Index of Previous Issues
From the Top
By Aaron Venouziou
Class year allocations! For those of you who are DC administrators, we hope that you'll find
plenty of helpful hints in this issue. We're devoting a special section, "Using Report Writer to do Class Allocations",
to this intricate defined contribution plan allocation procedure.
This explanation will also find a permanent home in the DC Users' Guide.
For our non-PE/DC subscribers, don't toss out this issue just yet. We hope you'll enjoy learning a bit about one or our recent hires, Terry Wendt, in "Profile." Look into "Jobs/Help Wanted" if you are interested in our hiring policy and open positions.
And, more tips on calling in for support, calculating sec. 415 limits and on periodic valuations appear in Support Tips/System Review.
By Judy Ringlein-Dunn
Welcome, Terry! This month's Profile is Terry Wendt, who joined us in January. Terry provides technical support to you and his fellow DATAIR employees. He has helped some of you with installation and printer problems, tracking down the cause and solution for ever-cryptic error messages. Also, Terry is our WIN95 support, helps to test our software, installs other vendor software on our machines and answers all manner questions from the PC-deficient among us.
Terry's path to DATAIR is a twisty one. He comes to us from Greater Illinois Title Company where he "did the same thing, technical support/PC trouble shooting." Before that, in the San Diego area, Terry worked with computer controlled lighting systems for the entertainment industry. He was part of the 40 semi-truck loads of people and equipment needed to put on the LA Rolling Stones concert. "But, an IBM convention I worked had a more impressive light show than some rock bands."
Terry was a Navy jet mechanic for four years, seeing plenty of this country, the world, and every type of jet the Navy flies. His first job, though, was a combination of warehouse and PC support, running computer controlled coiling machines. Terry's love of PCs began as a child, playing with one of the first home PCs. "Since 1978, I've never been without one."
Actually, Terry has known his other love even longer. While Terry and Jamie have only been married for two years, he met her, his best friend's sister, at age 8. They have a 10 month old daughter, Shaelynn.
What's notable about working at DATAIR, Terry? "The never ending supply of coffee." (At last _ an honest answer!) What's notable about Terry? His terrific sense of humor, patience and competence. Welcome!
IRS Update - 5307 & Schedule Q
By Lanning Hochhauser
Plan sponsors must begin using Form 5300 Schedule Q when filing determination letter requests starting October 1, 1996. The Form 5300 series of forms (5300, 5307 and 5310) have until now, required the use of an attachment described in Revenue Procedure 93-39.
Beginning October 1, 1996 a form from the Form 5300 series must bear a revision date of January 1996 or later, and have Schedule Q attached.
Minor amendments filed on Form 6406 do not require a Schedule Q to be attached.
SUPPORT TIPS/SYSTEM REVIEW: 415 Limit
By Kevin Deans
The following calculation should be made if you are trying to answer the question:
"WHEN WILL AN INDIVIDUAL EXCEED THE 415 LIMITS IN A 401(K) PLAN?" IN MOST CASES, THE KEY EMPLOYEES WILL BE LIMITED BY WHAT PERCENTAGE THE NON-KEY DEFER.
In a 401(k) plan, the maximum annual addition is 20% of pay. When you have employer money involved, the maximum percent will be lower. You can calculate the maximum deferral percentage by estimating what the match and employer discretionary contribution will be. In some cases, you may know the match percentage formula, and you may have to estimate the maximum that the employer would put in as profit sharing contribution.
Max. Deferral % = 20% minus (80% x matching %) minus (80% x discretionary %)
Ex.) Match formula is 50% of salary deferral up to 6% of pay and the employer will never put in more than a 5% profit sharing contribution.
Max deferral % is 20% - (80% x 3%) - (80% x 5%) equals (20% - 2.4% - 4%) for a maximum of 13.6%.
If you are well into the plan year, you can print the DATAIR System multiple plan limit report, which will show you what the annual additions are. This will reflect a total, which can be projected to the end of the year, enabling you to make the necessary adjustments by year end.
WHAT SHOULD I DO IF I NOTICE THAT SOMEONE IS OVER THE 415 LIMIT AFTER MATCH AND PROFIT SHARING CONTRIBUTIONS ARE ALLOCATED? CAN I CUT BACK THE PROFIT SHARING OR MATCHING CONTRIBUTIONS?
If your 401(k) plan document allows, salary deferral contributions can be returned only if the violation results from one of the following:
1) Allocation of forfeitures;
2) A reasonable error in estimating a participant's salary;
3) A reasonable error in determining the amount of salary deferral contributions that may be made under Section 415; or
4) Other limited facts and circumstances that the IRS determines justify the use of this corrective mechanism.
In a situation where participants are given a matching allocation and terminate before meeting the 1000 hour eligibility requirement, you will need to check your document for contributions to ineligible participants. The DATAIR document states this should be treated as forfeiture in the plan year discovered. You can locate this in the DATAIR Prototype Plan Document Part II, Article I, Participation, Section 2.1.7.
