Leaderboard

Yes. Under a VCP application a negotiated amount was maybe a third of the usual 1-1 contribution. Some fairly extreme circumstances applied, including the employer's financial state at the time, which had to be proven with the reviewer.

curiosity- just what was the top-heavy ratio at the end of last year? let's say the ratio was 61%, and if the company had made a profit sharing contribution of 1% to all employees last year the ratio would have been only 59%, so not top heavy. at the 2002 ASPPA Conference Q and A 49 Receivable Contribution and Top Heavy Determination? Is a discretionary profit sharing contribution for the prior plan year that is deposited after the end of the prior plan year included in the top heavy determination for the current plan year? Let’s say we have a calendar year plan, effective several years ago. We are determining the plan's top heavy percentage for the 2002 plan year. The determination date is therefore 12/31/01. The employer makes a contribution in February, 2002, which is allocated and deducted as of 12/31/01. There is a question as to whether this contribution is included in the top heavy determination for the 2002 plan year. The question relates to Q&A T-24 of the 416 regulations, which says that if a plan is not subject to 412, then the account balances are not “adjusted” to reflect a contribution made after the determination date. A. The key phrase here is “account balance”. The participants’ account balances, as of (say) 12/31/01, include the profit sharing contribution that is allocated and deducted for the 12/31/01 plan year end. So the guidance regarding “adjustments” does not apply to the receivable profit sharing contribution; it is already part of the participants’ account balances. The following is my analysis: The question as to what contributions are considered due on the determination date is determined under §1.416-1, Q&A T-24, which says that it “is generally the amount of any contributions actually made after the valuation date but on or before the determination date”. It then goes on to say that any amounts due under §412 are considered due, even if not made by the determination date. One could take the position that this is a exclusive statement; in other words, if a contribution is NOT due under 412 and is made after the determination date, it is not considered 'due'. However, the answer to the question (T-24), “How is the present value of an accrued benefit determined in a defined contribution plan” is answered, “the sum of (a) the account balance as of the most recent valuation date occurring within a 12-month period ending on the determination date, and (b) an adjustment for contributions...” The term, "the account balance" includes contributions credited to the account of a participant, it does NOT mean only the contributions actually made that have been credited. For example, if a 100% vested participant terminated after the determination date but before the contribution was actually made, the distribution would include that contribution, even though it had not yet been made to the plan. This is because the account balance, as of the last day of the plan year, includes the contribution. So, when the regulation addresses adjusting the account balance for contributions made after the determination date, we must start with the account balance, and then apply the adjustments. Since the account balance includes the receivable profit sharing contribution, the adjustment does not refer to the receivable. The reference to §412 in §1.416-1 is with regard to a waived funding deficiency that is not considered part a the participants' “account balance”, as the term is defined. Q&A T-24 refers to a DC plan with a waived funding deficiency that is being amortized. Such a plan must maintain an “adjusted account balance” (reflecting the amount of the contribution that has not been deposited) which must be maintained until the actual account balance increases to the point where it equals the “adjusted account balance”. It is to this (unadjusted) account balance that the (waived) contribution must be added, since the amortized contribution only becomes a part of the actual account balance as it is paid to the plan. The requirement therefore has the effect of determining top heavy status as though the contribution required under 412 had actually been made. In other words, the “account balance” would not include the waived minimum funding contribution, so an adjustment is required. IRS response: We accept this analysis. a reminder that such response do not necessarily reflect an accrual Treasury position. but if valid, then it is possible a contribution for the prior year might be less than a 3% top heavy this year. since we are still before 9/15 it might be possible....

I guess I must disagree with the posts that transferring the excess above the 415 limit is aggressive. Where do you find that ? I've used Revenue Ruling 2003-85 several times in these situations. There is nothing in the Revenue Ruling or in the Code itself (IRC 4980(d)) that limits the availability of this option. Even the IRS is bound by the tax code and its own Revenue Rulings and I don't think you read into it more issues than it espouses. I think this exact situation described works even under the spirit of the law since the excess that is transferred to a Qualified Replacement Plan (e.g., the 401k plan) and put into a suspsense account is then released and counts AGAINST the DC plan's 415© limitation under that plan so you are NOT able to receive both a maximum (49k) allocation of new contributions plus a maximum allocation (49k) from the suspense account since you have only 1 415 limit and the excess asset release counts against 415. It's almost akin to pre-funding the DC plan since due to the 415 limits a small plan employer will likely now contribute less (or none) until it has used up most or all of the excess in the suspense account thereby limiting its tax deductions to the DC plan for a few to several years until the excess asset suspense account is exhausted (limited to 7 years generally). You could argue that in the aggregate the government has lost less revenue due to fewer new DC plan contributions from this scenario than if the client had invested the DB plan in assets earning exactly 5.5% so the 415 limit was perfectly funded but no more. To me it's a win-win scenario as the client avoids excise taxes on over funding and the governement gives away less tax deductions due to new DC contributions until the excess assets (suspense account) is exhausted.