Gap period income

[Jed Macy]

TWO GAP PERIOD INCOME ISSUES:

ISSUE #1: When do the new final 401(k) regulations require the payment of gap period income with corrective distributions? Is it for corrective distributions paid in 2006 (due to 2005 plan year test failures) or for plan years that start in 2006 (the corrective distributions from which will be paid in 2007)?

ISSUE #2: The new final 401(k) regulations at §1.401(k)-2(b)(2)(iv)(D) and (E) provide alternative methods to calculate the gap period income. Must the method be elected in the document? or may it be made (and changed) annually?

[Tom Poje]

1. since the regs say the new rules apply to plan years beginning 1/1/06 and since the distribution applies to a plan year that began before 1/1/2006 I would assume the gap income rule does not apply merely because the distribution is taking place after 1/1/2006.

2. I would think your rule on gap income would be 'what does the document say'

for example, a typical corbel document in regards to testing comp merely says something like 'any definition that satisfies 414(s)' that would give you plently of wiggle room. I have not seen the latest language they will have for gap income. perhaps they will have similar language 'any of the methods that satisfies...' or maybe it will list them 'gap income is satisfied by following one of these methods:"

........

oooops. by the way, if you wanted to you could follow the new regs right now, as long as you follow all of them. why you would want to do that is beyond me, but...