Belgarath

The previous responses are right on - the plan should have a checking account! But, if the Trustee refuses, for some obtuse reason, to set up a checking account, then the employer could just write the check to the Trustee. This would qualify as a contribution, and the Trustee can then simply endorse the check over to the participant. Note, however, that this brings up additional potential problems if it is over $200.00, because you then have mandatory withholding. So unless it is a direct rollover where the Trustee can endorse directly to the new custodian, this approach won't work.

I'll second the recommendation for Derrin Watson's book. I once did just the opposite - confused 318 attribution with 1563 attribution, and spent about 4 hours convincing myself that there was attribution from children over 21 for controlled group purposes. Some kind soul pointed me toward "Who's the Employer" and it got me straightened out in about 5 minutes. Having said that, of course, I should still mention that these situations can be desperately difficult, and I always recommend they consult their attorney...

I find leased employee questions rather difficult, not least because the definitions used are frequently used differently by different people. Some people used the term "leased employee" to mean anyone hired from a temp or leasing agency. Others use it more under the statutory definition, which means they are not "leased employees" until they meet the 414(n) requirements, including being employed on a substantially full-time basis for at least one year. See IRS Notice 84-11. Assuming the latter, and based upon your statement that the plan excludes leased employees, then if they have otherwise satisfied all other eligibility requirements, and would particpate but for being in an excluded class, then they will become participants immediately upon being hired as a common law employee. In other words, you would count service while they were "leased." Again, these situations are tricky enough that I hesitate to attempt general answers, so this may not be good for much!

Thanks for the info.

I agree with Mbozek - they need a good ERISA attorney, and fast! But I do have a question - Mbozek - since I've never seen a situation like this, let me play devil's advocate for a minute. Aside from their other problems, since it is a profit sharing plan, where there are no contributions required anyway, couldn't they simply amend tax forms, 5500's, and valuations, to properly reflect the lack of contribution? Perhaps the consequences could end up being less dire than one might initially think. I don't see, offhand, that it is a prohibited trtansaction, since with no legally required contribution, I don't see how it can be an impermissible loan to the employer. What do you think?

Although it is possible to contribute to a NON-MODEL SEP in conjunction with another qualified plan, you cannot maintain a SIMPLE while maintaining, during any part of the calendar year, another qualified plan to which contributions are made or benefits accrued. A "qualified plan" would include a SEP.

Mweddell - you're probably right, and I'm probably just paranoid. I certainly hope you are right, because your position makes a lot more sense. I just can't help feeling like if I abandon the (possibly overly) conservative interpretation that it will come back to haunt me. So until I see something from the IRS to the contrary, I think I will continue to hide behind my revetment. And I'll be delighted if I'm proven wrong!

I'm not aware of anything in either the statute, or the regulations, which specifically addresses the short plan year question. With regard to the testing period, the statute and regulations refer to plan years. For your plan years beginning prior to 1-1-02, your 5 year testing period would include any short plan year that includes the determination date or any of the 4 preceding plan years. As to the key employee tests that you mention that require a minimum compensation amount, I tend to think you could interpret either way (prorate or not). Logic would indicate that it should be prorated, and this would be a more conservative position. However, since there doesn't appear to be specific guidance on this that I know of, it seems reasonable to me that you could use the 1.416-1 regulations. These refer to "annual plan year compensation." See T-12, T-14, etc., and particularly T-19, which refers you to the definition of Compensation in T-21. T-21 says to use 1.415-2(d) compensation, which refers to limitation year, then includes the following: "Alternatively, compensation that would be stated on an employee's Form W-2 for the calendar year that ends with or within the plan year may be used." So again, I suspect you could make an argument for both, subject, of course, to the plan document language. Don't know if this helps or confuses the issue further!

Happy Monday! Well, I'd say this incorporates by reference. As far as amending this year (calendar year 2002 plan?) I'd think that the document must have at least a 500 hour requirement? If so, then I think you are safe in amending before they satisfy the 500 hours, because then they haven't accrued any right to an allocation. Beyond that, I'm still thinking that this could be a cutback. Would be a cutback in most plans we handle. You could have a plain vanilla plan where the employer simply contributes (x)% of compensation, and you could avoid the cutback issue there, but it seems to me that the bulk of them, which have formulas skewed in favor of the HC, are still stuck with the cutback issue. It does seem to me that I saw somewhere that the IRS had said the top-heavy issue wouldn't result in a cutback, but I haven't seen anything else that would help.

