maverick

Blinky, I like "they get nothing." Sounds like Judge Smails in Caddy Shack when addressing his grandson: "You'll get nothing and like it!!" Good way to end a Monday.

I don't know how "legal" it is, but here's what I'd do: Send a complete copy of the 5500, with signature blocks unsigned. Attach the faxed signature page and a letter explaining why. When you get the original signature page, send it in as an amended return. Something is better than nothing.

Here's what Sungard Corbel's 2002 "The 5500 Filing Guide for Plan Year 2002" pages VII-7 and VII-8) says: "... For example, if the plan contracts with Smith, Jones and Day, LLP to perform the audit of the plan, the plan does not report a termination if one year Mary Smith performs the audit and the next year Jeff Jones from the same firm performs the audit. Some practitioners have speculated that the same principal does not apply to actuaries since the actuary (and not the firm) must list his/her enrolled actuary number of the Schedule B. However, we would recommend following the same principal for actuaries as one would do for accountants (i.e., if the actuary changes but not the firm, do not report the change as a termination). Generally, when there is a replacement of a plan's actuary with another actuary from the same firm, the decision is made by the actuarial firm and not the employer. Furthermore, the change generally is because of different work assignments or because of employment changes. Therefore, if there is a change in actuaries but the actuary is from the same firm, we would not report the change on the Schedule C." The "5500 Preparer's Manual 2000 Plan Years" (Wegesin, Gucciardi, and Aska-Knox) says basically the same thing: "... When the service provider is a legal entity such as a corporation, partnership, etc., report when the service provider (not the individual) has been terminated." Maybe common sense will prevail after all.

We had a situation like this a couple years ago. Client reported wage, but did not include overtime. Guess what? Only the NHCE work overtime, so the definition of comp was discriminatory. After several letters and phone calls re: impact on qualified status of plan, he finally decided to follow the plan document. It was pretty much an economic decision; it would cost less to base profit sharing contribs on total comp rather than go back and calculate "make-up" contribs, lost interest, penalties, etc., later.

Joel, it might help to know why you want the information. My reaction to getting a call asking like this would be to say "Sorry, you're not a participant.".

Here's my opinion -- I think it's wrong to include the fee in the amount distributed. I don't have any cites, but I'm sure someone else will chime in. I believe some institutions include the fee as part of the distributed amount because it's administratively easier. Including the fee in the distribution makes it taxable and subject to penalties. Here in Wisconsin (a tax hell, according to Money Magazine), the $75 fee would be hit with the following taxes and penalties: federal: your rate state: your rate federal penalty: 10% state penalty: 3.33% Other comments??

Slightly different scenario: Client has an "old dormant" SEP (I guess that means contributions have not been made for several years). He wants to know if the SEP is still in compliance (GUST/EGTRRA) and if contributions can be resumed. My expertise is in qualified plans, so I'd appreciate it if someone can help with this situation. Can they restart contribs? What needs to be done to update the plans (in a previous thread Gary said [the IRS didn't necessarily agree with me - see edited post above-gsl] the document sponsor updates the doc. and a signature is probably not required). I'm wondering how this is handled if a 5305 is used. Thanks.

Cosmo, insurance companies call this adverse selection. Basically people are only working so they have health coverage. Check your policy definitions as suggested by jsb; coverage may only be available to ees who work more than xx hours. Also, if you only let former full-time ees in on this part-time insurance deal, and it gets out, you'll have a huge morale issue. Signed, a former group health ins. underwriter.

Dave, I believe you're right. I know the due date for paying in an employer contribution works that way (calendar year plan contrib due date extended from 3/15 to 9/15 if the business extends its corporate return, even if the corporate return is filed prior to 9/15). Not that what I just said has any bearing on your situation, just thought I'd mention it. I have a few clients who do this every year.

I have an idea similar to Lynn's. Amend the plan so the annual/SA/quarterly/monthly per-participant recordkeeping fees come from plan assets. These $10 accounts would be wiped out in short order.

So the next time a NHCE has a hardship you're going to amend the plan again? Why not just amend the plan to allow hardships and be done with it?

Yes, they are ineligible.

Situation: Company A and Company B both owned by Mr. X. Company A maintained a 401(k) plan with ees of Co A and Co B participating. As of 1/1/03, ownership of Co B changed so it was no longer part of controlled group. Since they were located in the same building and trying to help each other during the transition, Co B's payrolls were run on Co A's software. Guess what? Co A's payroll system already had 401(k) deductions loaded, so deferrals were taken from Co B ee's checks until late February. Deferral $$ were deposited in single pooled Schwab account that was used for both companies in 2002. I want to get the ineligible deferrals out of the plan, but am not sure of the mechanics of the process. Would I distribute the ineligible deferrals using code 2 (early, but exception applies) on the 1099R? I know the exceptions under code 2 do not fit this situation, but am trying to figure out a way to refund the $$ and not have the ineligible participants pay 10% early dist penalty. Thanks.

