Mike Preston

Was it on tape, Merlin?

Everything I've read on these plans indicates that the total contribution needs to be 7.5%. This can be funded by employer or employee dollars. This compares to 12.4% which would be funded 6.2% from the employer and 6.2% from the employee were they to instead be subject to FICA taxes. If the above is true, couldn't the employer modify the plan to call for 6.2% by the employer and 1.3% by the employee? I know this would seem like a cutback to the employees, but it would be something that would get the employer where they want to be. Maybe just for new hires? Obviously they need to be concerned with the employee relations issues, so the above idea may not have any merit in their particular situation.

The issue isn't whether the tax return was filed in March. The issue is whether the tax return was on extension until 9/15, even if filed before 3/15. If it was on extension, there are some that argue that the extension is valid, even if the tax return was filed by 3/15. If you subscribe to that view, then they can indeed do what is being suggested. If you don't, well, they can't. The CPA is the one that needs to be consulted with regard to the issue of whether the extension is valid in these circumstances.

This is a chicken and egg issue. Which comes first? In the end, it is an allocation of the forfeitures that counts. Your spreadsheet is effectively allocating the forfeitures to the non-owners. I think that is perfectly reasonable, especially in a top-heavy plan where there is a 401(k) to which the owner deferred. In that case, the first 3% would go to the non-keys anyway. But if you want to allocate the forfeitures in some manner other than "first to non-owners", I don't see anything wrong with it. Might have a bit of trouble finding software that matches your enthusiasm, though.

I disagree. The preamble to the regulations makes it clear: "catch-up contributions would be determined by reference to three types of limits: statutory limits, employer-provided limits and the ADP limit. A statutory limit is a limit contained in the Code on elective deferrals or annual additions permitted to be made under the plan...." That clearly encompasses the annual additions limitations of 415. If you change your "402(g)" to "any statutory limit, such as 402(g) or 415©" then I will agree.

Tom, I, for one, think you are indeed being too conservative. The whole purpose of the reg is to have you look at what the limits of the plan are and apply the $1,000 if the limits are exceeded. In the case of the 415 limit violation, there isn't a violation because the catchup is applied before the actual violation of 415. It just doesn't make any sense to me any other way.

I have yet to see a 401(a) plan with more than 100 lives exempt from the audit requirement. Ask the TPA for some sort of citation backing up their claim.

If "A-Corp" was, instead, "A-Partnership", then you could file an EZ. I don't think you'll find any more guidance on the issue of ownership, however. In your case, you have a one-person plan that covers an individual that does not own the entire business.

Slight clarification, I think. If the plan uses a safe-harbor, you are correct. If the plan uses the general test, then the resulting benefits are tested as any other benefits under the plan.

I'm in agreement with Merlin. As long as you have a unit credit formula, it seems to work. If you were accruing fractionally, the creation of a safe-harbor after a frest-start date is subject to different opinions. I think it satisifes the rules. Some (maybe most) at the IRS disagree. But since your formula is unit credit, it seems pretty clear to me that the rules of -13© apply and that the resulting benefit accruals after the fresh start date are eligible for safe-harbor status.

The plan's provisions, if they satisfy the criteria of 457(B), establish it as an eligible plan. If it isn't eligible, it is therefore ineligible.

The deduction for compensation, taken under Section 162, has long held that a fixed liability must exist as of the end of the fiscal year for same to be deductible. That was naturally extended to 404 as a safe course of action, and of course, it is. Even that has been backed off from, by the way. If you read RIA's notes on it you see that in closely held corporations where corporate formalities are not typically followed, an informal committment has been upheld even under 162. Also, part of the confusion results from the general notion that compensation under 162 (for reasonability purposes) includes deferred compensation programs. If this keeps up long enough, I'm sure somebody will run across a citation that will identify when the "requirement" was "modified".

I know this isn't going to satisfy the intellectually curious, but the answer is that it isn't. A check delivered (or monies wired) seals the deal.

I still say it is bad practice. Yes, I know it was common. As far as the cite goes, I think it was a very long time ago that the IRS was disuaded from requiring resolutions, so I don't have anything handy. It is sort of like the need to fund $100 by the end of the first plan year end. An urban legend of sorts. Sure does pop up every once in a while.

Kahterine, that used to be true. But it no longer is a requirement.

Doh. I have a chart that says exactly that, too. Of course, if the rollover took place in 2001, it wasn't allowed, but I'll assume that this is a recent event and that the IRA was properly amended, if necessary, by the IRA custodian, to allow after-tax monies from qualified plans. So, in answer to Penny's question, no, the money won't be taxed again. However, I've always thought that distributions from qualified plans that held post-1986 only after tax monies had to be recognized in income on a pro-rata basis. See IRS Notice 87-13 or 87-16 (I always forget which one, but it is one of those). Wouldn't the same thing apply to IRA's now? My bet is that the custodian's staff is grappling with the correct way to fill out 1099's at this very moment. I haven't had much success with IRA custodians in the past doing anything other than coding 1099's as "fully taxable". So, even if it isn't fully taxable, I don't see how the IRA custodian can determine how much of it is supposed to be taxable. Hence, I think what you are going to be stuck with is accepting whatever the IRA custodian dishes out and just documenting your tax return so that if audited you can refute the taxability of a portion of the distribution.

I might be a little concerned that the merger has already taken place and the documentation might not reflect what you want.

I didn't think that traditional IRA's allowed rollover of after-tax monies. Sounds like you might have had a rollover that wastn't totally rollable. If that is the case, the non-taxable amounts are most likely to be treated as individual contributions, subject to the 6% excise tax, each year (pyramid-style) for those amounts that couldn't be contributed otherwise. Probably not what you wanted to hear. Maybe somebody else will tell me that the law has been changed and after-tax amounts can be rolled to traditional IRA's.

