pmacduff

Ditto again R. Butler..................

I too found this Q & A off base. I read it to say that deferrals apply toward top heavy in the example! Glad others agree it isn't accurate. I also agree with R. Butler that although the language seems accurate, the examples are not.

In my opinion, the 1099-R should be done in the decedent's name/SS# and coded as any other loan distribution in the same circumstance. I assume there will be a final individual tax return filing if the person died in 2003, so I believe it is reported on his/her return.

It seems ironic to me that in this particular case (as with many 401(k) Plans, I imagine) if I use the plan entry date definition it would actually hurt the HCE. On the other hand, if I use the maximums under the Code, I can keep this guy out and allow the HCE to keep all of his 2003 deferrals. This is the kind of thing that is usually too good to be true for my smaller clients

Got a response from Relius support and was referred to a Q&A on the website. I guess I'm still confused and don't understand what they are trying to tell me. The Q & A mentions that the IRS recent comments have indicated that entry date provisions should not apply to statutory exclusions. Relius uses permissive disaggregation (18 months service/age 21 1/2) and mentions that there can be employees improperly excluded. Can anyone give me their opinion in my example as to whether or not you agree it will be ok at plan year end 2003 to exclude this guy or if he needs to be in the ADP tests and cannot be excluded? What would you do & why? This makes a big difference to the client as to whether the HCE will need to be refunded all of his deferrals for 2003 or if it was ok for him to defer. Thanks again...

I've heard it suggested that the form should be filed timely (with as much info as you have). Then obtain the required audit ASAP and file an amended return as soon as you possibly can. Time is of the essence..... Worst case scenario is that late/incomplete filing fines will occur, right, so the sooner filed correctly, the better. Of course you want the Trustees to ultimately decide...

I though PLRs were only applicable to the taxpayer & situation applied for....so - still don't think I'd want to face that in an audit with just the PLR as my site. As an aside, does anyone have a quick link to the PLRs? I tried to look up the PLR number given in R. Butler's post and didn't have any luck.....I was using the lookup systems on these boards but may have not done it properly.

My opinion is that the funds need to be "deposited" by September 15th; not good enough to be "in the mail" (i.e. postmarked). In any event, I would not want to defend in an audit situation that the "check was in the mail" timely. Just MHO - avoid trouble before it happens & invest by due date.

Ok Relius users...I have a 401(k) plan with 1 month of service for eligibility (deferrals only). Participant enters on the first of the month following completion of 1 month. There is an employee who was hired on 01/21/2002. 1 month of service completed 02/21/2002, plan entry on 03/01/2002. No problem there. When I run the preliminary discrimination test for 2003 and use the statutory exclusions, this employee is excluded. I was under the impression that when you use statutory exclusions, you still use the normal plan entry date definition. In this case, 1 year of service for this employee is 01/21/2003, and I would say plan entry was 02/01/2003 (just for ADP purposes). The employee terminated on 02/05/2003. Relius ADP test with statutory exclusions lists this employee as excludable. I'm thinking that Relius might be saying that the ADP entry date would be 03/01/2003 (1 year from original DOP???) and since he terminated 02/05 he's excludable. Any thoughts? Thanks in advance.

I don't think you can unless both are under 1 plan. How large are the plans? Could you set up a "combined" third plan with all pertinent data and use that just for the ADP testing? You could code the employees in each Plan in separate divisions but test them alltogether. Just a thought.....

Unless the refund is late, I'm guessing that the participant passed away fairly recently?? My thought would be that the refund would go to the estate of the deceased and should be included with the participant's final income and tax filings as it was not valid deferral $. Just my opinion....

Katherine -Thanks so much for the info...I feel better now! It appears it will benefit the client to have the safe harbor match deposited on a per payroll basis with deferrals. It's a smaller client and I know that $50 doesn't seem like much, but every little bit helps, right? Thanks again...

Compensation is defined as plan year comp while a participant. No eligibility - Entry date=date of hire - therefore compensation is from date of hire. I know that date of participation is eligibility date, not the date deferrals begin. Since that is the case, I gather you both are saying this participant would get the $400, not $350, right? Would your answer change if the safe harbor deposits were being made on an ongoing basis (say per payroll) as opposed to annually? If that were the case, with the participant at 4%, he would only end up with $350 match on a per payroll basis by year-end. Would that then need to be "trued up" to $400 at plan year-end? Thanks again. Patti

