Alf

I have seen a lot of press lately on projections for the 2000 rate brackets, standard deduction, and tax credit amounts in the individual tax area. Although I know that these numbers cannot be finalized until later in the year, has anyone heard about the projections for retirement plans? I understand that the following limits are indexed: annual compensation limit, annual limit on elective deferrals, highly compensated employee threshold, the defined contribution plan contribution limit, and the defined benefit plan contribution limit. Does anyone know what the most current projections are?

I am not aware of any reporting/excise tax requirements. I always understood that employers who fail to withhold run the risk of being held liable for any taxes attributable to the distribution that the participant fails to pay. I do know that the participant would not need to amend her return. The full amount of the participant's distribution was taxed (regular and penalty) in the year of withdrawal, regardless of whether the participant got 80% or 100% of the distribution.

The example, Section V.B.1.a., and Section V.B.2. all state that safeharbor contributions must be made on behalf of each NHCE who is an eligible employee. There are at least two ways to demonstrate that this precludes a 1,000 requirement. First, the 1,000 hour requirement mentioned in your facts is, literally, only an allocation requirement, not an eligibility requirement. The imposition of this allocation requirement would mean that safeharbor contributions were not going to all eligible employees. Second, although it is tempting to think of matching contributions as a seperate "plan" for purposes of these safeharbor provisions, they are not. Section IV.A. provides that the 1.401(k)-1(g)(11) definition of "plan" applies. 1.401(k)-1(g)(11)(ii) provides that (k) and (m) components are not mandatorily disaggregated for these purposes. Although V.B.3.Ex.4 does not mention a 1,000 year requirement as violating the safeharbor requirements, it clearly is precluded.

The IRS should not care too much because only HCEs were "hurt," but it still is a qualification defect involving the failure to follow the terms of the plan. We dealt with the IRS on a similar overcorrection due to an incorrect ADP test, but it was discovered on audit, so we settled in in Audit CAP. It was not a big issue. You should probably fix the problem the best you can under APRSC (although you will not technically qualify because you cannot fully correct the defect unless all of the HCEs repay the mistaken distributions to the plan) and ask the HCEs to return the incorrect distributions, even though all of them may not do so.

There is an SPD reporting exception in DOL Reg. 2520.105-5 that applies to "qualified HMOs." Can anyone help me with some basic information about what these are? How would I know if ours is one?