wmyer

In response to Janet's statement, I would add that the audit requirement on the first short plan year can be deferred.

Tax exempt entities can have either a 403(b) or a 401(k) plan (or both). There are many advantages to having a 403(b) plan -- for example, no discrimination testing for employee deferrals (ADP test), easier nondiscrimination testing for nonelective employer contributions, simplified 5500 reporting to the IRS with no audit requirement. Both types of plans can have employer matching contributions (which are tested for ACP). However, employees are generally more aware of what a 401(k) plan is than what a 403(b) is; so, there could some communication benefits if you adopt a 401(k). Proposed 403(b) regulations will make 403(b) more like 401(k) plans. As a tax exempt organization, you may also want to consider a 457(b) plan for the museum's executives. There are many more issues, and you may want to engage the services of a benefits consultant to help you through this decision.

Also recall that the 100% of average compensation limitation is reduced if the participant has fewer than ten years of service.

I believe the answer is that generally elections must be permitted at least annually. In the case of a SIMPLE, the participants must be permitted to revoke their elections at any time.

This may be a partial plan termination, in which case the 2 doctors would become 100% vested. If you terminate two people and only have six employees total, you are terminating 33% of your staff. Partial plan termination is a facts-and-circumstances scenario, but termination of 20% or more may be considered a partial plan termination. Assets in a DC plan shouldn't revert to the employer; it would violate ERISA's exclusive benefit rule.

The proposed 403(b) regs, which cannot be relied upon, do propose to make a plan termination a distributable event for 403(b) plans. However, at present, a plan termination is not a distributable event for 403(b) plans. Whether they can in fact be terminated at the present time is questionable. But even under the proposed regs, this would not be a plan termination, because you are immediately commencing a new 403(b). Although any analogy with 401(k) plans is flawed, think about this: if you "terminate" a 401(k) plan and immediately begin another 401(k), there is generally no distributable event.

Determination letter is not a requirement, but may be advisable. Some of the things you would need to do are: execute a board resolution to terminate the plan, notify participants (not a requirement); notify payroll to stop taking deductions; update plan for all law changes to-date; notify plan vendor of termination; do final 401(k) and other compliance testing; send distribution forms to participants; locate lost participants; etc.

Lori, if you take mbozek's advice, be careful with the match - 403(b) gets a free pass on ADP but not ACP, although there are plan design alternatives that could help with that. Depending on the HCE's age, you may want to consider a cross-tested plan design. mbozek's suggestion of a 457(b) for the tax exempt employer is definitely a good one that the organization should explore.

Changing vendors is not a distributable event. Presumably you still have one plan; you are simply in a multi-vendor situation. Depending on what the plan permits, 90-24 transfers from one vendor to the other would be permissible, but distributions would not be.

The IRS has not revised the 402(f) notice to reflect the rollover rules. The plan administrator should modify this notice to reflect the plan rules.

For purposes of the SIMPLE IRA matching contribution, the compensation limit does not apply; however, it does apply to the SIMPLE IRA nonelective contribution. The compensation limit applies for purposes of the SIMPLE 401(k) matching and nonelective contributions.

Yes, the deferral limit would be $14,000 TOTAL for calendar year 2005 (plus $4,000 catch-up if age 50 or over), or 100% of compensation, if less. The 402(g) limit is on a calendar year basis and is an individual limit.

Have you considered charging a small account fee of $x per year?

Are you trying to increase NRA to age 65 so that you can test based on equivalent benefits at age 65? I'm not sure, but you might be able to test based on age 65 even if your NRA under the plan is lower.

Hardship distributions and other in-service distributions can be allowed from profit sharing plans (including new comparability plans). The plan document has to permit it.

See this link.

See this link.

Separation from service is a distributable event from 403(b) plans, so a distribution should be permitted. 403(b) plans permit contributions for up to 5 years after separation of service.

If you took a hardship withdrawal, your contributions to the plan may be suspended for 6 - 12 months. Did you take a hardship withdrawal? Regarding the loan program, you would have to check your Loan Note or your Summary Plan Description (SPD) to see what the terms of the loan are.

Don't use 3E -- that's only for prototype plans. There's currently no special code for VS plans.

Is the one participant left an owner or just an employee? If he is just a common law employee, you'll need the 5500, not the EZ. Check the 5500 filing instructions for details.

Thanks for the reply. The instructions for form 11-K say that the plan financial statements must be examined by an independent qualified public accountant to the extent required by ERISA (except that the "limited scope" exemption is not available) - page 2, bullet #4. I'm taking this to mean that since ERISA generally doesn't require the audit report for a short plan year of 7 or fewer months, no accountant's opinion is required for the 11-K. Is this a correct assumption?

Is an accountant's opinion required for an ESOP that must file Form 11-K and is not getting its financial statements audited for 5500 purposes because it has a short plan year of seven or fewer months? It's the initial plan year.

Check the plan document to see what it says happens to loans in the event of plan termination. Chances are, it will say that any unpaid balances are offset, which means that they would become taxable to the participant.

That's pretty good, but that's not exactly what I was looking for.