wmyer

You can switch between prior and current until the end of the GUST remedial period. For calendar-year plans this is 12-31-2001. Whatever method you choose for 2001 constrains what you can do for 2002.

Mr X, see 2001-10 IRB. Minimums for calendar year 2000 taken by April 1, 2001 cannot rely on the new rules.

My understanding is, additionally, that if you terminate the plan effective 3/31/2001, you are going to have to prorate the 501 hour condition for contributions, 500x3/12=125 hours. Anyone working more than 125 hours in that period, I think, would have to get a contribution.

The plan document or adoption agreement should probably specify if forfeitures are being used to reduce or supplement the required pension contribution. However, no one can go over 25% of compensation, so if you have a 25% pension you would have to use the forfeiture to reduce contributions. The plan document should also state method of allocation, which might be prorata based on compensation.

Yes, you should include hardship withdrawals. However, you should not include loans or corrective distributions (e.g. 415 excess contributions).

Not only is there no required minimum distribution with a Roth, but the earnings can be withdrawn tax-free. So you're paying tax now on the principal, but you'll never pay tax on the earnings. With a 401(k), you are deferring tax on principal and earnings, but you'll have to pay tax on both, and you'll have to take an RMD once you hit 70 1/2.

Just a thought -- the employer has until his income tax filing deadline (plus extensions) to fund the nonelective. If he has a fiscal year running from 12/1/1999 to 11/30/2000 and started the plan in 1999, his filing deadline isn't until 2/15/2001 (and, with extensions 8/15/2001). If you didn't start contributing until after 12/1/1999 and he's doing the match, he's not even necessarily late.

To answer your question about reporting, you'd put the distribution amount in line 16a if you're using Form 1040 ("Total pensions and annuities" and "Taxable Amount").

No, they would have to adopt it 1/1/2002. Revenue Proc. 97-9, Section 2.08: "Employers amending an existing 401(k) plan to incorporate the model amendment must make the model amendment effective as of the following January 1 unless they are using the 1997 Transition Rule...." If they didn't have an existing 401(k) arrangement, they could have an initial short plan year, with the SIMPLE plan effective 10/1/2001.

I also have never seen a legal maximum limit. The plan document may specify a limit, however.

Have you checked out Cigna's COMPLIANCE CHECKLIST at http://www.cigna.com/professional/tools/re...ment/index.html? It may be a good start. You can click on COMPLIANCE CHECKLIST to download the 24-page all-inclusive pdf file.

The forfeitures would be used to reduce the matching or non-elective contribution. They can't be used as an additional contribution, because no additional contributions are permitted in a SIMPLE plan. The plan document probably specifies something about the timing of forfeiture, so it wouldn't be held in the forfeiture account indefinitely.

That number is not specifically mentioned. Because the 401(a)(17) limit does not apply to SIMPLE IRAs, the match is not limited to 3% of 170,000. But the match cannot exceed the amount of actual deferral, so the match can be at most $6,500 as long as the compensation is high enough to merit a $6,500 match at 3%. The only way you can get $6,500 into match with a match equal to 100% up to 3% of compensation is if your compensation is 216,666.67 or more (.03*216,666.67=$6,500).

The intent of 2000-3 is that the employer can stop the match mid-year and become a traditional 401(k) for the year, with deemed current year testing and with a requirement to do the match up to the effective date termination of the match. Since the plan is now a traditional 401(k) after doing so, it can't switch back to Safe Harbor until the beginning of the following plan year, as long as it fulfills the proper notice requirement at that time.

There is no folly of the beasts of the earth which is not infinitely outdone by the madness of men. Melville, Moby Dick

Notice 2000-3 interestingly does not state that you must provide notice 30 days prior to the beginning of the plan year (by December 1 for calendar-year plans) in order to take advantage of the flexibility in adopting the Safe Harbor Nonelective contribution method. It simply says "prior to the beginning of the plan year." It doesn't even use a "reasonable period" catch-phrase. Usually when the IRS wants something done thirty days before the beginning of the year, they're pretty good about saying so. It seems to me you could make an argument that you could adopt a Safe Harbor with non-elective up to December 31st (for calendar-year existing 401k's), by providing a preliminary notice on December 31st that you may switch to Safe Harbor and by providing a supplemental notice by December 1st of the following year that you will actually give the non-elective. I personally would err on the conservative side, but does anyone have any evidence that this can't be done (specific cite, court ruling, etc.)?