This also shows one example of the problem with reflecting the match amounts on the participant statements prior to meeting the eligibility requirements for the match. The employer can avoid the problems associated with this by allocating the match at the end of the year.
If you design a 401(k) plan carefully, you should not have a problem with the annual additions limitation.
If you are having a problem with your data on period-to-date reports, it could be the result of changing your long period on screen 10 to a shorter period of time.
Ex.) 01/01/96 - 03/31/96 SHORT PERIOD 01/01/96 - 12/31/96 LONG PERIOD
For example, if you have your short period as quarterly, and the long period set up as annual, DO NOT change to a quarterly long period after you have updated. The period-to-date column, in the employee account screens, will not be cleared until the short and the long period end are the same.
Ex.) 01/01/96 - 03/31/96 SHORT PERIOD 01/01/96 - 03/31/96 LONG PERIOD
If you need to change the long period, you should do it before you update.
NOTE: WHEN CALLING DATAIR FOR SUPPORT, PLEASE BE AS SPECIFIC AS YOU CAN WITH YOUR PROBLEM, SO IT WILL BE DIRECTED TO THE PERSON WITH THE APPROPRIATE EXPERTISE.
MAY 1996 Golf tip - "Think of a chip shot as a little drive and a drive as a big chip shot." Chipping is NOT like putting. Harvey Penick - Lessons from Little Red Book.
SELECTING "MONTHS OF SERVICE" AS AN ELIGIBILITY REQUIREMENT
By Lanning Hochhauser
The Internal Revenue Service has begun to uniformly object to the use of Months of Service along with an hours of service eligibility requirement in all section 401(a) retirement plans. "Month of Service" is generally not defined in the plan document because of the difficulty in crafting a definition that will pass 410(b). The basis for this objection is that it is possible to develop examples of a Month of Service defined in terms of hours per month that would prevent an employee from participating in a plan even though he may have accrued 1000 hours of Service in a Plan Year.
Plan defines Month of Service as a calendar month in which an employee is credited with 190 Hours of Service or more.
Eligibility: Age 21; 6 months of service
Employee A works 85 hours per month and therefore will never be credited with a month of service. He will, however, be credited with 1020 Hours of Service in a Plan Year. This would violate the 1000 hour requirement of IRC Sec 410.
The List of Required Modifications (LRMs) prepared by the Internal Revenue Service uses Month of Service in the context of the elapsed time method of counting Hours of Service specifically to avoid the situation demonstrated in the above example.
An alternative would be to define a Month of Service as a calendar month in which an employee is credited with 83 or more Hours of Service. This, however, will not work because an employee who accrues 5 Months of Service by accruing 190 Hours of Service in each of those 5 months while accruing only 80 Hours of Service in each of the next 7 months would work more than 1000 hours in a plan year but fail to met the Plan's eligibility requirements.
ú As a practical matter it does not seem to be possible to develop a definition of "Month of Service" in terms of hours per month that would meet the 1000 hour requirement of IRC Sec 410.
ú Therefore Month of Service as an eligibility requirement should only be used as a part of an elapsed time service requirement.
ú If the Employer wishes to require an employee to have twelve months of service as well as accrue 1000 hours, volume submitter plans offer an eligibility option that should meet this requirement.
ú DATAIR's Volume Submitter Plans allow the eligibility requirements to be stated as "The last day of the Eligibility Computation Period in which the Employee completes 1000 hours of service". This means the Employee must wait at least 12 months to enter the Plan after commencement of employment.
By Gary Saake
Did you know you could reach DATAIR via the internet?
Several months ago we established a presence on the Internet, primarily for marketing activities, on somewhat of a lark. Much to our amazement, within 24 hours of going online we received a request for literature. "A fluke?" we thought... nope... the requests kept coming in. The Internet now accounts for nearly 20% of new sales leads we receive.
The uses don't stop at marketing... There's a limitless number of services that can be delivered through the Internet. To be able to bring these new and enhanced services to you, we're going to be installing our own Internet servers and high-speed communication lines in June.
For those of you who have been frustrated trying to use our BBS, you'll be pleased to see how easy it is to use an internet-based system. We won't pull the plug on the BBS right away, but will phase it out in favor of the new system later this year.
What you'll be able to do online will be expanded dramatically. As with the BBS, you'll be able to send and receive messages and download the latest software patches. We're also investigating distributing our software updates via the Internet. Wouldn't you have liked to get the recent Pension Reporter release with the 1995 forms a couple of weeks earlier? That would have been possible with Electronic Software Distribution. Some of the other things you'll be able to do in the months ahead...
Enter feature requests and problem reports on-line
Check the training and seminar schedule and register for a class
See what's going to be in the next release, and review what was in past releases
Request a Prototype Document 89-13 Certification Letter
Read current and past issues of "The DATAIR News"
Download stock and mutual fund prices for our transaction-based Pension System
We'll also be developing systems that provide plan information such as account balances, benefit enrollment, investment information, and the like directly to participants over the Internet. Sounds far-fetched, you say? Trust me, it's anything but. That's only the beginning... I don't think I'm going out on a limb saying that the Internet will have an effect on computing equal to, or greater than, that of the Personal Computer. We see it as having a major influence on the way our, and your, business will operate in the very near future, and are very excited about all the possibilities.
