Ervin Barham

There are lots of court cases on this very topic. Make sure you have a copy of the Summary Plan Description for both plans. If you don't, ask for one in writing. It describes your rights under ERISA (usually at the back). You can also contact the Department of Labor and you may also wish to contact an attorney who is familiar with ERISA and the pension area. It is almost impossible to answer your question in this forum without seeing the materials (and possible disclaimers, etc.)

Have you contacted Corbel? Of course, 2000-3 is still new (and departs from prior guidance), so I imagine people are still trying to figure out how all of this applies.

Check your plan document for overlapping eligibility and the measuring period for a year of service for eligibility. Most prototypes measure the initial year of service from hire date (in your case 5/98 to 5/99), then the 2nd measuring period switches to the plan year (10/1/98 to 9/30/99). Thereafter, you are checking the plan year for meeting the year of service. Some documents will always measure the year based on hire date. I hope this helps.

Except for a few wild and crazy ones, most plans I see should be able to meet one of the guidelines. However, I am particularly concerned with having to list financial institutions and assets on the SAR. This is no big deal for a plan with assets at one brokerage house, insurance company or bank. A lot of the smaller plans have assets at several, particularly those with segregated accounts. It adds a lot of cost to the admin fees without a whole lot of value. I also think small employers are going to balk at this and the potential for releasing asset statements, since it's too easy for participants to figure out how much is in the owner's account. Administrators already have enough to do with useless government paperwork. Let's not add more! Maybe I've missed the boat. I'd be interested in hearing why these new guidelines are a good idea or if my concerns are unjustified.

Be careful with your terms. If the document will be setup with the 3% "non-elective" contribution (using the word "match" can trip you up) and as long as it complies with the required allocation, vesting and distribution restrictions, you should meet the requirements for ADP/ACP testing. Review your document carefully when it is prepared to make sure it reads correctly.

Your second statement is more like it. The 3% safe harbor must be put in for those eligible. If the plan document provides, then you may make an additional "profit sharing" contribution if allowable. You will have to keep track of these separately since it is likely that different vesting schedules and different distribution options apply. I think of the 3% safe harbor almost as an additional type of contribution. Check with your plan document provider to see how they are going to write this up in the document.

My first response is no, because once amounts are rolled over, then the original source does not matter. However, check your plan document. In some prototypes, amounts contributed as rollover contributions may be withdrawn, but no more than once per year. I have not seen that in all of them though. If that is in your document, then the participant would have to withdraw the rollover first, since to get a safe harbor hardship, all available loans and distributions must be taken first. If the plan does not allow withdrawal of rollover contributions until termination of service, then he/she is stuck with only the deferrals made with this plan. Check with your document provider as well!

I have found myself in the middle of a messy ESOP where no allocations have been done for several years. The ESOP is leveraged but the note was paid off. Does anyone know or can send or point me to good information on the basics of allocating an ESOP? It's been way too many years since I have looked at one of these. Thanks.

Your post seemed to be using the terms "controlled group" and "affiliated service group" interchangeably. While the definitions are different, the result is the same in that if they are considered affiliated service groups, you have to treat them as 1 entity for coverage purposes. You need to take a good look at Section 414(m), the associated proposed Treasury Regs,and Rev Ruling 81-105 on this. [This message has been edited by Ervin Barham (edited 11-10-1999).]

MWeddell is right about the safe harbor contribution. However, if the plans are top heavy, then you may have to make a 3% contribution for those who are deferring who are not eligible for a normal contribution. The top heavy minimum would be based on the full year comp.

This is the age old question. When you go out on a sales call (and I have done many of these with stock brokers) are you a salesman or an administrator? Most admin firms have one or more "sales people" who do this and get paid a commission on the sale of the admin. Thus it becomes a marketing cost and is built into your admin fees. If you are like me now, which is I am the sales force, the administrator and the consultant, I bill for the time if I get the business. But I also let the broker know up front - so he knows to qualify the prospect! I'm sure there are many other methods - hope this helps.

The QNEC must be made no later than the end of the twelve-month period following the close of the plan year to which the contribution relates. Treas Reg. 1.401(k)-1(B)(5)(v).

