Jean

I believe you can pick a final distribution date (ie, 90 days out) to ensure that you give the participants proper notification that the plan is terminated, their distribution options, and if an election is not made, that the payment will be made directly to them. You may want to send a final notice via certified mail to non-responders. Of course, you may still have a lost participant issue. Could you delay the HCEs distribution until the ADP test results are done (the future date you pick) and then do the return of excess contributions and distribution option on that day? Obviously they would need to be advised that you will delay it and still ask that they submit distribution election forms. Comment -- you may run your ADP test based short plan year income (then prorate the $200k accordingly), or you can run it based on the calendar year that ends within the short plan year. 1.401(k)-1(g)(2). "The period used to determine an employee's compensation for a plan year must be either the plan year or the calendar year ending within the plan year. Whichever period is selected must be applied uniformly"

A plan defines an eligibilty computation period as the 12 consecutive months starting on hire date. Future computation periods are the plan year (calendar). The employee is required to work 1000 hours in a computation period. For a fractional year there are no hours required. Plan entry is semi-annual. Service is credited at the end of the computation period. If the year of service requirement is 18 months, and the employee does not work 1000 hours in the intial computation period, should the eligiblity date be based on the first entry date after a 12 month period in which an employee meets the 1000 hours plus 6 more months. Hire date is 7/2/02 Initial computation period is 7/2/02 - 7/1/03 (<1000 hours worked) Second computation period is 1/1/03 - 12/31/03 (>1000 worked) Is the plan entry date 1/1/04 or 7/1/04?

http://benefitslink.com/boards/index.php?showtopic=14861 Try this thread for addt'l disscussion.

We have permitted this. The participant completes Form W-4P. http://www.irs.gov/pub/irs-pdf/fw4p_02.pdf

The safe harbor is not permitted as the notice was not distributed to the employees. Because the plan was amended to a 401(k), and eligible employees were not given the opportunity to participate in that component, then it is an operational failure which would require a contribution to the affected participants. There is guidance as to the amount in RP 2002-47, Appx A. Exclusion of an eligible employee from all contributions under the plan for one or more plan years: The permitted correction method is to make a contribution to the plan on behalf of the employees excluded from a DC plan. If the employee should have been eligible to make an elective contribution under a CODA, the employer must make a QNEC to the plan on behalf of the employee that is equal to the ADP for the employee's group (HCEs or NHCEs). Contributing the actual deferral percentage for such employees eliminates the need to rerun the ADP or ACP test to account for the previously excluded employees. As there was 0% deferred by both HCEs and NHCEs, then I think its safe to state that the required contribution is 0%. Get that notice distributed to the employees for January 1, 2003!

Also mentioned as ASPA conference -- if the GUST deadline is extended, the EGTRRA good faith amendment adoption deadline is not. That will still be 12/31/02. In the IRS Q&A handout: Q: Employer X is an adopting employer of an M&P plan. The deadline for Employer X to adopt the GUST document was December 31, 2002. The actual date of adoption is January 15, 2003. What, if any, self correction action may this client take? A: VCP program with sanctions. Q: What would be the appropriate action that the M&P sponsor should take regarding Employer X? A: No action need be taken by the M&P sponsor.

What is the advantage to imposing this type of restriction?

Top heavy test is passing. The % difference is usually less than 1.5% There will never be an employer contribution paid -- unless top heavy would require it -- so a discretionary PS is not of interest to them. So...a permanent instruction to refund is ok?

A client has made the following request to their recordkeeping service. Client consistently fails the ADP test. They always elect to correct by distributing the excess contributions to the HCEs. They will never make a QNEC or any other employer contribution to the plan....so let's not discuss 401(k) safe harbor . They want to provide a permanent instruction that if the ADP test fails, then the plan will distribute the excess contributions. In addition to this metohd, the plan document permits QNECs. Comments?

I have had a similar situation, for a traditional 401(k) plan. The employer issued a memo stating that the employees would receive matching contributions. There was no plan year beginning date or ending date on the memo. The match contribution was never paid. Upon audit, the memo was viewed as a promise to pay -- "you will receive" statement was in the memo. The starting date was determined to be the date of the memo and the ending date was after a second memo was issued stating that it would no longer be paid. The time period between the two memos was 4 plan years.

Rev Rule 2002-59; Go to page 19 http://www.irs.gov/pub/irs-irbs/irb02-38.pdf

GUST is the first required plan amendment that I have had to deal with. We sponsor an M&P standardized prototype plan. If an adopting employer fails to adopt the plan by the deadline of Decemeber 31, or maybe adopts after the deadline, what is the impact to the adopting employer? Is the plan nonqualified for all the restatement years? Anyone have any experience with how the IRS addressed these types of situations in the past? Any insight would be helpful.

