Schedule Ts, Multiple Employer Plan

[pmacduff]

I have a PEO who changed their plan to a mulitiple employer plan (2003) per all the provisions/changes in the code for such a setup. When I prepare the 5500 form for 2003, must I attach a schedule T for each employer CO signed on as a participating employer, even if they do not have anyone deferring and/or no balances in the Plan? Also - how about Employer COs who leave the leasing company during the year and may or may not have taken distribution from the Plan. Is it necessary to complete a schedule T for those that are gone? Any opinions appreciated.

Also - I believe I am reading the instructions correctly, that I can list all of the employers and EIN#s on an attachment that follow any one of the exceptions in question 3 of the form (as opposed to completing a separate Sch T), however I must complete the entire Sch T for any Employer CO who does not meet any exception - agree or disagree??

Thanks in advance.

[pmacduff]

I still haven't been able to get a clear idea of how to do the Schedule Ts...does anyone have any thoughts?

[Guest JimD]

I think you have to file the Sch T for each employer whether contributions are made or not or if the balance is $0 for that employer. For 401(k) purposes employees are still benfitting even if they do not defer. If an employer terminated participation during the year I think a Sch T is filed for that year. Years after that I don't think you would file a Sch T for that employer. I agree the instructions say you can file one Sch T and list all the employers who meet the particular question 3 exception on an attachment but you need to file a Sch T for each employer who does not meet an exception.

[pmacduff]

Jim - Thanks for the reply. I now see and agree that all participating employers as of 12/31/2003 need a Schedule T - even those with no balances and no one deferring.

I spoke with the DOL who referred me to the IRS technical department. After a long time on hold and 3 different people telling me they would get me a "Schedule T expert", I finally talked to a gentleman who, although definately no expert (!), read through the instructions with me and agreed that it was not necessary to prepare a schedule for all 82 employers. I can list those on another page who meet an exception with their Company name, EIN and exception. I will prepare a "T" only for those not meeting an exception. I will file for those Employers who left during the year, even if they had no balances or no one deferring.

The employers who left during the year, no balances or all balances paid out - if they did not meet an exception, the balance of the schedule is all zeros because there are no employees. (ie., all of the numbers are "0" in the bottom of the schedule.) I guess that is why I thought they wouldn't need a schedule. Do you believe that is how I should file them??

[pmacduff]

Spoke with the IRS again....I was told that if an employer leaves the multiple Employer Plan and either starts a Plan of his own or transfers to another MERP where a Schedule T will be completed for PYE 12/31/2003, then it is not necessary for me to complete a Schedule T with my MERP return. If, however, an Employer leaves the Plan and does not transfer to another plan but all participants are distributed, then I must include a Schedule T. He said to use the last data available from those Employers. As he mentioned, the Schedule T's purpose is to show compliance for coverage, so it makes sense that I still need to report on that Employer's coverage for the plan year.

Now - I have yet another Schedule T question...

An employer has a plan with safe harbor matching to pass ADP/ACP testing. No one is deferring except the owner. His wife is working& drawing comp but not deferring. He had 3 other employees during the Plan year, but all terminated within the plan year. None had chosen to defer. The 401(k) portion has immediately eligibility, but the Employer chose to use the "year-of-service; age 21" exclusions for the safe harbor match. I know that the 401(k) piece meets the 3d exception on the Schedule T. But the 401(m) is where I begin to get fuzzy! Using the date of 12/31/2003, my counts for the bottom of Sch T for 401(m) are as follows:

4© 1 = 2

4© 2 = 0

4© 3 = 2

4© 4 = 2

4© 5 = 2

4© 6 = 2

Relius Gov forms computes the % in 4(d) to be 0%. Does this mean it fails? Must the HCE take a refund of the safe harbor match he put in for himself? Thanks in advance.

[Tom Poje]

if I understand your post, you have the following

401(k) - immediate eligiblity

401(m) - 1 year wait (with safe harbor)

you did not indicate if any of the NHCEs have completed a year of service, worked 500 hours before terminating, etc.

the safe harbor issue should only be relevent to top-heavy - plan does not get free ride. however, you indicated no NHCEs active on last day so they are not eligible for top heavy. On the other hand, if document says top heavy goes to all ees it would seem to me you would have to provide the top-heavy to owner and wife!!!!

anyway, for coverage

401(k) - all benefit

401(m) - all benefit, if one defers 0 one's match is 0, unless there is another reason such as hours or last day provision. if none of the NHCEs worked 1 year, then for the 401m portion you have a scenario in which no NHCE is eligible and plan is deemed to pass. Actually, since plan is safe harbor, I think you are forced into testing otherwise excludable separately, but results are basically the same.

those with more than 1 year pass

there is nobody eligible for the otherwise excludable group - as mentioned above, it would only make a difference if any of them were active, because they would have to get a top-heavy.

now, what happens if one of the NHCEs worked more than 500 hours? Interesting possibility. If one of those NCEs had completed a year of service, and plan provides top heavy to all ees, then that NHCE would not be otherwise excludable, and since worked more than 500 hours and terminated would not be excludable from coverage.

what if all NHCEs are otherwise excludable? I think you are ok - even though an NHCE who worked more than 500 hours and terminated, did not benefit, the otherwise excludable group only consists of NHCEs, and therefore exception 3b applies to the otherwise excludable group.

ha, maybe I have really confused you with all my speculation.

