pmacduff

I give up....what's the difference? (just kidding)! I think that pre-retirement is the "older" term from the days when Pension Plans mostly paid out at retirement age and there were few, if any distributions made prior to retirement. Also - I think that you see "pre-retirement" used more in the Defined Benefit and Pension arena, whereas "in-service" is the common terminology for 401(k) plans with hardships, loans & the like. So - I believe that they are the same - just my humble opinion though, don't know if others will agree......

cpp- I looked through Sal's book and the Pension Answer Book and can't find anything concrete. I've always believed and practiced that these distributions CAN count toward the minimum required for the year as long as they are not rolled over (I think annuity payments can't be rolled anyway, right?) In any event, as long as the amount to satisfy the minimum required is covered and the tax reporting is done (i.e., participant pays tax on the RMD amount) I think you're ok. Sorry I have no cites! Patti

I believe he had to work until November 14th, 2003 to satisfy the initial year of service requirement for eligibility(12 months). He then would have entered retro January 1 as you suggest and would receive a 2003 allocation if he had not terminated. Since he terminated Sept. 30th before completing his intitial 12 month YOS - he does not enter. How does your document define a YOS? Is the definition different for eligibility? Guess we're all on the same page!!!!!!!

Blinky - My thought with the separate rate group: I have an Employer who can maximze the owners @ $40000 with a new comp formula but needs to give 7% to the lower group to pass testing. If I have my safe harbor 3% terminees & top heavy only people in a separate group, it is my understanding that I can give them 5% and the rest 7% (provided the tests still pass) thereby saving some $. I believe if they weren't in a separate group from the other NHCEs, they would have to also receive 7%. Does that make sense? Am I correct in that assumption? As you mentioned, would the overriding provision also accomplish this goal or would I have to give the 7% to all NHCEs? I have many smaller Employers with new comp cross tested formulas that, of course, want to maximize the owners at the lowest possible allocation to the balance of their participants. That is why the separate rate group idea caught my eye.

Sorry for the oversight, Richard is correct. For all intents & purposes, you can't have a last day/1000 hours rule in a 3% safe harbor new comp plan. If you subscribe to ASPA ASAP, there is a good newsletter on this subject (December 13, 2002 02-24). An interesting item in the article is to draft the plan document new comp formula so that all those participants in the safe habor 3% or top heavy 3% only category are in their own group. That way you can give them only the gateway in the event that the other NHCEs end up needing a higher % and more $ to pass non-discrimination testing. If you like, I can e-mail or fax you a copy. Patti

You can't have a last day/1000 hours requirement for the safe harbor piece. You can still use 1000 hours and last day on your new comp profit share piece just like any other profit share so long as it is in the document.

I believe you want the account tied to the Trust TIN, (as long as the Participant Name is reference in the "FBO" of the title) not the participant SSN, to tie it to the Plan.

The accounts should be titled in the name of the Plan FBO (For Benefit Of) the participant. For example: "Jane Doe Profit Sharing Plan FBO Jane Doe". I know many investment firms are reluctant to simply retitle the accounts and may require a transfer into a new account with the correct name. Hope this helps.

I just looked this up on the US Code here on Benefits Link. Here is what it says under 6057(e): (e) Individual statement to participant Each plan administrator required to file a registration statement under subsection (a) shall, before the expiration of the time prescribed for the filing of such registration statement, also furnish to each participant described in subsection (a)(2)© an individual statement setting forth the information with respect to such participant required to be contained in such registration statement. Such statement shall also include a notice to the participant of any benefits which are forfeitable if the participant dies before a certain date. It looks to me to be the just annual participant statements. If you want to read the whole section, go to http://benefitslink.com/buzz/new.shtml and click on the Internal Revenue Code over to the left. Then click on the first choice..."code sections relative to employee benefits" or something like that. Once there you can scroll down to 6057. Hope this helps. Sorry for the two edits, I go to everything automatically on my computer, so I wasn't being careful about the references. These should be correct now!

Thanks R. Butler - it seems crazy that the employer can't have the free pass on boths tests being MORE generous! This client passes with standard ACP testing, so I guess we just use the 3% SHNEC for the ADP and continue to test the ACP, right?

Ok - Client has a 401(k) plan with deferral, match and non-elective contributions. Match formula is 100% up to 5% deferred. Client makes a 12.5% employer contribution every year per the plan document. Client wants to take 3% of the 12.5% and make it a safe harbor non-elective to pass the discrimination tests. Question is on the does the 3% SHNEC eliminate all discrimination tests, i.e. am I satisfying both ADP & ACP? If so, is it ok to keep the 100% up to 5% match (which is on a vesting schedule)?

I think I read in the safe harbor info that if you choose quarterly calculations & deposits for your safe harbor, then the deposits must be made no later than the end of the next quarter. For example, safe harbor for the period 07/01/2003 - 9/30/2003 must be deposited no later than December 31, 2003. So my vote is that you still have time and would not need to make any type of correction for the missed participant as long as you make the deposit within this quarter. Definately no fine and any made up interest would just be goodwill by the Employer since everyone else's contribution was made in October. How much are we talking about???