How do you feel about a plan issuing participant loans at a 0% interest rate?

I don't think the top paid group election is going to help your company. Generally, all eligible employees will be included in determination of the top 20%. 10 employees x 20% = 2 HCEs for the purposes of the compensation definition. The 8 employees who are 5% owners are also HCEs. If the top paid group election is not used, there are 9 HCEs: 8 for ownership and 1 additional that was not classified as a 5% owner, but does earn above the income limit. If the top paid group election is used, there are 8 HCEs: 2 for compensation and an additional 6 because of ownership.

I also agree that a pure "reissue" should not have a gain / loss. This is different from a "reinvest" which would probably happen because the TPA acted contrary to how instructed. Then there may be a question of lost funds. I believe that the TPA has authority to send distribution notices and / or process the distribution if instructed by the Plan Sponsor. This could be part of the service agreement. Any recordkeeping system should be able to track when the distribution notice and forms were sent to the participant. If US mail, there is no way of knowing if the items were recieved. A second notice mailing is cheaper than reissuing the check. I think the key is having a well documented procedure and policy that is consistently used. If no response is received to the first mailing after a resonable time frame (30 - 60 days), I would recommend a second mailing that is designated as a "second and final notice." If that notice is not responded to within 30 days, I would recommend a final notice stating that a check will be issued to the participant, or to an IRA if that is what the plan options are, within 2 weeks. If the participant receives the check and demands that it be reissued, I think you have a better argument not to as multiple notices were sent. It is possible that the GUST document you are using has a yes / no option that balances between $1-$5K will be rolled to an IRA.

Curious as to how M&P sponsors are complying with the recordkeeping requirement to maintain a list of all employers adopting plan. What are you getting back from your clients? New service agreement, signed adoption agreement, etc. Do you require originals back, are you accepting faxes?

A prototype 401k plan is amended from a fiscal year ending 8/30/00 to a calendar year beginning 01/01/01. The amendment is not signed until 3/01. Is this ok? The only references are 1.401(a)(4)-5, but this change is not specifically referenced.

Are there any unique nondiscrimination testing rules that apply to a premium only plan that is maintained by a church?

Is the credit available to an employer with a plan effective date of 1/1/2002, but the plan establishment fee is paid in 2001?

There seems to be some confusion regarding when employer contributions to a health plan are included in the Line 5 total. This is a typical premium only plan. I have two separate references and they contradict each other. The 5500 Preparer's Manual, pg 13-4, example 1 indicates that they are not. The PPC's 5500 Deskbook, example 9B-1, indicates that they are. Here is the Preparer's Manual, -- An employer provided health plan costs $3000 per employee. The employer contributes $2500 to the cost of the health plan. The employees pay the remaining $500 in premiums through a Section 125 premium conversion plan. 20 employees reduce their salaries by $500 to pay for health care. There are no other payments or administrative expenses. When completing Sch F, this employer enters $10,000 ($500 x 20) on line 5. The other example is more detailed, but seems to contradict this example and would state that the amount reported would be $60,000 (20 x $3000). Any feedback on interpretation would be appreciated.

Need clarification on the Form 5500 instructions for Schedule H, 4i. Plan's only investment type is mutual funds. The instructions discuss what are assets held for investment, and identify 7 exceptions. Mutual funds are listed as an exception. Would the answer to H, 4i be NO because of this? If YES, why?

A new plan is established June 1 as the result of a spin off. The original plan was not a 401(k) safe harbor, but the spin off plan is. Is this ok?

My experience with lost earnings is that they are paid when the instruction provided by the participant was not followed correctly. It appears that they were, and not knowing the time frame for how long they have been distributed, I would agree that he is entitled to 100% of the original distribution. Earnings usually are based on a consistent factor (i.e., the average return of the fund during the time you are correcting). Based on the markets, he may have lost money. Who pays is usually determined by who made the mistake -- the employer or the TPA. I think your example indicates that the only one who did is the employee. I believe the bank account "credits" are very common and they are usually disclosed in the service agreement as being used to pay administrative fees associated with the distributions and other bank service charges.

I agree with your analysis of the TPAs procedure. I think you have found the fault with the approach they want to take with this check. I would also escalate the issue within the TPA. Talk to the supervisor / manager until someone acts on your request. Finally, if that does not work, I would have the authorized plan respresentative / sponsor send a certified letter to the head of the unit demanding that the funds be returned to the participant's account.

It seems that you have to change the explanation as to how the plan operates. During the enrollment process advise the employees that the withholdings from the Jan 1 check will be for the new year's expenses and not the current years. This probably means you are stuck for the 2001 plan year, but will get you on the right track for 2002.