We have a plan that has failed the compensation ratio test. They exclude various items (bonus, overtime, etc.) and have always passed previously. However this year, the NHCE group got quite a bit more in bonuses than in prior years. So now the differential is about 5% instead of 3% or less.

I cannot find anywhere an outline of what to do to fix this. Do we just amend to include pieces of comp until we pass?

If so, what happens to the ACP/ADP tests? Are they rerun? Is there an issue that now comp is included that the participants couldn't defer on?

Thanks for any help.

If an HCE receives a refund due to a failed ACP test, and that HCE is receiving age 70 1/2 minimum required distributions, does the amount of the ACP refund reduce the amount of the MRD that must be taken?

Taking over a plan and find a match design that I think is not really a match.

There are 3 service levels. One is: If you have over 10 years of service and you defer at least 5% of pay you get (what they call) a match contribution of 10% of pay.

So if you defer 5% or 6% or 7% up to the dollar limit, you get 10% of pay.

It seems to me that the "match" is really a non-elective contribution because it is not calculated with respect to the deferral. Each person's match is (potentially) a different percent of the deferral.

Am I correct that this is a problem or do I just have to figure out the rate of match each year for each HCE and BRF test each rate of match?

Thanks

How iffy is it (if at all) to amend a plan to bring in a term, or someone who worked less than 1,000 hours, just because they would help testing. So a plan would have to give 8% of pay to the staff to be able to get the owners to the max, but if they amended the plan to bring in this one last person who happens to be 25, they only have to give 5% of pay to the staff.

I know this was the subject of a q&a, but it just seems aggressive.

Are people using this technique on a regular basis?

Okay hate to have to try and write all this but here goes client purchased house in plan owned 2 lots in addition nearby outide plan asked bank for loan bank said okay did papers using lots (and house in plan as security) economy went south so did clients business default on loan. 401 k plan is husband and wife only no common law employees bank told judge property was collateral for loan (client claims never was aware) I said creditors claim etc. bank said not covered by ERISA so is subject to creditors claim. I need an attorney that can give guidance (if any is available) to save house if it can be saved since it was/is owned by plan and should never have been used as collateral. Anyone have any suggestions to help out on this? Or suggestions of appraoch to take

We are receiving pressure from a broker who claims that an actuary should be involved, actually must be involved, in the asset allocation of a plan. He is pushing a Dynamic Asset Allocation method and says the actuary should be making the decision on the asset allocation (not the actual products, but the allocation). Especially to 'de risk' a plan as it approaches 100% funding.

My first impression is that this will make the actuary a fiduciary to the plan which is not a good thing. Second, this could increase the actuary's income to do the analysis (ala Fasb 158 or whatever its called today). But more importantly, I think the broker is trying to minimize their liability.

Are there any thoughts the actuaries out there care to make on this new tactic?

Company A sponsors a 401(k) Plan. A division from A goes to form a new Company B on 4/1/2011 and adopts the 401(k) Plan of Company A on 4/1/2011. Company A owns 45% of B, so they are unrelated employers. The 401(k) Plan is a multiple employer Plan. There are a group of employees that go to work for B on 4/1/2011. They are listed as terminated with A on 3/31/2011. An ERISA attorney wrote the resolution/amendments to have B adopt the Plan. They also wrote in that documentation that the historic accounts of the impacted employees maintained under the 401(k) Plan were prospectively associated with B under the 401(k) Plan. So, theses employees did not initiate any transfer or rollover.

Code section 416 says you cannot include the account balance from one employer (or controlled group) in the top heavy testing of an unrelated employer's plan.

T-32 Q. How are rollovers and plan-to-plan transfers treated in testing whether a plan is top-heavy?

A. The rules for handling rollovers and transfers depend upon whether they are unrelated (both initiated by the employee and made from a plan maintained by one employer to a plan maintained by another employer) or related (a rollover or transfer either not initiated by the employee or made to a plan maintained by the same employer).

Generally, a rollover or transfer made incident to a merger or consolidation of two or more plans or the division of a single plan into two or more plans will not be treated as being initiated by the employee.

The fact that the employer initiated the distribution does not mean that the rollover was not initiated by the employee.

For purposes of determining whether two employers are to be treated as the same employer, all employers aggregated under section 414(b), © or (m) are treated as the same employer.

In the case of unrelated rollovers and transfers, (1) the plan making the distribution or transfer is to count the distribution as a distribution under section 416(g)(3), and (2) the plan accepting the rollover or transfer is not to consider the rollover or transfer as part of the accrued benefit if such rollover or transfer was accepted after December 31, 1983, but is to consider it as part of the accrued benefit if such rollover or transfer was accepted prior to January 1, 1984.

In the case of related rollovers and transfers, the plan making the distribution or transfer is not to count the distribution or transfer under section 416(g)(3) and the plan accepting the rollover or transfer counts the rollover or transfer in the present value of the accrued benefits.