I apoligize if this has been covered on the boards before...and I know this should be simple... I have a safe harbor 401(k) Plan - no eligibility requirements, entry is date of hire. Employer uses safe harbor match formula. Employee hired in March of 2003, but does not begin deferring until July. I know the safe harbor is 100% up to 3% deferred and 50% of the next 2% (4%-5%). When I run the discrimination test at the end of the year, (immediate eligibility), the test will look at deferrals from July - Dec, but compensation from March - Dec. This will make the employees annual % lower than it actually is, of course. How do I compute the safe harbor match for this employee, based on the amount deferred/associated compensation or on %tage deferrred/associated comp? As an example, let's say the employee is deferring 4% beginning in July. Their comp is $10000 from Jul - Dec, so they defer $400. At year end, total comp is $18000. Annual ADP % = 2.22%. Is the safe harbor match due $400 (100% up to 3%, participant at 2.22%) or $350 (100% of 1st 3% deferred and 50% of next 1%). Assume the Employer is depositing the match annually. Again - I know this should be easy, but I've gotten stuck here and can't get past it. Thanks in advance for input.

pax - the original post said it isn't deductible under 404(a)(8) because of the income limitation on sole proprietorships; little or no Sch C income

How many do you have? What is the total $ amount? I know there are many critics of this out there...but can you stop payment and remit the remaining balances to IRS as withholding also? It wouldn't change the distribution code you used on the 1099-R, just the tax amount. It might be the cleanest way to close this out. You could also try the lost participant program at the IRS. I have had both good & bad luck with it. As you mentioned, though, that takes time.....

I wanted to post this for anyone out there who thinks us experienced "pensioners" can't get boggled by something easy... I have a client with two employees who were HCEs in 2002 (by their comp in 2001; both made somewhere in the $90,000 range - over the $85,000 limit). In 2002, these participants both made EXACTLY $90,000. I was preparing the June 30th, 2003 semi-annual valuation report. (I always run prelimiinary ADP/ACP tests on clients with testing issues to get an idea where the Plan stands.) Lo & behold, my Relius software knew, but I wasn't thinking, that the definition states (see below)"...compensation from the employer IN EXCESS of $80,000..." (indexed, of course). Well, the software had moved these gentlemen into the non-highly compensated category for my preliminary 2003 testing. Imagine my frustration thinking that the software was doing things it shouldn't and affecting my testing!!!!! Until I checked the code carefully, I couldn't imagine what could be happening. Wording can be everything DIRECT FROM THE CODE: The term "highly compensated employee'' means any employee who-- (A) was a 5-percent owner at any time during the year or the preceding year, or (B) for the preceding year-- (i) had compensation from the employer in excess of $80,000, and (ii) if the employer elects the application of this clause for such preceding year, was in the top-paid group of employees for such preceding year. Hope someone can get a chuckle.............

The excise tax is only on the interest amount due.

If the plan is top heavy, you must use a 3-year cliff on the discretionary profit sharing piece. The fact that the plan is safe harbor does not affect the regular ps vesting, but you can't have a 5 year cliff in a top heavy plan. That's not a new rule.

It's my opinion that as long as they are still legally married, the wife is the beneficiary and would have to waive her rights in order for there to be a different named beneficiary (i.e., the daughters). Once they are legally divorced, the participant can name anyone he chooses as beneficiary, barring any QDRO to the contrary. Is there a valid beneficiary designation on file at this time? (In answer to your question, "When does a spouse have to give consent...." ALWAYS!)

I believe that the fiduciaries are responsible for making the plan whole. That said, I think that the fiduciaries would then have to legally "go after" the TPA to restore those funds back the fiduciaries. That's where the TPA E&O insurance would come into play. I'm no expert, this is just my opinion...and, as always, seeking competent legal advice from someone well versed in this area is the best way to go............

Brian - I would simply hand the notice out with the enrollment forms/materials. That way you are covered.

a note to pjb - in the old days a plan participant loan was in many instances (per the Plan Document) considered a plan investment and the loan interest was actually paid back to the plan as a whole and shared among all participants. I think the modernization of plans and the advent of individual participant accounts (where the loan was taken directly from the participant's funds) led to the more common way now of "paying yourself" back. So, in the past, the interest rate would have had bearing on the plan as a whole and impacted all participants. Just an FYI from an old-timer......

Anyone know of a way for me to show the division name &/or number on my ADP/ACP tests? I know that in the past, these reports were hard to modify. I have been printing the tests to a file and adding the name manually, but there are quite a few and needless to say, a pain! Any advice is greatly appreciated........Patti

MGB - Does that mean that the ROTH assets would not be tracked as part of the 401(k) plan assets? Our clients will have these monies tracked in a separate designated source. I have my first client inquring as to a participant rolling her ROTH IRA into her 401(k) account. Thanks in advance.