LCARUSI

Such companies (as you described) usually do not offer a fixed match. At most, they might offer a discretionary end-of-year match based on profitability during the year. The match would be determined at the end of the year. But these companies definitely don't want to be locked into a fixed commitment every year. Also, I don't think a match would be much of an incentive as a recruiting tool. Employees who join such a company are probably seeking other potentially more profitable incentives, e.g. stock options.

I don't think the Plan Sponsor has the option of "rejecting" a valid QDRO. The earnings calculation can be difficult if there has been a lot of activity in the account (especially investment reallocations). But I think you have to do it.

I agree with GG.

It is taxable income for 1998 (assuming distribution prior to 3/15/99). The participant receives a 1999 1099-R. You should use the distribution code which indicates it is taxable income for the prior year (1998).

I believe Vanguard offers an investment and recordkeeping package for small businesses. So maybe the Company can deal directly with Vanguard.

Why does the Employer want two plans?

I agree with Bill. However, a Plan without Survivor Annuity Rules can require spousal consent (by the terms of the document) even though it is not required to.

If there is a problem here (and I think there is), I don't think it's a 404© issue.

Take a look at rev ruling 68-24. In general a profit sharing plan can not allow unlimited access to account balances for withdrawal. However, the Plan could allow withdrawal of funds which have been in the Participant's account for at least 24 months. It could also allow withdrawal of all funds for participants who have at least 60 months of participation. So it would appear the Plan you are working with is more restrictive than it has to be.

In a situation where a Plan Sponsor fails to make timely deposits (and fails to correct): 1) What are the penalties/sanctions that might be levied against the Sponsor? 2) If individual employees and officers of the Company are trustees, do these individuals have any personal liability?

I disagree with MWedell - new comparability works best when the "favored" group is older than the other employees. Young attornies and old staff sound like a bad combination for new comparability.

If you terminate a 401(k) Plan and distribute account balances, you cannot have a successor Plan for 12 months. However, that rule does not apply to MP or PS Plans (assuming the PS plan has no 401(k) feature)

Assuming a DC plan is integrated at the SS wage base level, I explain it as follows: Employees under the wage base receive SS benefits with respect to their entire income - and the benefits are funded by the employer's FICA contributions. The employer's contributions are with respect to the employee's entire compensation. Employees over the wage base receive SS benefits with respect to part of their income (up to the SS wage base). And the employer's contributions are with respect to only part of the employee's income. Therefore, integration allows the employer to make greater contributions with respect to income over the wage base to compensate for the fact that the employer makes no FICA contributions with respect to income over the wage base.

First of all, I agree with Ervin and Beavis that it's bad idea. But even if it were a valid approach, why is it preferable to anyone involved i.e the company or the HCE? You still have to calculate the amount to be refunded/carried ove to the next year. I see no advantage to the HCE. Why not just do it the right way?

The maximum excess contribution percentage cannot exceed the lesser of (1) and (2): 1)the base contribution percentage 2)the greater of 5.7% and the SS tax rate attributable to the old age portion of OASDI (the entire OASDI rate is 6.2%, the old age portion of OASDI is less than 5.7%==>5.7% is the maximum)

Answering your two questions in the order posted: 1)You are looking at the employee's prior year's compensation to determine if he or she is an HCE. You use the full prior year's comp even if the employee was not eligible to participate in the entire prior year. 2) Use partial year comp. In your example, if the employee contributed at 10% from July 1 to Dec 31, the Deferral is (.10 x 25000)/25000 = 10%

1) No. If the HCE terminated in the prior year, he or she has no eligible compensation in the testing year. Therefore, they are not included in the test. 2)No. They are not included in the determination of the prior year ADP/ACP for the NHCE group. Their contribution rates would be included in the determination of the prior year's ADP/ACP for NEXT YEAR'S testing. 3) I don't understand the question. Please clarify

Yes - theoretically. If you are determining 50% of the participant's vested account balance, the after-tax portion can and should be included in that determination - unless the plan document has more restrictive language. For example, I have a document which specifies the max loan is 50% of the participant's deferral account balance (max $50,000). Thus, this document is more restrictive than sec 72 (p) would require.

BSWIFT - I don't have a lot of experience in this area - I'm a qualified plan kind of guy . But I did review regulations under IRC secs 3401 - 3405. I conclude the distribution is subject to withholding under 3405 and the actual amount of withholding depends on whether the distribution is periodic or nonperiodic. Your thoughts on that?

What are the rules relating to withholding from distributions in such a Plan? 1)Is withholding mandatory? 2)Is it optional? 3)What is withheld? (e.g., it's generally 20% from a qualified plan)

What are the rules relating to withholding from distributions in such a Plan? 1)Is withholding mandatory? 2)Is it optional? 3)What is withheld? (e.g., it's generally 20% from a qualified plan)

Yes. You will look back to the prior year's compensation even though the Plan was not in existence in the prior year.

Sponsor has two plans (prototype). Employee who will soon be eligible to participate (non HCE) wants to opt out of the Plans (presumably in return for more salary). 1) Is this allowable? 2) If it is allowable, is the opt-out decision irrevocable? 3) If it is allowable, does the opt-out person count against the Sponsor in 410(B) testing?

Prop Reg 1.401(a)(9)-1 talks about a distrbution being made by a specific date. It sems to me the intent is clear - that the payment must be issued by this date. Therefore, to commence processing as of that date or to value a payment as of that date would not satisfy the requirement. I think the most wiggle room you have is for the check to be dated on or before the required date, even if the participant does not receive it for several days thereafter. That having been said, rules relating to RMDs have been changed and the payments can be delayed until retirement for employees who are not 5% owners.

Bill - Take a look at another topic on this message board: "How Long is to Long" It discusses a related issue.