KateSmithPA

I have read as many threads and articles as I could find about this but I'm afraid I am still not confident about this. Company A sells property and casualty insurance. Company B sells life insurance, group insurance benefits, retirement planning and financial planning. Company A owns 49% of Company B. Both companies regularly refer clients to each other. There are no shared employees or expenses. The only connection between the two companies is the mutual referrals. Is this an affiliated service group?

Thank you all for your help. I have one more question and now I really feel dumb. b2kates you mentioned issuing a 2001 1099 now for a $50 late fee. So we could give the participant a 1099 right now for 2001 and be done with the whole thing? I was under the impression we had to wait until next year to get the 1099 although it would be coded with a "P" for previous year.

We took over the record-keeping for a plan in 2001. I was reviewing the outstanding loans with the client and they said that they were unaware of one of the loans. In researching this, they discovered that an employee took a loan in 2000 but never made any payments on that loan. I have determined that the loan defaulted in 2001. The participant wants to leave the loan in default and receive a 1099 for the deemed distribution. I have explained that the amount of the loan is taxable for the 2001 calendar year and that if she has already filed her tax return, she will have to file an amended return. I have also explained to her that although she must report this income for 2001, she will not recieve her 1099 until next year because it is too late to receive a 1099 this year. This seems fairly simple to me, which always gets me worried. Have I missed anything? Thank you.

A client just informed me that the tax id number that is listed on their Form 5500 is the number for one of the companies that is part of their controlled group, but it is not the tax id number for the company whose name is on the plan. That is, this company is made up of a few companies, but all are a controlled group and all covered by the same 401(k) plan. The name of the plan is ABC 401(k) Plan. The tax id number used on the 5500 belongs to DEF company - one of the companies in this controlled group. Does this matter? Thanks for your help.

Is there any difference between a lay-off and a termination? This concerns a potential client who has an existing 401k plan. Some of his employees have recently joined a union and will be covered under a union plan. These employees have account balances in his existing plan. It is my opinion that joining a union is not a distributable event even though he will now be excluding members of the union from the existing plan. If someone is laid-off for a very short period of time - say days, not weeks - can they say they are terminated and request a distribution? What if they request a distribution but go back to work before the distribution has been processed? Is there some standard of time to consider? I appreciate any help you might be able to give me.

Thanks again. That was a great help!

Thank you for your answer. That's kind of what I thought I would have to do. One more question. In all the years I have been doing this, I have never had to file an amended return for a 5500. Should I send in both this year's report and last year's amended report at the same time, with a letter of explanation?

We took over a plan this year with a plan year end of 10/31. I was just preparing their 5500 and discovered that the company that prepared the 5500 last year listed an incorrect number for the End of Year Total Plan Assets. The number they listed does not include the outstanding loan balance. I believe that balance should be part of this number. I want to include the loan balance in the beginning balance for this year's 5500 but then the ending balance from last year would not match the beginning balance for this year. 1.) Am I correct in thinking the loan balance should be included? 2.) What should I do about it if I am right? Thanks.

I have a client who owns 3 companies. They are definitely a controlled group. Against my advice, the client insisted on setting up three separate 401(k) plans with three separate annuity contracts. My problem is that some of the employees go back and forth between the companies so they end up with accounts in more than one of the contracts. The employer believes if an employee leaves Company A for Company B then that employee can take a distribution from her account at Company A because she is terminated. I'm really not sure that is the case. Another issue is loans. If a participant has a larger account balance in Company A's contract, but now works for Company C, can she take a loan from her account at Company A and have payroll deduction for the loan payments at Company C? I'm afraid I am missing something very fundamental here. Thank you in advance for any guidance.

Tom, what if an existing plan that has salary deferral, employer match and employer discretionary converts to a safe-harbor plan in 2002. They are top-heavy. If they do not make any additional employer discretionary contributions and if they do not make any matching contributions over the safe-harbor limit, can they keep the free ride on top heavy? I guess what I am asking is does the fact that they have existing employer discretionary money in the plan mean they lose the free ride?

I received a call from a client who said they want to terminate their 401(k) plan and start a 403(B) plan because it will be better for them. I am not familiar with 403(B) plans and I am hoping that someone on these boards who is familiar with them can fill me in a little bit about why a 403(B) plan would be preferable to a 401(k)? I have a feeling that this client has been approached by a salesperson to make this change and I want to make sure they are making the right decision. Thank you.

Tom: I was both at the session on Controlled Groups you were discussing and at your session. I have to say one of the highlights of the conference was your session. Loved the shirt. You did a wonderful job. I wanted to come up front to introduce myself afterwards because I was so familiar with your name from these boards, but there were a lot of people in front of me and I decided to get downstairs before the ice cream ran out. By the way, my co-worker was one of the 4 single females left standing when you did your survey but she was to shy to invite you to dinner. Thanks for taking the time to prepare for and present a session at the conference. This was my third conference and I thought the best.