I guess we'll just have to agree to disagree on this one. I don't see any particular inconsistency here. Is the rule stupid, as you assert? You bet! I agree totally. But I look at the G-3 as a very specific answer to a specific circumstance. I wouldn't want to fight the IRS on this using the argument that it is inconsistent with the B-1a reg. And I don't see it as a hindrance to multiple transfers, either. All you have to do is make sure the minimum distribution requirement has been satisfied by the transferor plan. Once that has been accomplished, you can do as many transfers as you want, with no problem. But the good thing is, it's Friday! My brain, such as it is, always starts to shift into reverse about this time...

First, I agree that the plan consultant is wrong. But I think this question is addressed quite clearly in the 401(a)(9) regulations. Take a look at 1.401(a)(9)-1, Q&A G-3 which provides guidance for the situation you describe.

I just love this stuff... Suppose you have a plan with 50% of it's assets in a Real Estate Limited Partnership. The preamble to the DOL regs (2520.104.46) gives an example where such a partnership is NOT a "qualifying plan asset." My question is, does this necessarily have to be the case? For example, suppose the Limited Partnership is purchased through a registered broker-dealer, or through an organization authorized to act as Trustee for IRA's under section 408 of the IRC? These are "regulated financial institutions" for purposes of the SPAW requirements. Would the Limited Partnership then count as a qualifying plan asset, or not? I'm inclined to think that the "held by" requirement doesn't simply mean "purchased through" and that therefore these wouldn't qualify, unless you had, say, a bank as Trustee. Since the bank is a a regulated financial institution, and would hold title in this case, then it should qualify. Any opinions out there? Thanks!

In a situation like this, assuming the document permits it, I'd just treat as a forfeiture. At such time as the employee ever decides they want the money, then pay them the 50 bucks from a new employer contribution. As long as the employer can document that they made a good faith attempt to pay it out, then I don't see the DOL getting all exercised over it.

Isn't the issue moot? I thought that you could no longer open a SAR-SEP?

Mike - I started off thinking exactly as you do on this. And maybe I'll get back to that by the time I'm done. I'm just getting hung up on using compensation actually earned outside of the limitation year. If the method you are suggesting is valid, then to take an extreme example, you could have a plan year of 1-1-01 to 12-31-01, with a limitation year of 12-30-01 to 12-29-02, and yet use calendar year 2001 compensation for plan purposes because it was "paid" "within" the limitation year. Maybe this is fine - it just doesn't feel right to me. And yet if the method is ok for a 1 day overlap, then it must be ok for a longer one as well. Do you know of any PLR's, ASPA meeting questions, etc., where this has ever been addressed? Regardless, I appreciate your input on this - I find it very helpful to have discussion of these items to help focus my thoughts.

Thanks! Appreciate the info.

Thanks, but can you please clarify further? I thought that "social security wages" meant wages subject to social security. The way I read the post is that she is receiving actual social security payments, rather than wages. Are you saying that actual social security payments can be counted as income for purposes of IRA contributions?

Doesn't it have to be "compensation" - wages/salaries/tips? If so, it would seem to me that SS income or gains from sale of equities wouldn't qualify. Can someone please enlighten me if it is otherwise? Thanks.

Thanks for the comments. Now, let me throw in another twist. Turns out the employer is self-employed. If I'm interpreting 1.415-2(d)(2)(ii), and (d)(4) correctly, the self-employed couldn't have a limitation year as originally described in this post. Alternatively, I suppose one could argue that the compensation would be calendar year 2001, but you could still have a limitation year different from compensation period, thus ending in 2002 and taking advantage of higher EGTRRA limits. I find this unpersuasive, but it's all I can think of if they are attempting to justify what they are doing.

I think they are just plain stuck! Perhaps they could borrow the required funding amount from a bank, etc., but this may be impossible if they are experiencing financial difficulties. And if they do miss it, make sure they do the required diisclosure to participants - I'd have to look it up, but as I recall it is no later than 60 days following the due date of the funding.

AndyH - according to Derrin Watson, who is the deity on these issues as far as I am concerned, you are correct - it does not apply to brother-sister controlled groups, only parent-subsidiary groups (and the parent-subsidiary portion of combined groups.)

It was a question posed by someone who is already doing it! So I was curious as to what opinions people might have about this.

I always find the possible interrelationships of plan years, limitation years, compensation periods, and deduction periods somewhat challenging. Suppose you have a DB plan, with a calendar plan year 2001. Can they have a limitation year of 1-2-01 to 1-1-02, therefore allowing the higher EGTRRA limits? It seems to me that thay can - if so, what would be the down side, if any? Appreciate any comments.

You CAN, but it may not be advisable. Establishing a qualified plan, assuming there has been any funding to the SIMPLE, will invalidate the SIMPLE plan, contributions would have to be returned by date of the employees' tax returns, etc...

My understanding is that for the year of death, you use the age of the participant. If the designated beneficiary is an individual, then you would use the beneficiary's life expectancy for the year AFTER the year of the participant's death.