jmartin

A plan has a qualifed match. As a result it is combined with 401k in the ADP Test. Historically the test has passed. Now the test fails and refunds will be taken. In the combined test, the refund is $8k. If I were to split the 401k and match separately (ADP and ACP Test), the refund would drop to about $5k. Can we separate the 401k and match into separate tests this year for the sole purpose of reducing refund?

So since the asg is broken, the part is no longer eligible, and no assets transferred, the part can receive a distribution?

Bob works for Company A who in turn performs a management function for Company B. As a result, both companies are related. Bob is paid by Company A and participates in Company B's retirement plan. Effective 7/1/12, the management function ceases and both companies are no longer related and Bob is no longer a participant under Company B's retirement plan. Bob wants to take a distribution from Company B. Ideally he wants to roll the assets to Company A who has a retirement plan. IT would seem that according to Notice 2002-4 (part III) as well as GSM 39824, he is considered to have severance of employment due to the change in the controlled group status. My confusion relates to another "requirement" which is that no assets of the plan follow the participant by being transferred to a plan maintained by the participant's employer.... That would seem to indicate that he can take a distribution and roll his account to any IRA, just not the Company A retirement plan....thoughts? Let me now if more information is needed.

Bob works for Company A who in turn performs a management function for Company B. As a result, both companies are related. Bob is paid by Company A and participates in Company B's retirement plan. Effective 7/1/12, the management function ceases and both companies are no longer related and Bob is no longer a participant under Company B's retirement plan. Bob wants to take a distribution from Company B. Ideally he wants to roll the assets to Company A who has a retirement plan. IT would seem that according to Notice 2002-4 (part III) as well as GSM 39824, he is considered to have severance of employment due to the change in the controlled group status. My confusion relates to another "requirement" which is that no assets of the plan follow the participant by being transferred to a plan maintained by the participant's employer.... That would seem to indicate that he can take a distribution and roll his account to any IRA, just not the Company A retirement plan....thoughts? Let me now if more information is needed.

Three doctor offices each with three doctors (9 total). They created a billing company that, initially, will perform billing services exclusively for the three offices. All doctors have equal ownership with the billing company. Each doctor office has their own plan. Does the billing company create an ASG with any or all of the doctor offices? It would seem at first glance that the billing company would be a "B-Org" and the doctor offices are an "A-Org" and also an "FSO". Curious if the billing company is affiliated with each separate office could all four are combined as one ASG...

Father A owns 58% of the company. He also elected out of the plan and is not counted towards any testing. His daughter also works for the company as is currently in the plan. Is she considered an HCE/Key employee even though her father is not in the plan? Or does the father have to be in the plan in order for the attribution to kick in.

A profit sharing plan has two participants:John and Jill. They are spouses. Jill has a life insurance policy in the plan and she pays PS-58 every year. The beneficiary of the policy is the plan itself. The death benefit (which I believe is essentially the portion above the cash value, that is to say the difference between the fair market value and the cash value) is $400,000. Jill passes away, leaving only John as the sole participant in the plan. I believe that the death benefit portion is not subject to income tax. (Estate Tax is not relevant to the forthcoming questions), where as any amount over the fair market vaule (dividends/interest) is taxed and the amount up to the CSV is taxed. I need to know how that "tax break" could flow through certain situations..... Q1) Since John is the only other participant, I would assume that the tax break is flowed through to him? Assuming he has $600k additional in the plan ($1M total), would he only pay income tax on the $600k? Q2) Does it matter if John take a one time lump sum distribution or takes the distribution in installments? If he takes $100,000 installments every year, what portion does he pay income tax (all, none since he hasn't taken $400k total yet, or a pro-rated portion say 10% of it is not taxed since the distribution is 10% of the total balance)? Q3) Say John wants to waive his right to the death benefit and instead pass it to his beneficiaries: their children. Eventually the children would have to take a lump sum distribution, at the very least as an RMD. If they take RMD's is there a portion of that distribution that is not subject to income tax? That is to say, would the tax break filter down to the children? Hopefully I am not leaving out too many variables (trying to assist another party). If I need to "rephrase" anything let me know. Thanks in advance!

Followup question. Say the participant earned $160k in 2010. In 2011 he earned $146k. My guess is he is a key for 2010 and a former key for 2011. Would you agree?

