jaemmons

Lex, Is the "per diem" allowance paid under an "accountable plan" by which the employer only fronts or reimburses for substantiated expenses? If so, then they are not W-2 wages, but T&E expenses for the employer. If it isn't, the definition of comp needs to be amended and corrections need to be made to the allocations and testing for the prior plan year.

Tom, My understanding of an in-service distribution is that it does not include corrective distributions due to failed ADP/ACP or 415 tests. My reasoning is that these are benefits which are being returned because they cannot remain in the tax-exempt trust of the plan. The HCE is not initiating a distribution of qualified benefits during his/her employment, so I don't see how these are counted in with other in-service payments (i.e.-hardship, age 59 1/2, etc.). EGTRRA obviously helps with potentially eliminating the need to return $'s, but these amounts are now being "reclassified" so they can stay in the plan. I would agree that catchup $'s should be counted when determining top heavy. I may be in little company but I have always trained my administrators to ignore all corrective distributions for top heavy determination.

Is it truly nondeductible (exceeded IRC 404 limits) or is it above the plan's funding formula?

Corrective distributions are not to be included for top heavy determination. Therefore, if they had been included in their balance in the prior years, you need to back them out and rerun for correct top heavy concentration %'s.

Unless you have participants who have died, become disabled or retired, as of the date of the amendment, I don't feel you have a cutback. They haven't accrued a benefit until one of these events occurs prior to the end of the year. Therefore, I would give out the 204(h) notice and amend the document to zero without worrying about any cutback issues.

Yes and the option cannot discriminate in favor of HCE's.

Effie, Does the plan document exercise the top-paid group election for HCE determination? If so, then the 1.5% partner may not be an HCE. Just food for thought to make sure all bases are covered.

No. Stock attribution (IRC 318) applies here, which makes the child an owner-ee of an unincorporated business.

A former employee's benefits are not taken into account for the year in which they do not work at least one hour of service. This would include their current account balance, as well as any in-service distributions made during the 5 year look back period. EGTRRA Section 613 ©(2) amended IRC section 416(g)(4)(E).

Each participating employer within a multiple ER plan is tested individually for discrimination. I don't see any reason why you could not exercise the 3% election if this is the first year the employer has co-sponsored this plan.

Under Rev Proc 2002-47, you would correct under the one-to-one method, whereby for every $ refunded the same would be contributed as a QNEC to the affected participants for each plan year. I would review Appendix B , Section 2,under Rev Proc 2002-47. I agree with Mike. A formal application under VCP, since this would constitute an egregious error so VCO is not available, must be made. Good Luck.

No this does not constitute a technical termination of the MPPP. If benefits after the merger are the same as prior (i.e.-account balances, distribution options, NRA, early retirement options, etc.) there is no need to submit a 5310-A for the merger.

The plan document should indicate whether or not they can take their account balance post NRA, while they are still employed. Keep in mind that the document does not have to allow for it because distributions from a qualified retirement plan MUST commence no later than 60 days after end of the plan year which contains the later of the following: attainment of NRA or earilier of 65, the participant's 10th anniversary of plan participation, or termination of service. All in all, look to the plan document, and worst case you may be able to amend it to allow for this if it doesn't.

Only employees who are eligible for the tested contribution source, are to be counted in the 401(a)(4) testing. Therefore, if an employee has met the plans eligibility requirements to enter the profit sharing piece of the plan but does not meet the allocation requirements (i.e.-last day, 1000 hours, etc.), he/she counts as a "0" EBAR for you (a)(4) test. Remember that benefiting applies to each money type individually. Therefore, if a participant is deferring but not eligible for the ER profit sharing, they have a benefit accrual rate for the ABT but have a "0" EBAR for the 401(a)(4) test, assuming that they cannot be statutorily excluded (age 21 , 1 yos) After you have determined the employees to be included in your test, a rate group is created for every HCE. If more than one HCE have the same EBAR, you can lump them into one group. Keep in mind that an accrual rate or EBAR is based upon the employee receiving an allocation of the contribution which is being tested (i.e- profit sharing for cross tested/age-weighted plan). No contribution mean a "0" EBAR.

If the TPA "arm" of the CPA firm only peforms testing, document preparation, and IRS/DOL submission/reporting forms, as most CPA's do, and is not involved in the trading or recordkeeping of the plan's assets, I don't see a problem with the CPA "arm" auditing the financials. I believe I am correct in stating that most are performing limited scope audits anyway, so long as the financial institution where the assets are invested and recordkept, has an updated SAS 70 audit report on file. The word independence is used as criteria for selecting the CPA, and in my interpretation of this industry requirement, the CPA is auditing the validity of the financial position of the plan and must only be independent of the institution(s) responsible for the financial "functions" of the plan (i.e.- placing trades, statement generation, recordkeeping, distribution processing, ect.) If the TPA "arm" of their firm performs ministerial functions for the plan and is not involved in the aforementioned functionalites, I don't see a problem with having a CPA on staff perform the audit. However, there may be other practioners which disagree with me.

