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Here are two cites that I am aware of: Part III Department of Labor Pension and Welfare Benefits Administration 29 CFR Part 2510 Regulation Relating to Definition of "Plan Assets"--Participant Contributions; Final Rule DEPARTMENT OF LABOR Pension and Welfare Benefits Administration 29 CFR Part 2510 RIN 1210-AA53 The preamble is reproduced below c. Partnerships Two comments were received relating to when contributions by partners to section 401(k) plans become plan assets. The letters represent that, under 26 CFR 1.401(k)-1(a)(6)(ii), a partner's compensation is deemed currently available on the last day of the taxable year, and an individual partner must make an election by the last day of the year. They ask when the monies, which otherwise would be paid to a partner, but for the partner's election, become plan assets, inasmuch as partners do not receive wages. In the view of the Department, the monies which are to go to a section 401(k) plan by virtue of a partner's election become plan assets at the earliest date they can reasonably be segregated from the partnership's general assets after those monies would otherwise have been distributed to the partner, but no later than 15 business days after the month in which those monies would, but for the election, have been distributed to the partner. From the Pension Actuaries and Consultants Conference in Washington, D.C., on October 9, 1997: ASPA: If a sole proprietor or partner is deemed to earn income only on 12/31, what is the implication of elective deferrals made by the partner during the year prior to 12/31? Is a sole proprietor or partner deemed to earn all their income in one day for all purposes? IRS: Their income is actually earned throughout the year, regardless of the fact that it is DEEMED to be earned at year end. Thus, contributions can be made during the year, but this is done at the peril that the amount deferred as a percentage of pay is unknown until the year end and could result in problems.

My interpretation would be that every quarter you would true-up YTD. However, I could understand if you interpreted it to mean just the comp and contributions for that given qtr. I would recommend asking your document vendor what the intent was.

At the recent ASPPA conference, a question was asked of the IRS how the plan was handled when the SHNEC was provided but failed to give the notice. The IRS responded by saying that you have an operational failure and the corrective measure is to distribute the notice. They also said this was not possible for a SHMAC.

We get the new version every year and if I remember correctly, we pre-order it as soon as it is available and we usually get around the end of January, beginning of February.

No.

Yes, I see that is not even a word now.

A client has distributed the safe harbor notice stating they will contribute the 3% SHNEC for the 2005 plan year. Is it possible to rescind this notice before the start of the plan year?

Let's say the participant is 66, 4 months, and 2 days.

If a participant initially takes their distribution in installment payments over their life expectancy and a couple of years down the road decides to cease all distributions (assuming the plan doc allows for this), are there any tax consequences for this decision?

Yes, the 4% cap is required under the safe harbor rules.

I have run across a differenty type of situation and would like your input. I have a client that has a prototype document that says they will make a 3% SHNEC for the 2004 plan year. However, the client decided back in November, 2003 that he would issue a safe harbor notice stating that the safe harbor match would be made. Can the plan be amended this late in the year to change from SHNEC to SHMAC or has the plan lost its safe harbor status for 2004? Will both the match and non-elective contributions have to be made?

Yes, it is subject to FICA.

Yes, the plan is a large plan and must have an audit and must file Sch H.

You can also refund this money or forfeit it and use it to reduce future contributions. The employer will have to correct this thru payroll.

As Tom mentioned I also got the feeling that it was fine to issue the notice for a SHNEC and you would still be fine for exemption from ADP testing. They did say they did not feel this way for a SHMAC. Again there is no guidance and this was only an opinion if the IRS panel.

There is no exception that I am aware of for a full plan year. Have to get an audit.

So did you convince him yet?

Are you saying the contribution to the SEP is required? I have never seen a SEP document that had a formula other than discretionary.

I admit that I don't know much about it. However, that is not the impression I got from the IRS representative.

Yes, sorry for the omission.

At a recent ASPPA webcast they discussed this. It was said that a 1099 would not be needed in this case. If the fee was higher than the balance, the participant would not get anything and they recommended billing the employer for the difference. You can probably hear the recorded webcast if you order from ASPPA. I recommend it for your situation. I think you would get a lot out of it.

I am not a DB person but I did get the feeling that the IRS is getting ready to hammer 412 plans. I went to a session titled "Abusive Tax Practices". Jim Holland of the IRS was one of the speakers. Apparently he believes that there aren't many 412 plan out there that are compliant. He mentioned that the President just signed into law that gives the IRS to fine "material advisors" $100,000 for failure to report the abusive transactions. If you have ever met or heard Jim Holland speak, he rarely has an expression on his face and he is somewhat monotone. However, in this session, he was actually very giddy and all happy about what was happening. I found it very disturbing. It made me feel very relieved to know that I am not involved with 412 plans.

It is also possible that the match is done on a payroll by payroll basis and a true-up contribution is done at the end of the year. Again, all of this should be addressed in the doc.

Your plan document will state how matching contributions are to be allocated. You may just have to look a little harder and maybe ask the person who says this is the case. It is an allowable method to match on a payroll-by-payroll basis.

I would like to know what others do for the following situation: A company with hundreds of employees is late on depositing deferrals for many payrolls. We would calculate the lost earnings based on the highest return of the given mutual fund selections in the plan. Now, how do you normally allocate the earnings out to the participants after you have come up with the total? For small plans it would be easy to allocate this for a few participants. However, this is such a large plan that it doesn't seem administratively feasible to allocate (say 8%) to each participant for 20 payrolls. The software does not do the calculation. Are there any other suitable allocations that would be deemed reasonable? I can't find any support on the DOL website or via their VFCP.