MR

I have a client that has a SIMPLE 401(k) plan. I want to convert it to a safe harbor new comparability plan for 2001. They stopped the SIMPLE deferrals 12-31-2000 and I want to start 401(k) deferrals 2-1-01 (they posted the safe harbor notice 1-1-01). My first question is - can I simply restate the plan, effective 2-1-01? The current document is a prototype and I will restate to an individually designed document. Second question - could I instead terminate the SIMPLE and start a new plan? I would think the "no 401(k) within 12 months of terminating a 401(k) plan" rule would apply. Any thoughts?

Brett, I've heard of a company called Beneco. I think they are in the mid-west somewhere. If I am not mistaken, they do almost exclusively Davis-Bacon plans. They even have prototype documents.

Unless the plan specifies that the match is allocated on a payroll period basis, this employer would be REQUIRED to make a "true-up" matching contribution for any participant who did not receive the match he would have if the match had been calculated at year-end, based on compensation earned and deferrals made for the entire year. Others have called it a "match patch", which is kind of growing on me.

A plan passes both the ADP and ACP test using the alternative, +2 x2, method. It then fails multiple use. If 1.0% was borrowed from the ADP of the HCEs and NHCEs and used in the ACP test the ADP test would still pass and the ACP test would pass using the basic, 1.25%, method. Multiple Use would not be necessary. What wording or code references must be in the Plan Document to allow borrowing?

Hey, what kind of pension geek is on Benefitslink at 11:00 at night? Anyway, as a TPA with about 400 401(k) plans, I can tell you that the vast majority of my clients match at year-end for 2 reasons. One is the very scenario your outlined. Since the $170,000 guy is probably the one paying my fee, I always do what's in his best interest. The second reason is that it allows the employer to condition the match on year-end employment status. That said, however, I will further tell you that the majority of the plans I takeover from bundled providers match on a payroll to payroll basis. The reason for this is that they cannot or will not do an annual match calculation, leaving the client with little alternative but to have their payroll company calculate it per payroll. So far, I acknowledge that I have been of little help in answering your question. Since there are more plans administered by turn-key providers, I guess there are more plans that match on a payroll to payroll basis. Lie to me and tell me I was helpful.

Not to intrude here, but can't Amy still switch to current year testing for the ACP test? If its a prototype plan, she'd have to switch to current for both tests, but that might not be so bad. Just ask Cheryl Morgan.

But 415(e)says that if the 403(B) is in the control of the employee, it would be aggregated for 415 purposes with his company plan. I know 415(e) has been repealed, but I don't know if this particular combined plan limit still applies. Do you? thanks

If I have a University employee who participates in an ERISA 403(B) plan and also has self-employment income, must I consider his 403(B) contributions when calculating his maximum deduction for his own DB plan? I think no, as long as the 403(B) is an ERISA plan.

I agree with Tom. For 401(k) plans, we include all who are in the ADP test when calculating 404 comp. We don't consider it particularly aggressive, either.

I would think not. Why would your scenario be different from an employer that had no plan prior to '87? You also have different deduction limits with MPP vs P/S. I seem to recall that in order for carryforwards to be allowed, it would need to be from the same plan.

Once April 15th has passed, what benefit would the participant have in removing the extra $10,000? Remember its not that one cannot contribute more than $10,000, rather that one cannot exclude from income more than $10,000. Assuming he only excluded from income $10,000, he's already stuck paying tax twice on the second $10,000, no matter when he takes it from the plan.

I agree with Tom Poje. One thing I'll add - when your client wants to know how much you're going to charge to administer that monster you had better be careful. Imagine the possible combinations of contribution rates for the various profit centers!

I'd start with requesting the K-1 for each partner. This will contain the net income from self employment, section 179 expense and the partners' share of the profit sharing cost.

This sounds like a plan that would need to be tested on a cross-tested basis, like any plan that divides the employees into different groups for allocation purposes.

I think your $160,000 guy is not only NHC for year 1, but also year 2, assuming we're talking about 2000. He doesn't earn over 85k in 2000, so is NHC in next year unless he becomes an owner. Not sure why it matters if the plan is safe harbor, though. On the second question, I think you're OK to limit safe harbor match to those with 1 year and age 21.

OK, this is not a new question, but I'm looking for other folks' experience. Lets say you have a 401(k) that permits self-direction among a group of mutual funds. Additionally, if your balance exceeds, say $20,000, you can invest through a brokerage account, where you can buy individual securities. My feeling is that the ability to invest through an individual brokerage account is a BRF and by attaching a condition such as a rather high minimum you've probably got a discrimination problem. Nevertheless, there are investment institutions that are suggesting this approach and contending that it shouldn't be a problem. I don't agree, but I am not aware of a case or DOL or IRS opinion that specifically speaks to this issue. What do you think?

