LCARUSI

I follow the same procedure as Alan

First of all, I think it would be a real bad idea from an employee relations point of view to announce a vesting schedule with respect to future contributions. I think the way to do it would be as David recommended - have the vesting schedule apply to new entrants to the Plan. However, if the sponsor really wants to do this and if David's analysis is correct that it cannot be done, the Sponsor could freeze the old plan and establish a new plan with a vesting schedule. After a period of time (6 years), anyone in the new plan who also has an old plan balance would be 100% vested in both plans. The old plan could then be merged into the new plan. I am not recommending the above gyrations. I have to believe it would be more trouble and perhaps more expensive than it's worth for the Sponsor. But if they want to do it, I think it's a valid approach.

A law firm (C Corp) is owned by a father (45%), son (30%), and unrelated third lawyer (25%). The wife of the father is an employee and participant in their 401(k) Plan and wants to take a loan from the 401(k) Plan. I think she is a party in interest by virtue of her relationship to the father and son whose combined ownership exceeds 50% and therefore can not take a loan. Am I analyzing this correctly? [This message has been edited by LCARUSI (edited 10-07-98).] [This message has been edited by LCARUSI (edited 10-07-98).]

Let's assume an employee earns $320,000. If he/she is contributing at a rate of 2% of pay, I think he/she can contribute for the entire year. By the end of the year, the following will happen: 1) the participant will have contributed $320,000x2%=$6,400(less than $10,000). 2) the participant's contribution rate for the year is 4% ($6400/$160,000), which presumably will not violate the terms of the plan. I see no problem with this as long as there is no specific unusual language in the Plan which might be in conflict.

Doesn't the plan document address this issue?

QDROPHILE - That really isn't my question - but it's certainly an issue to consider. My question is whether or not the Sponsor must pass through voting rights on the stock to participants?

I doubt you would satisfy the delivery requirements by putting an SPD on the WEB. How about all the employees who don't have access to the WEB?

If the employee returns to England, can he or she receive a distribution from the Plan? Anotherwords, has the employee separated from service from the controlled group?

If a company offers company stock as an investment option, I believe the company is not required to allow participants to vote the shares. I'm having trouble confirming this point with certainty. Am I correct? (This is not an ESOP.) Assuming the company is not required to pass through the voting to participants, how do companies handle this? Do companies generally allow participants to vote the shares anyway? If the participants do not vote the shares, who does? If it is the trustee or plan sponsor, are they subject to any particular guidelines for voting the stock?

The tax benefits for the sponsor of a qualified plan depend only on the type of Plan. It doesn't matter if the Plan covers union or nonunion employees (or both). Generally, a company can sponsor a plan for collectively bargained employees without having one for the other employees.

If you feel you have been treated unfairly by your prior employer, you should consult an attorney. It is very unlikely you will get help on this message board because the readers will not be familiar with the specifics of the J&J Plan or the "dividend" program you are talking about. Good luck.

Ervin - I'm not sure I understand your comment: "It should (although I haven't tested it too much) have some appeal in a cross-tested situation." Could you elaborate? Thanks.

At the risk of sounding low-tech, why don't you use an off-site storage company? I use it, and when I need to retrieve something (and it's rare), they have it back to me in 24 hours. It costs peanuts (especially relative to the risk of discarding something you should have kept).

I have to differ with Chip - and this is of course only an opinion. I think many/most employers will be reluctant to substantially increase their level of matching (or profit sharing) contributions to satisfy the safe harbor rules. Clients with whom I've spoken have no interest in doing so - even if it would eliminate need for k/m testing. You know what I think is really unfair? I have a client with a very generous DB plan and a 401(k) Plan (25% match first 6%). This client will not increase the match. They can take no credit for the substantial funding of the DB plan toward the safe harbor requirements of the 401(k) Plan. They would have to curtail/eliminate the DB Plan to take the 401(k) Plan over the safe harbor threshhold. That's not right.

Susan - Dawn indicated in her initial posting that she cannot do the allocation on compensation limited to $1.00. That option is only available if the QNEC is being allocated for an ADP test failure. So she can determine the $5,000 contribution as you suggest, but she must then allocate it according to total compensation because she doe not have a failed test. That would not give the desired result of $500 per person. [This message has been edited by LCARUSI (edited 09-25-98).]

Will the PBGC help with accounts in Profit Sharing Plans, i.e. plans which are not covered by the PBGC? [This message has been edited by LCARUSI (edited 09-25-98).]

I need clarification relating to a top heavy plan which is passing the k/m testing by a huge margin. In fact, the NHCE averages are HIGHER than the averages for the HCE group: NHC Group k test: 8% m test: 3.5% HCE Group k test: 6% m test: 2.0% I understand that contributions used to pass the m test cannot also be counted as a top heavy contribution. Therefore, I want to use none of the matching contribution for the NHCE group in the test. My test results now look like this: NHC Group k test: 8% m test: 0.0% HCE Group k test: 6% m test: 2.0% I now use a portion of the 8% (k test for NHCE group) to pass the m test. Specifically, I "move" 1.6% from the k test to the m test to give the following test result: NHC Group k test: 6.4% m test: 1.6% HCE Group k test: 6.0% m test: 2.0% Th plan still passes both tests and I can now count the actual matching contributions received by the nonkey employees toward the top heavy contribution. Can I do this? [This message has been edited by LCARUSI (edited 09-24-98).]

In answer to Dawn's question: "Am I violating plan terms then becasue I am not limiting my QNEC to what is actually needed to pass the ADP test?" I believe you would be and I don't have a clever suggestion to get around your problem easily. Can the plan be amended? Also, I don't think Stephen's suggestion will work. In his example, he calculates an aggregate contribute of $5,000 to be allocated among 10 participants. He then gives $500 per capita. But that's the problem, the plan document does not allow a per capita allocation - it must be done in proportion to compensation. Ann allocation according to the current terms of the plan will result in an AVERAGE allocation of $500 per participant, but each participant's actual allocation will be different based on his or her compensation.

Take a look at Tax Facts #1 (1998). Q&A 350 gives a nice clear discussion of the issue and several relevant citations.

This is a follow up to Larry M's comments. If the Plan is a plan which allows different contribution levels by class, then the Plan would be subject to general testing under 401(a)(4). So if you want the plan to provide 18.75% to "senior management", i.e. the owner, and 3% to everyone else, you'll probably be unable to satisfy 401(a)(4). P.S. I really like Larry's idea to give benefits to part time employees. Whether it would help in this particular situation will depend on relative salary levels among the employees, but it's an idea I'll keep in mind in the future.

Tim, what do you mean by maturity date?

It depends on the language in the NQDC. If there is specific language dealing with this situation, then that language should govern. Since this is a nonqualified plan, there is no statutory requirement to observe the same-desk rule or for that matter most other rules relating to qualified plans. So if the plan language calls for treatment which you don't want, you can amend the Plan.

You add back in distributions over the last five years for all participants, not just key employees.

I believe you are asking whether or not you can direct the investment of some or all of your IRA into a venture capital group. You should ask the trustee of your IRA. If the answer is no, maybe you can move the IRA to another organization which would permit such an investment.

I am working with a 401(k)profit sharing plan (plan year is calendar). I will determine topheavy status for 1999 based on acct balances as of 12/31/98 (which is a valuation date). When determining individual account balances, my reading of the reg 1.416 T-24 tells me I do not have to include contributions which are posted to participants' accounts as of 12/31/98 but are actually contributed to the trust sometime in 1999. Is this correct? Thank you for your help, Len