Have a plan with about twenty-five or so partners who file a K1. Most of the partners have ownership but below 5%. A 1% owner (or really between 0-5%) would become a key employee if their "wages" exceeds $150k. For a partner, what "wage" should you use? For example, a partner with 2.5% ownership has $162k reported on K1. After reducing by his share of the non-key employer contribution, 1/2 SE tax, and their own employer contribution, his "plan compensation (or testing compensation) is $146k. If I use the 162k, he would be a key. If I use the $146k he is not. The plan is going to be top heavy no matter what but wanted it to be precise since we recently took this plan over.

Did you get my message? Sent you updated information...should look quite familiar...

I have a plan that is using cross testing for 2011. The PS requirements are 1 Year, 1000 hrs. The plan is top heavy. I have about 5 NHCEs who were hired in 2011. I know that if I test them separately for the rate group (since they are statutory excluded), I only have to give the 3% TH min. If I want to count them in the rate group (say they are all very young) I would then have to give gateway. My question is this: Say only 2 out of the 5 who are statutory excluded would actually help the rate group if they were given the gateway. Can I give gateway to only those two and in turn only bring those two into the rate group (keeping the other three stat excluded nhce's tested separately)? Or would I have to include the other three NHCE's (including giving them gateway). hope that makes sense.

Participant took a hardship. Presented a bill for college tuition for $2,500 for their child. The participant mistakenly received their entire account balance instead of $2,500. Needless to say they received more money than what they provided documentation for. The participant used all of the money they received for reasons other than the hardship. In other words the participant's child never went to college. If a participant takes a hardship but uses the money for "other" reasons, what are the ramifications if the participant cannot return the money? Would the employer be responsible for reimbursing the plan for the total distribution or just the amount in excess of the hardship request?

Have a plan that excludes HCE's from the plan due to coverage. The plan also excludes hourly nhces. There are 21 HCE's and about 30k total nhces. About 1,500 nhces are salary and eligible. All 21 HCE's could not contribute due to coverage only covering 1500 out of 30k nhces. One HCE had 401k contributions deducted from Oct '11 - Dec'11. The first nine months he had nothing, so we are unsure why 401k deductions starting showing on the payroll. Due to him being excluded, what is the correction? Is it as simple as just refunding the entire 401k plus earnings just like we would an ADP test failure? He is a HCE for 2012 as well and is not contributing 401k. On a side note, if the plan covered 1 out of 21 HCE's, the plan would technically pass coverage with 1,500 eligible nhce's. 1/21 =4.76% times .7 = 3.33%. 30,000 nhces times 3.33% = 1,000 nhces to be covered.

Our firm was approached by a company who had not been filing their 5500's. They did not file plan years: 2000, 2002, 2003, 2004, 2005, 2006, 2007, or 2008. We had them correct via DFVC. For most of the years (not all), there were SSA also completed. It is our guess that these SSA's were never sent. What is the correction for old non-filed SSA? In addition what is the penalty?

Our understanding is that the only stock that was sold was the non voting stock. Owner 1 said he was the only voting and controlling owner of either company. Does that help?

- The plan is made up of two companies (A & B). Company A provides mostly financial and some administrative services to company B. Companies A & B are separate corporations. - Owner 1 owns 100% of both companies. Owner 1 sold his "ownership" of Company B to Owners 2, 3, and 4. "The new stockholders are not controlling or voting stockholders. The "ownership" is purely for the receipt of Company B's income distributions and dividends. The only voting and controlling owner is Owner 1" - When Owner 1 was the only key employee, the plan was not top heavy (just under 60%). If Owners 2-4 are considered key's the plan would be come top heavy (they contribute 401k) - If they become Key, then additional contributions would have to be made (3% top heavy less match). Plan is audited plan, so the additional contribution, while small in terms of a percent, would still amount to a significant expense. They only want to contribute the match. Question: Are the new "owners" considered to be actual owners of company B? Can it be considered that company A performs a management function over company B? Ideally if only owner 1 is the key, then they should be in good shape. Owner 1 does not contribute 401k.

Facts: - Plan is a small law firm with 6 key ee (five are actual owners) - The sixth key is the wife of one of the owners (family attribution) - Plan is top heavy - Wife contributes 401k as a key - The husband of the spouse became a judge and terminated employement with the law firm in 2011 Question - What is status of husband and spouse ownership in 2012? Both will be key's in 2011. Husband will be counted as key in 2012 due to look back year. What about the spouse? If she is still working in 2012, will she be a key in 2012? Does look back apply towards family attribution?

