using a date range so that the fee transaction(s) is not included. This method could create a problem if the participant changes their investments during the year or if they are paid out before the fee is taken/paid. Another option is to set up a generic cash account under the plan and post the fees there. Since the Quantech system does not like an account to go negative you need to fake a contribution into the cash account for each participant. Then post the fee transaction without requiring the confirmation of the trades. You then reverse the fake contribution leaving you with only the fee in that account (which should be negative). When you take the fee, you will have to manually enter transfers from the actual investments on each participant to the "fee account" so that you can sell the shares necessary and zero out the fees. If you select this method you need to set the cash account up under employee deferrals if the fee is to be paid 100% by the employee. Otherwise you can set the fee up under an account that has a vesting schedule. Using this method you should be able to use the standard reports under Quantech. [This message has been edited by Alan Simpson (edited 04-13-99).]

Although I am not a CPA, my understanding of this is as follws: The 1099-R should be prepared and mailed during January 2000. The participant receiving the "refund" should include the "refund" on their 1998 tax return, even though there is no documentation to support it. When the IRS receives the 1099-R (in the year 2000) it should be coded to indicate that it is for the prior year (1998) and the IRS will supposedly recognize it as applicable to the 1998 tax return for the participant. I do not believe that it is appropriate to send the 1099-R prior to January 2000, but have no documentation to back that up. As far as why the IRS requires "refunds" prior to March 15 even though the "refund" is not reported until almost 1 year later is anyones guess. However, by requiring the information to be reported for the prior year, the IRS is able to collect taxes on that money sooner.

For the initial plan year of a 401(k) a 3% ADP for the NHCE can be assumed (IRS Notice 98-1) unless the employer wishes to use the current year data. After the initial year the employer may revoke the election of using the "prior year" ADP and begin using the current year data. If using the 3% ADP for NHCE does not help, you need to look at your plan document which should state on what the matching contribution is based.

The plans that I see allow the individual participant to direct all of the monies placed into the plan on their behalf. As far as loans are concerned there normally is an origination fee and then an year maintenance fee changed by the third-party administrtor.

I find the IRS notices and announcements at http://ftp.fedworld.gov/pub/irs-drop although I do not know how quickly they are posted. [Note: This message has been edited by ERead]

If I am right, Pension Publications of Denver (PPD)has been purchased by Corbel.

Over the years I have used prototype documents from: Corbel (Leslie Smith @ 1-800-326-7235 x 1174); McKay Hochman (973-492-1880); and Universal Pensions, Inc. (800-346-3860). If you are planning on providing prototype documents for more than one employer this may be the way to go. However, if this is the only plan that you will assist in providing a document, it may not be cost effective over using a master/regional prototype plan sponsored by a local attorney. [This message has been edited by Alan Simpson (edited 02-12-99).]

A client wishes to terminate a SARSEP and implement a MPP. What actions must be taken, notices given, etc. for the termination of a SARSEP?

What I am assuming you wish to do is have the contribution posted to the individual accounts but not perform the investment buys associated with that contribution. This way you have the contributions in the system to perform the necessary testing. Assume the following: Plan year is 10/1/97 - 9/30/98. Employee deferrals for the last month of the plan year are deposited after 9/30/98. Matching of deferrals for the last month of the plan year are deposited after 9/30/98. To have the contributions posted to the 9/30/98 plan year without having to perform the associated investment buys you could do the following: 1. Establish an Employee Receivable account and an Employer Receivable account along with the other investment accounts. The account type used for these accounts should be Employee Receivable and Employer Receivable, respectively. 2. To post the contribution, input the Employee Receivable investment in the ACCOUNT # on the contribution transaction input screen, with the same being done for the Employer Receivable contribution. Also select the appropriate contribution type EE-Pre-tax, ER-Pre-Tax Match etc.) 3. Post the transactions as you would normally although this does require the posting of Employee and Employer contributions separately. (The Confirmation Required should not be selected for the posting). 4. The contributions will now show on the participant statements under receivables, have the data in the system for testing, but not require you to actually perform the investment buys. When you actually do the investment buys for the "receivable contributions" you will perform the following (which should be in the following plan year): 1. Use a Transfer/Exchange transaction, selecting the Transferring Receivables option, to transfer the Employee Receivable account into the Employee Deferral. 2. Use a Transfer/Exchange transaction, selecting the Transferring Receivable" option, to Transferring Receivable to transfer the Employer Receivable account into the Matching. 3. If Confirmation Required for the above two transfer/Exchanges is selected, perform the investment buys as instructed.

While I am not an expert regarding the S-Corp rules, I would see if it is possible to allow in-service or hardship withdrawals from the plan(s).

I think it is DOL Op 84-44A that applies here.

According to IRS Letter Ruling 9831031 this may be possible. Under this letter the IRS ruled that a restorative payment made by the employer to ensure that participants recover the portion of their account balance lost as a result of the administrator's delay in allowing the participants to direct their investments: (1)was not "contributions" subject to deduction limitations or excise taxes on nondeductible amounts; (2) did not adversly affect plan qualification under the nondiscrimination rules or because of contribution limitations; (3) was not taxable to plan participants; and (4) was deductible by the employer.

Check with a trust department of a bank. The two bank trust departments that I have previously work at have accepted land as an investment within an IRA. However, they may require an appraisal to be performed periodically.

I believe that if a plan so provides, QMACs and QNECs that were used to satisfy the ADP test, and income allocated to those contributions, are available for a hardship withdrawal. However, this only applies to those amount credited to the participants account prior to any plan year ending before July 1, 1989.

While I don't have final figures the Sept 21, 1998 issue of Pension & Benefits Week has a prediction of these amounts.

Yes. If the aggregate amount of matching contributions under an alternative formula at any given rate of salary deferrals is at least equal to 100% of the first 3% deferred and 50% of the deferral between 3% and 5%, then the alternative formula will satisfy the safe harbor. However, an alternative formula will not satisfy the safe harbor if the rate of matching increases as the rate of deferrals increases (ie. 100% of the first 3% and 125% of the deferrals between 3% and 5%). If a 401(k) plan matches deferrals in excess of 6% of compensation, the safe harbor no longer applies to the matching contribution, and those contributions together with any after-tax contributions are subject to discrimination testing. However, the safe harbor still applies to the salary deferral part of the plan. Please note that the safe harbor requirements do not allow the "last day rule" or the requirement to complete 1,000 hours of service during the plan year to receive the match.

We have one TIN for each plan and report the tax withholding under that TIN.