pmacduff

Let's say you have a 401(k) plan where the ADP fails. The owner takes a refund of contributions/earnings before March 15th and reports it on his 2003 return. Ok, same plan has a cross-tested ps allocation formula. Can this owner/participant still get to $40,000 using the "net" deferral amount (after refund)? Or must the entire amount he deferred prior to the refund be included toward his individual limit? Cites are appreciated. Thanks in advance.

As far as I know, you cannot transfer from a Qualified 401(k) Plan directly to a Roth IRA. I've mostly seen the 401(k) balance transferred to a traditional IRA and then out to the Roth. Roth IRAs are funded with after tax $ and since the 401(k) monies have not yet been taxed, somewhere along the line you need to pay the tax....

I too am curious about this. I know that you can download a *.csv file from American Funds, so I was thinking about putting that in Excel and then importing via a regluar DER. I had not heard that you might be able to use another format in the Investment Allocated Link...interesting. I supposed if another Co. used the *.csv format (like MFS, I think) it might just work. But it seems like everything would have to be in exactly the right position....sorry I wasn't any help, but I hope you get some response on this one so I wanted to subscribe!!

It depends on how the loan policy is written in the Plan; 50% of vested balance is pretty standard. But - in the "old" days you saw that a plan could allow the "greater of 50% of vested balance or $10,000...." definition that you cite, but the participant then needed to provide some type of collateral outside the Plan for the portion not secured by the account balance. I deal with mostly smaller employers and most wouldn't want a participant to have this option, so our loan policies do not include it and I have not seen it in many years. Check out your plan's loan policy & wording...hope this helps. Sorry WDIK beat me to the punch!!!!!!

Thanks Tom - that worked!!! I should have thought to check that...sigh...it's Friday and almost over.....

That's exactly my thought and what I did Blinky. Now - when I run non-discrim tests in Relius, is there any way to get an accurate picture? She is showing up with her 3% in the 401(a) testing and it is failing. Am I doing something wrong? I checked the "statutory exclusions" box, but it seems like Relius is still considering her in all the tests. HELP!

This Employer is VERY small. The employee in question is the only one not already a participant so there aren't issues of many other eligibles or future eligibles. (Employer has very little turnover.) The Employer is not against giving this participant a gateway allocation, I just want to be sure that she is entitled to top heavy and/or gateway $ under the scenario in my original post. Any thoughts?

J. David - we have many small employers who ran into the same problem. What we ended up doing was filling out an SS-4 form and assigning the Trust an EIN number. That way the Plan is the only filer for the plan distribution tax deposits and the 1099-R forms. This alleviated the elec filing requirement. Hope this helps. Patti

I have searched the boards and cannot find my exact scenario and I need HELP! Cross-tested safe harbor top heavy plan using safe harbor match. Eligibility: 12 months of service 1000 hours age 21 dual (Jan & July 1) entry dates Calendar year plan Employee: hired 03/23/2002 & is over 21 2002 worked approximately 400 hours 2003 worked approximately 1000 hours Client allowed participant to defer late in 2003 (about 1 month) and gave her safe harbor matching contributions on those deferrals. Her actual entry date should have been 01/01/2004. I understand that we can amend the plan and change the eligibility for deferrals to fix that error (we would leave the PS eligibility 1000 hour YOS, age 21, dual entry). The plan is top heavy. Does she need to receive a top heavy benefit for 2003 even if she will not enter the PS portion until 01/01/2004? I think since she is a participant and did not terminate, I must provide her with top heavy benefit. I'm pretty sure I can also apply the SHMAC she received toward the total top heavy contribution. Now - let's move to the cross-tested piece. It is my understanding that since she received a SHMAC and will be receiving a 3% top heavy, she will be required to receive the minimum gateway...is this correct? Any help is greatly appreciated and I'm sorry if the topic is a repeat........

Thanks pax - I'm on the old "safe habor, top heavy, crosstested plan" and "who has to receive the gateway" problem. I know it has been discussed an INFINITE number of times on the boards. I have found many posts with the 3% SHNEC, but am trying to find one that might reference safe harbor match, top heavy & cross testing. My brain is ready to explode and I was hoping to read some posts that would clear my mind. Thanks again.

I see on many posts "search the boards, that topic has been discussed MANY times before". I thought I was at least average intelligence, but I seem to fall down miserably when it comes to searching these boards and finding what I need. Usually when I try a search, lots of posts come up but many are unrelated because they only contain one of my search words. I tried using more detail in my search to no avail, I then get practically nothing to come up. What am I doing wrong? Any help is appreciated.

Brian - It is on page #59 of the attached 1040 instructions under return assembly. Also - it does refer to the fact that the 1099 form should be attached if any tax was withheld. But let's face it, by the time the individual might be audited, they will have the form in their possession for backup. I've also had participants tell me that they submit a copy of the letter they receive with the excess check (telling them it is taxable in the prior year) with their individual return. My personal opinion is that it should not be necessary to file an amended return unless the participant had filed before they were aware of the refund.

Brian - If you read the instructions for the 1040 form - it refers to the fact that the 1099-R NEED NOT BE ATTACHED to the tax return. I don't have one handy to give you an exact cite, but it is in there. I think the IRS used to want them attached if there was any withholding done, but I don't even think you have to do that now. So even if the participant had received a current 1099-R form, he would not be submitting that form with his return, only keeping it for his records and backup. Again - if you check the 1040 filing instructions I think you will find the reference.

