KJohnson

Wessex--Thanks I had looked at the 401(a)-20 regs and I didn't know whether the contribution for the year would be an "additional accrual" since the right to the contribution is accrued upon retirement or disability (i.e. before the "first" annuity starting date) although not actually paid into the Plan until the end of the year. [This message has been edited by KJohnson (edited 10-07-1999).]

A 401(k) Plan which is subject to joint and survivor requirements provides for immediate distribution upon retirement, early retirement or disability but also provides that a participant who retires or is disabled will receive a profit sharing and match contribution at the end of the year. If a Participant elects a distribution prior to the end of the plan year can you subsequently distribute the additional profit sharing and match for that plan year using the original spousal consent or do you have to start the process again?

This would probably work. There is a class prohibited transaction exemption for such a transaciton. I believe it is 92-6

I would think that you would have a problem. Certain "deminimis changes" are allowed in the timing of distributions for an optional form of benefit but you are only allowed to vary by two months or less. 1.411(d)-4(B)(2)(ix). Also, I have never looked into this, but since you are fully vested at NRA, would this be considered a change in the vesting schedule?

Pursuant to a corporate merger, a top heavy plan and a non-top heavy plan merge mid year. The resulting plan would be top heavy. However, since the "determination" date is the last day of the preceding plan year--what do you do? The plans were not in a required aggregation group as of the determination date. Could you have an argument that the top heavy contribution only needs to be made on the participants in the "old" top heavy plan? The "transfer" rules indicate that you include all amounts in the top heavy determination, but do you do this retroactively for periods prior to the actual transfer? [This message has been edited by KJohnson (edited 09-24-1999).]

If contributions to a money purchase plan are not due until the end of the plan year and then only for employees employed at year end, can you reduce the contribution formula mid-year as long as you give a 204(h) notice. I thought I read somewhere that IRS says that you cannot change the formula for anyone with over 1,000 hours at the time of the amendment. However, I cannot locate where I read this.

Can I start up a safe harbor 401(k) Plan 11/15/99 with an April 1 Plan Year; have a first "short year" of 11/15/99-3/31/2000; and make the safe harbor NEC into an already established ESOP that has an April 1 Plan Year. The 401(k) would not be violating the plan year requirement since the first year is more than three months, but would implementing the NEC provision into the ESOP mid-year violate any other "timing" provision?

The ratio percentage test under Section 410 is used to determine whether benefit rights and features are discriminatory. The right to a specific investment is a "benefit right or feature". However since a 410 test is used, the employer may be able to use the qualified separate line of business rules and disaggregate the two employers. Also if the employers are not in the same controlled group, I would think that this 410 ratio percentage test (and therefore the benefits rights and features test) would be peformed on each employer separately. [This message has been edited by KJohnson (edited 09-20-1999).]

I think that there is a distinction between being a union member and being "collectively bargained." Typically, owners cannot be part of a collective bargaining unit. If the "union" plan is not doing so, I would think that the owners must be disaggregated from the rest of the bargaining unit and tested separately. (No automatic 410 pass) However, there are certain "bargaining unit alumni" rules for multiemployer plans where someone who was once in the bargaining unit will be "deemed" to still be in the unit. If this is a multi, you may want to check the alumni rules. I don't think that the alumni rules apply to single employer plans. To the extent that the owners are not truly collectively bargained, you could set up a separate plan for them and exclude all truly collectively bargained individuals from the Plan. However, since they participate in the union plan, watch out for top heavy aggregation and aggregation for 415 problems.

Look at PLR 9541041. Six P.A's merged into a "new corpororation" -- IRS stated that if the prior corporations "ceased to exist" because of the merger then the plans of the prior employers and the plan of the "new" employer would not need to be aggregated for 415. IRS reasoned that corporations must exist at the same time to be under common control. Since "old employer" ceased to exist at the time "new employer" came into existence--no common control and no Section 415 aggregation.