Did you make any modifications to the Corbel document? If not, I don't know of any reason as to why you are submitting for a DL. This is even the case for the cross-tested plans, since the DL is only good for the year of submission. My firm also uses the Corbel VS DC plan and as of now I am drawing a blank as to any deadline for submitting for a DL, aside from an individually designed plan. However, if you use the conservative approach, I would use the end of the remedial amendment period as your guideline for a GUST DL.

I don't know of any restrictions on these type of plan investments. However, you may have a problem with fiduciary responsibility/liability if the investments are contrary to the plan's investment policy. Ideally, I would say that investments in corporate/muni bonds are more or less used to "hedge" stock losses, and as long as the fiduciary has done the necessary research to add these investments to the plan's portfolio then they should be fine. Nonetheless, given the volatility of the market these days, along with the corporate scandals now being disclosed to investors, it is always a good thing to review and possibly change the plan's investment policy to adapt to prospective short and long term changes in the market. That's not to say that all corporate bonds are good "hedge" investments (i.e.-Enron, WorldCom, etc.) so diligency needs to be exercised.

Generally, if the document sponsor of your VS has been issued a favorable opinion letter, then you will have until the later of 12/31/02 or 12 months after the date upon which they received their last opinion letter for all of their VS documents. This is assuming the plan sponsor signed a certification as per Rev Proc 2000-20. If they haven't signed one (certification) for the VS, the 12 month period may extend from their previous document provider. For example, if the document sponsor received their DB letter, which is the case for most sponsors, some time this year, you could feasibly have until some time in 2003 to restate and submit for a DL on the DC VS document. A little confusing, but if you can provide some more details, I can help with a more accurate answer, instead of pretty much generalizing my statements.

Before you compute the G/L on the amounts, you must first look to see how the document handles 415 violations. It sounds to me like you have 401k money in the plan and the employer contributed PS $'s which caused the violations. You CANNOT distribute employer $'s over the 415 limit because these are not qualified plan benefits to the participants (benefits violated IRS code section 401(a)(16)). By doing so, you could put the plan's and trust's tax qualification is jeopardy. If the plan document does not stipulate that employee deferrals or post-tax contributions are first distributed, then the employer portion is forfeited to suspense and used to offset next year's PS contribution (assuming the document does not increase pro rata to all other employees). EMPLOYER MONEY CANNOT BE DISTRIBUTED.

According to the new loan regs, if the replacement loan is used to repay a prior loan and the new loan repayment period is beyond the original loan, you will be treated as having two outstanding loans for purposes of determining the maximum loan amount. As long as the new loan does not exceed the max $ amount (taking into account both the old loan and new loan outstanding balance on date of request), is paid over a period, of no more than 5 years (generally), and is amortized over a level period, you would be able to repay the old loan with $2K of the new loan proceeds and carry only ONE loan on the books. If you want to see a complete example, you may want to check out the new loan regulations Q&A 20.

I don't believe the new "owner" is an HCE unless he/she meets the compensation limit for the 2001 lookback year. Technically, the new "owner" doesn't own stock, since you indicated that this was an asset sale, which does not make this person a 5% owner under 414(q), assuming this is a corporation. Is this truly an asset sale or was there stock involved? Unless, there was stock involved, I don't feel the new "owner" is an HCE.

But if you have no assets or participants, do you even have a plan? I assume there is a plan document which would meet the written requirement for establishing a qualified retirement plan but the trust houses NO contributions. Unless the effective date is being used to start vesting service, I would just change the trust and plan agreements to set the effective date to 1/1/03 and not worry about filing "hollow" 5500's for the first two years.

Question: Why not change the effective date of the plan to 1/1/03? Since there aren't any participants (no one is eligible yet), there really isn't a plan benefiting anyone at this point, so no 5500 would be due until possibly 2003. (unless I am missing something which may be a possibility)

I guess it's six and one half dozen of the other. Sorry for the redundancy.

Were all 118 eligible participants at the BOY? If so, I would say yes you can, but it should be expected that the participant count will go above 120. If I ever take on a plan with over 100 eligibles, I just have the employer file as a large plan to help them budget for the audit expense (assuming they are paying for it and the plan is not).