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as I recall the questions was asked at an ASPPA Conference many moons ago, so many in fact, that... well, as I recall, the issue was discussed from the podium. and the original question was at 6% not 10%. the answer was basically as described above, but perhaps in more cautious terms. I believe the IRS suggested, as noted in the original post, this may be 'unreasonable' possibly subject to a BRF test - while yes currently available to everyone, effectively it was not. given the fact you are giving a free ride on ADP testing and if only HCES are able to take advantage of it, the IRS might have problems upon examination. suppose NHCEs were smart enough (ha ha ha), I said suppose to write the IRS and ask How come the HCEs can defer out the wazoo and get a match and we get nothing because we can't afford to defer but limited amounts would such a plan ever get caught? or maybe, perhaps put another way, if someone asked me to implement such a plan I would have them seek someone else to run the plan.

Existing plan might have something similar to 411d6 protection. Yes, govt. plans are exempt, but not if the plan includes such provision. Adoption of a new plan might include some provision that violates the "anti-cutback" language in the current plan.

Not all partners are equity partners who receive profits from the firm. Law firms have non equity partners who are paid W-2. There may be self employed persons who receive 1099s from the firm who are not eligible to participate in the plan because they are neither employees or partners. There are many convoluted definitions and rules of employment status created by firms and accountants which only a few key members of the firm are aware of. The managing partner or firm's accountant may need to be consulted to get a correct answer.

I am certainly convinced that unless the reasonable business classification is on the plan level, if everyone is in their own rate group, the plan must pass the coverage test. And if a plan didn't have everyone in their own rate group, not relying on a last day provision as a reasonable classification, since the IRS has stated otherwise. I do still have some concerns about allocating $0 to someone solely because they terminated after the year is over, paranoid or not. I will not advise clients to not allocate to employees who terminated after the year if that is the sole criteria. But seeing the concensus about it not being a problem in and of itslef, I was comfortable advising the client who asked about this, that it could be done, since the coverage test passes. My concerns are: 1): The decision is based on criteria that occurred after the allocation date. Unlike an -11(g) change which has a statutory basis, theoretically I was concerned that could be a problem. While one can make the decision after the allocation date, I think of it as if the contribution were being made on that date. 2): I try not to have an allocation that will alienate an IRS auditor. That includes even -11(g) amendments which I don't need to do very often. I think a lot of this is as the person from ETA Consulting said - a matter of preference, + comfort and paranoia. Thanks all for your comments. Craig Schiller, CPC

I answered this in my original post. Someone who knows the rules ought to be the judge of compliance.

I take you have a negative view on society... I think the vast majority of people are honest law abiding citizens who would not falsify information even dire circumstances. Certainly no requirement to hire a private detective to validate information, but asking for the records seems like a reasonable means of ensuring compliance. What about spousal waivers. Participant says "oh, we got divorced 4 years ago!" to which the prudent administrator says "OK, get me a copy of the divorce decree." Or how about "you have an incorrect date of birth for me, I turned 50 last year" to which the prudent plan administrator says "OK, let me just get a photocopy of your drivers license." I think too that the mere fact that participants a) are desperate, and b) do not have expertise in the definition of what a hardship is (which medical epxenses are covered, is my leaky roof a casualty or just wear and tear, using proceeds to payoff student loans) makes the possibility of noncompliance so incredibly high that the plan administrator would be way too remiss in leaving it to the participant to verify. It's akin to letting the fox guard the henhouse.