Rules for related rollovers and transfers do not depend on whether the rollover or transfer was accepted prior to January 1, 1984.

Now, my question is how do you treat the account balances for the affected employees that transferred from A to B for top heavy testing? Do they count in the test for A or B?

These companies are unrelated. The money never left the Plan. The employees did not initiate the "transfer" or the "prospectively associated".

Say a 401k plan provides:

deferrals

discretionary profit sharing

plan is top heavy and does not make profit sharing.

does plan have to provide top heavy allocation?

my understanding is that they have to provide the highest deferral (up to 3%) made by a key employee to the non keys.

also, what section of code, regs explicitly provides this requirement?

thanks

Does the 10% penalty tax apply to a participant that terminated at age 57 & takes a distribution from a SIMPLE IRA?

Situation: Client has two plans (different TPAs)

The plans have the same eligibility requirements (1-yr /age 21) with duel entry dates.

Plan #1 is 401(k) providing 3% NE SH

Pan #2 is cross-tested profit sharing plan that requires 1,000 hours and year-end employment for a contribution.

Both plans pass coverage testing without aggregation but I would like use permissive aggregation for rate group testing so that the 3% NE SH contribution can be utilized when testing the profit sharing contribution.

The profit sharing plan allows for a special gateway contribution to be provided for all Benefiting NHCEs who are not otherwise receiving the minimum gateway. This will be provided to the participants who have terminated employment with over 500 hours. The question is can I exclude the participants who terminated with < 501 hours from receiving the special minimum gateway contribution? If not, are they included in the rate group testing?

How do you report spam in a PM? I received a PM that someone saw my profile (which is largely empty) and she she she is "interest in me," and wants me to send her an e-mail.

User name: SarahGamu.

If there is a "Report Post" button, why isn't there a way to report PM's? Is it an IP Board limitation?

If a SERP is found to be significantly overfunded, far in excess of what is required to satisfy obligations, can an excess amount be returned to the sponsor company?

If so, what are the tax consequences.

Thank you.

The employer matches $25.00 per month for any participant who deferred at least $25.00 in that month. They pass ACP, but is there anything else to test with this "formula"?

Thank you.

I uploaded fake dates of birth, hire and termination for a takeover plan. I didn't realize I couldn't just upload over the top of the dates, but rather I need to go into history maintenance and delete all records for each person. Because there are so many, it's taking forever. Is there any way to globally delete all date history for the plan?

thanks!

Dad sells corporation (a service business) to son and daughter in year one and retires. Corporation sponsors a 401k with son, daughter and a NHCE. In Year 2, Dad receives 1099 income as a consultant to corporation. Dad wants to set up a Solo 401k as a sole proprietor.

I'm setting aside the question of whether Dad is an independent contractor or employee. I'm thinking that there's an Affiliated Service Group; Dad still owns the stock of the Corp through attribution.

If so, aren't there coverage and non-discrimination issues, since Dad will want to defer most 1099 income.

Hi All,

I am asking this for a colleague.

Has anyone come across a 403(b) plan that receives employer nonelective contributions in which the employer controls the investment of the contribution, not the participant? The participant deferrals are subject to participant direction in individual custodial accounts but the employer would like to have the nonelective contributions in a separate custodial account in which they select which mutual funds that the contributions will be invested in, similar to typical trustee-directed arrangement in a profit sharing plan. I can’t find anything in the regulations that prohibits this but also can’t find anything that specifically allows for it.

A non safe harbor 401-k with a minimal match is top heavy but the only key employee who made the plan top heavy has done an in service withdrawal (allowable by the document) which makes the plan top heavy no longer. Is there a waiting period that must be satisfied before these monies transferred to an IRA are no longer considered for the testing? Thanks for any help.

If a plan sponsor has a DB Plan with a flat beneit x% of Average Comp for all participants (HCEs and NHCEs), and they also have a 401k PSP, can the 401k PSP be tested on its own for 401a4 since the DB formula is a safe harbor? This is a PBGC Plan so no combined deduction limits to worry about.

Our plan says that participants can defer up to $50,000 and more in the employer allows it. In the past we have allowed Employee to defer more. This year he elected to defer more than $50,000. We now have decided we do not want him to defer more. Can we impose the $50,000 on him even though the year has already started and he elected to defer more?

a small employer (less than 20 employees) has been using an age and service requirement for their 403(b). I understand this is an operational failure under 403(b)(12)(A), but what is the correction principle? I believe the employer would have to retroactively contribute on behalf of the employee who was not allowed to defer for a year, but what is the standard amount, if any? Is it the same as a 401(k), where you take 50% of the pre tax deferrals the employee would have made had the employee been timely included in the plan based on "lost opportunity cost"?