Instructions For Form 5330 November 2002 (Page 7 of 8) in pdf

not a highly compensated employee if

per each applicable individual for each

Note. When an initial tax is imposed by

the employer elects the top-paid group

day of the noncompliance period for the

section 4971(a) on an accumulated

limitation and the employee is not a

failure to give notice of plan

funding deficiency and the accumulated

member of the top-paid group.

amendments that provide for a

funding deficiency is not corrected

significant reduction in the rate of future

within the tax period, an additional tax

The “excess contributions” subject to

benefit accrual or the elimination or

equal to 100% of the accumulated

the section 4979 excise tax are equal to

significant reduction of an early

funding deficiency to the extent not

the amount by which employer

corrected is imposed.

retirement benefit or retirement-type

contributions actually paid over to the

subsidy. This notice is called “section

trust exceed the employer contributions

Part XI (Section 4977)

204(h) notice” (because the same

that could have been made without

notice requirement appears at section

violating the special nondiscrimination

Tax on Excess Fringe Benefits

204(h) of ERISA). An “applicable

requirements of section 401(k)(3).

individual” is a participant in the plan, or

Line 32. If you made an election to be

The “excess aggregate

an alternative payee of a participant

taxed under section 4977 to continue

contributions” subject to the section

under a qualified domestic relations

your nontaxable fringe benefit policy

4979 excise tax are equal to the

order, whose rate of future benefit

that was in existence on or after

amount by which the aggregate

accrual (or early retirement benefit or

January 1, 1984, check the “Yes” box

matching contributions of the employer

retirement-type subsidy) under the plan

on line 32a and complete lines 32b

and the employee contributions (and

may reasonably be expected to be

through 32d.

any qualified nonelective contribution or

significantly reduced. The

elective contribution taken into account

Line 32c. The excess fringe benefits

“noncompliance period” is the number

in computing the contribution

are figured by subtracting 1% of the

of days in which a section 204(h) failure

percentage under section 401(m))

aggregate compensation paid by you to

is not corrected.

actually made on behalf of the highly

your employees during the calendar

compensated employees for each plan

No excise tax is imposed during any

year that was includable in their gross

year exceed the maximum amount of

income from the aggregate value of the

period during which any person subject

the contributions permitted in the

to liability for the tax did not know that

nontaxable fringe benefits under

contribution percentage computation

sections 132(a)(1) and 132(a)(2).

the failure existed and exercised

under section 401(m)(2)(A).

reasonable diligence to meet the notice

Part XII (Section 4979)

requirement. In addition, no excise tax

However, there is no excise tax

is imposed on any failure if any person

liability if the excess contributions or the

Tax on Excess Contributions to

subject to liability for the tax exercised

excess aggregate contributions and any

Plans With a Cash or Deferred

reasonable diligence to meet the notice

income earned on the contributions are

requirements and such person provides

Arrangement

distributed (or, if forfeitable, forfeited) to

the section 204(h) notice during the

the participants for whom the excess

Section 4979. Any employer who

30-day period beginning on the first

contributions were made within 2

maintains a plan described in section

date such person knew, or exercising

months after the end of the plan year.

401(a), 403(a), 403(b), 408(k), or

reasonable diligence would have

501(c)(18) may be subject to an excise

Part XIII (Section 4980)

known, that the failure existed. If the

tax on the excess aggregate

person subject to liability for the excise

contributions made on behalf of highly

Tax on Reversion of Qualified

tax exercised reasonable diligence to

compensated employees. The

Plan Assets to an Employer

meet the notice requirement, the total

employer may also be subject to an

excise tax imposed during a taxable

Section 4980. Include on lines 36 and

excise tax on the excess contributions

year of the employer will not exceed

10 the section 4980 tax on employer

to a cash or deferred arrangement

$500,000. Furthermore, in the case of a

reversions from a qualified plan. The

connected with the plan.

failure due to reasonable cause and not

reversion excise tax is either 50% or

to willful neglect, the Secretary of the

The tax is on the excess

20%. The excise tax rate is 50% if the

Treasury is authorized to waive the

contributions and the excess aggregate

employer (1) does not establish or

excise tax to the extent that the

contributions made to or on behalf of

maintain a qualified replacement plan

payment of the tax would be excessive

the highly compensated employees (as

following the plan termination or (2)

relative to the failure involved. See Rev.

defined in section 414(q)).

provide certain pro-rata benefit

Proc. 2002-4, 2002-1 I.R.B. 127 for

A highly compensated employee

increases in connection with the plan

procedures to follow in applying for a

termination. See section 4980(d)(1)(A)

generally is an employee who:

waiver of part or all of the excise tax

or (B) for more information.

1. Was a 5-percent owner at any

due to reasonable cause. You can find

time during the year or the preceding

If you owe the section 4980 tax,

Rev. Proc. 2002-4 on page 127 of

year, or,

enter the date of the reversion on line

Internal Revenue Bulletin 2002-1 at

2. For the preceding year had

34 and the reversion amount and

compensation from the employer in

applicable excise tax rate on line 35. If

Line 41. A failure occurs on any day

excess of a dollar amount for the year

you use a tax percentage other than

that any applicable individual is not

($85,000 for 2001) and, if the employer

50%, explain on line 37 why you qualify

provided section 204(h) notice.

so elects, was in the top-paid group for

to use a rate other than 50%.

the preceding year.

Example: There are 1000

Part XIV (Section 4980F)

An employee is in the top-paid group

applicable individuals (AI). The plan

for any year if the employee is in the

administrator fails to give section 204(h)

Tax on Failure to Provide

notice to 100 applicable individuals for

group consisting of the top 20 percent

Notice of Significant Reduction

60 days, and to 50 of those applicable

of the employees of the employer when

in Future Accruals

ranked on the basis of compensation

individuals for an additional 30 days. In

paid. An employee (who is not a

Section 4980F imposes on an employer

this case there are 7,500 failures ((100

AI x 60 days) + (50 AI x 30 days) =

5-percent owner) who has

(or, in the case of a multiemployer plan,

7,500).

compensation in excess of $85,000 is

the plan) an excise tax of $100 per day

-7-

Instructions For Form 5330 November 2002 Page 7

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