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Frequently Asked Questions

Our plan has a one-year wait for eligibility.  What does that mean?

The IRS defines one-year as a twelve month period of time, having worked at least 1,000 hours.  Once satisfied, the employee becomes a plan participant on the next entry date.

What's an entry date? 

The plan document stipulates when someone actually becomes a participant and enters the plan, once the eligibility criteria is satisfied.  The most common option is known as ‘dual entry'; the plan anniversary (usually January 1) and six months there after (July 1).  

Do I really need to include part-time or temporary employees on our annual census?

Yes Yes Yes!  Please provide us with the census data for everyone who received wage or income each year and let us determine who is eligible and not eligible.  Also, the 5500 IRS annual filing asks for the number of employees who worked during the year as well as the number of employees who were not eligible due to length of employment, etc.  So it's critical that we be provided with all the census data.

Why do you ask the business owners to identify family members they employ and other business they may own?

Family attribution and controlled group:  Certain family members are designated to be ‘key' or highly compensated like the business owner regardless of their income or personal ownership in the business.  This designation can have a significant impact on certain annual tests.  Also, businesses under significant common control must be treated as one employer.  So providing PDS with this information annually helps us make appropriate recommendations and keep your plan in compliance.

Can we amend the plan?

You may elect to amend many (even most) of the plan features, but not all.  For example; perhaps your plan was initially designed to not permit loans.  We can prepare an amendment for the business owner/trustee to execute to now allow loans.   Another example; perhaps your plan was designed to allow terminated participants the option of a lump sum distribution or to receive monthly distribution checks from the plan.  The plan may be amended to allow additional types of distributions, but you may not  eliminate a distribution option as this is a protected benefit that may not be withdrawn.

What is a mandated amendment?

The rules and regulations for operating a qualified plan are always changing.  The government requires that plans operate in compliance and they also stipulate exactly when and how the document itself must be updated.  Such an amendment is referred to as mandated because it is not elective - the document must be amended to remain in compliance.  This occurs approximately every other year.

What is a plan or document restatement?

Sometimes the items to be amended (either elective or mandated) is so inclusive or substantial that the entire document must be updated and re-signed.  This is known as a restatement.   It is not a new plan, but is a significant update of the current plan document (like overhauling a classic car). 

What is the difference between an employer contribution and a salary deferral contribution?

Employer contributions are funded by the employer and are not subject to federal or Social Security (FICA) taxes.  Salary deferral contributions are withheld from participant paychecks and are excluded from federal income tax but are subject to FICA.  

What is the difference between Match and Profit Sharing?

An employer Match contribution would be given only to participants who deferred part of their wage into the 401(k) portion of the plan. A Profit Sharing contribution would be given to participants regardless of whether they deferred wage into the 401(k) part of the plan or not.

When do employer contributions have to be deposited? 

Employer contributions must be deposited prior to filing your business tax return, including extensions.  However, employer contribution to a pension plan (Defined Benefit or Money Purchase) must be deposited within 8 ½ months after the close of the plan year (September 15th for a calendar year plan). 

Our plan utilizes the "Comparability" Profit Sharing allocation method and it doesn't work as well as it used to.  Why is that?

Most likely, an adult child became an eligible participant.  Another possibility is the demographics of the Comparability groups changed significantly.  Age and family designation are very important factors in  the annual Comparability non-discrimination testing.  We can make recommendations for changes that may help the plan operate more successfully for you again. 

Why can't I just take my money out if I want to - it's my money isn't it?

Qualified retirement plans permit pretax contributions now, which accumulate for your use at retirement.  Some plans permit certain in-service or early distributions, but the basis of the plan is to accumulate funds for your ultimate retirement.

Pension Design Services 2007