Belgarath

The separation from service must occur after age 55. Actually, the IRS has said that as long as the separation from service occurs during the calendar year in which you attain age 55, that this would qualify.

I would say it now becomes top heavy. I interpret the "solely" requirement quite literally, absent any additional IRS guidance.

Blinky - I understand your concern. The IRS was, at one time anyway, much concerned that this represented a CODA for self employed. We had a similar provision in our prototype. The IRS reviewer made us remove it. Said that their "prototype group" had determined that they would not allow this in prototypes, but would be ok in a Volume Submitter plan. I've since heard from another document provider who got through a provision similar to yours. Guess it just depends upon who was the reviewer assigned to your documents.

If it consists solely of the deferrals and safe harbor match, how are there forfeitures? I thought these had to be 100% vested in order to qualify as a safe harbor under 401(k)(12)?

I don't think so. We had some discussion of this a while back. It came up because of a plan termination on a DC plan, and the IRS reviewer said that the payment (made in the 3rd year) was not on account of termination of employment, but due to termination of plan, (which took place in the 4th year) and required 100% vesting. But for your question, I would not interpret this regulation to preclude use of the normal rules for crediting prior service in a DB plan. So I'd say that since he was partially vested when he terminated, he'd have his prior service recognized, subject to the rules to avoid duplication of benefits. He'd have to offered the opportunity to repay the distribution, and if he does, then prior service should be credited. It doesn't make sense to me to read the regulation to require duplication of benefits, which is what happens, I think, if you read the reg to override these requirements. What do you think? I'd be very interested to see what conclusion others reach, because we played badminton with this one for a while...

Interesting. I had always heard of "stepped up" benefits with regards to an estate tax situation, not a rollover. I'm only speculating here - guessing that this is perhaps a variable annuity, that has a death benefit equal to the highest value it previously attained - the type that sunk Allmerica... But if that's correct, which it probably isn't, then it seems quite odd that an annuity with this "death benefit" provision could qualify for IRA purposes as an annuity, with no life insurance element, yet not be considered "rolloverable." So I'm as baffled as you, but would love to hear the details once you get them.

We had an "authorized depositary" that wouldn't accept a check drawn on any other institution, (and they have this right) but they would accept a money order. Just something you might try another time.

Hi - I'm not sure exactly what is meant by "class based" - different people use different terminology for the same things. If the plan satisfies the nondiscrimination testing by using equivalent benefit rates (cross testing) then yes, I agree that it is subject to gateway. If it satisfies the nondiscrimination using another method, then no, it's not subject to gateway.

Does anyone know if these are available yet? (and if so, where?)I've got the 5500 forms and instructions, and the 5500 EZ, but I can't find the 2002 EZ instructions on the DOL website. Thanks!

Just an update for anyone who is interested - I just spoke with the DOL, and they said DFVC is available for people who have already filed, as long as the other criteria are met.

My understanding is that you simply must pass EITHER the 1/3 or the 5% test. So if your compensation definition for the 1/3 test satisfies 414(s), then you should be fine.

I suspect that you will contine to find conflicting answers to this, as the instructions aren't quite as clear on this as one might wish. However, I'd interpret it the opposite way. This plan is NOT eligible to file an EZ. The instructions do say that it can be filed only for an individual or an individual and spouse that WHOLLY OWN a trade or business, or partners or the partners and spouses in an unincorporated partnership. Your situation is neither. Since this EZ form is for "one participant" plans (including spouses) you can also go to DOL Reg. 2510.3-3 for additional reference.

Can't the plan also assume 1000 hours for all employees for all years prior to the first plan year? Of course, they may not want to do this as they may have to cover more employees!

I'm with you. Still allowable, but as before you cannot have it if using the IRS Model SEP form. I know that some of the big mutual fund companies used to have prototype SEP documents that allowed for permitted disparity - you might check with some of them to see if they still have them available. Probably someone else on these boards can give you names of some companies who still provide them.

I think you are generally correct. However, I have a dim memory of reading, somewhere, in a galaxy far, far away, that if you terminate employment during the calendar year you attain age 55, this satisfies the requirement even if you aren't yet 55 on the actual date of termination of employment. Hold on, just found the citation - IRS Notice 87-13. Maybe this could help in your situation.