Assuming you need to aggregate all three business, yes, if the plan passes the average benefits test. Might have to make a pretty big employer contribution to make it pass, though. On the other hand, you haven't provided enough information for me to confirm that it is required to aggregate all three. Are you sure?

Legally, I think they can do it. Employee relations-wise, it is going to create problems. Just because it seems to be legal, doesn't mean that somebody might not challenge it. Once in court, what was legal might become illegal. Such is the nature of going to court and letting a judge decide. Need it be said that printing statements before the contribution is actually funded is not the best practice? Probably not.

The determination of value for a non-vested benefit just involves another decrement: the probability of continued employment. It is similar in nature to a pre-retirement decrement, but it is a pre-vesting decrement. The method I tend to use is what I refer to as the ratio method. Essentially one determines that the probability of working until one is vested is the ratio of the years completed to date to the total number of years needed to become vested. Hence, if you have a SERP that doesn't vest until retirement age and somebody has 20 years in, but will not vest until they have worked 30 years, they have a 67% probability that the benefit will vest. It is just another actuarial assumption as far as I can tell. Yes, state laws might require that the ratio to use be 1. They might also require that the ratio be 0 until vesting, at which point it is 1. Gotta check. If you find any state rules let me know.

The deadlines are based on the last day of the month. Hence, the answer in both cases is 6/30/2003, assuming that the plan of XYZ was timely submitted to the IRS by XYZ on or before 12/31/2000. I assume it was, because otherwise signing the certificate was not particularly useful.

Submit amendment before end of 401(B) period. Tell IRS you fail universal availability but want an exception. After they stop laughing, they will say no. You will then be able to amend it out of the plan without violating any rules.

mbozek: I think somebody is confused! First of all, Richard's concerns are about plans which do not enjoy automatic reliance, so the entire discusion of when a plan must submit seems to be a bit of a different subject. It appears that you are drawing a distinction between what you call the end of the remedial amendment period (a time which you don't define but which I imagine you mean the later of 2/28/02 or the end of the plan year that began in 2001) and a date you don't define, which is the later of the 12/31/2002 or the date that is the end of the month following the approval of the mass submitter's *last* document to be approved. I consider the later of the two dates, as applicable for a plan, to be the date that defines a plan's extended remedial amendment period. A plan is entitled to an extended remedial amendment period if its pre-GUST document is an approved mass-submitter plan (prototype or volume sumitter) OR if it executes a certification by the end of its unextended remedial amendment period (your first date). With that said, I would change the wording slightly for number 1 so that it reads: I agree with 2 if you substitute "mass submitter" for M & P. I disagree with 3. A plan sponsor enjoys the extended remedial amendment period of the mass submitter plan it adopted pre-GUST wihtout any action on its part. In the case you mention, the employer must adopt the plan of the alternate mass submitter before the extended remedial amendment period applicable to the pre-GUST mass submitter. WIth respect to 4, again, the employer enjoys the extended remedial amendment period associated with its pre-GUST document without any further action on its part. Hence, if an employer adopts any plan before its extended remedial amendment period such as an individually designed plan, it is a timely amendment. That is, if an employer is currently using a plan of Mass Submitter A and Mass Submitter A's extended remedial amendment period ends on June 30, 2003, then the employer has until June 30, 2003 to adopt its GUST amendments and there is no restriction as to whether the employer must use Mass Submitter A's document. It can use Mass Submitter B's document or adopt an individually designed plan. So, you don't need to use the certification procedure to get the advantage of the certification, as long as the plan in place has its own mass submitter status with the IRS. The certification can be used to extend the date, however. For example, if the plan sponsor is on a document with Mass Submitter A and the extended remedial amendment period for the employer would have been February 28, 2003 in the absence of a certification executed on or before 2/28/2002, if that empolyer adopted a certification with Mass Submitter B on or before 2/28/2002 then that plan sponsor would enjoy the extended reliance period associated with Mass Submitter B, which could be later, such as June 30, 2003. With respect to number 5, any plan which is a word-for-word adoption of a Mass Submitter plan automatically gets reliance upon execution. In the case of a non-volume sumbitter plan there is no such thing as anything other than word-for-word adoptions. In the volume submitter arena, it is up to the mass submitter itself to issue a letter to the plan sponsor indicating whether or not the adoption is a word-for-word adoption. If it is, then the employer has reliance. If it isn't, then no automatic reliance is granted. Finally, was this comment in response to anything in particular, as I admit that I don't understand it in the context of this discussion:

Does this relieve your concerns? From Announcement 2001-77: "E. Change to Conditions for Extended Remedial Amendment Period The GUST remedial amendment period generally ends on the last day of the first plan year beginning on or after January 1, 2001. However, certain plans may be eligible for an extended remedial amendment period under the provisions of section 19 of Rev. Proc. 2000-20. Section 19.04 of Rev. Proc. 2000-20 requires plans eligible for the extension to request a determination letter by the end of the extended period if a determination letter is required for reliance. Thus, current procedures would require adopting employers of nonstandardized M&P plans and volume submitter plans to request determination letters within the extended period. An employer eligible for reliance without a determination letter, as described in this section, is not required to request a determination letter to be entitled to the extension of the remedial amendment period under section 19 of Rev. Proc. 2000-20, provided that the employer adopts the GUST-approved M&P or specimen plan within the extended remedial amendment period. " Then again, this may only verify the fact that a plan adopted that is not entitled to reliance must be submitted.