Ervin Barham

See Rev Proc 99-31. It has a lengthy discussion on earnings.

The main purpose is to give pension administrators something else to do... However, this is also used for people who postpone distributions, or in the case of some old profit sharing plans or defined benefit plans that would not let you have any money until age 65, so that the Social Security Administration will notify a participant that a benefit is due. If there's any other purpose, I am not aware of it. In today's 401(k) market, rarely does anyone postpone distributions or the plan allows for immediate payouts, so it becomes less of an issue.

Check your plan document. It should spell out very clearly the options available. But generally, the options for a M/P plan are the same as any other plan - lump sum, periodic payments, annuity, etc. If the distribution qualifies as an eligible rollover, they can roll the money over to an IRA or another qualified plan. The J&S rules do apply to a M/P plan, so following those, anyone with a $5,000 vested balance must have their spouse's consent to electing out of the annuity.

Has anybody had any experience where a participant contributed after-tax voluntary contributions (before 1986) but did not keep records as to his basis. The Employer has not been able to locate the reports during that period. The original recordkeeper exists under another name and records have not been able to be located. Since you can't rollover the voluntary - how do you determine for tax purposes? Any thoughts?

Two questions.. Is the $150,000 cap built into the formula? Is the $60,000 limit stated as a dollar amount? If so, your plan does not meet the permitted disparity rules now. It may have been fine when the letter was issued. You may be okay if you can demonstrate that the plan is non-discriminatory under the cross-testing rules. IRS may try to throw you out of the prototype status, though. If the plan has a last day, 1000 hour provision, and this is for the plan year ending in 1999, you could get it amended. Remember that you must file a 15 day 204(h) notice when amending a M/P plan. Of course, these comments are of a general nature without seeing all of your plan document.

You don't mention what the eligibility requirement is for the plan. Is it one year? If the employees are eligible (check carefully!), then if they are not employed on the last day, you are not required to make a top heavy minimum for them. You are, however, required to pass coverage using the 70% test (ratio %) or some variation of the average benefits test if you are not in a standardized plan. This applies to matching and profit sharing contributions. The ratio percentage test requires that if you make a contribution, then the plan must benefit(receive a contribution)a percentage that is at least 70% of the percentage of includible highly compensated employees benefitting under the plan. Generally these rules are found in Section 410(B) and the applicable regs. Not knowing all of the facts about how many other employees are eligible makes it impossible to answer this question exactly. If you fail the coverage test by having to include the summer help if you go to a non-standard plan, then the plan will generally have some sort of provision to insure that the plan will pass coverage. Check the details of the plan document to find that provision. In a standard plan, as you know, all employees will have to be covered that meet the eligibility requirements and have more than 501 hours in the year of termination. You should go through the coverage testing before converting to the non-standard plan to determine how many will actually have to be covered and the cost involved. I hope this helps. [This message has been edited by Ervin Barham (edited 08-16-1999).]

The rollover IRA has a much larger balance for investment purposes is the reason. MoJo, you stated the brokerage firm got it half-right. What half are they getting wrong? Thanks.

Sub-S company (1 person company) establishes an SEP. SEP contribution goes to brokerage account. Brokerage firm is advising that participant can take immediate distribution & rollover to IRA held at the brokerage account. Is this proper? I don't deal with SEP's very much - and I know the rules are different from qualified plans. Thanks!

Deferrals in excess of the 402(g) of 10,000 must be returned by April 15 whether it is a sole proprietor or corporation. That limit relates to the individual. With regard to the second part of your question, you have hit on an interesting issue. Contributions may be returned upon a mistake of fact, a failure to qualify initially, or a failure to be non-deductible. A mistake of fact (as defined by the IRS) has been narrowly interpreted to mean a mathematical type error. But there isn't a whole lot of guidance. My information states that to be returned for non-deductibility, the IRS must disallow the deduction. See Code Section ©(3) and 4980©(2)(B)(ii). [This message has been edited by Dave Baker (edited 07-30-99).]

I think most of the questions you are asking at this point may be unanswerable except by the IRS. I don't have any actual experience with the IRS reducing that fee - so I have no way of knowing whether they will or not! You also have no way of knowing without contacting on a John Doe basis whether the IRS will even allow a retroactive amendment. You might try looking at the Plan Defects Q&A column by Reisch & Luftman elsewhere at this site to give an idea. Certainly an $8,000 presumptive fee is steep, but I think in this case you weigh the total costs - what is the cheapest alternative for the client - including the professional fees to correct. I'm not sure I can be of any further help on this - this now becomes a judgement call for you and your client. Good luck.

Please see the previous thread to Hoard1 - you are basically both asking the same question.

Perhaps I should have clarified (expanded) my answer. I didn't intend to imply that the document would be a prototype. JF is right in that a prototype is not available. By using the cross-tested language that the prototype sponsors have available, the document would still be an individually drafted plan subject to the higher user fee. Corbel & Datair both have volume submitter plans that can be submitted with a lower user fee. Sorry for any confusion!

Please note that the IRS stated in Rev Proc 98-22 also noted that "multiple failures must be insignificant in the aggregate". It appears that you have more than one failure beyond the two year period. I would be very cautious about trying to use APRSC for something like this. By submitting under VCR (not SVP), you always have the opportunity to propose (whether it is accepted or not is another story) any reasonable method of correction. You can also contact the IRS on a "John Doe" basis about the Walk-in cap correction to see if there is a lower amount and whether the IRS might allow the retroactive amendment. I'm not sure I understand your statement that the client does not want to make the corrections for the match. If that is the case, then there is no point in any of this excercise as they are wasting everyone's time. If you are going in, clear it all up! Please note that this situation is impossible to completely answer without looking at all the facts - have your client contact a good pension attorney!

