wmyer

If no participants other than the owner benefited in the plan in the year for which the 5500 is being filed, then an EZ can be filed (if former employees still have money in the plan, a full 5500 must still be filed). The final box should not be checked on the prior year's 5500. The IRS instructions for the 5500-EZ also indicate that the "first filing" box should NOT be checked on the EZ, since in previous years a 5500 had been filed.

I agree with you, JPCMPLS. The employer could accelerate vesting if he chooses to, but the participant need not be made fully vested upon "conversion."

If it's the 3% non-elective component, we call it "nonelective." If it's the safe harbor match or enhanced match, we call it "401(m)." Last year, when the new version of the 5500 first came out, I placed numerous queries and even put a post up on benefitslink about this, and this seemed to be the right thing to do.

I agree with Medusa. As long as no profit-sharing contributions are made, the plan automatically is deemed to satisfy top-heavy under EGTRRA.

I don't believe there is currently any cite to the Code possible. However, once the IRS issues further guidance about some outstanding EGTRRA issues, we'll see.

Yes, however the 415 limit will be 100% of compensation in 2002.

I have been thinking a lot about this issue as well. Looking at Rev. Rule 94-76, it seems that you can simply amend the profit-sharing plan to a pension plan. However, the assets have to retain their attributes as pension plan assets, which means QJ&SA, and restrictions on distributions. Benefits: You get to keep same IRS plan number, you don't need to file a second 5500, it may be administratively easier.

There are generally more tax advantages to contributing pre-tax as opposed to post-tax. Non-tax reasons to contribute post-tax however may include the following: Post-tax contributions can often be taken out as in-service distributions, while pre-tax contributions can't be; Post-tax contributions are good after you've already met the $10,500 (402(g)) limit for pre-tax contributions; and Some plans impose, say, a 15% limit on pre-tax deferrals, but let you contribute an additional amount on a post-tax basis. When & if the "Roth 401(k)" comes into play in 2006, there may be some more things to add to this list.

QNEC contributions are deductible if made by the tax filing deadline and if they do not come from forfeiture. If you're using money from forfeiture to make the QNEC, or to make a matching contribution for that matter, the amount that comes from forfeiture is not deductible.

This shouldn't be a plan document issue. Yes, you can use full year compensation even for a partial-year participant for the deductibility limit.

For 2001, the 170,000 limit applies to SIMPLE 401(k) matching, but not to SIMPLE IRA matching. Therefore, the match in a SIMPLE IRA can be as much as 6,500; but the match in a SIMPLE 401(k) can only be 5,100. Page 120 of the conference report, which you can find at http://www.house.gov/rules/som_1836.pdf indicates that SIMPLE compensation will be capped at 200,000. If SIMPLE compensation is capped at 200k, the 2002 match will actually be less than the permitted 2001 match.

I'm kind of continuing the discussion that started in thread 10608, but am starting a new thread because the following issues did not come up. I'd like to hear other people's input on the questions below. When merging the MPP plan into a profit-sharing plan, do you need to requalify the MPP plan for GUST first? do all the contributions need to be made by 12/31/2001 if you want to merge the plans 12/31/2001? if you don't have a profit-sharing plan, can you just amend the MPP to a profit-sharing plan, or do you need to start a profit-sharing plan so that you can merge them?

You can definitely count QNECs & profit-sharing. Matching can be a problem. Some plan documents won't allow matching to satisfy the minimum, so you'll have to look at the document. If the plan allows it, currently you can only use matching to satisfy the minimum if you don't use it towards the ACP test -- you can't double use the match. After EGTRRA, you can use match both towards the ACP and the top-heavy minimum. Also, if we're talking Safe Harbor 401(k), the SHMAC can't be used towards the minimum currently but the SHNEC can. After EGTRRA, the SHMAC can be used towards the minimum, too.

I read the original post the same way as actuarysmith. Although it could violate 401(k)(4), I've seen this done. At the outset of employment, the employee chooses one of the two packages -- if he chooses the package without 401(k), he's put in an excluded class of employees called "Non-retirement eligible" and excluded from the non-standardized agreement as a separate class of employee. Alternately, you could name the class something else which won't catch the IRS/DOL's attention so much.

Just a clarification to Earl's post -- the Safe Harbor only seems to automically satisfy top-heavy if there's just the SHMAC and 401(k). But under EGTRA, the SHMAC will still count towards the minimum contribution even if there are additional contributions in the plan. By the way, do you think enhanced SHMAC and 401(k) automatically satisfy top-heavy if there are no other contributions?

For the non-elective contribution, the employer limit will be 2% x the compensation capped at the 401(a)(17) limit, so 2% x 200,000 = 4,000, which is an increase from 3,400. For the matching, the employer limit is 3% x comp capped at the 401(a)(17) limit, so 3% x 200,000 = 6,000. Keep in mind that previously, the 401(a)(17) limit applied to SIMPLE 401k's but not SIMPLE IRAs for purpose of applying the matching contribution. With the new regs, the compensation cap also applies to the SIMPLE IRA match.

Generally, you'd have to fill out form 5330 to pay the 10% excise tax. Not only that, but you'd have to reduce the contribution next year by the excess amount. In the past it didn't seem to make any sense to overcontribute deliberately, but if you've done it accidentally, then the excise tax is one remedy. Of course next year the 404(a) limit increases to 25%.

The answer to this question is EZ. Unless there's an affiliated service group or leased employee issue, the situation you described in indeed a one-participant plan and the EZ is the correct form. Of course, you could always file the long form with all the schedules, but who would want to?

To answer the original question, using the deemed 3% in the first year does not constitute an election of prior year ADP testing, so you can still use current year testing in the second plan year. I agree with Tom about the effective dates. If you do not currently have a 401(k) provision and if your new plan is not a successor plan, you have until October 1 to add a safe harbor.

The 11,000 would still be deductible for the corporation, but starting in 2002 it will no longer count against the §404(a) 25% deductibility limit. If the participant's comp. is 55,000, the participant would receive a W-2 with 44,000 in box 1 (federal wages) and 55,000 in box 5 (medicare wages). Thus the 11,000 would be deferred income for the participant. I could also mention the catch-up contribution if you're over 50 -- this would allow you to do more than $40,000.

If you just have a P/S plan, or have a P/S with pension, the most that can be contributed as an employer contribution is 25% in 2002 for deductibility purposes. That means, that based on combined comps. of $110,000, only $27,500 total, or $13,750 each. If you add a 401(k) feature, you could each contribute an additional $11,000 (totalling $24,750 each) because the $11,000 would not count towards the deductible limit. Also, it seems you could make post-tax contributions (although not Roth 401k contributions until 2006) of $15,250 each. This would take you to 40,000. If it's a plan with only HCEs, there's no discrimination testing, so you wouldn't have a problem with these high post-tax or deferral contributions.

"I can think of one example of double taxation -- failure to remove excess deferrals in time -- but that is an express penalty circumstance. The general rule is that income is taxed only once." Well, an instance of double taxation, in addition to what QDROphile named, is taxation of loan interest payments upon distribution. Loan interest is paid with post-tax money but taxed again upon distribution.

You may be. It depends on the particular plan document. Some plans give a "true-up" contribution on an annual basis, which means that the match will be based on your total contributions divided by your annual salary. Most large companies that I've seen do not give the "true-up" contribution.

Yes, please e-mail me a copy. (You can click on my profile.) Thanks!

According to CIGNA, there is no mandatory state withholding for Pennsylvania, but of course they may be wrong. http://www.cigna.com/professional/pdf/CPA_iidw0201.PDF