Emiliano - thank you for the response. Do you have a citation available, or have you spoken with the DOL on this question? (I had left message with DOL, but haven't received a response.) Only reason I ask is this: I couldn't find anything in the DFVC information that says you can't use it if you have already filed. It DOES specifically say that you can't use it once the DOL has issued a notice of intent to assess the penalty. It just doesn't seem quite fair that someone who hasn't filed at all is eligible for more favorable treatment than someone who just filed late, and wants to voluntarily pay the penalty. But then, who said life was fair?! Thanks again.

I'm embarrassed to even be asking this question, but my only DFVC experience has been with non-filers. Suppose you have someone who filed late, but they have filed. To go under DFVC, do you have them file ANOTHER 5500 form under EFAST, with box D checked, etc., plus the paper copy to Atlanta with the penalty check, or do you just file the paper copy to Atlanta with the penalty check? I'm assuming it is the former, since I can't see where the instructions say otherwise, but I thought I'd check with anyone who has some experience. Thanks!

Tom - thanks for bringing up the 2 year issue. I'll have to look into it when I have time. To be honest, I hadn't even considered this - when I looked into this whole crazy question, it was on a 1-year eligibility, and I never even considered the 2 year angle. Sigh...

I agree with whoever first said it in this thread that you cannot have 2003 as a safe harbor, if you already have your initial plan as a 401(k) in 2002. You would need your Notice at least 30 days prior to the beginning of the 2003 plan year, and it's too late. If your existing plan is NOT a 401(k), then there are different rules under Q&A-11 of IRS Notice 2000-3, and you could establish a safe harbor during 2003.

Tom - I'm not so sure I agree. I know that there's a lot of disagreement out there on this subject, and I wish the IRS would address it officially! I also read the ASPA piece, but it seems to me that they are generally discussing a situation where a participant has already satisfied the age and service requirements. In which case, I agree. But let me back up and give my logic, or what passes for it with me, as to my opinion. 1.401(B)-6(B) provides guidance on situations whare a plan provides multiple age and service conditions, such as the 401(k)/cross tested situation in question. Effectively, in conjunction with 1.410(B)-7©(3), it provides that there is mandatory disaggregation of the two components, and that employees who are ineligible for the component which requires more rigorous age and service requirements (2 years in this case) are treated as statutorily excludable as to that component for 410(B) purposes. And since there is mandatory disaggregation for 410(B), there is also disaggregation for 401(a) testing purposes. (See 1.401(a)(4)-12 definition of plan.) So the "new comparability" component will be tested separately for 401(a)(4), and only those employees benefitting under that component (2 years in this case) will be tested for nondiscrimination as to that component. So my conclusion is that as long as an employee hasn't satisfied the initial requirements for eligibility, then they are not automatically required to pass Gateway simply by virtue of receiving a safe harbor minimum in the 401(k) portion. I'm sure lots of folks will disagree, and I don't blame them - I've gone through a lot of mental gymnastics in arriving at this interpretation!

A model SEP is the IRS form 5305-SEP form. And it specifies that you cannot currently maintain another qualified plan. A non-model SEP would be one which is not the IRS 5305-SEP. These are typically sponsored by banks, mutual funds, insurance companies, etc. - and these could have been drafted to allow contributions to another plan as well.

I think you are correct. When you eventually get to 1.410(B)-7, SEP's don't fall under the definition of a "plan" that is, or can be, aggregated for testing purposes. So I agree. (I am assuming, by the way, that they are using a non-model SEP document - otherwise they have problems.)

There's no specific dispensation that I can find to allow this. Closest I can come to is 1.401(a)-20, Q&A-27. An aggressive reading of this might permit the plan administrator to determine that the spouse "cannot be located." I'd be a little dubious about this myself, but I'd advise the plan administrator to check with competent ERISA counsel prior to making any such determination.

Tom - it sounds like you are talking about a Volume Submitter plan. And yes, I agree - if you modify anything (other than allowing already pre-approved elections/choices in the adoption agreement) then you no longer have automatic reliance. Modification to a prototype throws it out of prototype status anyway. But it seems to me it's quite a stretch to go from that to worrying about a valid challenge to plan's qualified status in bankruptcy court. I'm not saying that a challenge is unlikely, but I do think a successful challenge is unlikely.

What about if there are stock options? (I hate control group/AFSG questions!) I know your question didn't ask this, but I got tripped up on this a long time ago. There are so many absurd possibilities that I've gotten completely gun-shy on these issues...