Testing is getting to the better of me, and I can sure use a little help with this Controlled Group Determination. For this example, assume that the non-involvement exception does not apply between the Wife (of Grand Dad) and Grand Dad for purposes of stock attribution. I hope I've provided enough facts and the family references are not confusing. I appreciate the assistance.

Company A Company B Company C

Company A 60 0 N/A

Son (of Grand Dad) 40 50 22.97

Wife (of Grand Dad) 0 50 0

Grand Dad 0 0 41.84

Daugther (of Grand Dad) 0 0 15.87

Daugther (of Son) 0 0 4.83

Son (of Son) 0 0 4.83

Grand Child (of Grand Dad)0 0 4.83

Grand Child (of Grand Dad)0 0 4.83

Edit - after posting this, I can see that this is not lining up in a grid as I composed this. How do I get this lined up to make it easier to read? HELP !

A participant in the 401(k) Plan at the Company where I work has contacted the Plan record keeper regarding a distribution of his non-Roth after-tax contributions.

He indicated to the operator that the portion attributable to earnings would be rolled over to a Traditional IRA while the contributions would be used to pay for some expenses. The operator told him that the 10% tax on early withdrawals would apply to the contributions. I've seen this reaffirmed by many sources. However, here is the specific language from the IRS website:

"Tax on early distributions. If a distribution is made to a participant before he or she reaches age 59½, the participant may be liable for a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income."

So according the IRS website, I don't think what the operator is indicating is correct because...the after-tax portion was included in the participant's income in the various years in which he made such contributions. Therefore, it would not be included in his income this year.....

P.S. I won't be sharing this information with the participant, obviously, as a Plan Fiduciary it could be construed as giving financial advice. Just wanted to clarify.

401(k) (1/1 plan year) covers division A and B. Division B spins off and starts their own plan on 10/7/2011. They are running a short year ADP test. What is the general rule in regards to compensation?

Should the 10/7/2011 to 12/31/2011 include compensation for just that short period? Or does it need to include compensation for the entire 12 month period?

And what about HCE status? I assume you need to look at compensation in the "lookback" year - meaning compenation from 10/7/2010 to 10/6/2011?

I'm sure each situation is different - but I'm curious if there are any general rules in regards to testing spin-off plans. Thanks!

My client made a VCP submission based on a late amender and submitted a determination letter application in connection with such submission. At the time, some IRS agents bounced deficient VCP submissions and this client's VCP submission was bounced and never entered into the IRS system. Subsequently, the National Office clarified that submitters of deficient VCP submissions were to be advised of what had to be done to complete the submission and that the submission would be entered into the IRS system and listed in a suspended status pending the completion of the application. Just before the revised application was submitted, the determination letter submission was assigned to an IRS agent. The agent is unaware of the pending VCP application because it was not logged into their system. Does anyone have any practical suggestions on having the IRS complete the processing of the VCP submission prior to turning to the determination letter application?

Thanks.

I have a client with a qualified plan who is about to submit a VCP application that did not timely make interim amendments and optional amendments adopting certain optional qualified plan changes, including EGTRRA changes. The most recent determination letter was issued in 2002 under GUST. I have the following issue:

1) For purposes of the compliance fee, the general fee based on the participant count would apply. However, if amendments adopting certain interim and/or optional plan changes are adopted within one year of the remedial amendment period for adopting such changes, then there is a 50% reduction in the compliance fee. If the plan is being submitted solely due to late amendment of certain interim and optional plan qualification changes and the amendment is application is submitted on the streamlined VCP application, especially, Appendix F, Schedule 1, the compliance fee is $375. If the only error covered by the VCP submission involves the late adoption of certain interim amendments and/or discretionary plan qualification changes, if one or more of the amendments made changes other than interim amendments and adoption of certain discretionary qualification changes, such as plan design changes or any other change not impacting plan qualification, has anyone had the experience of having the IRS bounce them out of Appendix F, Schedule 1 and require the payment of a higher fee? How strictly does the IRS interpret or apply this in your experience?

Thanks for your insights on this. I feel comfortable that we can submit the VCP filing under the F1. I just need to hear people's real world experiences in dealing with this.

Here's an odd twist on a common problem. A large plan with automatic enrollment provisions relies on a file feed from the recordkeeper to adjust payroll withholding. Due to an error in the file feed, one HCE's deferrals were reset to zero in the middle of 2010. This was not noticed until February of 2012. The recordkeeper is willing to fund the QNEC for their error.

The plan failed the ADP test in 2010. Giving this HCE an additional amount potentially means that 8-10 other people should have gotten larger refunds. Because it is more than 12 months after the end of the year, would that trigger the need for a one to one correction?

The election was for a specific dollar amount. For 2012 the participant has more than 9 months to make up the missed amount. Is a correction needed?

DB plan termination with a lot of participants, several which are terminated vested participants with benefits in the plan.

In anticipating the IRS submission questions and IRS policies, what are you seeing these days from the District Offices reviewing plan term submissions on whom has to be fully vested upon plan term beyond just the active participants. Is the following consistent with what others are seeing:

1. Terminated Vested Participants whom have not been paid out from the plan AND whom have less than 5 one-year break-in-service years must be 100% vested.

2. How about terminated participants that were 0% vested upon termination of employment but have less than 5 one-year break-in-service years since their termination, must they be 100% vested ? Does the plan's language about "deemed forfeitures" of these 0% vested benefits influence the IRS on this and help avoid full vesting ?

Opinions, Thoughts, Experiences are appreciated.