I agree with the last comment. Plan document for union employees must be drafted to cover collectively bargained employees only and cannot just cover collectively bargained "in operation." You may have two plans for the non-union employees.

In a split dollar life insurance plan with a collateral assignment of the policy to the employer, who owns the stock when an insurance company demutualizes? If it is the participant, can you amend the plan to provide that the employer will receive the stock?

But what about for 404 purposes? If you match on the pre and post merger deferrals and make the dc contribution on both the pre and post merger compensation you may well have 404 problems if you are only looking at the post merger compensation of these employees for deductibility purposes.

After a merger, the suviving corporation retains the plans of the "disappearing" corporation. The merger occurs in the middle of a Plan Year. Under the Plan, the match, the 401(a) contribution and the contribution to a separate money purchase plan is made only for those employed at the end of the Plan Year. The disappearing corporation must have a "stub" year for tax purposes ending with the date of the merger. Do you include deferrals and compensation prior to the merger in calculating the year end contributions? Since the disappearing corporation has already had a "stub" tax year for periods covered by the Plan Year how do you calculate the 404 limits?

Employer has terminated a Plan and we are awaiting a response from the 5310 filing. For tax reasons, it is best to liquidate the corporation now. Does anyone see a problem if the Trustee will distribute assets once a letter is received? What if the IRS wants certain additional amendments? We could amend the Plan to give amendment power to someone else, but Plan has been terminated.

Money Purchase Plan provides that if the Plan is terminated prior to the end of the Plan Year, no contribution is due. Is there a problem amending the Plan prior to termination to state that a contribution will be owed based on compensation during the Plan Year up through the date of temination? Does this raise a probelm with the definition of compensation?

Employer A with a June 30 plan and tax year end merges on August 1 with Employer B who has a calendar year plan and tax year to form Employer C who has a caledar tax year. Both plans are profit sharing plans and the plans are merged into a calendar year plan. No contribution has yet been made for the June 30 tax year for Employer A but Employer C want to maximize contributions for both the 6/30 year of Employer A as well as for the calendar year of employer B and "new" employer C? 1) Can Employer C make the maximum 6/30 contribution for employer A to the merged plan because of IRC 381©(11)? How do you allocate this so that only the employees of former employer A receive the contribution? Would it be better to keep both plans up, change the Plan Year for Plan A, and then merge them on January 1? 2) How do you determine the Section 404 maximum amount which can be contributed for the 12/31 year assuming the plans are merged shortly after the employers merge? [This message has been edited by KJohnson (edited 07-16-99).]

However, check out July 13 edition of Employee Benefits Update in the "What's New" section on this web page. The IRS has apparently ruled that contributions to an existing non-qualified trust which are then transferred to an existing 401(k)Plan's trust are still excluded from employee's comp and treated as made in the calendar year which they would have otherwise been paid as wages. The facts are a little different from the ones you presented and I havent' read the full text yet, but it might be worth a look.

If you decide to formally terminate and distribute assets, watch out for successor plan issues. To distribute assets from a termnated 401(k), the employer cannot currently have another DC Plan or establish one in the twelve months after assets are distrbuted from the 401(k).

If company A and Company B are in the same control group, my understanding is that Company B can only terminate its 401(k) plan if fewer than 2% of company B's employees are then covered under Company A's exisiting 401(k) Plan (or any defined contribution plan other than an ESOP or SEP). Otherwise, you must wait 12 months to establish any other defined contribution plan for company B's employees.

Two companiies wish to merge. For a number of reasons they want to terminate one 401(k) plan prior tho the merger and distribute its assets. The remaining 401(k) plan would then cover the employees of the merged entity. As I read the successor plan regulations, if a termination takes place prior to a stock deal, then there is no successor plan problem because the control group for purposes of the successor plan rules is determined at the time of the termination. However, if the termination takes place prior to a merger there would be a problem because the same "employer" would then be maintaining another 401(k) plan. Do other people have the same understanding? Isn't this a distinction without a real economic difference? What if immediately after the stock deal the company with the termnated 401(k) plan is liquidated?