KateSmithPA

A client just asked me if the employer must automatically resume salary deferrals from a participant's wages following a 6-month suspension due to hardship withdrawal, OR, can they wait until the participant requests the deferrals to start up again? My thought is that the employer must start the deferrals up whether or not the participant brings it up (assuming no changes have been made by the participant in the meantime.) Thank you.

Thank you for the clarification and for the help. Kate Smith

I'm sorry, I wasn't more clear. We are speaking of dependent day care. So the employee may contribute to the cafeteria plan for dependent care for a child who will become ineligible as of September 1?

I do not administer our cafeteria plan, but have been asked this question. Child turns 13 on August 31st. Can employee claim dependent care expenses through that date and have the deductions from pay for all 12 months. Or, is the child ineligible all year because he turns 13 during the year? Thank you. Kate Smith

The SAR states that participants may examine or receive copies of statements from the regulated financial institutions that hold the plan assets. Plan is not participant directed and invests in 7 different brokerage accounts. Does any participant, at any time, have the right to ask to examine or to get a copy of the monthly statements? Could they ask for a copy every month? Could they ask for copies of statements for previous years? Can the plan administrator require that the participant examine the copies only at the plan administrator's office? Thank you. Kate Smith

Two participants in a 401(k) plan have rolled over IRA accounts into the plan. The rollovers consist of employer securities of the plan sponsor. With these rollovers, the employer securities make up more than 10% of total plan assets. I do not believe this is a problem since the plan is a participant directed plan. However, the only actual direction I find, has to do with deferrals. As long as the plan allows, is this situation okay? Thank you.

That is certainly true, but not my point. What if the plan did not distribute all assets within 12 months which, although it should not happen, has certainly been known to happen. Do all employees of the employer who were eligible on 12/31/2006 stay eligible as of 1/1/2008? I do not think so. In fact, I do not think they would be listed as active as of 12/31/2007. So, I guess I am just wondering what changes between 1/1/2007 and 12/31/2007? I imagine I am beating a dead horse, I just don't know why they meet the definition of an active participant on 1/1/2007.

I appreciate the response, and tend to agree with you with just one additional question; how could these employees be covered by the plan when the plan has been terminated? How could you ever stop counting them?

Kevin, again, thank you. My manager and I did look at that section and came to the conclusion it does not apply in this case. The employees of the plan that is terminating are going to work for another company. The profit sharing plan is not travelling with them, there is no takeover, or merger. We would certainly like the exception to apply so that we could skip the ADP test, but we don't believe it fits.

Returning to a question posted in 2005. Employer terminates plan effective 12/31/2006. On the 2006 Form 5500, final participant count is 114; 66 active, 48 termed wtih a balance. However, there are only 79 account balances at 12/31/2006. Would my beginning participant count for 2007 be 114, or 79? I know that my ending count will be zero active and 6 terms with a balance. If the employees remaining on 12/31/2007 are not considered active, why would they be active on 1/1/2007? That is, the ones without account balances? Thank you.

Thank you, Kevin. I do not believe part 1 applies because the safe harbor contribution is the 3% non-elective, not the safe harbor match. I do not believe part 2 applies because there is no business hardship. Just a doctor group that sold the practice. I believe both compensation and annual addition limits must be pro-rated to 2/12ths but I was hoping someone would tell me how wrong I am. Kate

Plan is a safe harbor/401(k)/cross tested psp. Plan year is calendar year. 2008 Safe Harbor Notice was provided to participants. Plan is terminated as of 2/29/2008. If I read Sal correctly, and prior posts from a few years ago, the plan must provide the SHNEC through date of termination AND they must also perform ADP test. Finally, their annual additions are limited to 2/12 * 46,000 or 7,666.67. Is this correct? Thank you.

We have just found out that an accounting client, who has been operating a SIMPLE IRA since 1999, is being audited by the IRS with regards to the SIMPLE plan. We have also discovered that the number of employees earning more than $5000 for the years 1999 - 2007 are: 1999 - 2001 - under 100 2002 - 101 2003 - 93 2004 - 112 2005 - 101 2006 - 107 2007 - 111 I believe that using the 2-year grace period, the employer became an ineligible employer in 2007, although I am not sure how the employee count in 2002 might impact that. I read an earlier post on such a problem, but it was dated some time ago and I was hopeful that someone could point me in the right direction as to how to correct this problem. Thank you. Kate Smith

No, I do not believe they will become a QACA. Thank you for your response.

Plan began an automatic enrollment program in 2007 at 2%. (Just a regular automatic enrollment plan , not EACA or QACA). Now, client wants to raise the automatic enrollment deferral rate to 3%, BUT ONLY for new enrollees. They do not want to up the % for prior enrollees. May they do that? Thank you.

I have a similar situation. Participant told employer to quit taking deferrals from her pay as of 1/1/2008. They kept withholding and submitting the contributions. She spoke with the employer several times and now, after 3 months they have stopped. She wants her money back. Can these funds be refunded to her as excess deferrals? Thank you.

I typed his response as received, but I agree, I believe he must have meant match and not deferrals for the prior year.

At the risk of beating a dead horse, my manager asked this question of our document provider and this is the response: "A 'shifted deferral' is not a matching contribution, it is only an amount that may be taken into account under the ACP test if and when certain conditions are met (and if the plan so provides). A plan that has the prior-year testing method and for which no deferrals were made for the "prior" year cannot make any matching contributions for HCEs in the year being tested. (Or, to the extent that they are made, you need to correct the test by making corrective contributions for the NHCEs and/or corrective distributions to the HCEs.) " Any comments?

Wonderful! Thank you, Tom

I have seen this question posed in prior posts without any responses. A 401(k) plan uses prior year testing. They have never made matching contributions but their document allows for matching contributions. They decided to start matching in 2007. Obviously, they will fail testing. Can we use shifting to go back to 2006 and shift some of the NHCs deferrals to match and use that ACP in this year's test?

Thank you, Tom.

If the participant did, actually, waive out of participation in the plan, is he excluded from the ADP/ACP tests?

The only form of distribution for a plan is a lump-sum distribution. Plan also allows in-service withdrawals at age 59 1/2. Does the participant have to take a total distribution if he wants an in-service since the plan does not allow for partial withdrawals? Thank you.

Thank you for your response. I, too, am assuming it was processed properly. The participant took all he could from deferrals. The balance came from profit sharing. The plan allows in-service withdrawals but he does not meet the age requirement. The client consistently deposits deferrals late. The hardship was taken 4/22. His next contribution was deposited 5/25. We are thinking of reclassifying it as psp and fixing the payroll situation outside the plan. Again, thank you.