MarZDoates

Employer has a profit sharing plan (no 401(k) feature). He wants to terminate effective December 31, 2003. Same employer wants to adopt a new safe harbor 401(k) Plan effective January 1, 2004. Profit Sharing money will be rolled into Safe Harbor 401(k) Plan. Is there any problem with this? What about S/H notice requirement? Thanks for any and all input.

The employee would pay interest on the loan.

The employer loans the premiums to the employee (executive). Employee pays the premiums to the life insurance policy. Loan documents are drafted between the employer and employee with a reasonable rate of interest. Employer retains a collateral assignment in the employee's policy equal to the amount of premiums or loans made.

This is not my area of expertise, so sorry if this sounds like a stupid question. Can Mutual Funds be used as a funding vehicle for non-qualified deferred compensation plans where the employer loans money to the executive? I see where it can be done using a split-dollar life insurance policy. Thanks for any and all input.

Thank you, Katherine. I guess I didn't read far enough!!

IRC 45E permits employers to take a tax deduction and or credit for startup administrative costs of new qualified plans established after 12/31/01. However, the employer may not have maintained another Qualified Retirement Plan covering the same employees during the prior three years. Would a SEP or SIMPLE be considered a qualified plan for this purpose? Thanks to all who reply!!

Oops. Looking further at the instructions for Schedule T, it appears that I would check 3e on Schedule T. Still interested in any input. Thanks.

We have a client (Corporation X) that sold their business to Corporation Y (unrelated). Both Corporations maintained 401(k) plans with similar provisions (eligibility, etc.). Corporation Y amended its plan to permit Corporation X to merge its assets into their plan. The effective date of the merger was 12/23/02. I looked at 410(b)(6)©. If I am reading this correctly, it appears that Corporation X does not have to perform coverage testing for pye 12/23/02 (short plan year). They can rely on prior year coverage test information. Is that correct? If so, how do we report this on the 5500? Do we complete question 10a(2) on Form 5500 and not file Schedule T for 2002? I would appreciate any and all feedback!! Thanks.

I have a client who maintains a profit sharing plan that he has not funded in 2003. Also, no forfeitures will be allocated. If he terminates his Profit Sharing Plan now, can he adopt a SIMPLE plan by October 1, 2003 or must he wait until January 1, 2004? Thank you.

Client sponsors a cafeteria plan under which health insurance premiums are covered. The insurance company raised its rates last year. Employer did not increase the amount of salary reduction to reflect the increase in premium. Therefore, the employee had to pay approximately $1,100 after taxes. Can the employee write a check to the employer for the $1,100 for the increase and still have it considered as "before taxes". (I would think not.) Should the employer just increase the amount of current salary reduction to cover the amount of the difference for the rest of this year?

Does anyone have experience filing through the VFC Program? I've read through March 28, 2002 Federal Register to determine how to file. I've also read something published by Corbel indicating that if the employer self-corrects using the VFCP methodology and foot notes this on Form 5500, Schedule I, that should be enough to satisfy DOL. I would appreciate hearing some opinions on whether just to "self correct" or file the full blown application. Thanks.

I have been asked by a plan sponsor if the Summary Annual Report can be posted on their company's bulletin board. I would think not. It is my understanding that each participant must be given a "hard copy" of the Summary Annual Report. Any thoughts?

Employee took a hardship withdrawal from his company's 401(k). The employer neglected to suspend deferrals. What is the procedure for fixing this problem? (i.e. return deferrals, etc.) Where would I find the citation to back up the answer. Thanks.

Calendar year "Plan A" was merged into "Plan B" as a result of a corporate merger. "Plan A's" assets were transferred into "Plan B's" plan on November 15, 2002. Question: Is "Plan A" considered to have a short plan year ending November 15, 2002? If so, is the due date of the 5500 then June 30, 2003? Thanks.

