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austin3515

-11(g) to Integrate at 50% of Wage Base

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Can we do an -11(g) amendment to change profit sharing allocation method from each in own group, to an integrated allocation with the allocation at 20% of the taxable wage base?

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Yes, and no.  An -11(g) amendment must be additive.  If you are comfortable with the allocation prior to the -11(g) is zero then as long as the -11(g) benefits satisfy the -11(g) requirements, it works.  Did you mean 20 or 50?  

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I'm not sure what you mean.  It is probably true that the allocation was so awful that they wouldn;t do it wihtout the 11g. Is that what you mean?

 

20 / 50, whatever. Are we available to treat it as a design-based safe harbor via an -11(g). That's the real crux of it.

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So you want to change to a formula that doesn't satisfy the general test but would satisfy a design-based safe harbor?  I'd say no, but that's just a gut reaction.  I imagine there is no cite saying you can do it, just an interpretation that says nothing prevents you, but I'd be uncomfortable trying to sell it to an auditor.

(How bad could a pro-rata allocation be vs integrated?)

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if you do the allocation in that fashion, declare those amounts as the individual allocations, and then general test on contributions with permitted disparity, does that get you where you need to be? or if permitted disparity must be imputed at the SSWB that makes it not work?

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I think CuseFan has hit on the problem.  It won't pass testing using 100 % of TWB.  And since it is not in the plan, accept by 11(g) amendment, I don't think it qualifys as a design based safe harbor.

 

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I'm inclined to agree, but it would be awesome to point something that proves the point...  I skimmed through the 401l regs and it does not specify that the it has to be in the document on the last day of the year.  Just that it has to be in the document (and it would be).

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6 hours ago, austin3515 said:

I'm not sure what you mean.  It is probably true that the allocation was so awful that they wouldn;t do it wihtout the 11g. Is that what you mean?

I have no idea what the above is saying so I don't think it is what I mean.

20 / 50, whatever. Are we available to treat it as a design-based safe harbor via an -11(g). That's the real crux of it.

As far as this goes, I never mentioned the use of an -11(g) amendment structured as a design-based safe harbor.  You would have to slog through -11(g) to confirm but the language there certainly seems to allow it. See -11(g)(3)(v)(A) and (B).

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From a prospective point of view, I don't see a problem.  I'm sure we've all amended plans (Money Purchase, Profit-Sharing, etc.) in the past.  Timing is everything, as they say. 

Speaking again from a prospective point of view, what's wrong with amending a PS formula to another option that's presumably one of the pre-approved ones?  My FT William doc can accommodate a 0-100% of TWB integration with appropriate reductions of integration percentages.

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2 hours ago, imchipbrown said:

From a prospective point of view, I don't see a problem.  I'm sure we've all amended plans (Money Purchase, Profit-Sharing, etc.) in the past.  Timing is everything, as they say. 

Speaking again from a prospective point of view, what's wrong with amending a PS formula to another option that's presumably one of the pre-approved ones?  My FT William doc can accommodate a 0-100% of TWB integration with appropriate reductions of integration percentages.

Chip, the inherent nature of an -11(g) amendment is that it is NOT prospective.  It is intended to be retroactive.

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This absolutely can be done and you now have the references. 

HOWEVER, this started out with a plan that has each person in their own group.  When you make the contribution, you need to declare how much is being made for each group (person).  If you do that in a way that the allocations are meeting non-discrimination by being an allocation that meets the normal safe harbor "integration" rules, then you don't even do an amendment!!!!

Why are we talking about -11g amendments in this case? All we need is the allocation by group that meets the safe harbor integration rules. Has everyone walked past the point of the question?  What am I missing?????

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I didn;t want to integrate at 100% of the wages base, i wanted to use 50%.  So the owner makes $100,000 for example, and the employee makes $40,000.  I want to integrate at say 40% of the wage base.  This method of allocating contributions will be much more advantageous for the owner than merely imputing disparity at the taxable wage base (I think you will agree based on my example that imputing disparity does nothing).

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You can do that (though your original posting says 20%); at 50% of the taxable wage base your integration percentage if 4.3%. So long as you do your allocation to the groups on that formula, you still don't need an 11-g amendment.  You can show that you met that allocation method if you ever need to prove non-discrimination. And no matter what percentage of the TWB you use, so long as you use the corresponding integration percentage, you can still using your groups without any amendment.

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Larry-

That allocation will not satisfy rate group testing, so I'm confused as to why I would not need the -11(g)?  The whole point of the -11(g) is to utilize the design based safe harbor and avoid the general test under (a)(4) altogether.

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Huh?  If you pass a design based allocation (which it would be), you don't use rate groups? The purpose of a -11g amendment is to allocate additional benefits in such a was as to PASS the general test.  You have it backwards.  If you allocation to the groups meets a regular integrated formula using the appropriate allocation percentage that goes with the percentage of the TWB that you are using as your integration level, you don't need to do anything else.

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If I hear you correctly, as long as my allocation is based on a safe harbor design based allocation, it doesn't matter if the document specifies that allocation?  I can just use the fact that everyone is in their own group to do the desired allocation, and then claim exemption from testing because the allocation was based on a safe harbor integrated allocation?

If that's what you're saying it would not be correct.  The 401l rules clearly require that it has to be written into the Plan.

If that's not what you're saying then color me confused.

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Austin: You say the rules "clearly" require that it has to be written into the plan.  How about a cite for that?  I can't seem to find it.

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Will you settle for a "because I said so"?  I don't have time to look it up but the IRS has been quite clear as to the requirement.  Trust me. :P

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