|
| |
Top Five Questions Asked by our Clients
|
|
|
1) How does an employee change his deferral amount?
Provide the employee with a Salary Reduction Election Form. Once the employee has completed and signed the form, you will need to notify your payroll department of the change. Keep this form on file to maintain your records. Please consult your Plan Document for provisions regarding salary deferral changes.
2) Who are the Highly Compensated Employees?
Highly Compensated Employees are generally those employees who own more than 5% of the company, or who earned over $105,000 (indexed for 2008), $110,000 (indexed for 2009) from the company in the preceding year. An individual is treated as owning an interest that is owned by the individual’s spouse, children, grandchildren or parents.
3) I have a loan from my 401(k) plan. I am quitting my job. What happens to the loan?
This depends on your employer’s policies. Your employer might require that you repay the loan entirely upon termination of employment, or within 3 months of your termination. Failure to do so will cause the loan to go into default. It will then be treated as taxable income to you. You will be responsible for income taxes, as well as any applicable penalties. Most of the Loan Programs that were written by The Paragon Alliance Group state that the outstanding loan balance would be due and payable upon termination of employment.
4) What does “Top Heavy” mean?
A retirement plan is top heavy if more than 60% of the plan’s account balances are attributable to Key Employees. In determining this ratio for any plan year, the calculation is made as of the last day of the immediately preceding plan year. A Key Employee is defined as an employee owns more then 5% of the employer or an employee who owns more then 1% of the employer and has annual compensation greater than $150,000. Family attribution rules do apply to ownership for Key Employee determination. Also, an employee who is an officer and has annual compensation greater than $160,000 (indexed for 2009) will be a Key Employee. For more information on Top Heavy 401(k) plans, please click here.
(5) Are there ways to pass the ADP/ACP test before the year begins?
Yes, if the plan document provides for an immediately vested safe harbor contribution of at least 3% to all eligible employees or a minimum matching contribution of $1.00 on all employee deferrals up to the first 3% of pay, then an additional $0.50 on the deferral on the next 2% of pay. Also, if the ADP testing method used is Prior Year, The Paragon Alliance Group would be able to assist you in projecting the amount of elective deferrals allowed for the Highly Compensated group of employees.
|
|
|