Law firm has two classes: Lawyers and secretaries. Eligibility for both is currently 1 year. Company wanted to change eligibility for lawyers to immediate and keep secretaries 1 year. There were four people hired in 2011: two of each class. Of the lawyers, one is the son of the owner (what a coincidence) while the other is not. The son would enter as an HCE right away and the other lawyer would be a NHCE the first year. Anyone see any issues with this? We are not bringing in the son by name. We are making a change for a class. It looks like coverage would still pass, so no issue there.

Facts: - Plan allows for two loans outstanding at a time (for any reason) - Participant has $100,000 balance - Participant takes $20,000 loan for 5 years (payments have not started) - bi-weekly payment is $170 Participant wants to pay a lump sum payment (outside payroll) of $15,000, leaving a balance of $5,000. He would like to re-finance the loan based on the $5,000 balance. This would result in a much lower payroll deduction (down to approx $40 a pay). can this be done? Would the new loan still be taken for 5 years. Again no payments have started. He also wanted to know if he could transfer $15-$20k from an IRA to the 401k plan and count that as a lump sum payment. I assumed that answer to be no.

Facts: Audited 401k plan pays fees out of the plan (including audit fee) Source 2 - 401k Source 3 - Match Source 5 - Rollovers (unrelated) Current plan count is 200 participants with $1MM in assets The plan has approximately 10 participants that would like to roll money into the. Assume each rollover is $100k. About an additional $1MM could be added to the plan. They are hesitant to roll the money into the plan because the rollover would increase their share of the plan fee. The rollover alone is 5% of the total plan balance. That doesn't take into account any other fee they may have (ie mutual fund expense, etc). It would be cheaper to keep in an IRA. However they like the protection of the 401k plan (and keeping all their eggs in one basket) Questions: 1 -Can we choose which "sources" plan fees are deducted from? Can we say or choose plan fees will not be deducted from rollover sources? 2 - Can we say only participants that contribute 401k and receive match share in the plan fees?

Dr. A turned 70 1/2 in 2003. He is a greater than 5% owner. He completed a 242b notice back in the 80's so he wouldn't have to take an RMD. He is retiring this year. In preparation of retirement he met with his broker in regards what to do with the money that is still in the retirement plan. The broker had asked if Dr. A had been taking RMD's from the retirement plan. Dr. A who has other investments outside of the retirement plan had taken RMD's required for those accounts, but not the qualified plan (due to 242b notice). The broker was unaware of the 242b notice that prevents RMD's for qualified plans. Still this caused a scare in DR.A. To make himself feel better, he requested from his lawyer a copy of the 242b notice, just to make sure everything was fine. When the lawyer went to retrieve the 242b notice, he could not locate it. Both the doctor and the lawyer remember the 242b notice being filed. What happens if the 242b notice is misplaced? Since it was required to be filed so many years ago, I would have to imagine that the chance of this happening is quite high. What are the ramifications? I assume for starters he would need to "catch up" on all missed RMD's (years 2003-2011, not counting 2009). What is the likelyhood of the excise tax being waived? His account balance is currently $700k, so the RMD's (and corresponding tax) would be quite high. It does not sound like anyone is planning on using this as an "excuse". It may have actually been misplaced.

Thanks for the quick replies....the terms I was referring to were prior to 2008. For example one person was terminated in 2006 with a balance but never listed on a 2006, 2007, or 2008 SSA. Thought that was odd.

Just wanted to verify if SSA is required to be filed for Cash Balance plans. I took over a plan where there are prior year terms with balances. Looking on past 5500's some were not reported on SSA.

Is the SSA required to be filed for ESOPs? Recently took over an ESOP plan. Looking at the census there are quite a few employees who terminated in prior years and still carry a balance (which would be expected in an ESOP). Some of these participants where reported on SSA but most were not, which made it confusing. Working on the 2009-2010 plan years not and want to make sure everyone is reported, if needed.

Facts: Plan has immediate entry for 401k Plan excludes HCE's 2010 NHCE ADP - 2% 2011 NHCE ADP - ? EE hired April 2011 and will make $133k in 2011...becoming an HCE in 2012 Issue: When the EE was hired, the company did not give him an election form. They knew upon hire he would be come an HCE overlooking that he is a NHCE in 2011. They were going to give the EE an election form so he can contribute in November/December. Question: I believe he is owed a QNEC (1/2 the rate of the ___) but what is the QNEC calculated on? Does he get 1/2 of the 2010 NHCE adp or do we wait for 2011 to be finished? My guess is that he still gets a QNEC even if he elects 0% on the election form for Nov and Dec.