profit sharing scenario

[wsp]

client wants to start a 401(k)/ps plan and encourage LT employment. Anything wrong with essentially front loading the contribution in year 1 with a 20% contribution and then having a 5 year cliff vesting on the money.

Following years would have deferrals and possibly a match so continuing ER contributions are going to occur. But there likely won't be additionally PS contributions.

In talking with the owner I quickly saw his thoughts on this...Reality says that these employees are not going to stay for the 5 years (construction industry and very young employees) and so the contribution essentially is going to the owner anyways as a forfeiture. He doesn't anticipate growing so any new employee wouldn't be eligible for the forfeiture. Basically raises his CY contribution to about 70k. Not to mention the tax savings of 25k.

Problems? If the people stay they get the dough...no different than any other plan. Owner claims he has no intent of running them off but even that seems like it's employment law isn't it?

[Jim Norman]

Nothing wrong with making a 20% PS contribution. Watch out for accelerated vesting required in DC plans effective next year by the PPA, must follow top heavy requirements, so 5 year cliff out the window.

[wsp]

Nothing wrong with making a 20% PS contribution. Watch out for accelerated vesting required in DC plans effective next year by the PPA, must follow top heavy requirements, so 5 year cliff out the window.

But wouldn't those contributions be effective only for contributions made after the effective date? Thus leaving 2006 contributions at the old vest rate? I was under the impression that we would be able to grandfather in older contributions.

[Guest Pensions in Paradise]

Dont forget about the full-vesting requirement if its deemed a partial termination due to termination of employees.

[wsp]

Dont forget about the full-vesting requirement if its deemed a partial termination due to termination of employees.

Not necessarily applicable....If separation from service is voluntary on part of employee then it doesn't apply, does it? Of course appropriate due diligence (signed letter of resignation etc) will need to be followed to avoid litigation. But, yes...I agree that the participant can't be forced out.

[Guest Pensions in Paradise]

One other comment on the vesting schedule. Assuming employees do quit voluntarily then at some point the plan will become top heavy. In which case you will be required to go with a 3-year cliff schedule. And the 3-year cliff schedule will apply to all contributions (both accrued and future).

[Guest dhdhbk@yahoo.com]

I will repply later.

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Howard-> 12341234

[Guest dhdhbk@yahoo.com]

I will repply later.

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Howard-> 12341234