A participant, who is over age 59 1/2, wants to remove her life insurance policy from her 401(k) plan. That is, she wants to keep the policy but wants to own it outside the plan (I don't know why). I believe that she can take possession of the policy outside the plan and that the consequences are that she is liable for income tax on the cash value of the policy when distributed. Am I correct in this? And, since there will not be any actual cash involved, is there a problem with the mandatory 20% withholding rule?

A client just informed me that she recently discovered that a participant in a 401(k) plan had taken a loan in February, 1999 but the company neglected to take the loan payments from the participant's paycheck and, evidently, the participant never noticed that he was not repaying his loan. What is the correction for this problem? It appears to me that the loan was in default in 1999 and that the participant should have received a 1099 for that year. Does the participant have to amend his 1999 tax return?

pax, thanks for your response. My concern is more with Company A than Company B because Company A is my client and Company B isn't. I do not understand why Company A would not be required to be tested for the first 9 months of 2000, although the discussion about whether the sale was stock or assets might be relevant. It is my belief that I still have to perform the test for Company A for 1/1/2000 through 9/30/2000 but I wish I could be certain of it. Because of the company's being bought, getting the census information for Company A is evidently a big hassle and the record-keeper for Company B is hoping that their solution, i.e. one all-inclusive test, will alleviate the HR department from giving me the information I have requested.

According to the ERISA Outline Book, in order to be a leased employee, that employee must be substantially full-time for at least a year. It goes on to describe "substantially full-time" as 1,500 hours or 75% of the customary hours in that job position. Therefore, the 1,000 hour rule has no relevance for leased employees? More specifically, the company I am working with has more leased employees than other employees but the leased employees work only seasonally, during the summer. They probably do not even get in 1,000 hours so they would never become employees eligible to participate in the company's qualfied plan, correct?

The plans were merged effective 10/1/2000.

Company B bought Company A effective 10/1/2000. We are the record-keeper for Company A. Plan assets did not transfer until 2001. Record-keeper for Company B included the employees of Company A in their discrimination test for 2000. But they included all 12 months of these employees' wages and deferrals in that test. Although we have requested census information from Company A for many months, we have yet to receive it, and therefore, have not completed their discrimination test. It was my belief that we would perform a discrimination test for Company A based on the wages and deferrals for the 9 months of 2000 before Company B purchased them. My question is, did the record-keeper for Company B do the right thing with that discrimination test and if they did, does that mean that I do not have to perform a discrimination test for Company A? Also, I do not know if this is relevant, but the 2000 Form 5500 for Company B did not include the assets from Company A that had not transferred as of 12/31/00.

Our prototype adoption agreement allows the adopting plan sponsor to give credit to employees for eligibility and vesting for service with a predecessor organization. However, I cannot find a definition of "predecessor organization" in the plan document. Must there be some connection between the predecessor organization and the plan sponsor? For example, must the plan sponsor have taken over the predecessor organization's plan? A potential client wants to give credit to new employees from certain companies but not from others. I do not think there is any ownership connection between these companies. The client does a lot of government contract work and when he bids on contracts he must offer a certain level of benefits to the employees working on that contract. He has apparently interpreted some of these requirements to require giving credit for past service on some other government contract job for some other, unrelated company. I do not see how a sponsor could give credit for prior service to some employees and not to others, if there is no connection between the sponsoring employer and the predecessor organization.

I have two questions concerning the top-heavy minimum contribution. First, what is the deadline for making the contribution? Is it the same as any employer contribution. That is, does it have to be made by the time the employer files their federal income tax return? Secondly, what if the employer already filed their tax return but still has to make the top-heavy contribution for that plan year? Can the employer still get a deduction for the contribution?

The company pays all the administrative fees for their 401(k) plan. They have several terminated participants with balances in excess of $5,000 who will not take a distribution. May the company charge the accounts of the terminated employees a quarterly fee without charging the accounts of active participants?

One of our clients failed their discrimination test and had to have money returned. By mistake, the asset company made two distributions instead of one. That is, the participant received twice the amount he should have received. The checks were issued a week or two apart and the participant cashed each check. My question is, what is the solution for this? Can the participant return the amount that was issued to him by mistake? Can he keep the money and just pay the taxes on it? Is there some other solution?

I just had a call from a client. One of their plan participants changed their salary deferral election from 5% to 10% in 1999. The person who does the payroll never made the adjustment. Suddenly the participant has noticed this error - almost 2 years later - and thinks he should receive a matching contribution on the missing salary deferral contributions. I guess I believe that even though the company obviously made a mistake, the participant has some responsibility to pay attention to what is being withheld from his paycheck. Does anyone have an idea of whether or not the employer has to do anything to make up for this error?

I am looking at standardized adoption agreement for a 401(k) plan that our company is taking over. According to this adoption agreement, an otherwise eligible participant must be employed on the last day of the plan year in order to receive an allocation of any employer non-elective contributions and/or employer matching contributions. I hate to sound stupid, but I always thought you could not have a last day of plan year rule in a standardized plan. Could someone please explain this to me?

My client has a safe-harbor 401(k) plan. He contributes the 3% non-elective contribution. He wants to make an additional non-elective contribution and have it integrated. Can someone explain how that works? Can he count the 3% safe-harbor contribution in the base percentage for his integrated contribution?