Check with the regional prototype sponsor. Most of them have a cross-tested option already available.

As best I understand it, the statute starts with the filing of the Schedule P and runs 3 years from the date filed (in your case), unless (1) you have an undisclosed prohibited transaction, which then is a 6 year period; or (2) a fraudulent return, which then has no statute. See Code Section 6501(a) and 6501(e)(3). You can do a search elsewhere at this site for those. I am not an attorney, so check with one before proceeding.

You don't say what kind of plan this is, so the answer may vary greatly from what is said here, depending on the type of plan. Most plan documents allow for the employer to deposit the contribution in one or more installments without interest. If not, the plan should have similar language. If, in your example, the plan is totally discretionary, and the money market account you speak of is in the plan,then you would allocate the $900,000 as the contribution and allocate the earnings as defined in the plan document. A lot of companies use a "contribution" account to pre-fund and then allocate the earnings on the basis of the contribution. If the $1,000,000 is a required contribution (i.e. 5% of profit), then the company would make up the difference at the end of the year and the earnings would be allocated. They could not use the earnings to offset a required contribution. Biggest danger in pre-funding is that you don't know what your 404 deduction limit is for the year, so you if you go over, then the penalty applies. Plan sponsors are not happy when that occurs. This is much easier to control in a smaller company than a large one. Also check the plan document carefully- is there a 1,000 hour, last day rule? If not, you may run into allocation issues. Check the document carefully to make sure it doesn't preclude what the company is trying to do, particularly the pre-funding and allocation of earnings. Check with the document sponsor if this is a prototype sponsor or with the drafter if this is an individually drafted plan.

Will the employer still be in existence after September (i.e.- merger/stock sale)? If so, as long as the resolution is passed by September 30, you should be able to make the contribution even though it is after the plan termination.

Following your logic, then I would say that the plan should define the valuation date for this purpose consistent with the regs. Therefore, I looked at a prototype document and the proposed language they drafted for the GUST amendments. They have defined the date for determining consent requirements as the value at the time of distribution. Obviously that has not been approved, but is consistent. You may check with your document sponsor to see how they plan to define this, if it is not already defined.

No. See Treas Reg. 1.411(a)-11T©(3). Use the latest valuation date preceding the distribution to determine if the vested balance is more than $5,000.

I have used both and feel at least somewhat qualified to respond. I am very frustrated right now with allocation systems in general, so I won't stay too long on my soapbox. Datair's big advantage is that it handles the eligibility very well and it will do cross-tested plan calculations and have found very few mistakes with it. 401(k) testing is also good. It is a DOS based system and as such does not work at all for participant directed plans. It also has some annoying quirks with forfeitures that are traded for other ones in Quantech. Quantech can handle participant directed and is a transaction based system, which is good. It has the potential to work better with either daily or balance forward than Datair, which would need major revisions to work with daily. Eligibility calculation is fair, but has a few quirky features that can cause problems. It is very easy to code participants incorrectly and have them miss out on earnings (it's been done). Insurance provisions also needs work. Testing for ADP/ACP and cross testing on Quantech is not very good in my opinion. IMHO, if someone (are you listening Corbel/Datair/Trustmark?) could take the eligibility and contribution calculations of Datair and combine them with the transaction based system on Quantech, you could come up with an excellent allocation system. I will now retreat back into the woodwork, and while that may not have answered your original question, at least allowed me to get rid of the steam.

Please check the definition of a vesting year and related definitions carefully. Without seeing your plan document, it is impossible to accurately answer this question. Generally a vesting year is defined as a plan year in which you have a 1000 hours or more. The vesting is not usually tied to having to be there on the last day of the plan year. If the plan document measures this on the anniversary date of the employees hire, then check the definition of vesting year. You might also check with the document sponsor, the person who drafted the document, and the Summary Plan Description to get help with the interpretation.

I am not aware of any exception. I don't have a cite as my information came from a recent seminar. It was noted that the 20% election applied to all plans of the employer.

The plan document would have to allow the combining of assets for investment purposes. This may throw you out of prototype status. Having dealt with many of these over the years, it does simplify trust accounting, but you then have the job of splitting out each plan's assets for 5500 purposes. Sometimes that can take as much time as the trust accounting. Employee directed 401(k) plans do not work well in this type of situation. For instance - how do you allocate earnings on the 401k contributions to the employees - do you weight them in some way? Document will have to be drafted carefully. I'm not saying it can't, it's just seems to create some additional work. Best case is usually a money purchase/profit sharing combination directed by the trustee. Check with the plan document sponsor to see if this is an option. I hope this helps.

I'm not aware of any provider that provides a cross-tested M/P plan. The ones that I have done (or seen done) have just been re-written. In general, the contribution formula can be amended to say "X% for Group A and Y% for Group B or you can use a modification of a super integrated formula. The danger in CT M/P plans is that if your margin in passing the 401(a)(4) tests is slim, then you may end up having to amend the formula each year and I don't think the IRS particularly cares for that (at least that's what I've been led to believe).

PPD has such a provision in its prototype that allows a participant who cannot be found to be forfeited. If the participant later comes forward to claim the funds, the Advisory Committee must restore the benefit. The other suggestion would be to contact your prototype provider to see if they have similar language or contact the person who drafted the plan to amend the plan to allow this. Of course, you would then need to get IRS approval and it may become an individually drafted plan.