PMZJohn Posted January 10, 2019 Share Posted January 10, 2019 I don't do a lot of these plans, so I'm looking for some guidance. I've got an LLC with 4 partners, all active, and 3 rank and file employees. HCEs are excluded from Safe Harbor, Using permitted disparity because all rank and file are older than 2 of the partners. The oldest partner is retiring, and doesn't want to fund anything for himself. The other 3 partners all want to do the maximum. Is there a way to accommodate this, or is it an all or nothing situation? Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted January 10, 2019 Share Posted January 10, 2019 It's all or none. You cannot 'elect' out of a 'nonelective' contribution; especially when the plan has a uniform allocation formula. Good Luck! PMZJohn 1 CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Mike Preston Posted January 10, 2019 Share Posted January 10, 2019 How can anybody in this day and age have a TPA and a permitted disparity plan? John Feldt ERPA CPC QPA 1 Link to comment Share on other sites More sharing options...
PMZJohn Posted January 10, 2019 Author Share Posted January 10, 2019 1 hour ago, Mike Preston said: How can anybody in this day and age have a TPA and a permitted disparity plan? If you have all rank and file employees in their 60s and the owners are in their 40s, what kind of DC Plan would you recommend? I'm genuinely curious if there is a better option I'm not aware of. A new comp plan would cost about 4x as much for the NHCEs Link to comment Share on other sites More sharing options...
PMZJohn Posted January 10, 2019 Author Share Posted January 10, 2019 2 hours ago, ETA Consulting LLC said: It's all or none. You cannot 'elect' out of a 'nonelective' contribution; especially when the plan has a uniform allocation formula. Good Luck! Thank you. That's what I thought. Read 1.401(l)-2 and it made it look like a no go, but I figured it was a good enough question for my first post here Link to comment Share on other sites More sharing options...
Bird Posted January 10, 2019 Share Posted January 10, 2019 6 hours ago, PMZJohn said: If you have all rank and file employees in their 60s and the owners are in their 40s, what kind of DC Plan would you recommend? I'm genuinely curious if there is a better option I'm not aware of. A new comp plan would cost about 4x as much for the NHCEs Well, first of all, new comp is really a testing method, not a type of plan (although some adoption agreements may even say "new comp allocation" but if you look closely, it doesn't, or shouldn't, force you to use new comp testing). In other words, you can have "everyone in their own group" and allocate whatever you want (subject to testing) and then either test on a contributions or benefits (new comp) basis. That type of plan tested on a contributions basis would allow for contributions that look just like they were allocated on a PD method (at 100% of wage base) but you could easily exclude an HCE as you want to do here. ACK and PMZJohn 2 Ed Snyder Link to comment Share on other sites More sharing options...
C. B. Zeller Posted January 10, 2019 Share Posted January 10, 2019 9 hours ago, PMZJohn said: If you have all rank and file employees in their 60s and the owners are in their 40s, what kind of DC Plan would you recommend? I'm genuinely curious if there is a better option I'm not aware of. A new comp plan would cost about 4x as much for the NHCEs New comp does not mean cross-tested! Well, it kinda does, but the way the term "new comp" is used really means "allocate based on groups with each participant in their own group." You can still test on allocation rates with permitted disparity. Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Larry Starr Posted January 11, 2019 Share Posted January 11, 2019 On 1/9/2019 at 11:47 PM, ETA Consulting LLC said: It's all or none. You cannot 'elect' out of a 'nonelective' contribution; especially when the plan has a uniform allocation formula. Good Luck! Sorry, but that's just not true. You can't have the participant elect, but you can have the employer "elect" by a proper plan amendment. Say you have a plain vanilla integrated formula for this plan. There is nothing stopping the plan form adopting an amendment which says HCE Employee A will be limited to a maximum of $X allocated to his account, and $X can be zero. The rest of plan is still the basic SS integrated formula (again, as noted, a possible dinosaur) and passes non-discrimination handily. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Mike Preston Posted January 11, 2019 Share Posted January 11, 2019 I think the op is dealing with a calendar year 2018 plan. Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted January 11, 2019 Share Posted January 11, 2019 11 hours ago, Larry Starr said: Sorry, but that's just not true. You can't have the participant elect, but you can have the employer "elect" by a proper plan amendment. Say you have a plain vanilla integrated formula for this plan. There is nothing stopping the plan form adopting an amendment which says HCE Employee A will be limited to a maximum of $X allocated to his account, and $X can be zero. The rest of plan is still the basic SS integrated formula (again, as noted, a possible dinosaur) and passes non-discrimination handily. When I stated 'elect', I actually took the time to put it in quotes; meaning that you cannot allow a participant to elect to receive or not receive a non-elective in the manner you would an elective deferral. I thought that meaning was clear; and should be to you given your knowledge and background in the industry. If we want to discuss semantics, that's fine. But the idea of jumping on hear and saying I'm wrong is something that should be left in the LinkedIn forums; which I left a long time ago. CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Larry Starr Posted January 12, 2019 Share Posted January 12, 2019 2 hours ago, ETA Consulting LLC said: When I stated 'elect', I actually took the time to put it in quotes; meaning that you cannot allow a participant to elect to receive or not receive a non-elective in the manner you would an elective deferral. I thought that meaning was clear; and should be to you given your knowledge and background in the industry. If we want to discuss semantics, that's fine. But the idea of jumping on hear and saying I'm wrong is something that should be left in the LinkedIn forums; which I left a long time ago. Sorry if you were offended; not intended. But your first statement was it was all or none, and that was what my drew my response. And such a response was not helpful to the questioner, because it's NOT all or nothing, as I clearly explained. I wasn't discussing semantics in any way. Also sorry that I did not read the hidden message in your quotes; if you are going to "take the time" to put it in quotes, take a little extra time so that everyone will clearly understand what you are trying to get across. Sheesh! Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Larry Starr Posted January 12, 2019 Share Posted January 12, 2019 14 hours ago, Mike Preston said: I think the op is dealing with a calendar year 2018 plan. Hmmm.... it would have been nice if he had mentioned that if that were the case. Meanwhile, he still has not contradicted the answers and it's now going on 3 days. Of course, if true, that does have a small impact on the answers! :-) Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted January 12, 2019 Share Posted January 12, 2019 On 1/11/2019 at 7:06 PM, Larry Starr said: so that everyone will clearly understand what you are trying to get across. Sheesh! So, you're now qualified to speak on everyone's behalf? Interesting! When you have a formula written in a plan that defines who is eligible, then allocating a contribution will need to include everyone under that formula. That's basic. The idea of coming in here with that same nonsense you pulled in LinkedIn years ago by antagonizing individuals on their responses is what is not helpful. CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Larry Starr Posted January 12, 2019 Share Posted January 12, 2019 5 hours ago, ETA Consulting LLC said: So, you're now qualified to speak on everyone's behalf? Interesting! When you have a formula written in a plan that defines who is eligible, then allocating a contribution will need to include everyone under that formula. That's basic. And wrong. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted January 13, 2019 Share Posted January 13, 2019 On 1/12/2019 at 5:21 PM, Larry Starr said: And wrong. You're an idiot! If you have a company with 5 employees. All 5 Employees meet initial eligibility and satisfy the accrual requirements for receiving a nonelective contribution that year. The plan has a fix contribution formula of 5% of Compensation for all eligible employees. Please tell me, Jackass, on what authority would any one of those participants be able to elect not to receive their proportionate share of the nonelective contribution for that year? movedon 1 CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Dave Baker Posted January 14, 2019 Share Posted January 14, 2019 Cross-tested plan design seems to bring it on. card, Belgarath, Mike Preston and 1 other 2 2 Link to comment Share on other sites More sharing options...
Mike Preston Posted January 14, 2019 Share Posted January 14, 2019 Since when is asking somebody to follow up profane? :-) Link to comment Share on other sites More sharing options...
AndyH Posted January 14, 2019 Share Posted January 14, 2019 .....and nobody has even brought up VEBAs and 412(I)! Chaz and Dave Baker 2 Link to comment Share on other sites More sharing options...
PMZJohn Posted January 14, 2019 Author Share Posted January 14, 2019 On 1/11/2019 at 4:38 AM, Mike Preston said: I think the op is dealing with a calendar year 2018 plan. Sorry for not clarifying. 2018 is not at issue. Looking ahead to 2019 and beyond, as one of the partners is retiring this year and another partner is likely to follow in the next few years. Link to comment Share on other sites More sharing options...
Larry Starr Posted January 14, 2019 Share Posted January 14, 2019 13 minutes ago, PMZJohn said: Sorry for not clarifying. 2018 is not at issue. Looking ahead to 2019 and beyond, as one of the partners is retiring this year and another partner is likely to follow in the next few years. Thanks for clarifying; that was the way I read the original posting. Now, I suggest you go back and re-read my posts (and please ignore someone who hides behind the alias ETA Consulting who can't keep a civil tongue in his head and clearly can't help you get the right answer; I refuse to engage in a battle of wits with an unarmed opponent). I'm going to recap for you. You note you are dealing with a 401(k) plan that does not provide for the SH minimum for HCEs. Good design. I'm going to assume that it also has a last day employment provision. Therefore, you can amend it currently (during the 2019) year to limit any one of your HCE allocations to a dollar amount that includes zero from the employer. You can do that amendment right up until the last day of the year because no benefit is ACCRUED until that last day. That sounds like exactly what you want to do, no? As I previously noted, the amendment to limit the allocation for a particular individual is done at the plan level; it is NOT an election by the participant. It is an amendment by the plan sponsor to the plan. I know you said you don't do many of these plans; I do hundreds. Feel free to give me a call at 413-736-2066 or email me directly at larrystarr@qpc-inc.com and I can even give you a sample amendment that will accomplish what you are looking for. Hope this helps. That is the whole idea of these boards. Take care. PMZJohn 1 Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
PMZJohn Posted January 14, 2019 Author Share Posted January 14, 2019 On 1/11/2019 at 2:02 AM, Larry Starr said: Say you have a plain vanilla integrated formula for this plan. There is nothing stopping the plan form adopting an amendment which says HCE Employee A will be limited to a maximum of $X allocated to his account, and $X can be zero. The rest of plan is still the basic SS integrated formula (again, as noted, a possible dinosaur) and passes non-discrimination handily. This is what I was asking. Can the employer adopt an amendment that effectively excludes one of the HCEs? It would appear, based on what Larry said, that the answer is yes. Is that the consensus? Link to comment Share on other sites More sharing options...