We have a leasing organization client that sponsors a multiple employer plan with several separate organizations adopting the plan. The research we have done tells us that the recipient employers that have adopted this plan must be tested for non-discrimination separately. The recipient employers must include the leased employees that are employed at their site in their individual ADP tests. The one question that we can't answer is whether the leasing organization must also include ALL of the leased employees in their test as well. In other words, the leased employees would be counted in two tests, one for their respective recipient employer and one for the leasing organization. Can anyone answer this or at least point us to a website or reference that can?

I would suggest self-correction by having the employer make a qnec equal to the sum of 1.) the average 401(k) contribution of the other NHCE's (assuming the forgotten soul is NHCE), plus 2.) the safe harbor contribution percentage (ie 3% of pay). For example, if the ADP of the NHCE's is 4 percent of pay, I would have the client make a qnec equal to 7 percent of pay.

I think it depends on what you mean by a "blackout period". I think its reasonable for a participant to be unable to call and change his investments for a month or six weeks, but I don't think it is reasonable for a participant's money to be uninvested for this long. If coordinated properly, the time a plan assets are out of the market should be just a few days. It can be done by following these steps: 1- contact current custodian and tell them that as of a specified date, no further transactions will be processed on the account and the VRU should be turned off. 2- have the current provider prepare a valuation as of this specified date. Send the valuation to the NEW administrator. Note, it may be a few weeks between the date of the valuation and the date the statements are prepared, but the money is remaining invested. 3- the current provider "loads" the balances onto its sytem. 4- assuming all participants have completed enrollment forms and the new custodian is ready to receive the conversion dollars, you instruct the prior custodian to liquidate. 5- the prior custodian should be able to tell you within a day the balance liquidated from each fund. The new administrator merely needs to update the balances he has on his system for gains. Remember, the only activity in the account since the date of the last statement will be investment gains. The new administrator, if properly prepared, can complete the conversion balance calculation in a couple hours. The balances can be e-mailed and within another day or so, reinvested. We've done dozens this way and it works great, but you need a broker who is not impatient. Their first instinct is to request a liquidation prematurely. If you request liquidation without having that last valuation, you are at the mercy of the prior administrator to provide the participant-level breakdown. Bad idea.

Two thoughts - 1. I don't think it matters whether or not the terminations were voluntary. 2. If your plan is a cross-tested plan, why do you need to pass the 70% coverage test? You are passing coverage using the average benefits test, yes? The ratio percentage test doesn't seem to be necessary. Agree?

Suppose a target plan converts to a profit sharing. Now they want to add in-service withdrawals. Are there any regulations specifically allowing (or not allowing) this?

Lets say you have a 401(k) plan with a year-end payout policy for terminated participants. At the end of any given year, there are a few terminated participants who have not been paid. Some have been gone for a couple years. Would you put them on an SSA? We typically don't. Although the instructions don't give me any authority to elect not to file, I am more concerned about what could happen if we forget to "un-SSA" the participant when he is paid later. Let's say he's 35 when he terminates and you put him on an SSA. He is paid three years later and is not removed from the SSA. Then 27 years later, he receives a notice that he has a deferred vested benefit and comes looking for it. The client has switched providers four times since then and doesn't have proof that the guy was paid already. Now what? I'd rather explain to an IRS agent that we didn't feel an SSA was necessary than deal with a much bigger problem years down the road. Am I alone in this thinking?

Todd, I may be missing something here, but the match that is required to be invested in the money market fund because the participant is not fully vested is considered trustee-directed, not participant directed. Once the participant becomes fully vested and the match mirrors the 401(k) investments, it becomes participant-directed. I'm not sure what the purpose of your question is, but with this plan, it sounds like you have some match accounts that would be considered participant-directed and some that would not.

Lets say you have a 401(k) plan and the document says the match is 25% of deferrals up to 4 percent of pay. Beginning 1-1-00, you decide to increase the match to 50%. You notify the participants of the increase, but fail to amend your document. It is now September. You've been matching at 50% each month since January. Is it too late to amend the plan now? You've failed to follow the rules of the plan, but clearly all participants have benefitted. Is there an alternative to VCR or CAP? How about forfeiting the extra match for the HCE's? Opinions welcomed.

I guess my question is - why would you NOT notify him. Whether now or at some future date, he or his beneficiary will receive the distribution, so why not get it over with now, while you still know where he lives. Imagine in 20 years, he dies and you're contacted by his three ex-wives and his 11 children, all claiming rights to his fortune. Meanwhile, you've lost his beneficiary form. My advice - pay him now, while its easy.