Boetgerinc - to answer your original question without getting sidetracked on whether you actually have a controlled group: You would set one of the employers up as the "main sponsor" of the plan and have each one of the controlled groups adopt the plan as an "adopting employer". If they are a controlled group, most prototypes (as Dave Baker mentioned) allow you to do this. The 5500 would be filed under the main sponsor's EIN and noted that the controlled group exists. Hope this helps.

If the plan document requires gap period income, there are 3 methods of calculating it under Treas Reg. 1.401(k)-1(f)(4)(ii), paragraphs B,C, & D. You must include earnings for the year in question (1998) plus gap period income from the beginning of the plan year until distribution. I think the rule that is causing the confusion is the 10 percent method. Under that method, you calculate 10% of last years earnings for each month in the gap period. If distribution occurs prior to the 15th, you ignore that month. If this is a daily plan, there's no reason you can't use the actual earnings through date of distribution. Have fun!

Full vesting is generally required upon a discontinuance of contributions. Code Sec. 411(d)(3)(B).

Sounds like a marketing opportunity for someone. I too would be interested in a standalone cross-tested system. I use Benetech for proposals,and have heard of Flex-Soft but not used it. Proposal systems generally have not been detailed enough for me to trust them for anything other than proposals. I do know that Datair works, but I'm not real crazy about the rest of the allocation system or the fact that it's DOS based. Quantech supposedly has upgraded the capability of doing the testing, but I haven't tested it recently. I have developed my own spreadsheet for smaller clients that I do consulting, but it's not ready to be shrink-wrapped.

Participant has defaulted on loan in M/P and will be treated as deemed distribution under 72(p). Adoption Agreement allows offset only upon normal retirement age or termination of service. The plan has terminated. Is that enough to offset loan from account balance now? Or am I missing something here? Thanks for any thoughts.

Check the plan document. It will have a "general" time frame for distributions. You can do this by requesting a Summary Plan Description (SPD) in writing from the Employer. Plans are not required to make distributions until age 65, although most distribute sometime earlier. In most plans, the plan administrator may have an administratively reasonable time to process the distribution. If you read the SPD and feel that the Employer/Trustee/Plan Administrator are not following the terms of the plan, you may contact the Department of Labor (the SPD will provide that information) to possibly having a grievance looked into.

The document has to spell out what to do with forfeitures. If you don't see it in your adoption agreement, then check the basic plan document. Most documents allow for some or all of the above or even a combination of the three. [This message has been edited by Ervin Barham (edited 09-30-1999).]

What you really have here is an overpayment to the participant. The plan administrator/custodian is required to deposit the taxes as if the distribution were done properly. If not, you will have a penalty from IRS. If possible, the plan should recover the overpayment from the participant. If, as is usually the case, the participant fails to repay, then the plan sponsor will be responsible for making up the shortfall.

David: What ruling is that? I thought I read somewhere (can't put my finger on it now) that the plan had to be terminated - in the sense that a resolution to terminate would have been adopted, but it was not necessary to have all of the assets paid out before establishing a SIMPLE plan. Or maybe I just dreamed this up...?

One of the issues you have to watch out for when the prototype sponsor goes out of business is the amendments that should have been made for 401(a)(16) and 401(a)(31) back in 1996 or 1997 (I forget which). You have no way of knowing whether the prototype sponsor actually sent (or added those to the prototype) before going out of business. In general, I agree with DaveF's comments on getting a letter.

Not really, if they want to keep the current plan and just add a 401(k) feature. Before amending the plan to allow in-service withdrawals on the HCE's, you might want to look at a safe-harbor 401(k) where they make the 3% non-elective contribution instead of a match or even a cross-tested plan. In certain cases, the same contribution can be used twice (top-heavy and cross testing). Of course, if the reason they have not contributed is because they have no profits, then that strategy might not work. You may also want to look at a simple 401(k) (if they qualify) to see if that meets their needs. If you are not comfortable doing this analysis, then are consultants and the like in your area who can provide that information.

I don't have a specific cite for your question. This is one of those that you would have to argue with the IRS that your methodology is correct - and they might argue it is not! I'm not following your 12/31 argument. Some of my material indicates that earnings are credited from the date the Employer should have made the contribution. Under normal circumstances, wouldn't it have to be made by the tax return due date (9/15 for calendar year plan) rather than 12/31? In any event, you (or the employer) would have to demonstrate that your argument is reasonable.

No. See Notice 98-52, Section V, Example 4.