KateSmithPA

Thanks, Tom. I only wish I were smart enough to be a doctor!

Plan was effective in 2002. A safe-harbor plan using the 3% non-elective. Employer did not understand he had to limit his compensation to $200,000 and contributed 3% of his total compensation which was over $300,000. Most the contribution was made prior to year-end. What is the correction for this? Thanks.

So then, it sounds like I should continue to ignore the spouse with regard to the 401(k) plan. Whether or not she should be getting wages from the company for no services is an issue for their accountant and lawyer. Thank you all for your replies.

I do appreciate all the answers, but please understand that, as far as I can tell, my client is not trying to foment fraud on the 401(k) plan. The spouse was not included in the discrimination test last year. I just wondered if she could be included due to the fact that she receives wages from the company.

Well, that is actually my concern. I am not interested in committing fraud, or in turning a blind eye to somebody else's fraud. I guess I really just wondered how someone receives W-2 wages from a company if they don't actually work for that company.

Here's something I have not encountered before. I received the 2002 census from a plan for which our firm took over record-keeping services at the end of 2002. The owner's wife receives about $30,000 in compensation but has no hours of service. I spoke with the HR person and she told me that the owner pays his wife W-2 wages from the company but she never does any work for the company. Basically, according to this person, he pays her to be a wife and mother. Now, I don't care whether or not this woman is paid for not doing anything. I suppose that happens all the time. However, this plan failed discrimination last year. Since the wife has no hours of service, she is not a plan participant. If she had been considered an employee last year, and if she did not defer into the plan, the plan would have passed discrimination. I guess I am wondering, can she be credited with hours of service since she is paid W-2 wages, even if she doesn't work at the company?

Thank you, Katherine. That's what I was afraid of.

I have looked back over the messages for the past year and this question has been asked twice, but never answered. I hope someone will be able to answer it this time. Our firm has always included the cash value of life insurance policies, owned as assets of defined contribution plans, as an asset on the 5500. During 2002, we took over administration for plan which had four life insurance policies with cash values equal to about $30,000. The value of those cash policies was not included on their previous 5500. I called the previous record-keeper and was told that they never include the cash values as assets of the plan on the 5500. All insurance policies were surrendered since the last 5500 was filed and the assets deposited to the participants' accounts. Since the cash values were not included on last year's 5500, how do I account for this additional $30,000 in plan assets? I don't believe the gain can be attributed to investment gain. Any help would be appreciated.

Katherine: Thank you for your help. I printed out the information you referenced. That seems to be all I need. Kate Smith

We recently took over administrative services for a 401(k) plan. One participant has a loan that is in default and we have told the company that we will provide Form 1099 for the deemed distribution of this loan. The company agrees. In reading the rules about defaulted loans, it seems that although the loan is in default and is considered a deemed distribution, the participant is still supposed to pay it back. And, according to the ERISA Outline Book, the plan sponsor should continue to try to get the loan repaid. The participant with the defaulted loan could begin making payroll-deducted loan payments. However, if she is going to pay the tax on the deemed distribution anyway, why would she pay the loan back? If she did, would the loan repayments then be after-tax dollars in the plan? What if the plan does not allow for after-tax money?

Thank you, both, for your help. It certainly is a mess.

This is so confusing, I am not where to start in correcting it. Plan failed discrimination test. Money was returned to one HCE. Now, employer tells us that they deposited $1,500 too much to the account of the HCE who had the refund. This $1,500 was never withheld from his compensation and was not reflected on his W-2. However, it was deposited into the plan as a salary deferral and contributed to the failure of the discrimination test. The HCE received more than $1,500 in his refund. So, he received a refund of the money that was contributed to his account by mistake of the employer. Where do we start to correct this problem?

This from the DOL, referring to DFVC (Fact Sheet dated September 6, 2002): "Plan administrators may use the Form 5500 forms for the year relief is sought or the most current form available at the time of participation [in DFVC]. This option allows administrators to choose the form that is most efficient and least burdensome for their circumstances."

We recently took over as tpa for a plan that did not file Form 5500 for 1999 and 2000. The plan was effective in 1998 and did file a Form 5500 for that plan year. I have completed the 1999 and 2000 reports and I have recommended that the client file the reports using the DFVC program. In reading the program criteria the client is to file with the PWBA the forms. Then, they are to "submit to the DFVC Program the required documentation and applicable penalty amount." What is the "required documentation" that must be submitted to the DFVC program?

When I exited from the Message Boards yesterday, there was a pop-up ad on my screen that was advertising for the Human Resources Management Certificate through Cornell University. The courses are offered over the internet. The program interests me but I am curious as to whether it would be worth it as a means of enhancing my knowledge and whether it is a program that is recognized by employers. Have any of you heard of this program, or perhaps, have any completed the program? If so, any feedback would be appreciated.

Thank you Tom and mbozek. I imagine the threat of receiving an annuity should prompt our tardy participant to return her distribution forms.

Tom: I have a similar situation and read the thread you mentioned. What if the only distribution option the plan offers is a lump-sum distribution? Can the employer still purchase an annuity for the terminated participant? Thanks. Kate Smith

I just finished doing some research of my own about this exact question. On this site you can do a search for "Multiple Employer Plans". I did that and was directed to an article by Derrin Watson. His article is under the main heading of "Who's The Employer" and then "Multiple Employer Consequences." The other reference that was a big help to me was Sal Tripodi's ERISA Outline Book. I looked in the first chapter, "Important Definitions" and looked up "Multiple Employers". I hope this helps.

Blinky, you have truly made my day. Not only did you answer my question, but you gave me a good laugh. Thanks so much.

I'm not an MD! When I went to register originally, my name was already taken. At that time, I lived in Maryland. I was prompted to try KateSmithMD. I took it without thinking. Now, I live in Pennsylvania, but I haven't been able to figure out how to change my user name. I feel like a fraud.

Thank you very much. I think I need to find a different way to make a living.

First, let me say that I have searched the boards for messages about controlled groups and 5500's. I hope I have understood what I have read. My client has two separate companies with separate, identical, plans. Companies are a controlled group. The first plan had 146 participants at 1/1/2001 - therefore, clearly requires an audit. The second plan only had 1 participant at 1/1/2001. This is the way I understand things: We file one combined 5500 for these two plans. Since the first plan has filed a 5500 in the past (the other plan was new in 2001), I assume it is okay to use that company's EIN for the 5500? The second company completes a separate Schedule T. I guess my real question is about the audit. Does the audit cover the assets of both plans, or just the first plan? Am I missing anything else? Thanks for any help you can give.

I attended the ASPA Mid-Atlantic Area Employee Benefits Conference last week. A gentlman from the DOL gave a presentation on changes in the 5500. According to his handout you determine the Qualifying Plan Assets as of the end of the preceding year. Determine QPA and bond as soon after start of plan year as the necessary information from prior year "can practically be ascertained." He indicated that the time period should not go past the first quarter of the new year.

Only those particiapants terminated as a result of the partial termination must be fully vested.

Thank you all for your help. It seems the more I learn, the less I know.