I could not find an answer to this question on the message boards, but please forgive me if it's already been asked. An employer overfunded matching contributions for an owner in a SIMPLE IRA for 1998 and 1999 (i.e. more than 3% of compensation). When returning the excess, should the principal be returned as well as earnings? Moreover, should there be a 1099-R produced, and if so, with what distribution code for principal, and with what distribution code for earnings? Any other issues that I should be aware of here?

We get a lot of those, too. Usually the reason is that the "final" box was not checked off on the 1997 form. It appears that because of the three-year statute of limitations the IRS is currently targeting 1997 forms. And targeting non-filers or late filers is an easy way to raise revenue, considering the exorbitant fines.

A KEOGH plan is simply a qualified plan for sole-proprietors or partners, as opposed to a qualified plan for corporations. It can be either a defined contribution plan or a defined benefit plan.

For SIMPLE 401(k) plans, the 2001 limit will be 170,000x3% or $5,100 for matching; and 170,000x2% or $3,400 for the nonelective. For SIMPLE IRAs, the 2001 limit will also be $3,400 for the nonelective. The matching can max out at $6,500, assuming a salary in excess of $216,666.66.

In terms of the original question, check out http://www.psca.org/43rd.html. The PSCA surveyed 806 profit-sharing and 401k plans and determined that matching contributions are most frequently on a PAYROLL PERIOD basis. Also the most common type of fixed match is 50% up to the first 6%.

402(g) is a calendar year, personal limit. It wouldn't be affected by the short plan year. As for the rest, the point is that I'm NOT disaggregating parts. The profit-sharing plan is a full-year plan effective 1/1/2001 (adopted in March or April). I'm just adding a CODA feature effective 4/1/2001 to an already existing profit-sharing plan. Because the plan is effective 1/1/2001 we're not pro-rating any limits.

Since the safe harbor provision is part of a profit-sharing plan, can't the profit-sharing plan be effective 1/1/2001? I agree that the safe harbor provision wouldn't be effective before 4/1/2001. However, since the 10,500 limit is a calendar-year limit, that wouldn't be affected by having the safe harbor provision effective 4/1/2001. Also, if you make the profit-sharing plan effective 1/1/2001, the other limits (401a17, 415c &c.) shouldn't be prorated since the profit-sharing plan as a whole isn't a short plan year. And, moreover, even though the safe harbor provision would be effective 4/1/2001, couldn't you use the full year compensation to determine the matching or non-elective contribution if you make the profit-sharing plan effective 1/1/2001? I don't think the IRS has been clear about this. Does anyone have any objection to doing this?

I would likewise refer to IRS Notice 98-1, §5, but the prior year ACP you should use is 0%, not 3%. IRS Notice 98-1 allows you to use 3% as the deemed prior year NHCE ACP average in the first plan year. The notice further specifies that "For purposes of the ACP test, the 'first plan year' of any plan is the first year in which a plan...is or includes a §401(m) plan, i.e. the first year a plan provides for...matching contributions described in §1.401(m)." From what you've said, this is not the first year that the plan has provided for matching contributions, even though it's the first year that matching contributions are being given. Using prior year results, the NHCE ACP should be 0%.

Can you give us some clarification, Amy? If there's ACP testing, there's either matching or post-tax and that we're talking about a traditional 401k plan. If there's matching, what was the effective date of the amendment which added the matching feature? For example, if the matching feature is effective for the 2000 year but wasn't in effect for the 1999 year, and you're using prior year results, then 3% is used for the prior year NHCE average. The way you worded the question, though, leads me to believe that the matching feature may have been in effect earlier.