pmacduff

Plan does not have the "cashout" rules for balances under $1000 (client has us send paperwork out to EVERY terminated participant regardless of balance). There are a few termed participants with balances under $200 who are not responding. Since there is no required withholding under $200 and the participant can rollover the whole amount, could the plan send them a check (provided the participant has received the special tax notice and a letter stating that non-response will result in a check being sent?) I realize that the client can amend the plan to add the cash out rules, but I was wondering what others thought about sending a check.

minimum bond used to be $1,000, I don't know if that's changed. Most of my clients get a bond for 3 years with a built-in escalator, so they don't have to renew each year. we recommend a bond right from the get-go with a new plan as soon as the Trust has $$.

thanks wsp, I think a cross tested allocation would be cost prohibative (with everything that would be involved to add that allocation provision to the plan, fund it and such) all for an $8,000 mva. The entire plan asset transfer isn't occuring as of yet, so I was thinking that another option (which would help only alittle) might be for participants to begin moving (within the allowable limits, of course) some of the $$ out of the GIC and into the other account investments. I believe they can move something like 10% of the GIC fund value within the current plan investments without mva. I would hope that the investment advisor would be on top of that anyway... Certainly this will not change the entire mva, but would lessen the hit.

owner is contributing $20,500 for 2007, so bonus for additional 401(k) contributions not an option. Owner doesn't max overall. The Company does normally make an annual profit share contribution (however did not for 2006). It's a straight percentage of comp (i.e. 2%) for everyone. I did find out that there are 43 affected participants (not 25 as originally advised). The owner has the highest individual balance and his balance is approx. 18% of the total GIC fund. Thanks for the thoughts and info.

Thanks Bird, that's as I suspected. I pretty much knew I couldn' tell the client what they want to hear, but it is one of my "best" clients and I thought I should throw it out there.

I'm here on this lovely Friday to beat the proverbial dead horse. I have tried the search feature and per my usual ineptness, couldn't find what I wanted. Here's the story... 401(k) profit sharing plan with approx. 245 participants, plan assets are transferring from one investment provider to another. The "old" assets have 2 GIC accounts that will have a market value adjustment upon transfer of approximately $8,000. There are approx 25 participants (of the 245) in these accounts and of those, about 3 to5 participants with the bulk of the $$ who will have the largest mva. Of course, you all know that one of the 3 to 5 with the largest balance in the GICs is the owner. (I haven't looked yet, but I suspect the others are also HCs, but not key). The Company wants to pay the $8,000 to "make the participants whole". I know that this isn't allowed. Is there any way for this client to do this and still remain within the confines of the Code? Thanks in advance.

Thanks much!!!

or they may be thinking of the "otherwise excludable" rule (separately testing those who have not met the 1 YOS age 21....

Am I losing my mind or did I read somewhere that the asset limit for the 5500EZ owner only plan filing requirement is increasing from $100,000 to $250,000? I have looked through this website and my ASPPA Journals and the IRS website and haven't found any references, but I could have sworn that I read it somewhere and I have a broker asking on behalf of a client ...... Thanks in advance!!

I don't know how big your plan is, but I have a Nationwide plan with 250 plus participants and 4 sources and what I do is a DER and create a separate file for each source. (Why they need 401(k) and rollover is beyond me, but my Case Administrator said the file needs to include those!!) Anyway - then convert to Excel and combine the files by copying all into one file. (My Case Administrator had told me that Nationwide wants all sources in one file and running one right after another.) This works perfectly for me. Also - I'm not super proficient in Excel and I can do this pretty quickly. Hope this helps.

actually this is a Multiple Employer Plan (PEO) and the plan uses prior year testing as a whole (for all participating employers) so I don't think that changing the testing method is an option. The Plan has the safe harbor match provision as another option but many of these Employers don't want to pay anything for their staff. Most of them are small, some have a lot of turnover while some have not so much. I know that's the purpose of prior year testing (so the HCEs know ahead what they can contibute), but this is the first time I've run into an Employer in this plan having to have the HCEs stop completely (based on the prior year at 0%). Also, the fact that they won't be able to contribute at all again until they have some of the NHCEs start contributing. I'll have to have the broker on the Plan see if he can encourage some enrollments.... Thanks for all the help!

The 2005 NHCE rate was 3.0% and the HCEs did 5% in 2006. The 2006 NHCE rate is 0%, (the contributing NHCEs termed in 2005). There may be NHCEs who were hired in 2005 (eligible after 1 month of service), but would still fall in the statutorily excludable group according to Relius. There were also NHCEs hired in 2006 that are participants (after 1 month of service) but they are not contributing and also fall into the OE category. So I believe Tom you are saying that it is ok to use the OE rule and the highly comps are ok contributing in 2007. Now...let's say there was a NHCE hired in 2005 who must be considered. If they are not OE and are not contributing, then my HCEs cannot make 401(k) contributions in 2007 because the prior year lower group average was 0%; is that correct?

told you I was losing it.. The prior year NHCE was 3.0%, not 2.5%, HCE was 5%, so that part WAS ok. (I really do know the rules, honestly!!!) My issue is really the OE rule so that the HCEs can contribute in 2007, or are they out of luck because the prior year NHCE is 0%.....

ok -here's the situation: Plan has 1 month eligibility & uses prior year testing. NHCEs ADP was 2.5% in 2005, HCEs ADP was 5.00% in 2006, so far so good. NHCEs who were contributing termed in 2005. More NHCEs became eligible in 2006 (after 1 month) but are not contributing. The NHCE ADP as of 12/31/2006 is 0%. Can I use the otherwise excludable rule to say that there are actually no NHCEs "eligible" in 2006 or do I let the HCEs know that they cannot contribute at all for 2007? For some reason, I cannot keep this straight in my head; I think because I don't work on enough prior year testing plans...