Mike Preston Posted January 14, 2019 Share Posted January 14, 2019 Clearly. Subject to 411(d)(6) getting in your way. It doesn't sound like 411(d)(6) is an issue. PMZJohn 1 Link to comment Share on other sites More sharing options...
ETA Consulting LLC Posted January 15, 2019 Share Posted January 15, 2019 13 hours ago, david rigby said: Ed, there is really no excuse for this. Play nice. Please. David, I respect you and members of the board. I've posted on this board for years and try to provide insight and participate in discussions where I feel I may have something valuable to add. Sometimes I may get it wrong, and will immediately own up to it by stating 'I stand corrected'. You see, I do not attempt to derive self-esteem from anything that anyone else is doing; I derive my esteem from my own accomplishments. So, I don't 'get off' on criticizing others. But, let's not pretend that we're all blind to Larry's antics. I've never seen anyone (e.g. Other than Larry) lead most of their posts with criticism of others. That is inexcusable. For me, I will not tolerate it. Political Correctness is over-rated. movedon 1 CPC, QPA, QKA, TGPC, ERPA Link to comment Share on other sites More sharing options...
Kevin C Posted January 15, 2019 Share Posted January 15, 2019 On the 411(d)(6) issue, do we know the plan's allocation conditions? Larry is assuming it has a last day requirement with no exceptions, but I don't see where PMZJohn has said what the plan says. Link to comment Share on other sites More sharing options...
Dave Baker Posted January 15, 2019 Share Posted January 15, 2019 Ed, you're one of the very most valuable contributors to our community -- 236 upvotes by your peers and 2,386 posts. Congratulations, and thank you! We are a community of many people so there are going to be differences in style that come across to the receiver as annoying or even rude. I once read that one out of 10 people can hardly to stand to be around us -- so I try to admire the 9 out of 10 with obviously good judgment and let go of trying to please the 10th one (though I wonder who you are!). I think of Larry (who also is one of the most prolific and valuable contributors on the message boards) as one of the long poles in the pension industry circus tent -- or maybe the grizzled chief petty officer on the navy's biggest carrier, who's seen pretty much everything and sometimes barks out orders but you give him wide berth because he's almost always right and he's not in the mood to chat. I've never seen a criticism that wasn't backed up by experience or citations -- so by getting to the point and lobbing in a comment he may be doing a tremendous service, especially if it turns out that some kind of liability-causing mistake is avoided, or some kind of money-making opportunity turns out to be the result. He's particularly willing to take his valuable time to get down into the weeds on a particular poster's factual situation, rather than contributing only some citation or general principle. I always give thanks for a griping customer, because he's probably giving me some valuable information that a dozen others are thinking but haven't written to me about. Anyway, I know there are passions (I actually have quite a problem with my own temper and sensitivity), and that it can take real effort to refrain from name-calling, and people might even be more sensitive to it nowadays given that one can turn on pretty much any national media and hear non-stop name calling and snarkiness. We also have visitors who aren't used to seeing the rigorous give-and-take that sometimes happens in a message thread, and we don't want to run off those who might be particularly conflict-avoidant. One such visitor and potential message board contributor wrote to me yesterday and politely complained. Because I believe it's important that a community regulate itself and not have some political correctness censor hanging overhead, I edit messages only rarely, where there is a name called or some kind of profanity -- everything else is fair game, including being frank and critical. But everybody must remember the public is watching, reputations are important, people are a whole lot more tender than generally assumed, and the point of everybody being here is to exchange questions and answers so that the plan participants get what they're supposed to and our employer-customers get the best and most accurate service. There are going to be sparks and loud squeaks as the big wheels turn, but we're all on the same train heading in the same direction. <End of sermon> Thanks again, Ed, Larry, and everybody! Larry Starr, David Schultz and stephen 3 Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now