jaemmons

Each is attributed the others stock. Therefore, each will be a 46.22% shareholder.

I don't mean to disagree with Katherine, but I do. You can place an hours requirement with a service period of less than one year, so long as you do not prevent employees who would have attained 1000 hours of service in 12 months from participating. This would be violating the maximum statutory eligibility requirements. Although it is requested that you use an "elapsed time" method, if you wish to keep "seasonal" or part time ee's from immediately becoming eligible after 6 months of employment without directly excluding them based upon their hours (which is not allowed under the regs) you can set the plan up this way. The only problem is that employees who meet the 1 year requirement MUST be allowed to participate regardless of the 6 month rule.

The schedule Q is an optional form now. The determination letter process was split into "two" pieces, so to speak. If all you want is a letter on the form (which I would recommend), no Schedule Q is required to be attached. I never understood the need to submit for a determination letter with respect to operation, since the letter is only good for the year in which information is being supplied in the submission package. I guess the "warm & fuzzy feeling" is good enough for sponsors to seek this reliance.

If you are using an IDP than I don't see a problem, as long as you don't preclude employees from participating as soon as they obtain 1000 in their initial 12 months of employment. Normally, if hours are going to be attached to eligibility of less than one year, an equivalency is used (i.e.-83.33 hours/month) in order to not require more than 1000 hours for initial plan participation. I don't see why an employer would not allow employees to participate, assuming this is a 401(k), unless they have a top heavy issue.

As long as the plan's demographics do not change, I believe you may be able to exercise the "3-year rule" contained in Rev Proc 93-42. Keep in mind that the data used to demonstrate compliance with 410(B) MUST be a true representation of the employer's workforce. Therefore, if HCE's change or the number of eligible and benefiting NHCE's/HCE's change, I would say you cannot use the 3-year rule.

If the deceased participant was in a qualified retirement plan, the spousal beneficiary can only delay taking futher MRD's if and only if they roll the $'s over to their own IRA. Once the participant is in "pay status" with respect to MRD's, at their death, the distributions must continue at least as frequently to the beneficiary in the year following death, based upon their (the beneficiary's) single life expectancy. If the deceased participant were drawing MRD's from an IRA, the spousal beneficiary can treat the IRA as their own in the year following death and delay MRD's until they attain 70 1/2.

benefitsanalyst-Yes, the plan admin can involuntarily cash out the participant without their consent, but they must do so only after they have provided the participant with proper notice that they have benefits due to them under the plan. They can't arbitrarily just send out a check if they haven't notified the participant of their distribution options.

KJohnson, thank you for the clarification. I just wanted to bring this to light for future application. Getting back to the issue at hand...I agree with Andy H. My office sends ALL distribution paperwork certified in order to eliminate these potential conflicts. The problem is that the plan administrator must demonstrate that the former employees were notified of their benefits and the possibility of involuntary cashout for lack of response by a prescribed date. How did the employees know a check was being sent if they did not receive the letter from the recordkeeper??

I believe that Puerto Rico citizens are considered US citizens, and would therefore be included in 410(B) testing. They are NOT nonresident aliens.

Keep in mind that EGTRRA Section 657(a) requires that account balances greater than $1,000 but less than $5,000 be directly rolled over to an IRA.

Sounds to me that you had a funded arrangement all along. Whether or not the payment of claims with the administrators own money is legal, is beyond my realm of expertise (although it smells bad) but I guess it could be looked at as an indirect segregation of plan contributions from your general assets, which would make it a funded plan. As such, if it the plan covers above 100 participants a Schedule H is required WITH an auditors opinion. Could be costly, since it may involve a full blown audit on the trust side.

If the plan is using the new rules for 2001, then the distributions in subsequent years must be based upon his single life expectancy, recalculated every year. The contingent beneficiaries do not extend the distribution period, since the participant was already receiving MRD payments. However, if the plan is using the new rules effective for 2002, then you can argue that he could use the MDIB tables with his life exptcy and a fictional bene. 10 years younger. The contingent beneficiaries come into play after the participant dies. At that point they can continue the MRD payments based upon their single life exptcy reduced by 1 each year (assuming they don't take the entire amount out within the 5 year period)

Does the plan document stipulate that the spouse is the automatic beneficiary unless a waiver is on file? Most do, so I don't believe it matters whether or not she executes another form at this time. She is married and her spouse is entitled to her death benefits, unless he consents otherwise in writing.

If the client adopted XYZ's VS with modifications, then don't we have an IDP which must have been restated by 2/28/02? In order to be entitled to the extension of time to restate, I thought that they had to be a word for word adopter?.?

If the contributions are sent to an account which is NOT part of the employer's general assets, then you have a funded plan for ERISA purposes. I would lean more towards an unfunded arrangement if the FSA admin continued the way they had been handling the claim reimbursements, but since they are asking for a change in the "funding", without other details to the contrary, I believe you may have a funded arrangement.