Situation: - Corporation has 3 divisions (SC, IL, and GA), each of which has a 401(k) plan. - Corporation establishes a new "USA" 401(k) plan in 2002 - Assets of each division plan are merged into new plan at different dates during 2002 Can I use use 3% NHCE ADP for testing the USA plan in 2002? The PPD ERISA outlines says "For the first plan year of a plan (other than a successor plan) that used the prior year testing method, the ADDP of the NHCEs for the prior year is deemed to equal 3%" I'm not sure of the definition for "successor plan". I have a student edition of Sal's ERISA outline, but the C-1 version omits sections on ADP testing. If 3% can't be used how in the heck do I come up with an ADP for the NHCEs? I remember reading something a long time ago that the NHCE ADP would not be the average of the actual prior year ADP for the 3 plans, it would be a weighted average. For example: SC plan 2001 NHCE ADP: 4%, 100 NHCE (100/450 * .04 = .0088) GA plan 2001 NHCE ADP: 2%, 300 NHCE (300/450 * .02 = .0133) IL plan 2001 NHCE ADP: 6%, 50 NHCE (50/450 * .06 = .0066) weighted average: (.0088 + .0133 + .0066) = .0287, 2.87% compared to average of actual prior year ADP (.04 + .02 +.06)/3 = .04, 4% Any ideas? Thanks.

Joan's name is listed on the 2000 version as co-author, along with Janice Wegesin and Melanie Knox. I've used this reference for several years and fournd it to be an excellent resource. I just checked the website and noticed that Janice Wegesin is the only author listed for the 2002 version. Cost $215.00 plus shipping. http://www.aspenpublishers.com/search.asp?...Compensation+MK

Who decides what assets are distributed in-kind to Joe Six-Pack? If there are 50 mutual funds and 100 stocks do you give Joe a pro-rata share of each? Will the plan document have to be amended to allow in-kind dists? More coordination involved as opposed to just liquidating some investments and cutting a dist. check.

Last year Janice Wegesin, co-author of the 5500 Preparer's Manual, had some MPP to PSP mergers on her website ( http://www.form5500help.com/index.html ). She recommended that 5a be marked yes so EFAST would not kick out an error message. I just tried to find the discussion; it wasn't there. Anyway, that's what we have been doing, marking 5a "yes".

GBurns has a good point. Also, you mentioned that this is a "small client." Is there someone there who has the expertise to decide which charges are eligible for reimbursement under an FSA? If not, who can they call for advice, and will there be a consulting fee?

Tom: How about a person who was already paid out and has a non-vested balance that has not been forfeited? Say the plan only forfeits at the end of the plan year, and the plan termed mid-year. You don't have to change the vesting and make another distribution, right? Thanks.

I think pbarrett is saying [You do not need to bond for them (and indeed probably cannot).] that an insurance company would not issue an ERISA fidelity bond for the receivable portion of plan assets.

Thanks for the info, mbozek. Luckily this employer is not one of our clients. I was told about this "good deal" in connection with "Here's a recordkeeping prospect, what do you think?". I said thanks, but no thanks.

Yesterday KJohnson asked why the person was opting out of the plan (is the EE getting $$ from the ER as an incentive to stay out of the plan?). Here's another scenario: ER plans to put in a match (and/or profit sharing) contrib and tells the EE, "If you stay in the plan I'll reduce your salary by the amount of the ER contrib." The mechanics of how to do this, e.g., reduce 2003 salary by 2002 contribution (whatever), aren't important. Sounds like a company I'd really like to work for. And now to the ridiculous... Employer has been putting 15% of comp into a profit sharing plan for several years, yet one NHCE opted out. Reason given: "People already know too much about me. I don't want my name in some other system." Go figure.

A local company was in the same pickle. Keys deferred at least 3%, but the TH contrib was not made (pre-2002 plan years so the match did not help). This "problem" was uncovered during an IRS audit. The company claimed that they were not in a position, financially, to fund the TH (not even via a loan). The IRS auditor allowed them to return key ee deferrals to correct the problem. I don't know if this is a case of the kindler, gentler IRS, or a rogue agent on the loose.

Ed, I have a couple plans that always seem to take a couple weeks to get the deferrals stopped. I have them stop the deferrals for 6 months and leave it at that. Say hi to Brett. Tom M (aka Maverick)

Use a 945 (annual return of withheld federal income tax). Re: the 20% federal withholding, Form 8109-B (federal tax deposit coupon) is used if you are depositing a check at a bank (type of tax = 945). Most of our clients can get by without electronically depositing the fed w/h, so I'm not sure of those procedures.