401k help - I'm new at this and my partner died last year

[Guest CityGuySailing]

Greetings,

In Sep 2006, my business partner passed away. He had been the one taking care of the 401k contributions. I was able to make the monthly contributions quite easily, via a web page. My questions are as follows:

1) We have 3 employees, and my partner and I. We have a Safe Harbor Plan, and we contributed 4% of the employees gross pay, and we maxed out (since 2004, the start of the plan) our contributions. On the worksheet the plan sent (DST systems) there are 3 different boxes to fill in.

Safe Harbor or Non-Safe Harbor Matching Percentage

Safe Harbor Nonelective Percentage

Profit Sharing Percentage

Where does the 4% get filled in?

2) My partner and I had made monthly contributions at the maximum up to the 15000 annual maximum. His amount contributed until death was 10,327. How much do I have to contribute to my partners plan for 2006 to enable me to max out on mine at 44,000?

Many thanks

Paul

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[J Simmons]

Hi, Paul,

The answers depend on a number of design options permitted under federal pension rules, and specified for your plan in the plan documents.

The safe harbor k provisions either require a 3% of pay contribution by the employer for all eligible employees, whether they put into the plan or not. This is the Safe Harbor Nonelective Percentage.

Alternatively--and again as would be specified in your plan document--the required employer contribution can be a $-for-$ match on the first 3% of pay that an employee might elect into the plan, and match equal to another 1% of pay over the 4th-and possibly 5th and 6th-percentages of pay the employee might elect.

That extra 1%-of-pay match might be simply $-for-$ on the 4th percentage of pay the employee elects, and none on the 5th and 6th percentages the employee might do. With the required $-for-$ on the first 3%, this would translate to $-for-$ on the first 4% of pay, and that MIGHT be how your plan is configured. This is the Safe Harbor Match Percentage.

A notice was required 30-90 days before the plan year began, specifying whether the required Safe Harbor contribution was to be the Nonelective or the Match. If your plan years are calendar years, then for 2006, this notice would have likely been dated and provided to employees in October or November 2005--if it was timely provided.

Any other company contribution that is only made in response to an employee electing part of his pay be diverted into the plan is Non-Safe Harbor Matching.

Your other question, about how much you'd have to contribute for the partner to get another $29,000 ($44,000 less the $15,000 you've already accrued in the plan for the year) depends on the profit sharing formula, again as specified in the plan.

You should quickly hire a pension professional to look over the plan documents and advise you as to what to do.

[Mike Preston]

Actually, instead of hiring somebody, it sounds like your plan was set up through "DST Systems". They are the ones to call, because it looks like you have already hired them!

[Kimberly S]

The number here at DST is 888-445-0031, option 3. Feel free to ask for me and I'll walk you through it. I will need your plan number to look up the provisions in your document.