If the "prevailing wage" is met by contributing the necessary $'s to a MPPP, they are not included as compensation for 414(s) purposes but the contributions themselves need to be tested under 401(a)(4) for discrimination. However, if the "prevailing wage" is paid to them as cash, then it counts as compensation under 414(s) much like any other remuneration an employee receives for credited services. With this said, if it is excluded for plan purposes, then you MUST perform the "diminimus" comp test you had eluded to in you posting.

Is he receiving these "profit" distributions annually or periodically throughout the year?

My office comes across this ALL the time, especially when the client is calculating the match in-house. It's hard to explain that a forfeiture of the match based upon comp above IRC 401(a)(17) MUST occur, but when you put it into terms of potential disqualification of the entire plan, if it is caught under audit, they seem to listen. Good lucK:)

I agree with Andy H. that this would be viewed as a cutback in benefits to those participants who have worked over 500 hours, especially if the PS $'s are allocated under the same allocation method as in the prior plan. The "step transaction" and establishing of another plan just to merge it out of existence within the same or prospective plan year just do not make practical sense in the real world (or at least the one in which I live). The costs alone to the client, unless you are going to waive them which would seem extremely charitable given the time you put in to thinking about it, would most of the time preclude them from even thinking of doing this. A new document has to be drafted, along with a merger resolution, a 5500 would need to be filed (and how could you avoid not causing a potential audit with a new filing in one year and a final the next?). I would just not contribute for the current year and amend it for the next plan year. There is too much risk involved with other methods suggested.

What type of document are they using (i.e.-proto, VS, IDP..)?

As long as the employer adopted ANY version of the VS, as is the case here, by the later of 2/28/02 or the last day of the 2001 plan year, they are afforded an extension of time to restate the VS letter by the later of 12/31/02 or 1/03 (based upon your message). NO certification is required.

I don't believe you need to file for a DL. If the prototype allows for this selection and the IRS has issued a qualified opinion letter to the sponsor regarding the plan language, you aren't modifying anything contained within the AA or base document. If you had added the "Other" selection, then you have modified the prototype and lose the automatic reliance on the sponsor's form letter.

You should let them recommence deferrals immediately. However, this is predicated upon how often employees can make deferral election changes. If the document states every payroll period, then they can start the next available payroll. If monthly,...

I believe the notice dilemma brings to light an important issue. In reality, if a client's intentions were to establish a safe harbored plan and they amended the document, held enrollment meetings to that effect, started making the matching contributions but just did not give the notice at the PRESCRIBED time, you in the least have an operation defect (since the plan is NOT being operated the way it was written). In my opinion I don't feel the IRS would just look upon the plan as not being safe harbored for the year, if the sponsor just gave out the notice now and was willing to make any participant whole, with respective earnings, who would have deferred the maximum to get the full sh match. It is our responsibility to our clients to ensure that the plan design they wish to implement is done so within IRS prescriped compliance measures. It appalls me as a consultant to hear others just go to a black and white answer based upon unwritten guidance when we have been given numerous corrective measures by the IRS to correct plan "defects." Based upon my interpretation, this IS an operational defect if the plan makes reference to satisfaction of IRC 401(k)(12) and/or 401(m) and since the Notice requirement is needed to meet these requirements, any lack of compliance on the employer's part to give such required notice would be violating plan terms and may be self corrected. I apologize if this comes off strong, but my firm has taken over quite a few 401(k) plans from a local recordkeeper who was content in telling these employers just what some of my fellow practitioners in this message thread have said without offerring a solution to correct it, and given the fact that there isn't any written guidance on this issue, I for one have no problem with just giving the notice out now and having the employer deposit any necessary "make up" $'s.

I believe I may be getting a little "anal retentive" but I see an operational defect here. Under Rev Proc 2002-47, Part III Section 5.01(1)(B)..."A failure to follow the terms of the plan providing for the satisfaction of the requirements of 401(k) and 401(m) is considered an Operational Failure..." If the plan had been amended to add the safe harbor language, contributed the SH contributions but failed to satisfy the Notice requirements of IRS 401(k)(12)(D), then it has failed to satisfy the requirements of 401(k) to meet "safe harbor" status. I am assuming that the plan document makes reference to these contributions satisfying the requirements of 401(k)(12) and/or 401(m)(11). Since 100% of the eligible NHCE's were affected by the lack in providing the notice, you have a significant operational failure which can be corrected under this Rev Proc (See Part IV Section 9.01). I would suggest making a note to the file, supply the participants with the proper notices and if any decide that they would have increased their deferral rates, then the ER must make up the difference on both the deferral and corresponding match. In addition, the ER should be provided with some guidance on when these notices must go out and and maintain administrative procedures to make sure it doesn't happen again. There really isn't any written guidance on failure to provide these notices (unless I am missing something) so if the employer wishes to maintain the plans safe harbor 401(k) status, I would suggest giving the notices now and figuring out what if any additional contributions need to be made. You cannot just test the plan as if it were a normal 401(k) because the plan document contains language (as I previously assumed) that the employer contributions will be made in satisfacation of the requirements in 401(k)(12) and/or 401(m)(11).