Nate X

"…however it was never caught by the TPA that a 2004 audit was required…" Since it was REQUIRED for the plan to file as a large in 2004, the worst thing you can do is nothing. Be proactive. Here's why...For failing to file an Audit report when required, the DOL "may" treat the return as if it was never filed and assess penalties accordingly. The "may" is important because the plan will more than likely avoid any penalty by filing an amended return as a large along with an audit report.

IRS Publication 334 refers to tax reporting for Statutory Employees and Sole Proprietors. In the publication, it says: "You can set up and maintain the following small business retirement plans....Qualified Plans." There's NO exception in the publication that states that this does NOT apply to Statutory Employees.

Say a plan does not have language to exclude NON-residents with no U.S. income from a 401(k)/Profit Sharing plan. 1. Does that mean they would have the right to defer into the retirement plan & their income would be included in the ADP test? I know they would be included in coverage. 2. Would they be eligible for a profit sharing allocation based on their foreign source of income? 3. If Q1 or Q2 could be no, then what would happen if the plan failed coverage due to these NON-residents with no U.S. income?

I have seen custodians rejecting all sorts of forms of payments, but I've never heard of the bank fee. I'd like to know what bank this is so that I never do business with them. You may want to have the participant check his disclosure from the bank. Since the fee appears to be unreasonable, he may want to just pay the fee and then try suing them in small claims court. Just threatening to sue sometimes works also. On a more practical note, this situation probably would qualify for an automatic waiver of the 60-day period. See Rev Proc 2003-16

1. Most documents that I've seen do not use the last day of the plan year as a determination date for paying mandatory distributions. So for most practitioners (I assume) the 12/31/05 date is irrelevant other than making sure the amendment is signed by this date. More common language would be "as soon as administratively feasible". 2. Worst case scenario: Plan Disqualification. You should be doing mandatory distributions by the terms of your document. 3. I don't want to comment on the correction programs for any of the situations. It is too subjective. There are many factors that play into this. The new rule was effective for distributions made after March 28, 2005. It does not matter when the distribution was supposed to be done. It only matters what the rule is on the date of distribution.

I'm assuming that the plan is not on an individually designed document and your GUST document became effective in the 2002 plan year. That means in 2001 the plan was still in the GUST remedial amendment period, and you were given the ability to switch back and forth between testing methods. This is assuming that your document does not address the the prior history like the Corbel document does.

I asked a similar question as this before, but I want to be clear. Situation: A plan defines a year of service as 1,000 hours & a break in service as less then 501 hours. The plan has a 9 month eligibility, no hours requirement, and semi-annual entry. The plan does not require the participant to work a consecutive 9 months of service. A participant is hired on 2/15/05, terminates 5 days later on 2/20/05, and is rehired on 12/20/05. Does the employee enter the plan on 1/1/06 if he/she is still employed?

Thanks guys. I had been stuck in a mostly prototype world in the past and just couldn't believe that one could pass coverage for 401(k) contributions using cross-testing. Always more to learn.

Thanks! Just so I'm 100% clear, let me throw in one more example question. A calender year plan is designed to have an 11 month eligibilty, no hours requirement, and semi-annual entry dates. A participant starts on 1/15/04, terminates on 4/10/04 after working 510 hours, and is rehired on 12/30/04. Would the employee be eligible on 1/1/05? What if the employee terminated on 1/31/04 instead after working 80 hours and was rehired on 12/30/04?

Sorry for the confusion. This doesn't really answer my question. Let me rephrase. The rule for 401(k) and 401(m) is that they must be tested seperately for coverage. The only way to test them using the average benefits test is to combine 401(k), 401(m), and nonelective together. So if you can pass coverage for 401(m) using cross-testing, then your not really testing it seperately other than the classification test. So assuming it is correct that I can pass coverage for 401(m) using cross-testing, does that mean I can also use it to pass coverage for deferrals even if the plan doesn't allow employer contributions at all? Thanks!

Two part Q: 1. Can I design a plan that makes the participant work 12 consecutive months without being terminated and 1,000 hours before meeting the eligibility requirements even if there is no break in service? The plan would use actual hours worked in determining eligibility. Example: A calendar year plan with semi-annual entry. Participant A was hired on 2/15/04 terminates on 1/10/05 and gets rehired on 4/20/05. Can I make him/her start the eligibility conditions again, on 4/15/05, or would I be forced to have the participant enter the plan on 7/1/05? 2. If this is no, can I design a plan that makes an employee work 11 consecutive months without being terminated before meeting the eligibility requirements even if the employee worked 1,000 hours during the initial plan year? The plan would have no hours requirement. (apply to the same example above).

Can you pass 410(b) for 401(m) contributions using the average benefit test or must you use the ratio percentage test since the contributions must be tested separately? Can anyone point me to a good reference other that the ERISA outline book or 1.410 in the treasury regs?

As a fiduciary, you want to act in a prudent manner. Given the current situation of the market, I think you have a lot of leeway with your discretionary authority. You could justify this either way when deciding to deposit it all on Monday or spacing it out during the week. The bigger problem seems to be your late deposits (the number one reason for plans to be audited). You may want to make up the potential income that participant’s lost.

Plan A has an eligibility of 3 months. Plan B has an eligibility of 1 year. Plan A wants to merge into Plan B (Company B bought Company A). Some participant's in Plan A won't be eligible for Plan B. Does the Employer have the option to let those who met the eligibility requirements in plan A, but not plan B to continue to defer after the merger? Any one know where this is discussed?

As a thought, switching from the prior year method to the current year method should never be a problem. It's more of a problem when you go to from current to prior. But, in any case, since it is still in the remedial amendment period, I don't see a problem doing a retroactive amendment. You may want to think about doing it as a "window." Amending the plan just on the determination date to allow for current year testing and then changing it back to prior year method. Since the plan year-end is 6/30/00, I don't see any problem with doing that.

The only cite I could refer you to is the IRC 410(B) which does not clearly state the answer that you are looking for:http://www.tns.lcs.mit.edu/uscode/TITLE_26/Subtitle_A/CHAPTER_1/Subchapter_D/PART_I/Subpart_B/Sec._410.html If you have a copy of the Pension answer book (1999 version), there's a good example: Q5:21 An employee who became a participant, worked at least 501 hrs or employed on the last day, but did not receive a benefit is a nonexcludable nonbenefiting employee.

I see the confusion. In order to "benefit" under a profit sharing plan (not a 401(k) plan), an employee must receive a contribution or forfeiture. And, only employees who "benefit" are included on the coverage test. But, when you are looking at employees as far as the coverage test, a participant is considered as receiving a "benefit" if they work more than 500 hrs or is employed on the last day of the plan year even though they did not actually receive a contribution (they received a "benefit" of zero).

If I understand your question correctly, then definitely yes. The whole point of coverage testing is to make sure you are not discriminating against NHCE's. As long as they met the age, service, and entry date requirement they will always be included in the test unless they become part of an excludable class (i.e. collectively bargained).