[pmacduff]

Tom - Two of the 3 NHCE were over 1000 hours in 2003 but none had worked 12 months. In the plan doc a YOS is 12 month period over 1000 hours. In any event, all were hired and termed in 2003. Since my determination date for Schedule T coverage is 12/31 - should I count the 2 NHCEs who did not defer as benefitting? They weren't there on 12/31 so I guess that confuses me. As I mentioned, if I complete the lower portion of Schedule T with the data as I see it, the percentage computes to be 0, not 100%, therefore failing. Help!

[Tom Poje]

so you have:

2 HCEs

3 NHCEs, all hired 2003, so worked less than 12 months, therefore 'can' be treated as otherwise excludable. In fact, since plan is safe harbor that provides only for those who met the 1 year, I believe you are forced to use otherwise excludable for testing purposes under 401(k) and 401(m).

so I think you have the follwoing:

statutory includable:

401(k) 3d, benefits all nonexcludable NHCEs - there are none!

401(m) 3d same

otherwise excludable: this group consists of the 3 NHCEs

401(k) 3d

401(m) There is no portion of test, no one is eligible

plan is top heavy, so there is a nonelective portion, but the NHCE aren't employed so not eligible.

stat includable:

nonelective 3d all benefit

otherwise excludable:

nonelective: I guess, despite the fact 2 ees quit > 500 hours, still passes since there are no HCEs in the group.

logically that makes sense. If the plan had a 1 - year wait, then the NHCEs wouldn't have shown up anywhere

at least that is my twisted logic

[pmacduff]

Tom - I do agree with your logic - my problem is how to complete the Schedule T!

Will I need to do an attachment because of the otherwise excludables? Does it make any difference that they were gone on my testing date of 12/31/2003? I'm under the impression that this plan is ok, I just don't know how to complete the Schedule for coverage!

As always Tom, thanks for your input & enjoy your weekend!

[Guest JimD]

pmacduff-your question-"The employers who left during the year, no balances or all balances paid out - if they did not meet an exception, the balance of the schedule is all zeros because there are no employees. (ie., all of the numbers are "0" in the bottom of the schedule.) I guess that is why I thought they wouldn't need a schedule. Do you believe that is how I should file them??"

I don't believe all of the numbers should be "0". The coverage test would include any employee at any time during the plan year. If no employee deferred or received a contribution, it seems exception 3b or 3d would apply, absent any issues with controlled groups or another plan sponsored by the same employer.

[pmacduff]

Jim - The Employer chooses a date during the plan year to test coverage, the date for the coverage tests in this plan is 12/31/2003. If an Employer CO left the plan during 2003, there are no employees in the plan on 12/31/2003 for me to test. The IRS agent told me to use the last available data I have for that Employer CO to test coverage, even if it was not on 12/31/2003. 12/31/2003 is the date the rest of the Employer COs in the plan use for the coverage test so I was thinking I needed to be consistant. Though I suppose since each employer is tested separately, that's not a issue.

[Tom Poje]

the instructions simply say

If the plan is required to be disagregated and each disaggregated part meets any of the exceptions in line 3, check each box that applies and skip line 4.

I would check 3d and be done with it.

see also there is an example for line 4 (the examplke assumes that the 401k piece has no exception) that says

if there was no profit sharing you would fill out 4 for the 410k piece and put down 3b as an exception for the nonelective piece, of all things.

for part 4 I think the schedule T is a bit flawed because there is no 'term' for otherwise excludables 401k, otherwise excludable 401m and otherwise excludable nonelective.

there is a term 'excludable' but I think that is something different

[Guest JimD]

pmacduff-I do not work with any employers that use the "snapshot testing date" coverage testing method but I understand now where you are getting your employee counts. In taking a quick look at this method it seems the data on the testing date has to be "reasonably representative" of the plan coverage for the year, per Rev Proc 93-42. In your example with the terminated employer the coverage on 12/31 would not be representative of coverage during the year so I think you have to look at all employees during the year and one of the exceptions is likely to apply. Similarly, in the example where all of the NHCE's terminated, I'm not sure I would consider the data on the snapshot date as reasonably representative of coverage for the year. But I would agree with Tom that the 4d exception looks like it would apply. Also, using the last day of the plan year as the snapshot date seems to be a problem because terminated employees would never be counted and I'm not sure that would ever be considered reasonably representative of the work force although as I said I've not worked with this coverage method.