MarZDoates

Does a SIMPLE 401k that is being terminated need to be amended for PPA?

I know that a terminating plan must be updated for all current legislation. However, does the amendment (i.e. PPA) need to be done before the assets are distributed or after? Please provide citation. Thank you.

For purposes of filling the Form 5330, how would you determine the amount involved in the following situation? Empoyee deferral could have been placed in the plan on 7-1-06. Correction was not made until 10-1-07. Would I need to file a 5330 for 2006 and 2007? How do I compute the amount involved for each year? (i.e. if I use an interest rate, where do I find the rate to use?) Also, since the correction wasn't made until 2007, does that mean that the 100% excise tax applies for 2006? Thanks for any and all input!

We are performing the ERISA audit for a 401(k) plan and have found what appears to be an inconsistency with the document. The adoption agreement shows 6 months of service. The plan uses hours of service method. It states that a year of service will be credited upon completion of 1,000 hours of service. Is this possible? Wouldn't that violate the statutory requirments? It was always my understanding that if you are using a prototype document and select 6 months of service, you can not impose an hours requirement also. We contacted the document sponsor (same as tpa)...and were given the following answer.................. "There is no conflict and the document is correct as drafted. The requirement is 6 months of service where the employee has worked 1000 hours. Further, had we wanted to use the elapsed time or expected year of service, those options would be marked. Excerpt from Document [ ] 10. Not applicable. There is no Service requirement. [ ] 11. Not applicable. The Plan is using Expected Year of Service or has a Service requirement of less than one (1) year. [x] 12. Hours of Service method. A Year of Service will be credited upon completion of 1000 Hours of Service. A Year of Service for eligibility purposes may not be less than 1 Hour of Service nor greater than 1,000 hours by operation of law. If left blank, the Plan will use 1,000 hours. [ ] 13. Elapsed Time method. "............ Thanks in advance for any and all input.

We have a doctor that sponsors a SIMPLE IRA plan. He has an associate (doctor) that he was treating as an independent contractor. It was later determined by a State auditor that the associate should have been treated as an employee. Since the associate wasn't considered an employee by the employer, he was not offered the SIMPLE plan. If the associate would have been considered an employee from the beginning, he would have been eligible in 2006. Since the associate was subsequently re-classified as an employee, for the SIMPLE purposes, I would think you should treat him as an eligible employee in 2006 forward and correct under the EPCRS program by having the employer make a QNC for missed deferrals plus earnings plus related match, etc. However, a question came up: Since he is not a rank and file employee, is there any way he can sign a waiver electing not to participate in the SEP retroactive to 2006 when he thought he was an independent contractor?

Thank you.

We have a client that for January 2006 was NOT part of controlled group. In July 2006, due to ownership changes, the entities became a controlled group. One of the entities sponsors a SEP. They need to cover all eligible employees of both entities. Question: Should we use compensation for all of 2006 to determine contributions for the "new" employees or compensation from the time the entities became a controlled group? Where would I find the definition of compensation for this purpose? Thanks.

Is there any way to exclude fringe benefits from the definition of compensation used to determine a SEP contribution for employees?

Oooo! I hadn't thought of that. Good point.

Plan loan program permits the fees associated with loan application and maintenance to be charged to the participant's account. Shouldn't the fee come directly out of the account as a "fee"/"expense" rather than including it in the loan principal? Example: participant requests $12,000 loan. Custodian charges $150 fee. Net check to participant is $11,850. Shouldn't $11,850 be the amount amortized? Or can it be done either way? Thanks.

Does anyone know if you should include the cost of health insurance premiums to 2% s-corp shareholders as wages for determining SIMPLE salary deferral elections/employer match? Thanks.

C'mon, Tom.....can't you read my mind???? Thanks again!

Thanks for the input. I think I understand now. You can pass coverage since participants benefit via the s/h non-elective. The issue then becomes whether or not it passes 401(a)(4) since the plan now won't fall under the design based safe harbor. Does that sound accurate?

I have a s/h 401(k) plan that uses the 3% non-elective contribution allocated to all participants. The plan also has a discretionary profit sharing contribution, integrated, allocated only to participants that are employed at the end of the plan year and work 1000 hours. I have five non-highly compensated employees that were eligible only for the s/h non-elective. If I am reading the ERISA outline book correctly, it looks like I can re-structure into component plans to pass coverage? Does that mean that I put the 5 participants in one plan, since no hces benefit, it passes coverage? Then put all the other participants in another plan, all ees benefit..passes coverage? Is is this even necessary? My concern is the discussion about the design based safe harbor status of the plan.....The allocation rates are not uniform in this situation. If I'm reading it right, it's okay as long as the plan passes coverage....is that correct? Thanks.

So I guess that since the first day of my fiscal plan year (after December 31, 2006) is November 1, 2007, then the first quarterly statement would be due 45 days after 1/31/08. Does that sound correct? As always, thanks again for all your input. It is greatly appreciated!

If we have a plan year that runs from November 1, 2006 through October 31, 2007, by when is the first quarterly participant statement due? 45 days after 1/31/07? Thanks for any and all input.

WOW! Thanks for all the great input. I agree....useless information that the participants probably won't read or understand anyway! I wouldn't read it if it were on my statement! Ha!!

This may have already been discussed, and I know there has been no guidance yet. But does anyone know how to handle participant statements where the participant is already receiving a monthly statement from their investment company? Would the investment company be responsible for adding the correct verbage, etc? I guess the TPA would have some responsibility/involvement since the investment company may not have vesting, etc. Just kicking it around. Thanks.

First let me say that I know NOTHING about weflare plans. I'm not even sure this question makes sense....However, we have a client that has a self-insured plan. They have an owner employee that went on Medicare beginning in January of this year. He is paying his medicare premiums. However, it was his intention to have his RX drugs paid from the self insured plan. He has been paying for them personally. Can he submit his receipts for RX he purchased during the year to the Welfare plan and be reimbursed? Sorry if this is a stupid question. Thanks.

Going to re-open this can of worms. If you have a requirement that only participants who are fully vested can self direct, wouldn't this have the same effect as placing a minimum balance restriction on the right to self direct investments?

Thanks, Tom.

Employer maintains a Safe Harbor 401(k) using the basic match formula. The match is calculated for the whole year, versus payroll by payroll. Safe Harbor notices were given prior to the 2006 plan year. The employer wants to terminate the plan effective 12/31/06. Wouldn't he still need to fund the match for the 2006 plan year? I read some materials, but now I've totally confused myself. Some of the things I read appear to say that you can terminate a s/h 401(k) plan and not provide the safe harbor match as long as you amend the plan to omit the s/h match, notify participants at least 30 days before term date and run the ADP/ACP test. But haven't the participants "accrued the benefit" since they were given notice at the beginning of the year? In looking at the document (prior to the final 401(k) amendment) it says you have to make the contribution. But not sure how the amendment affects the language. I hope this makes sense. Thanks to all who can understand my babbling and can provide some input.

Yes, I read that too. The "for the plan year" was tripping me up.

Client wants to terminate s/h 401(k) 12/31/06. He will need to make the s/h match for 2006, but it probably won't be deposited/allocated until 2007. Does this mean client can't have a SIMPLE in 2007 since employee receives allocation in that year? Thanks.

I've looked at EPCRS and the instructions for DOL's on-line calculator. In each of the examples, it appears that they are illustrating the aggregate amount of late deferrals. In performing the actual calculations, wouldn't you have to determine each participants' late deferral amounts separately to determine their portion of lost earnings?