There's a wealth of benefits resources available on the Internet that can help you keep up with what's going on in the industry. The IRS, DOL and PBGC all have web sites, and you can even access the Federal Register which publishes all IRS rulings, proposed and final regs the same day they are released. Several benefits organizations, such as SHRM, also have sites with links to very useful information.
You may also be interested to know that more and more TPA, CPA, and legal firms are establishing a presence of their own also. If you're looking for an inexpensive way to market your services, the Web may be the answer for you. Many Internet service providers provide web hosting capabilities at very reasonable costs, and we are considering offering such a service to you also. Remember...your competitors are marketing through the Internet... do you want potential clients to find them, and not you? Before long, not having a home page on the web will be like not being listed in the yellow pages.
So, if you don't already have access to the Internet, read Getting Connected in this issue and get online now! If you already have access, stop by and say hello.
DATAIR's Internet Addresses
If you'd like to contact us via the Internet, here's where we are...
Marketing & Sales: firstname.lastname@example.org
Software Support: email@example.com
Technical Support: firstname.lastname@example.org
General information: email@example.com
World Wide Web: http://www.datair.com
Mail may also be sent to individual staff members. We use the format of "first name and first letter of last name" and then "@datair.com". Thus, to send email to Gary Saake, the address would be firstname.lastname@example.org.
By Gary Saake
If you don't already have access to the Internet, you may be wondering what the best way to get connected is. There are basically three routes to go.
Far and away, the easiest way is by signing up with an online service such as CompuServe, AOL, or Microsoft Network. Over 10 million people are served by these three services alone. Unfortunately, the easiest way is also the most expensive for most people since they charge by the length of time you are connected. While this pay-as-you-go arrangement may sound attractive at first, you'll quickly find how addicting the Internet can be, and may see some pretty high bills. These services also offer other non-Internet based content, such as access to support forums, on-line news and financial research services, and the like which may or may not be useful to you. The rapid growth of these providers has left some of them giving less than ideal service during peak evening and weekend hours.
The second tier of service providers are the national Internet Service Providers, or ISPs as they are more commonly known. Companies like AT&T, Netcom, and PSI Net are examples of some of the largest. These services usually offer a couple different levels of service one being a metered service like the online services above, and the other being an unlimited use account where you'll pay around $20 per month for as many hours as you want.
The third group of providers are regional or local ISPs. In the past year thousands of these smaller providers have sprouted. While many of them are reputable, and may actually beat the national ISPs in price by a couple bucks, many of these are under capitalized and will vanish just about as quickly as they sprang up. Some are trying to spread themselves too thin and it may be difficult to dial in without getting busy signals. Do your homework if you're considering a local ISP.
Generally, all three will provide you with the software and support you need to get connected free of charge. Be sure the provider you choose has a local telephone number that you use to connect to their service. Some phone companies charge a flat 5 cents to make a call to a number within 8 miles. The same call to a number more than 15 miles away may cost 5 cents per minute. You can see how quickly the telephone bill would exceed what you'd save by using a ISP without a local number.
By the way, surfing the internet is not something you want to do with a 2400 or even a 9600 baud modem. If you have one of these relics, replace it with a 28.8K. These are now priced in the $150 range and incorporate much better data compression and error handling protocols making your internet experience a pleasant one.
"I have a quick question..."
Q. I'm wasting a lot of paper. How can I get the output on my screen?
A. Use PREVIEW! Then, you can look at your output before you print it. You can scroll, search and print from within PREVIEW, too. PREVIEW works two different ways, depending on the system.
PE (Pension System) and QPDS (Qualified Plan Distribution System):
On the last screen of cycle 3, enter a file name for the "Output file." (You'll probably be changing "LPT1" to something easy to remember, like "preview.pe," "pe.out" or "qp.out." If you use PREVIEW frequently, you may want to change your printer configuration so that your default "Output file" is the name of your PREVIEW file instead of LPT1.)
Run cycle 4 to create the output file and then, run cycle P (for PREVIEW) to review the output on screen. Remember what you called your PREVIEW file! You'll need to tell PREVIEW which file you want to see.
Q. Why isn't Pension Reporter printing? Or, what's being printed looks funny.
A. Please check your Printer Configuration. It makes a big difference if you actually have an HP4 printer, for example, but Config thinks you have an HPII. From within PR, pull down the Options menu and select Run CONFIG. Go to the 4th screen, Printer Configuration. Make sure that the 2nd line, Printer Name describes your printer. Check the 3rd line, too. "Y" for Laserjet is not always the right answer. For most laser printers, you want to see a number (e.g., "6" for an HP4). If you have font cartridges, those should appear on line 3, too. And, Laser Tax Forms on line 9 MUST be "Y"es.
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