I was looking something else up in Sal's books and I found the attached in the rollover section. Our hard copy edition is old as you can see, but I thought this might be helpful... DOC070315_002.pdf

I thought that the receiving plan/administrator could "reasonably rely on the participant's representation" that the rollover $$ comes from a Qualified Plan? So - is the participant trying to make that determination and not having any luck?

I searched and could not find a thread although I'm pretty sure this has been discussed before... Plan excludes union employees from everything except the ability to make 401(k) deferral contributions. All union employees eligible to make 401(k) deferrals are then part of my participant count, correct? This makes the count 122 as of 01/01/2006; I want to be sure I advise the client properly that they do, in fact, need an independent audit for 2006. Thanks in advance.

ok Tom - I can't follow that at all, my brain is mush right now, but would like to ask... Do you agree that the owner participant in my original post can be allocated the $48,035.14? or are you saying it is up to interpretation?

I see what you are saying Bird. I was taught that catchup contributions do not become catchup contributions until a limit is exceeded and we determine that at the end of the plan year. For example, the person who contributed $12,000 in 401(k) deferrals at age 55 did not make any catchup contributions over the individual limit of $15,000 specifically, however if the ADP discrimination testing fails, then the participant's refund due can be recharacterized as catchup. I went to a seminar and was told that if a participant did not take advantage of the whole catchup amount in any given year, then their overall individual limit was reduced. The speaker stated that catchup contributions only make the individual limit on contributions increase to the extent that they are utilized. Said another way...if I'm age 50 or over and I put in $17,500 in 2006 for my 401(k), then my individual limit is the base limit of $44,000 plus what I did for catchup ($2,500) for a total of $46,500. In my client's case, (disregard that there was any refund due), since he contributed only $999.88 in catchup, I understood that to mean that his individual max is only $44,999.88 for 2006, not $49,000. I thought the speaker was telling us that you can't use participant catchups toward the limit on the Employer non-elective side if the participant did not make the full catchup. I'm going to go back and try to find the seminar materials I brought back, I think the materials tie in with what Tom is mentioning....

OK - I didn't provide all the info; sorry owner's original refund amount was actually $6,668.74; he already used $999.88 of his catchup, so I backed off an additional $4000.12 in catchups to leave him still with an ADP refund of $2,668.62 plus earnings of $366.64 for a total refund of $3,035.26 AFTER catchups. His total allocations for 2006 (before any refund) would look like this... Total 401(k) contributions = $15,999.88 Forfeiture realloction = $ 93.86 Profit Share allocation = $ 31,941.40 Total allocations = $48,035.14 Still ok?

bringing this back up front.... is this a dumb question so no one wants to answer or is everyone EXTREMELY busy like I am????

document should define compensation & whether or not compension for allocation of Employer profit share is based upon the plan year, limitation year, from date of participation, etc.

ok - I'm sure there was a thread on this but as usual I can't find it... Owner defers $15999.88 for 2006 (is over age 50). There are other HCEs, and ulitmately owner has to take refund to correct ADP of $3,035.26 (includes gains). Owner is getting $93.86 in ps forfeiture reallocation. New comp formula, profit share has not yet been declared for 2006. Originally, I was allocating a profit share of $28,916.14 to bring owner to total allocations of $44,999.88. So....can I give the owner $31,941.40 in ps allocation to "make up" for the refund he will be taking? His actual total allocation in 2006 would then be $48,035.14 which is still under the $49,000 (if you consider catchups), but he didn't make the full $5,000 catchup; I'm thinking he is limited to an overall allocation of the $44,999.88. Any input appreciated.

Ok - have a safe harbor new comp plan, maximizing the Doc... The plan has an employee who has worked for the client for 11 years all full-time thru 2005, always a plan participant. In 2006, she worked only 243 hours but did not terminate, so is entitled to the 3% SHNEC (or 3% top heavy; same #). Can she be treated as an otherwise excludable for the plan year due < 500 hours or do I have to give her the 2% to bring her up to 5%? With the minimal amount of her comp it won't be an issue for the client but I believe she needs the gateway due to her status as a "continuing" participant.

Thanks Janet. I found this in a Q&A on the IRS website; I'm going to send it to the broker ..... "Can the outstanding loan balance from a retirement plan be rolled over into an IRA and the loan payments made to the IRA instead of the other plan? IRAs (including SEP-IRAs) do not permit loans. Therefore, repaying a loan balance from one plan by transferring the loan balance and making loan payments to an IRA is not allowed. If this transaction was attempted, the loan would be treated as a distribution at the time of the attempted rollover."