Ervin Barham

You have a mess. How's that for an understatement! I can't answer the FICA question as I am not a CPA, however for plan purposes, Section 318 attributes the stock of an owner to his/her spouse. One suggestion is that you do some consulting work(or hire a consultant) and go back and get all of the census info for each year and follow the plan rules and recalculate the contribution all the way through. This may be an expensive lesson for the doc! Returning the contribution in a qualified plan can only be done under a "mistake of fact" and no one is ever sure what that means. The consequences of getting that wrong could be costly. You can carry any excess contributions over and they may have to pay an excise tax. You may want to get an attorney involved as well. If all of the employees have not been covered, then you may want to take a look at some of the Q&A columns on plan defects that would address this issue. Good luck!

There is a transition rule under Code Section 410(B)(6)© and the applicable Treas Reg 1.410(b)that deals with a change in a controlled group under an acquistion/dispostion.

LCarusi: Sorry for the vagueness. This is an idea being tossed about from various sources to use the safe-harbor to allow HCE's/owners to defer a higher amount without worrying about ADP/ACP. Since the discrimination test under 401(a)(4) only takes into account the 401(k) amounts in the average benefits portion of the test, "theoretically" this would lower the profit sharing contribution for the HCE, thus making it easier to pass the 401(a)(4) tests as well. I have not tested it on any live plans, although I see no reason why it should not work.

I'm finding that the safe harbor design has appeal to smaller employers where participation has not been good or in start-up situations. It should (although I haven't tested it too much) have some appeal in a cross-tested situation. For the larger employers, the offset of the vesting schedule seems to be a negative.

Much ado about nothing? 1. When you submit a plan to the IRS, in their words, they only "bless" (I use that term very loosely) the methodology that you are using to test, not the results. Resubmitting each year would be a waste of everyone's time and money. If the IRS were to audit, you would have to "reprove" that your method works anyway as this becomes an operations issue. 2. I would much prefer to have a full letter, knowing that at least you have some protection than trying to save a $1,000 bucks or so, when usually the owner saves far more than that in a cross-tested plan. 3. With regards to having 2 plans with exclusions, for small employer plans, the administrative costs will usually exceed the savings on the front end. Thus, it makes much more sense for small employers to use the class method to exclude.

I think your question as to the validity of this document is a good one and should be examined closely by the company's legal counsel. In a similar case, the attorney indicated to me that without board approval, no amendment exists. One question to ask might be: Did the board give a "blanket authority" to the officer to sign documents in an earlier set of minutes? Does the insurance company have a "canned" set of minutes" in their files that were signed? Your point about the 204(h) notice is good. If the document is not valid, then you would go on with the old document, APRSC, etc. Of course, I am not an attorney, so I repeat that one should be consulted at this point.

I'll probably get some disagreement on this, but here goes. I have always been of the opinion that you keep things (even for terminated clients) for 7 years at a minimum, but I hardly ever wanted to get rid of anything. I can't tell you how many times I've had to go back and pick up information from way back, either upon audit, a QDRO, or some major disagreement between former owners/participants and the client. I would certainly never, ever, pitch any plan documents or SPD's. Some suggestions: 1. Send to offsite storage (you may have to raise your fees to cover) if it is available 2. Consider microfilming some of the "workpapers" relating to a particular year. 3. Check with your liability carrier as to their thoughts. Hope this helps!

I have used PPD with good results. I would say in response to Iminsky's comment that the firm I worked for did not "buy" the extra PPD adoption agreement, but took one of the regular adoption agreements and modified it, depending on the type of plan, since they were individually designed plans. I couldn't see paying extra for that adoption agreement. PPD was very good to work with.

Client discovers participant excluded from profit sharing plan and money purchase pension plan in error and agrees to "make up" the contribution plus earnings under APRSC. I know the P/S contribution is deductible to the extent there is room under the 15% cap and to the extent that you don't exceed the 25% overall limit between the two plans. My poor ol' search engine doesn't provide me with the answers I need, so could someone direct me to a cite as to whether the "make-up" earnings are also deductible? Thanks.

This is in response to LCARUSI's question. You would start with "gross compensation" without regard to the $160,000 cap. Reduce the compensation by 1/2 the SE tax, then by the contribution. If you are still over 160k, apply the limit and treat as any other plan.

Earned income is defined as compensation after contributions, so you would reduce the compensation by both plans' contributions. This can be a tricky and involved calculation. It usually involves a little bit of "what if" calculations. I found it easier to create using a spreadsheet than trying to use the allocation systems. You might check the advertisers at this Web site. I'm pretty sure there should be one that can do this for you. You might contact your document provider. Sometimes they will have a memorandum that will walk you through the calculation.

I agree with your conclusion.

I would be interested in thoughts/comments on what software is being used - or does everybody just tinker with it on a spreadsheet!?

This is not my area of expertise, but I would think you would have a multiple employer plan and would have to set the document up that way, especially if the franchisees are truly independent companies. It's also very easy to get caught with coverage problems, especially if the franchisor "buys back" from the "franchisees" when they want to get out. Perhaps someone else could shed a little more light on this.