Tbob - Good point with a 50/50 split, but since the Partnership pays and deducts the NHCE allocation as an expense it could benefit Partner #2 as well (by reducing taxable Partnership income??) Although I see your point and I suppose it's true that they do end up "paying" a portion of the HCEs, however it really comes out of the profits of the partnership and not them individually. I'm no accounting expert, tho' and as you mention it might not be feasible in all cases.

Why not set up a cross tested allocation method plan design with each partner in his/her own group? This allows you to use different allocations by group and the one partner could be "0". Just a thought...

Blinky - At this point all NHCEs are in one group. I'm 99.9% sure that the Doctors would not want to have any different allocations/allocation rates between NHCE staff. These Doctors have suffered much grief from the staff for eliminating the 20% MPP that the retired Doctors had in place. While the new Doctors are pleased to no longer have that 20% required contribution, they have had some PR problems (needless to say). But they love being able to max out and not need to give the staff 20%...God Bless America !! Andy - if we took individual rate groups away from all of our Doctor Plans, we would not have any Doctor Plans, thereby taking food from our own mouths....guess I don't want to "bite the hand that feeds me" even if it tugs at my morals.

Blinky - Sorry to confuse. The Plan is written as a cross tested formula with each Doc in his/her own group. 99% of my cross tested plans pass the non-discrimination tests on the accrual basis. I use Relius, and the accrual basis is the default when you run the tests. I know it sounds idiotic, but I panicked when the plan failed so badly under the accrual method. I should have known to just go ahead and test on a contribution basis...guess I'm alittle tired during this season and not always thinking clearly. I appreciate all the help and thank everyone for getting me over my brain cramp!!

Thanks Blinky - The plan is discretionary PS for 2003, but has cross tested allocation formula in the document. However, even with the each Doctor in a separate group, the base amount to the staff is higher than the old 20% MPP was (in order for the nondiscrimination tests to pass). Doctors don't really understand this. I didn't think about testing on a contribution basis so I'll give it a try. The oldest Doc now is only 42, the other 3 in their 30s.

thanks for all replies. so - because the document says ps allocated comp to comp, this demands that all partners receive a comp to comp allocation. OK. Sigh. They aren't going to be happy. The partnership previously had a 20% MPP, those partners have since retired. New partners established 401(k) with discretionary PS and were looking for a way to decrease the staff contribution and yet still allow any or all partners to maximize @ $40,000. In a few years many of the older staff will retire and, with the Doctors aging, cross testing should work for them.

WDIK - I did mention in my post that cross testing does not work because the Doctors are too young and the staff too old. I tried running a cross tested formula and would end up having to allocate over 20% to the staff in order to pass. That doesn't seem right when the highest allocation to any one Doctor is only 16.3%. So I went back to a straight profit share allocation of 16.3% to the staff and the one Doctor. But the other Doctors do not want to put that much in and don't want to waive participation completely. Isn't it said that it's ok to discriminate against the HCE employees? If this partnership is contributing 16.3% to the staff, where is the issue? If it were a set formula (i.e, a Money Purchase Plan) or if the Plan document had a stated formula for the Profit Share allocation, I would agree that all Partners would need to receive that amount. But since it is discretionary???

I know this has probably been asked before, but I have searched the boards and looked through the Pension Answer Book and Sal's ERISA outline book and can't seem to find this exact Q&A...If a profit sharing 401(k) plan has a discretionary profit share, can the partner's elect to contribute different (lessor) amounts? Here's the example. Doctor plan where the Doctors are too young and the staff too old to make crosstesting work. However, the highest allocation percentage to any one doctor is only 16.3%. If I give the staff 16.3% and the one Doctor 16.3%, can the other 4 partner Doctors contribute less than 16.3% for their discretionary profit sharing piece? It seems as thought they could, but......Thank you in advance.

Thanks for the input everyone, as many mentioned, the Employer has no desire to pay the 10% excise tax to distribute after 03/15 and, if the refunds occur prior to 03/15, they are taxable to the participant in 2003. That was my whole problem with this set up. I did know that in the future, they could utilize a deferred comp plan to avoid refunds, however the Client also wasn't too keen on having the deferred comp assets part of the Company assets and subject to general creditors. Thanks again.

Before I start, I have already referred the client to their attorney, I'm just looking for opinions. I have a 401(k) plan with 14 HCEs due deferral refunds due to a failing ADP test. I advised the client of the refund amounts (along with the QNEC amount - however, the client doesn't want to contribute the QNEC). A broker is telling the client that each HCE due this distribution can have the Employer put the refund in a deferred comp plan AND AVOID TAXATION. This just isn't possible according to all I have ever learned! These $ were already reported on the participant's W-2 forms as deferral, and FICA may have been withheld on some. Has anyone heard of this? Seems to me that if this were a way to avoid taxation on a failing test refund, it would have been all over Pension news in the 14 years I have been an administrator. All opinions welcome!

I don't know what document company you use, but our Corbel document allows us to excludes HCEs from the safe harbor by election in the document. Our Doctor client plans are mostly cross tested profit shares anyway, so while they don't receive the 3% QNEC, they end up maximizing. No matter what type your document, you should be able to accomplish this with a plan amendment.

Thanks guys - it worked with a combination of both suggestions. I went into my "Change Group Expert" and unchecked all of the "keep group together" boxes in each group per Fred's suggestion. The report was still isolating my HCEs on one page. I then changed my 'last name' to rptee.sortname and 'first name' to rptee.ssnum per Tom's suggestion and voila....report is working fine just the way I want! I really appreciate the help, anyone who works with these reports knows that you can go crazy over getting what you think is a simple thing to work! Thanks again