Client has a pooled account in which cash and mutual funds are the investments. He receives statements each month indicating the holdings. With respect to Question 4i on Schedule I, I understand that you start with the balance at the beginning of the plan year (i.e. value is $200,000 at 1/1/02) to determine the 20% amount. He does have more than 20% in one security (one mutual fund), and obviously the value varies each month and stays consistently above 20%. For reporting purposes, what amount do I use to complete the Schedule? He also has about 40% in a money market account. That would not be considered a security would it? Thank you.

Is there any reason not to permit matching contributions on catch up contributions. For example, is it possible that the plan could pass the ADP, but fail the ACP due to matching contribution on the catch up? I can't really find anything that talks about how matching contributions are treated with respect to catch ups. (I assume that catch-ups are subject to ADP testing.) Thanks for any and all input.

Dentist A and Dentist B are both sole-props (no common ownership). They share employees as follows: They also share office space: Dentist A employs 5 full time employees and sponsors a profit sharing plan. Dentist B employs 2 of Dentist A's 5 employees on a part-time basis. Dentist B sponsors a retirement plan in which he is the only participant (the two employees never met service requirement). The shared employees receive separate W2s from each of the dentists. Question is: Do the "Affiliated Service Group" rules apply here. I would think not, since there is not common ownership. I would think it is okay for Dentist A and Dentist B to sponsor two separate retirement plans covering only their eligible employees? Just needing confirmation or correction if neccesary!! Thanks.

Thank you.

Does anyone know if there is guidance on what is meant by "recurring and substantial contributions" as referred to in Treas Reg 1.401-(b)(2). Client has a profit sharing plan but has not made contributions for the last few years. I am trying to determine if he has a "permanency" issue or possibly a deemed termination (if there is such a thing).

I have a question about common ownership: I think I know the answer, but would like confirmation: Corporation "B" is owned by: 50% Corporation A and 50% "Individual Guy" Corporation "B" owns 100% of Corporation "C" and Corporation "D" Corporation "D" owns 50% of Corporation "E". I believe all of the above are grouped together and have one retirement plan. Corporation "C" is selling off part of their business new a new LLC which will be owned 50% by "Individual Guy" and 50% by three other unrelated people. Question is: Can the new LLC set up their own 401(k) Plan, even though "Individual Guy" owns part of Corporation "B" I would think that the ownership is not common with Corporation "B". I hate this stuff! Any input is greatly appreciated. Thanks.

Employer is a partnership "employing" only five partners (no other employees). They are pathologists. They receive partrnership income. Same pathologists ALSO receive some W2 income from local hospital and participate in the hospital's 403(B). Can the partners establish a SEP for the partnership even though they participate in the 403(B)??? If so, can they each do $40,000? From prior research, the ASG/Controlled group rules do not apply. Using same example, would the partnership be able to establish a SIMPLE??? Can you point me to the citations to back up the answer. Thanks in advance for any input. I've researched this in the past, but it seems that I am getting conflicting information to the point where I am second-guessing myself. HELP! please. Thank you!!!

Mike, why would the aggregation apply automatically? The partnership maintains a SEP while the hospital maintains the 403(B). Also she owns 20% of the partnership. Does that make any difference? Sorry...this is confusing and driving me nuts! Thanks for your help.

Employee is a pathologist and works for a hospital in which she participates in their 403(B). Same pathologist is a partner in a partnership which maintains a SEP. With respect to the $40,000 annual addition limitation, do you have to aggregate the two plans together? (The employers are totally separate and unrelated.) There are no deferrals in the SEP. Employer contribution only. I know that if we were talking about deferrals, the 402(g) limit applies to both employers together. Not sure about the $40,000. Can she have $40,000 going into the plan with the hospital and another $40,000 going into the plan sponsored by the partnership? Where could I find the citation? Thank you very very much.

Thanks, Pap! So what if this HCE is not a Key Employee...then what kind of non-discrim do I need to look at?

I neglected to mention in my first post that this is an HCE. In researching the non-discrimination rules, I see that a cafe plan can not discriminate in favor of HCEs. Regarding the "25% Test"...does this mean that if the HCE does want to run $10,000 through the cafeteria plan, the total amount of benefits to the non HCEs would have to be $40,000? Sorry, I am weak in this area.