Help! Runaway train! (ADP/ACP test disaster in progress)

[Guest Hilarion]

A small company that shall go nameless sent us the data to run their tests, but there were many discrepancies and odd things in the data. There are two categories of discrepancies: (1) matching contributions were allocated to participants who made no deferrals; (2) most employees hired in the last two years were admitted to the plan seemingly at random (actual requirements are 21 & 1 year with semi-annual entry; plan year=calendar year).

The match formula is 100% of deferral up to 3% of comp. There are no service requirements for the match. None of the actual contribution amounts bore any relationship to the formula.

I finally got hold of the plan administrator, also the company president, and discussed refunds and alternatives. He now claims the plan is safe harbor.

There is nothing in our records to indicate that the plan is, in fact, safe harbor. They never formally amended or notified employees or informed us about the plan's new status - until now. In any case, the plan has not been administered properly. Employees are participating that shouldn't; employees who terminated during the plan year received no "safe harbor" contributions; contributions are not 3% of comp; the one NHC who actually deferred in 2005 was allocated this pseudo-safe harbor contribution but no match; etc.

It's plain that two of the three HCEs must take refunds of excess contributions. And the plan should go into EPCRS. But, at the moment, what should happen to all of the bogus safe harbor contributions?

[david rigby]

You need to renegotiate your fee?

[Guest Pensions in Paradise]

You indicated that the company did not amend the plan to include a safe harbor provision, and that the safe harbor notices were not issued. Therefore, regardless of what the company says, the plan is NOT a safe harbor plan.

So the question is what should be done with the discretionary profit sharing contributions that the company made to the plan. And the answer is.... allocate the contribution in accordance with the plan document. In order to do that, you need to clean up the plan. That is obviously going to be a time-consuming and costly effort.

I would present the company with an inflated estimate and see how they want to proceed. If they balk at the estimate, I would drop them immediately.

[Earl]

like a bad habit