Participant is 63 years old. Participant just took out loan from 401(k) Plan and has made one payment. Participant now wants to take out entire account balance via in-service distribution provision as allowed by Plan terms. Appears participant does not have the ability to payoff the loan with outside funds. Plan doc is a Corbel document. Can the participant apply for the in-service distribution and state that Participant wants all monies in the account but also direct that the Plan treat the portion of the account equivalent to the outstanding balance of the loan as an offset? Thanks for any help....

It is my understanding that a IRC §414(e) religious organization may sponsor a 457(b) unfunded plan for the rank and file. May church 3121(w)(3)(A) or 3121(w)(3)(B) organizations also be permitted to sponsor such a plan?

Company of 300 ee has 3 medical and 1 dental plans. Never knew they needed to file 5500's. In order to save dfvc penalties, would be nice to file as 1 wrap plan. Can such a document be prepared now to cover prior years in order to process these filings? We dont even know how far back to go.

Employer sponsor of an individually-designed 401(k) plan TIMELY adopted a good faith amendment for compliance with the HEART Act, but . . . the good faith amendment was incompleted and omitted on of the mandatory HEART Act requirements. The plan is now up for a Cycle B restatement and determination letter submission.

Prior to the determination letter submission, should the sponsor submit a nonamender VCP application under the streamlined and discounted EPCRS nonamender program?

Or, should the sponsor explain the situation in the cover letter accompanying the determination letter submission ("the plan was timely amended in good faith, but the amendment was incomplete") and indicate that the good faith amendment should be treated as completed and timely. (The restatement, of course, will include the omitted language.)

As regards the cover letter option, the idea is that it's not much different than the situation where the agent reviewing a submission -- let's say back in the original EGTRRA Cycle B -- contacts the sponsor and says "Your good faith EGTRRA amendment looks good, but send me an amendment that adds pieces X and Y." No (expensive fee-wise) nonamender issue raised by the agent, just a nudge to get it right.

Thoughts?

I seem to recall a somewhat related question that was raised in conjunction with a business owner's spouse who works for the business, but is not compensated - but I couldn't find the thread.

My situation: business owner worked all of 2011 - but took no compensation (it's an S Corp, but he had no "W-2 reportable" salary or wages). Question is: can this HCE be included for coverage and testing purposes (would be REALLY helpful), or must the HCE have actually received compensation to be so included?

In recent years, even when the HCE owner has received comp, he did not receive an employer contribution allocation. He's in "pre-retirement" mode and has all the $s he thinks he needs. His son (an employee) is the "up and coming" heir to the business and it would be significantly more "benecficial" for the son - contribution wise - if Dad receives a $0 allocation.

Any of this making ANY sense? Thanks for any and all input.

I was reviewing some PBGC plan term instructions when I ran across Appendix D in their instructions. Appendix D is a model "Commitment to make a Plan Sufficient for Plan Benefits'. Does anyone know how, when and where this notice is to be used ? (see attached copy). I realize the plan cannot terminate in a standard termination unless assets are sufficient to cover all benefits but is this notice to be used when the plan "intends" to fund the plan further but has not yet done so but still wishes to start the standard termination process. Whom does it go to ? I can't find anything in the PBGC instructions as to how and when to use this notice. Thanks for any input.

PBGC_Model_Commitment_to_Fund_Plan.pdf

A former executive continues to receive an annual W-2 based on income he is receiving under a salary continuation agreement. He retired a couple of years ago. I don't think he is eligible to continue getting SEP contributions based on that continued salary, even though it looks like he is getting wages just like every other employee, because it's not based on active employment. However, the question came up recently, so I want to be sure. Similarly, a different former executive's spouse has been getting W-2 income, presumably because she continues to get a portion of his income after he died. She would also not be entitled to a SEP contribution for the same reason -- there is no active employment taking place -- correct?

Not sure if this is the right area to ask this but here goes. Can a Co. have a Simple Plan at the beginning of 2011 and have employees contribute to the Simple & then start a 401(k) Safe Harbor Non-Elective Plan in 2011? The employees deferred 401(k) and Roth for 2011 to the new 401(k) Plan. I always thought it was one or the other (simple OR 401(k)) within a Plan year. . . .

Plan year: 1/1/2011 - 12/31/2011

DB

Entry date is 1/1 and 7/1

Employees who satisfy eligibility (21/1) at 1/1/2011 = 5

Employees who satisfy eligibility at 12/31/2011 = 8

Valuation date = 1/1/2011

How many employees must receive accrual to satisfy 401(a)(26)?

(a) 40% of 5 = 2

(b) 40% of 8 = 3.2 or 4

Thanks for all responses.

LEt's say someone owns a Corporation. They pay themselves $10,000 a month, every month, and every net check is the same. They deposit $16,500 on June 30, but do not process it through payroll. So for example, the payroll taxes that should have been deposited on an extra $16,500 bonus check were never remitted. And the amount was not reported on their w-2. Obviously, the intention was to make it 401k, it's just that it never was withheld from payroll.

Has anyone seen CPA's amend the W-2 in this case? If not, what was their explanation?

We have an employee who is asking to drop her coverage due to finding cheaper individual coverage. We have told her this is not a qualifying status change since no real 'event' has occured -- and I believe finding individual coverage does not apply. She has now told us that her husband's employer is providing new insurance. Normally I think this second fact would qualify, however, he is self-employed and it is their company; he is perhaps the only full-time employee (or perhaps there is one more). Thoughts on whether this would qualify her to drop coverage?

Paranoid busy season question:

Cash Balance plan has a one-hour allocation requirement. There's still no need to worry about TH if the participant doesn't have 1,000 hours, right?

We have a first year 401(k) plan. Very little participation from NHCE and they are not passing ADP using assumed prior year at 3%. Are we able to use a QNEC in addition to the prior year assumed 3%. Ie... 3% assumed + 3% QNEC = 6%, allowing HCE of 8%? I appreciate your assistance.