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check the document and see how 'limitation year' is defined. if it is defined as 'the plan year', then you are limited if it is defined as 'the 12 month period ending on the last day of the plan year' then no proration of the 415 limit. same with compensation, if plan uses 12 month period for compensation there is no proration. (for example, the calendar year ending in the short plan year) [see ERISA Outline Book item 7 of Chapter 15, Part f]

I think it's a cutback of an already promised benefit. You want to eliminate for next year fine, this year I think you already have a 411 prohibited cutback at participants have already "accrued" a right to the true up in the plan document.

The not-so-hypothetical situation I described yesterday is based on a real situation I worked on. Unlike ESOP Guy’s illustration of a different fact pattern, there was no investor before the retirement plan’s purchase of all the corporation’s original-issue shares. Rather, the retirement plan paid the corporation an amount for 100% of the corporation’s original-issue shares. The appraiser’s report said the corporation’s value was identical, to the penny, to the amount the retirement plan paid in for the shares. So if, as the appraiser’s report concluded, the corporation had no value beyond its money (which it didn’t have before the only investor put it in), why would an investor part with money with no expectation of a return? RatherBeGolfing is right that investors generally, and investors in these businesses particularly, might not be coldly rational. But meeting ERISA and Internal Revenue Code rules for doing transactions at fair-market value calls for a valuation grounded on what such a hypothetical arm’s-length investor would do. There can be proper ways to value the fair-market price of a share of a start-up business. But that isn’t what was done in the appraisal I saw.

A self insured plan, by it's nature, puts the employer fully at risk for the cost of all administrative expenses and claims whether or not those expenses and claims exceed the cost paid by the employees. When an employee reduces income to pay for a pre-tax benefit offered doesn't that benefit becomes equal to employer paid? I would expect the refund to be retained by the employer. No legal expert here but an HR practitioner with many years of experience in the area of benefits, including self-insured medical plans. This is simply my opinion.

I ask the CPA what earned income number will be used for the SE tax calculation and whether the number given has already been adjusted for the employer contributions for the employees. Sometimes the answer you get is not what you expected.

How about b. Fiscal Plan Year: ending: Last day of February. or b. Fiscal Plan Year: ending: February 28/29. Mike

Pizza Pro v. Commissioner – Where Do We Go From Here? Here you go!

From the 2000 Annual ASPPA Conference: 22. Company A has 11 nonexcludable employees; one HCE and 10 NHCs. Four of ten NHCs leave employment during year after working more than 500 hours. Plan requires end of year employment for allocation. Coverage ratio is therefore 60%, which meets the non-discriminatory safe harbor at 1.410(b)-4(c)(2). Plan also passes the average benefits percentage test of 1.410(b)-5 (e.g. on a cross-tested basis). Plan still must cover reasonable class per 1.410(b)-4(b) to pass the average benefits test of 410(b)(2). Question: is “those employed on the last day of the plan year” a “ reasonable classification” for purposes of 1.410(b)-4(b)? IRS: Yes. From the 2001 Annual ASPPA Conference: 46. The average benefits test for coverage testing consists of the nondiscriminatory classification test and the average benefits percentage test. To satisfy one part of the nondiscriminatory classification test, it is necessary to determine if the classifications are reasonable based on objective business criteria. Do participants employed at the end of the plan year constitute a “reasonable classification” under Treasury regulation 1.410(b)-4(b)? IRS: No. Our opinion is that it is not a reasonable classification.