This question has been around for a long time and I'm sure you will find all types of answers! In your scenario, our Company would recommend that the Trustee not allow the distribution to occur because the participant is back to work and resuming participation. i.e., at this point, it would be an "in-service distribution" and unless the plan allows for it and she meets the criteria for an in-service, you would not be following the terms of the plan document. I know others have very different (and passionate) views on this, but this is how we would handle it. [see related threads on participants who terminate to receive their distribution on the premise they will be rehired - sorta similar.]

Thanks for the info! Do you think, since the plan year isn't over yet, it is worthwhile to have the client call the IRS now and try to get that first deposit relogged under the Trust ID #? In January we would only have to have the client file one #945 with the Trust ID. Plus I can do all the 1099-R forms with Trust ID. I know it's late in the year and maybe there isn't time????

I have an Employer with a 401(k) Plan without a separate Trust EIN #. Earlier in the year (calendar year plan) the Employer processed a direct payment distribution with the appropriate withholding under the Company EIN #. The Employer applied for & received and EIN for the Trust around mid-year. Once they received the Trust EIN, they had another distribution requiring withholding. They withheld and deposited using the new Truste EIN number. What will I use on the 1099-R forms? Should I do 2 different forms using the different numbers? What about the #945 form in January? Also 2 filings? I'm thinking that for the IRS to reconcile the deposits made, separate forms will need to be filed for 2003. Any comments/suggestions appreciated! (P.S. I did not know the client had done this, or I would have had them continue to use the Employer EIN for the balance of 2003 and the Trust EIN for 2004 going forward!!!!)

I have a Profit Sharing Plan with an April 30th plan year end that coincides with the Company's fiscal year. The plan uses prior calendar W-2 wages for the compensation definition. The Employer is tossing around the idea of adding a 401(k) provision to the Plan. Due to the demographic of the Company, I would recommend that the client utilize the safe harbor matching provision to get a pass on the ADP/ACP tests and allow the highly comps to defer the max. (They will be lucky to get anyone in the lower group!) Can the plan continue using the definition of comp as prior calendar year W-2 when they add the 401(k) provision? Is it an issue that the data used for the 2004/05 plan year will be 2004 calendar year info with deferrals only from May - December? Must/Should I recommend that the client change the plan and /or limitation year? Am I overanalyizing this??? Thanks in advance.

Brian - I researched this once and, although I never found anything in print, was told that you could in theory make the minimum any amount you want. BUT - if the majority of the plan participants would not be eligible for a loan in that minimum amount, you could have an availability issue. I think it is definately one of those grey areas. I deal with many smaller employers who would be discriminating if the minimum was anything over $1000 because no one but the highly comps could take a loan! Is it wrong? Maybe not but could be discriminatory. Hope this helps.

Michael - Ours comes right from our document vendor...can you try that?

Thanks R. Butler! Yes, the plan uses the actual hours method.

Ok - it's time to beat that dead horse... I have a 401(k) using the safe harbor match. They have no eligibility to defer & participants enter on the first of the month coincident or following hire date. I know I can use my age 21 & year of service exclusion for safe harbor $, but my question is this: Let's say we have an employee hired in 2002 who entered and began deferring at hire (06/01/2002). This same employee NEVER works over 1000 hours, but is age 21. If I use the "year-of-service" exclusion, she will never have a year-of service (YOS defined in this plan as 1000 hours in a plan year). Does that mean I can exclude her indefinately from the safe harbor match? It doesn't seem right to me?!?!? I thought she should get the match for 2003. Thanks in advance! Patti

Kriso - I think that you mean that you do the splits by individual and then advise the investment house on how much TOTAL $ to each fund based on the split you did, correct? If so, the money would go into a money market within the plan investments and then you would be splitting it once a month into the different funds...am I right so far? I agree with Appleby since you are not allocating to individual accounts but rather total dollars to the funds you should be ok doing it on a monthly basis. But - the money market or holding account must be a plan account. I also agree that the earnings for the time the 401(k) $ sits in the "holding" account would need to be allocated in some consistant/undiscriminatory manner.

08/31/03 is the last day of the plan year; they may be considered "active" on that day, but it is still their termination date. I say they can receive distribution during the 09/01/03_08/31/04 plan year. Term date is not 09/01/2003, right?

Maybe we have done this incorrectly, but we do not include the cost on those types of investments (i.e., mutual funds, MFS) - we mark the column "not applicable". We have never had an issue with this method from either the accountant auditors or when the plan itself has been under audit. I'll be curious to see what others are doing.

Appleby - Thanks for the reply - I guess I am asking - is 2003 the 1st RMD year because the participant retired in 2003 and was already 70 1/2? NOT because he was 70 1/2 in 2002 and 1st RMD would have been due by April 1, 2003 originallly? I think the timing of his turning 70 1/2 in this example is what is threw me....

I'm confused. Why was an '03 distribution required? Is it because the participant was already 70 1/2? The original post said that this was a NON owner, therefore 1st minimum required is due April 1st following actual retirement (you all seem to agree on that). In this case, the April 1st following actual retirement is 04/01/2004. You are not required to take an RMD early, just allowed to. This participant would then have to take 2 RMDs in 2004 if the $ was still in the qualified plan. So - why is the entire distribution done in 2003 not eligible for rollover if the 1st RMD is not due until 04/01/2004? Is it because the $ is leaving the qualified plan and moving to an IRA? Different RMD rule for QP & IRA? Just trying to learn here - I work with QPs and want to be sure I understand if this issue comes up for me...thanks in advance.