Belgarath

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...

I clearly do not think that there is a participant loan. However, I agree with Mbozek that thre is a UBTI issue. It also seems to me that there was some level of exemption, as long as the UBTI didn't exceed some figure, which from my failing memory was 1,000. Is this still true?

Mary Kay - I've always understood that it must be W2 income. Question - is there any type of "earned income" that would be eligible that is NOT W2? Thanks!

Seems to me something is being confused here. Or maybe I'm misreading the posts. MGB - suppose a VS sponsor is preparing EGTRRA amendments. The sponsor cannot unilaterally amend the VS document like they do in a prototype. And even a unilateral prototype EGTRRA amendment may require employer elections, such as which rollover provisions they wish to allow or not to allow. So the deadline for employer adoption of these amendments, ASSUMING the employer is already eligible for the GUST RAP, is extended. Does this reflect your understanding as well, or are you saying something different?

The information in 2001-77 hasn't changed, at least to my knowledge. The IRS said, subject to certain restrictions listed in 2001-77, that the employer could rely on the document sponsor's opinion or advisory letter as a letter of determination. However, I don't read this as carte blanche to never file. You may have situations where it is still advisable. Suppose, for example, you have a plan that credits service with prior employers. I see this with things like medical practices quite often. Depending upon the document specifics and census information, you might want to consider a determination letter to get IRS assurance that you aren't doing anything discriminatory in your methodology. I'm sure there may be other, probably better examples. Say they are using a doc other than standardized prototype, and missed their GUST deadline (not having satisfied the requirements for the extended deadline) - the way I see it, they have to submit under VCO which REQUIRES a concurrent filing for a determination letter. Having said that, I'm of the opinion that the vast majority of the cases I see using proto or VS documents do NOT need to file for determination letter.

Agree with KJohnson. By the way, I understand that Mr. Watson has accepted a position with Corbel. I certainly hope he continues to publish his "Who's the Employer" since this is my Bible for such questions! And it also reveals to me the extent of the complexity of such questions, which can turn 180 degrees on the TINIEST bit of information, which is why I always refer a client to their attorney.

I'd be pretty leery about establishing a 412(i) plan just because investment yields are temporarily down. Because you can make the same investments in a split-funded plan if that is all you are concerned with. As far as switching over to split funded, the documents I've seen automatically revert to split funded if you fail to make the required premium payments prior to the policy lapse date. But you'd have to check this question out with the document sponsor or TPA. And I can't really answer your investment return question. Maybe some of the investment gurus on these boards can. I'd say that in general, an annuity policy would give you a return comparable to fixed investments, and probably higher than a money market. But there are likely to be expenses - loads, surrender charges, etc. which may apply. Again, you'd need to speak with an investment expert. Good luck!

They are mostly sold by insurance agents with dollar signs in their eyes. But that aside, if a client is willing to accept a potentially lower yield, since the 412(i) plans can be funded ONLY with insurance or annuity products, you can front-load your deductions. So compared to a traditional split-funded DB, your initial deductions are generally greater. They really aren't, in my opinion, suitable in most situations. There can be, in a minuscule percentage of the situations I've seen, a very small niche where they can work. But rarely...

Assuming he will have sufficient income for 2002 to cover a $2,000 dollar contribution to his SEP, why can't he simply claim $5,000 as a 2001 deduction, and use the $2,000 "extra" as part of his 2002 contribution? As long as he actually deposited it in 2002, I don't see any problem with this, again assuming income sufficient to support it.

I'd say it depends. If your 3% is being provided via the Safe Harbor MATCH, then I would agree that you cannot use it to satisfy Gateway. If it is being provided via the mandatory NONELECTIVE Safe Harbor, then it can be used toward Gateway. The only citation I can give you quickly is IRS Notice 98-52. This allows the nonelective Safe Harbor to be used toward 401(a)(4) testing. There may or may not be other cites that someone can provide to assist you.

Interesting discussion. Is anyone aware of any legal decisions specifically involving this question? Because it is a VERY common clause in IRS approved Prototypes and Volume Submitter documents to not permit a loan which has a repayment period extending beyond the participant's Normal Retirement Date. And it's a lovely little Catch-22 for a plan Administrator/Trustee. On the one hand, you have the ADEA problem, if that does in fact trump all other rules and document provisions, and if you abide by ADEA, you violate the terms of your document, for which the IRS can hang you if they so choose. Charming.

I'd double check your plan language. Some plans, prototypes included, have a provision that distinguishes eligibility from accrual. In other words, nothing is accrued until the last day of the plan year. You may have satisfied the hours for eligibility for an allocation if a contribution is made, but no accrual until last day of plan year. So you could amend the plan as you have suggested with no trouble, in my opinion, if your plan has such language. As long as the amendment is done before the last day of the plan year!

Yes, BUT - you have to be careful. For example, if you have a cross-tested plan, you can use 414(s) compensation (which would allow you to exclude the 125 deferrals) for the 1/3 test, but you cannot do this for the 5% test. For the 5% test, you have to use total compensation which would satisfy 415©(3), which would require inclusion of such deferrals.

Got it. Thanks for clarifying this - I was going off on a tangent, instead of looking at the actual question. I have a tendency to do that...

I think we may be agreeing, but I'm just stating it badly. Yes, you can test as stand alone. However, if you end up having to use the average benefits test in order to pass, part of the average benefits test requires aggregating the benefits and contributions of all the plans of the employer. And this might screw up your results from the stand alone testing. Or is this not at all what you are saying? Thanks!

Agree that they must either meet the qualifying asset requirement, or increase their bonding as required. The SAR disclosure applies in either case.